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New Mexico and the Plaintiffs' Bar Money-Go-Round

In this week’s episode, Bernie Nash and Lori Kalani are in conversation with State AG Group team member Chris Allen. They talk about vicious election advertising campaigns and handicap the candidates on both sides. New Mexico is among the states that have a history of turning to the plaintiffs’ bar to supplement their internal staff resources. This leads Lori, Bernie, and Chris to discuss where campaign monies are coming from and where the settlement monies are going to, and to ponder how the money-go-round impacts both businesses and the serving of justice.

PRODUCED IN COLLABORATION WITH:

Chris Allen, Member, Executive Producer

Keturah Taylor, Associate

Suzette Bradbury, Director of Practice Group Marketing (State AG Group)

Elisabeth Hill Hodish, Policy Analyst

Legal Internet Solutions Incorporated

Transcript

Bernie:

Welcome everyone. Before turning to our podcast and our special guest and partner Chris Allen, I’d like to provide an update on another open seat for attorney general, which was not predicted. Lawrence Wasden, the incumbent Republican attorney general of Idaho has lost his primary and will not be running for attorney general for another term. Good to be with you again this week, Lori,

Lori:

As always.

Bernie:

And you’ll recall that last week we had Pete Bisbee, the Executive Director of the Republican Attorneys General Association with us as our special guest. Pete forecast a red wave. Time will tell of course, whether the red wave is coming. Today, we’re going to talk specifically about the state of New Mexico, where, although Pete was hopeful, I rather doubt we’re going to see a red wave, but as always time will tell. So we have a special guest, our partner, Chris Allen, who’s going to be with us today and join us in talking about New Mexico. Welcome Chris.

Chris:

Thanks Bernie. Longtime listener, first time caller.

Lori:

How you doing Chris?

Chris:

I’m good. Lori, how are you?

Lori:

Great. And we’re excited that you’re on with us. So thanks for joining, and we’re going to rely on you for all your expertise today. Just to run down what we’re going to cover, we’ll go over the candidates in New Mexico and talk a little bit about the state of play there. And then I think that’s going to very naturally lead into a discussion about trial attorneys and AG offices’ use of outside counsel, which I think is important and informative. And then we can make some predictions like Bernie likes to do, although he says he doesn’t make predictions, and talk a little bit about Hector Balderas, the current AG. Especially given the candidates, and who I think Bernie’s going to forecast will win, I think knowing who Hector is, the current AG matters in this case. So we’ll get right into it. June 7th, we have the primary coming up just around the corner, the New Mexico primary, the current attorney general is Hector Balderas, who is termed out. He’s been serving his second term, which comes to an end at the end of this year. And as far as the Democrats running, I will talk about Brian Colon, who I have met. And interestingly enough, Brian holds the position of state auditor, and that is the position that Hector Balderas also had before he was attorney general. Brian’s got about $1.5 million in total contributions and went to the University of New Mexico for law school, I believe. And I think he’s at this point favored to win. I know there’s a pretty nasty advertising campaign going on in New Mexico. I think Brian and Raul Torrez, who’s the other candidate, who – Bernie you can talk about if you’d like to – I think they have a pretty nasty advertising campaign and smear commercials going on and on. Do you want to fill us in on Raul Torrez?

Bernie:

Sure. I have met Brian Colon, as you have. I have not met Raul Torrez. So. what I understand is that his focus is on crime. He is currently the elected District Attorney of Bernalillo – if I’m pronouncing correctly, forgive me any New Mexicans listening – County. And then he started out as an Assistant DA right out of law school, but he also has an interesting background in that he was appointed as a White House Fellow by then President Barack Obama. And he also served as a Senior Advisor at the Department of Justice, where he worked on drug cartels and border violence as well as domestic abuse in Indian country. So he will bring an interesting flavor to that position, should he win. He also has a ton of money. He’s got about almost a million dollars in the bank right now, about a half a million less than Brian Colon. And it has turned into a pretty nasty vicious campaign, with a lot of accusations coming from each of them. And I am not going to predict the winner of this one, but I am concerned that the viciousness might well play into the general election because neither has very high name recognition. There’s a lot of negativity now hitting the airwaves about each of them. And that might well play into a Republican’s hands, but I’m not yet prepared to predict that a Republican will win.

