The WSJ has an interesting report on the alleged connection between plaintiff attorney contributions to local politicians and lucrative representation of public pension funds in shareholder litigation.
A Wall Street Journal analysis documented the extent of campaign giving by plaintiffs’ law firms specializing in shareholder suits. It found that 25 leading firms, their lawyers and family members contributed a total of more than $21 million in the past decade to state-level candidates and party funds, as well as to national-party groups that work to elect state officials. Less than 40% went to candidates in the law firms’ home states.
Labaton Sucharow was among the donation leaders. The law firm, its lawyers and their family members made $612,000 in campaign contributions in 24 states outside its New York home base in the decade.
Some lawyers say widespread political giving by plaintiffs’ law firms, especially outside their home states and near the time when counsel are chosen, is evidence of a corrosive pay-to-play culture in the securities-litigation industry. . . .
The Journal looked at donations in all 50 states from Jan. 1, 2000, through mid-2009, compiled by the National Institute on Money in State Politics, as well as data from other state and federal sources. About 72% of contributions went to Democrats. The Journal also examined the 25 largest recent class-action settlements in which public pension funds served as lead plaintiff, as calculated by NERA Economic Consulting. In 15 of the cases, one or more law firms representing a lead pension fund had donated to a politician in the fund’s home state. . . .
Public pension funds increasingly are the lead plaintiffs in shareholder suits, partly because a federal law encourages judges to pick big institutional investors for this role. As a result, plaintiffs’ law firms focus their marketing efforts on wooing public pension funds and the state and local officials who influence them. Some firms enlist the help of lobbyists and attend pension-fund conferences.
Some lawyers say they aren’t sure whether contributing helps them get government business, but are afraid not to. Some track how much rivals donate so they don’t fall too far behind.
“There are certain places where, to be in the game, you have to donate,” said Steven Toll, a partner at Cohen Milstein Sellers & Toll PLLC in Washington. It has contributed only modestly—$62,000 to out-of-state candidates—and Mr. Toll says he is sure its low level of giving has cost the firm business. But “we want to be chosen on merit, not because we contributed money,” he said.
The story looks at several specific examples, and has an extensive discussion of alleged “pay-to-play” in Ohio involving, among others, disgraced former Attorney General Marc Dann.
Go Horns! says:
The AGs farming out litigation is bad enough, but you would think that the legislatures would require blind bidding for a state contract. Lawyers are not that unique; have firms prequalify to bid on the contract if you are concerned about the quality of counsel.
February 4, 2010, 10:20 amPatHMV says:
This is where you could have some REAL campaign finance reform. Don’t restrict everybody from giving, don’t restrict corporations from giving. Heck, I say don’t even impose limits. But say that if you contribute to a politician who gets elected, then you and your company can’t have contracts with the politician’s agency. For members of Congress, I’d ban their donors from all contracts with the federal government for work in their home state or for work for agencies which are regulated by the Congressman’s committee.
Obviously, you’d have some limits, so that one low-level GE employee giving to a Congressman doesn’t ban GE from all government contracts, but we already make such distinctions with our ethics laws on a fairly regular basis. Heck, all it would really take is to amend the ethics laws to provide that campaign contributions shall be considered a “gift” for purposes of those laws, and it would put an immediate stop to most of this behavior.
February 4, 2010, 10:23 amPer Son says:
Can’t Dann just find a rock to hide under.
February 4, 2010, 10:34 amMartinned says:
@PatHMV: Sounds good to me. But wouldn’t that unconstitutionally limit major corporations’ ability to donate? You mention GE. A company of that size would essentially never be able to donate to anyone ever again. (I assume you are treating indirect and direct campaign spending equally…)
February 4, 2010, 10:38 amCornellian says:
Is there any special interest with money out there that does not buy politicians? Just wondering.
February 4, 2010, 10:41 amShelbyC says:
Why would trial lawyers be different? Dog bites man.
February 4, 2010, 10:42 amPatHMV says:
Martinned… no, that’s why you put in some limits. Donations from low-level employees wouldn’t count, as I suggested. In my state’s ethics laws, for example, if a relative of a public employee or politician is a more than 5% owner of a company or an officer or director of a company, then that company can’t do business with that employee or politician’s agency. But if the relative is only a janitor or just a low level employee or a very minority interest owner, then there is no prohibition. There are any number of ways you could draw the line. Contributions by anybody above a certain management level; contributions by anybody making above a certain amount, contributions by more than X% of a company’s employees, officers, or directors, contributions by directors or officers, just contributions by the CEO, CFO, and certain other key positions. You could tie it into SEC filings for publicly-traded corporations; contributions by any “key employee” as identified in such filings might disqualify the company from government business.
