When Attorney General Kathleen Kane sued a chain of for-profit nursing home facilities across Pennsylvania, she had backup from a powerful private law firm that stood to reap millions from a controversial arrangement with the state’s top prosecutor.
The deal allows Cohen Milstein Sellers & Toll, a firm with offices spread across six cities, to siphon off a large cut of any fines imposed upon the nursing homes, which, Kane alleges, fell short on its promises of care for residents.
Critics of such contingency fee agreements contend they’re ripe for abuse and note that campaign contributions often flow to attorneys general, who then dole out the lucrative contracts to political allies.
Golden Living, the nursing home, has fought back in court, arguing the complaints didn’t prompt the investigation; rather, the private law firm shopped its services — and its large contingency fees — to the state. Versus hourly pay, the firm will get $21 million of the first $100 million in fines collected under its agreement with the AG’s office.
“This Cohen Milstein-driven investigation is an effort to create a ‘problem’ where none exists in a search for profits for itself,” the nursing homes argued in a separate lawsuit that aims to dismantle the firm’s agreement with the state.
The other viewpoint is the outside firms help state prosecutors — that may not have the necessary expertise or manpower — protect people by exposing cases that may not necessarily be brought to light.
In this instance, Kane alleges Golden Living misled consumers and violated the Unfair Trade Practices and Consumer Protection Law by failing to meet the promised standard of care. Court documents describe situations of incontinent residents left in soiled diapers for extended periods, and residents who missed meals and were at risk of developing bedsores because they weren’t turned as often as required.
According to court documents and the AG, Cohen Milstein issued subpoenas, interviewed residents and sorted through employment records to bolster the case — one in which the law firm has a heavy financial interest.
“I think most arrangements have potential for abuse,” said Chuck Ardo, a spokesman for Kane. “We try to keep a close eye on the progress being made to deter even the appearance of abuse. And, in the end, the bottom line is that nursing home residents will undoubtedly be safer and better served as a result of this investigation.”
Not an uncommon practice, but concerns persist
The Attorney General’s Office has contingency fee agreements in place with a handful of other firms. One stands to gain up to 40 percent of any recovery under $500 million from a payday loan service. Another could net anywhere from 17 percent to 25 percent of any recovery for work kept confidential.
In one instance, an outside firm helped the state avoid losing $126 million in annual payments connected to a settlement with tobacco companies.
While Kane has been under scrutiny for the practice, attorneys general hiring contingency fee counsel isn’t unusual, nor is it new. Its origins can be traced to the 1980s, and it grew in popularity after the success of prosecuting tobacco companies in the 1990s. State attorneys general have hired the private firms to target pharmaceutical companies, payday loan services and former manufacturers of lead paint.
Thanks to their prevalence, the contingency fee arrangements have caught the attention of the U.S. Chamber’s Institute for Legal Reform. The New York Times won a Pulitzer Prize for a series that included an examination of how outside law firms have sidled up to attorneys general, hoping to persuade them to sue.
In many cases, there’s little transparency surrounding the deals. Bryan Quigley, senior vice president of strategic communications with the institute, compared it to the state hiring a contractor to pave the turnpike, despite taking no public bids. That wouldn’t be acceptable, he said.
“A lot of this stuff happens in secretive, no-bid ways. It’s not out in the open,” he said.
By virtue of agreements with the attorneys general, contingency fee law firms gain more power than they would under the normal circumstance of civil litigation, Quigley said. There’s something to be said about having the heft of government behind a private law firm.
“It gives you a lot more authority to get information when you have the power of the state behind you,” said Page Faulk, vice president of legal reform initiatives at the Institute for Legal Reform.
That power can bring big financial returns. In Mississippi, litigation against a pharmaceutical company netted an $18 million settlement, with almost $4 million doled out to private law firms. But, in at least one instance, a contingency fee deal backfired, according to a report from Forbes.com.
A judge sanctioned Nevada’s AG after the state failed to provide evidence a mortgage services company defrauded consumers. The attorney general had hired Cohen Milstein to help with the case. While other states reached settlements with the company, Nevada could not, as the private law firm was holding out for more money, according to the report.
Walter Cohen, a former deputy attorney general now representing the nursing homes Kane targeted, said he wouldn’t take the position that outside counsels should never be used. But, he said, the practice can raise questions about who and what is actually driving the investigation.
Cohen contended nonprofit or county-owned firms weren’t targeted for a reason.
“So why do they only go after the for-profit homes? Because they have more money,” he said.
There’s also a difference between private firms shopping their services and an attorney general discovering a problem, realizing the state doesn’t have the resources to litigate the matter and hiring a third party to do work on an hourly basis, Cohen said.
“I think whether the law firm approached us or whether we approached them is less important than determining whether or not violations occurred,” Ardo said.
Cohen Milstein initially entered into its agreement with Kane’s predecessor Linda Kelly in 2012. After taking office in 2013 — as well as $10,000 in campaign contributions from Cohen Milstein the year before — Kane’s office bumped up the financial incentive for the firm, taking it from $17 million to its current level.
The increase came after a decrease in the scope of Cohen Milstein’s work would have resulted in a decrease of remuneration for the work they were doing, Ardo said. A senior aide to Kane oversaw the contract and had “absolutely no idea that Cohen Milstein made a contribution to the general,” he said.
“I understand that people draw conclusions, but that certainly doesn’t mean that they’re valid conclusions,” Ardo said.
A spokesperson for Cohen Milstein referred comment to the AG.
While some cities and counties have begun adopting the practice, 20 states have enacted reforms. This year, four states have passed sunshine bills designed to bring transparency to the process and impose reasonable fee limitations, Faulk said.
State Rep. Tim Krieger, R-Westmoreland, wants Pennsylvania to join the list. He’s introduced a bill that would cap fees, require the contracting agency to demonstrate the deal is in the best interest of the commonwealth and give the state settlement authority.
It would also require the filing of an annual report outlining the use of contingency fee counsel to the General Assembly.
“Really, the driving concern is obviously they are very easily abused for political purposes,” Krieger said. “So we think certainly disclosure is the best way to limit that kind of behavior.”