Chris:

I think, Bernie, that’s right. And I think you’re right not to call the winner, the Democrat primary, although I will point out New Mexico has been pretty solidly blue when it comes to the attorney general, they’ve only had one Republican, since the Great Depression, elected. And that was only for one term. They have shown a bit of an independent streak when it comes to the Governor. You had Susana Martinez, was a very popular Republican governor when she was term-limited out. And, I was going to say Gary Johnson, but I don’t think he qualifies as a Republican anymore since he ran as a Libertarian in 2012. But I do think, the red wave notwithstanding, that Democrats probably still have at least historically a bit of an advantage in New Mexico.

Lori:

Chris, that’s a good segue to talk about the Republican that’s running. Jeremy Gay, who’s got his own law firm. I don’t believe he’s got very much money. I think he’s got about less than a hundred thousand dollars on hand. Television’s inexpensive, relatively, in New Mexico, but I compare $80 or a $100,000 to the amount of money the two Democrats have and I think that it’s very likely that at the end of the day, a Democrat will win for the reasons you mentioned and also just on the money.

Chris:

I think that’s right. But Jeremy Gay has an impressive background. He’s a private practitioner. Before that he was a JAG and then Marine Corps officer. So he has an appealing record of public service at least so far, but you’re right, the focus is really on what’s becoming a pretty vicious race between the two Democrats. So I think we’ve got to wait to get past June 7th to really start seeing how this is going shake out.

Lori:

Yes, I agree with that.

Chris:

Let me ask you a question because you brought this up, Lori. Hector Balderas was state auditor and then became AG. Brian Colon is trying to repeat that career path. And I’m thinking back a few weeks ago when my good friend Paul Connell noted that Tim Griffin, who’s currently the Arkansas Lieutenant Governor is now running for AG and handicapped to win that race, according to this podcast, at least. Do you think it’s an advantage coming into office for an AG to have experience managing a state agency or executive office, or is the job of AG just so different in its focus and constitutional independence that it’s really a different kind of animal?

Lori:

That’s a great question. I think there’s the answer is yes on both. I think there’s an advantage having run a state agency, certainly there’s an advantage on the learning curve once you get in there. But I think that not all state agencies are the same, right? And you have, you know, somebody who’s in Raul Torrez, who’s a district attorney who is prosecuting cases every day. So somebody might say, well, that’s a better resume for attorney general than the state auditor. But it’s interesting; years ago, I had a conversation with Hector Balderas about his previous position as auditor, and he’s a certified fraud examiner. And I believe that Brian Colon is as well. And I said, how do you think that those skills have transferred to your job as attorney general? And he said so much of what we do is really investigating. And as we know, the three of us, a lot of these state AG enforcement actions, as they relate to businesses and industries settle, right. There’s a very significant and detailed investigation, but it’s different than you may have as far as discovery goes in just a general case, where there’s a plaintiff and a defendant. At least Hector’s opinion was that his background as the auditor and even more so his training as a certified fraud examiner really helped him and made him a better AG. I thought that was very interesting. And then, when I met Brian, I said the same thing to him. Do you think your background as the auditor and having this individualized fraud training helps you in this role? And he said, absolutely. He thought it was a real plus for the job, but I guess Raul could make the same claim with respect to what he’s doing. So I want to talk a little bit about the money that both of these candidates have raised on the Democrat side, because there’s been a lot of stories that I’ve read about where the money’s coming from. And so you talk about a relatively small state, New Mexico, and you have somebody like Brian, who’s got about a million and a half raised. I’m not sure what percentage of that has come from outside the state, but I know that a large percentage has been from plaintiffs firms and the trial bar. Chris, you may have more information or more statistics. You’re much smarter than I am on those numbers. But I think that it’s worthwhile to spend a little time talking about New Mexico and why it is important and what their role has been in the multi-state arena and how they’ve approached those cases and whether or not the office will continue if Brian or even Raul is elected.