And remember, it would only limit them from receiving certain government contracts, not all of them. If they give to state candidates, they can get all the federal contracts they want. If they give to Louisiana candidates, they can get all the Mississippi government contracts they want.
Moreover, it wouldn’t be unconstitutional anyway, because you’re placing a limitation on the government agency’s authority to act, not on the private company itself. Government has vastly more constitutional leeway to decide how to spend funds and how to condition contracts with the government than it does to impose limits directly on private citizens or corporations.
For example, we already have the Hatch Act, which bars public employees from participating in the political process other than by voting. They can’t contribute to campaigns, put up campaign signs, wear campaign buttons, etc. Because that’s a limitation only on government employees, it is entirely constitutional.
February 4, 2010, 10:48 amjosh says:
Didn’t the banks buy clients?
February 4, 2010, 11:01 amMartinned says:
@PatHMV: My concern was with the second part of your reply: let’s describe it as donations by the company itself. Assume a company, let’s call it GE, who might conceivably be up for government contracts in virtually all congressional districts, from Alaskan oil drilling to post-Katrina cleanup to whatever. (To the extent that some of this stuff isn’t strictly a federal contract, it is still sufficiently dependent on the approval of Congress to make it fall under your ban, isn’t it?) In that case, your proposal would mean that the government is making its – admittedly discretionary – choice of who to deal with dependent on the contractor’s agreement to give up a big chunk of their first amendment rights, i.e. the part that allows it to engage in federal political speech.
February 4, 2010, 11:05 amPatHMV says:
Sure, but they only do so in order to receive a benefit which the government is under no obligation to give them… a federal contract. It is no different at all from the current Hatch Act restricting the political activities of individual employees of the government. The constitutionality of that Act has been upheld by the Court, most recently in 1973 in U.S. Civil Service Commission v. National Association of Letter Carriers. If you can make individuals give up their First Amendment rights as a condition of government employment, most assuredly you can make corporations do so.
Me, I would also go further and ban Congressmen from undertaking ANY actions on behalf of any citizen who gave them a campaign contribution. Want a call from your Congressman to pressure the bureaucracy on your behalf? Ok, but only if you haven’t contributed to their campaign.
February 4, 2010, 11:14 ambyomtov says:
O gee. Contributions lead to corrupt behavior, says the WSJ, but only when the contributors are plaintiffs’ lawyers. Pretty selective.
Never mind that contracts are far from the only possible benefit, or that the whole purpose of a substantial portion of contributions is to obtain various favors, it’s only the plaintiffs’ lawyers we need to worry about.
Can we bar contributors (or “independent” helpers) from getting any advantage from their beneficiaries?
February 4, 2010, 11:18 amRPT says:
Reminds me of how certain well connected westside LA ($500/hr+) firms got a lot of city and county defense work over the least few years from the city attorneys office and $100/hr traditional defense firms. That’s how the game works, but only the plaintiffs’ attorneys merit criticism.
February 4, 2010, 11:24 amMartinned says:
@PatHMV: I assume you are aware that the government may not ask a person to sacrifice whatever constitutional rights the government pleases in return for a discretionary government benefit? For sure, your proposal is more likely to be OK than any kind of outright ban, but there are limits. The mere fact that “the government is under no obligation to give them” a certain contract, doesn’t mean that it is automatically OK for the government to attach whatever strings it likes.
What you’re proposing sounds like FCC v. League of Women Voters (1984), where – in the words of Findlaw’s annotation of the first amendment – “the Court held that the First Amendment rights of public broadcasting stations were abridged by a prohibition on all editorializing by any recipient of public funds. There was no alternative means, as there had been in Taxation With Representation, by which the stations could continue to receive public funding and create an affiliate to engage in the prohibited speech.”
February 4, 2010, 11:32 amPatHMV says:
Martinned, it would be helpful if you could describe how you think this proposal fundamentally differs from the Hatch Act. Because it is clear to me that it is virtually identical for all relevant constitutional purposes, and the Hatch Act’s constitutionality has been upheld for the reasons set forth in the case I cited.
It’s the same principle that upholds the constitutionality of ethics laws which prohibit companies and individuals from giving gifts to public servants with whose agencies the entities have or seek to obtain contracts.
February 4, 2010, 11:36 amMartinned says:
@PatHMV: Well, for one thing, public servants can get a different job, but a company can’t very easily go into a different business. Secondly, what you’re talking about is much broader than a ban on “taking an active part in political management or in political campaigns”, since you would have the government go after all campaign spending as well. AFAIK, federal employees are still allowed to donate money to politicians.