Chris:

Yeah. I mean, it has been an issue that’s showed up in the press, in terms of both the practice – AG Balderas’ current practice – of using outside counsel, but also when Colon was asked, whether he intends to continue that practice, he said, yes. This is a relatively small office, 200 people total, not just attorneys, but staff over 16 divisions, that’s stretching an AG pretty thin in terms of all of the things that we know that they’re tasked with investigating: consumer protection, antitrust, data privacy. Not only is it just a volume of cases you’ve got to think about, but that’s also some pretty specialized areas of the law. So I think the way that they’re approaching this is, we need these guys. We need them to help us to really carry out what the legislature’s tasked us to do. ‘Cos they’ve told us we have these powers, but they haven’t necessarily given us the money or the personnel to do it. Now the problem, at least in my opinion, as you point out, is when the same lawyers that are making contributions to campaigns turn around and get hired to bring those cases. And I have questions when I see that happen, but I’m curious as to what the two of you’s experience are, because we’ve all three defended cases where an AG’s used outside counsel. How do you see that affecting issues about transparency, about fairness, about how clients are, the experience they have in an investigation, versus when you have professional career staff in the AGS office, bringing those cases?

Lori:

Well, Bernie I’ll go first on that one. My experience has been that when you bring in outside counsel to “be the experts”, they’re really driven by the money. And if you look at other AGs’ offices that bring large enforcement actions, oftentimes, and I learned this very early in my AG career, in my legal career – for the record, I was not an AG – I learned that certainly money is a component of these enforcement actions and whether it’s restitution or penalties and money that will go to the state. But more often than not, it’s really overhauling, revising, reforming industry business practices. And my experience working with outside counsel is when you talk to them, they say “What injunctive relief?” They really don’t care. They’re really there for dollars because oftentimes they’re just going to recover a straight percentage of that. Now I know some states have passed laws to try to rein that in a little bit, but I do think that the incentives are skewed when you have outside counsel. And to play devil’s advocate, I would say yes, New Mexico’s a small state with limited resources, but it’s just curious that one of the firms that does a lot of the work in New Mexico happens to be one of the largest contributors to both Hector Balderas, and at this point, Brian Colon, and also happens to be, I believe, personal friends with both of them. I believe all three went to law school together.

Bernie:

I think it’s unnecessary with respect to so many of the cases in which AGs hire outside contingency fee counsel. I think it’s a disservice to the state because the state is deprived of a lot of the money that otherwise would go into state funding, or the AG’s budget. And it’s just not necessary. Some states hire outside contingency fee counsel for very, very large cases, multi-state cases where certainly they’re not needed because the states themselves have hundreds of lawyers within each of these states, or many of the states, and they have a pool of lawyers that can share the burden. New Mexico, for example, uses outside contingency fee counsel on a frequent basis, even if it’s not a multistate, even if it’s a, what I would consider to be a small, local case. And they also have not done that and they’ve used their own counsel. I finished up a case which wound up settling after about two and a half years, just a few months ago where the state did not use outside counsel, but it used its own internal staff. They had a very professional staff that did a, a very, very thorough investigation and they were tough as nails during the negotiating process. But they listened, they were fair, and we at the 11th hour, I guess, you might say, we did reach a settlement. So my judgment is that New Mexico at least has a great consumer protection staff and a great head, a chief deputy rather. And they don’t need outside counsel as often as they use outside counsel. And that’s just a recent example. I would say the same for many other states as well.

Chris:

I think Lori brought up a really fascinating point too, which is that it’s not, some people have talked about, transparency is a fix here, and that’s got to be a key, I think. You can’t turn around and hire the guys that gave you the most money. There has to be bidding. There has to be qualifications for the counsel you hire, but the objective too, I mean, in a lot of these cases, it’s the AG’s supposed to be acting out of public concern, and either stopping or changing a business practice that they think is harming consumers. And whether our clients agree or, or the business agrees or not, really that’s where you spend a lot of time talking to consumer protection staff and really trying to understand their concerns. And I think Lori, I think what I heard you say, although I don’t want to put words in your mouth, is when you have outside counsel involved, it changes that dynamic and an AG who’s supposed to be acting as primarily a public advocate and representing consumers finds their authority over the case split by people who are motivated primarily by profit.