February 4, 2010, 11:48 amyankee says:
Donating to political candidates helps shovel government benefits your way? Say it ain’t so!
Also, aren’t plaintiffs’ lawyers in shareholder derivative litigation typically paid based on contingency fees and attorneys’ fees awards? If so, handing out those contracts based on political donations isn’t actually costing the government any money except insofar as it leads to the hiring of possibly less competent counsel. That seems considerably less bad than, say, buying unnecessary weapons systems because they’re manufactured by big donors.
February 4, 2010, 11:48 amMartinned says:
@PatHMV: To clarify: I don’t think your idea is necessarily unconstitutional, and in any case I kinda like it. I just worry that it might be problematic for a certain subset of companies covered. A New York lawyer could still donate money to a California Democrat if he wanted to stay out of trouble with your proposed law. But what about a company that is active everywhere?
February 4, 2010, 11:50 amGo Horns! says:
Not if the donor is charging 40% when a blind bid could have found equally competent counsel that would have charged 20%.
February 4, 2010, 11:59 amyankee says:
Go Horns!: OK, fair point! This still seems like a very dog-bites-man story though.
February 4, 2010, 12:12 pmMartinned says:
It is. It’s just timely because it puts the whole Citizens United upheaval in some perspective.
February 4, 2010, 12:17 pmArtemus says:
“Are Trial Lawyers Buying Government Clients?”
Well let’s see. The Government (owner of GM & Chrysler) goes after Toyota, and then we get this headline from the National Law Journal, “‘Legal Armada Sets Sail Against Toyota.”
Geez, whaddya’ think?
February 4, 2010, 2:18 pmSteve says:
As others have noted, this is no more or less remarkable than government contractors donating to Senators and Congressmen who proceed to secure them million-dollar earmarks. It’s not something to be proud of in our system. But absent an actual quid pro quo, it’s hard to see how it’s the end of the world.
Let’s look at this from the lawyer’s perspective. If you do good work, and you have a client who understands that you do good work and wants to keep hiring you for that reason, wouldn’t you want to keep that client? If the client is an elected official, naturally you’d like them to stay in office. If I represent GE and I have a good relationship with the general counsel of GE, of course I don’t want to see the general counsel replaced by someone else. Absent an illegal quid pro quo with an elected official, it’s hard to see how this isn’t perfectly normal behavior. Law, like any other service profession, is about producing high-quality work, but it’s also about the personal relationship.
A related issue, which the WSJ touches upon, is that elected officials may have different opinions about whether to take a lead role in class-action work. Some institutional investors believe that they can make a positive difference by taking an activist role in prosecuting class actions, while others are content to sit back and take a free ride on the efforts of other shareholders. If you’re a class-action lawyer, of course you’d want to see the major public pension funds run by people with an activist mentality. Even if they’re completely incorruptible and will take no notice of the fact that you donated money to them, you’re still a lot more likely to get hired by the activist than by the non-activist. As an analogous example, let’s say there are two candidates for mayor, one of whom wants to fix all the bridges and the other who believes the bridges are just fine the way they are. If you own a construction company, is there something morally wrong with you for wanting to see the first candidate win the election?
I don’t doubt that there is some amount of quid pro quo taking place in the class-action arena, because some governmental bodies are in fact corrupt. But having represented a number of major public pension funds myself, I feel confident in saying that the big players are not simply auctioning off their legal work to the biggest donor. They place a significant premium on high-quality work, accurate case evaluations, and good results, and often they have a bidding process or “beauty contest” to decide who represents them in the larger actions. One of the reasons the PSLRA was enacted was because institutional investors are much more likely to employ their bargainign power in the lead-plaintiff role, in order to ensure better results and a more cost-effective fee arrangement for the class as a whole, and in my experience it has worked really, really well on the whole.
February 4, 2010, 2:42 pmAnonsters says:
What’s so interesting to me about this thread is that virtually everyone has expressed cynicism about the role of big money in politics….
I guess the remedy to be applied is more money.
February 4, 2010, 4:52 pmNunzio says:
Who will represent the plaintiffs that will sue the public pension funds when they can’t pay on their obligations?
February 4, 2010, 5:59 pmarch1 says:
Steve:
Steve,
February 5, 2010, 5:03 pmSomehow I doubt you would prefer contributing anonymously, though that would achieve your stated ends.
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March 2, 2010, 5:31 pm