Lori:

Yeah, I think, I think that’s exactly right. We have seen plaintiffs lawyers roll up with suitcases full of draft, generic complaints, and they they’ll come to an AG conference and actually be there to pitch AGs on why they should bring a particular case. So while I like to believe that AGs’ enforcement activity is driven by what they perceive to be a real problem, because consumers are complaining to them, or there’s some sort of apparent fraud going on in their state or a number of states, it’s been rather often that I’ve seen plaintiffs lawyers sort of create a problem that AGs weren’t even aware of. And it’s this idea that I could do all the work and you could make money, but certainly those plaintiffs lawyers are just, as you said, Chris, motivated by the money rather than actually achieving some reform of the business practice.

Chris:

So, so let me throw something out to y’all then, since all three of us have defended companies that are in this position. I’m a General Counsel and I just got served a complaint that says at the top of it, State of New Mexico, but it’s signed by some private attorneys at the law firm of Dewey, Cheatham & Howe. Now, perplexed, I call my good friends, Bernie and Lori, who I go to for all things state AG, and explain my situation. So what do you tell a General Counsel in that situation? Has the ship sailed and they’ve just found themselves in what sounds like a suboptimal situation where you’re dealing with people who mainly want money, or are there steps that a company in that position can take to make sure they get a fair hearing with the AG, or make sure that when this case is pursued by these outside counsel, it’s really being done in a way that serves the public interest and not just to enrich some trial lawyers.

Bernie:

Let me take the first crack at that. The answer is: when horse is out of the barn, it’s out of the barn. It doesn’t mean you can’t corral it and put it back in the barn. And there’s no generic answer to your question. It really depends upon why that law firm was hired, when it was hired, who the target company is that received the subpoena or whatever you said the first communication was, and whether the AG even knew about it. Oftentimes we find out the AG doesn’t have a clue what happened, and that a letter was sent, or someone has actually been retained. You know, it’s the first thing that we do apart from making sure nothing’s going to happen, by responding on behalf of our client back to the outside counsel, is put a phone call into the AG and say: “Hey General, we represent so-and-so. We’re surprised. We didn’t get a phone call. We didn’t get a heads-up. What is the problem?” And sometimes the AG will actually know about it and we’ll begin a dialogue with him. And other times he’ll say, I don’t know what you’re talking about, but let me find out. It’s more difficult when it happens that way, because the AG is also out on a limb where somebody retained someone else. But I find that always makes sense to talk to the AG and the Chief Deputy, and try to create a dialogue with someone in the AG’s office, either contemporaneous with the outside counsel who you heard from, or if you can sidestep it and have separate dialogue so you can keep pushing the AG towards instructing the outside counsel to be more reasonable.

Lori:

Yeah, I agree with Bernie, but there was a case that will go unnamed where an AG’s office had hired outside counsel on a particular matter. And Bernie and I were pretty successful at getting the AG to engage with us, despite this outside firm. And we essentially said our client will never settle with the outside firm for what they’re demanding. And we got to a point where we had a certain number that our client was willing to pay. And I can recall the AG saying that won’t even cover the outside counsel bill that I’m going to have to pay. And we said: “That’s not our problem”. And this particular AG had not hired the outside counsel. It had been the AG’s predecessor and the AG and the new AG said: “I’m stuck with these outside counsel and I have to settle for at least as much money as their outstanding bill.” And again, we just stood our ground and said: “That’s ridiculous. That’s not our problem. And frankly, it’s your problem. And if you want to settle this case, here’s what we think is fair to settle it”. And we eventually got to an agreement, and I remember thinking it would be pretty shortsighted for that outside firm to sue the state AG for their outstanding balance, because that would really put the nail in the coffin for them ever getting any other work. And I don’t know how that was resolved, but it goes back to Bernie’s original answer which was it depends. It depends on who the AG is and what our relationship is there. And I think it depends on how much of a backbone they have and how much they know about it.

Bernie:

I remember that, well, Lori, I had forgotten about it, and I also remember that we really surprised ourselves with respect to the AG, eventually agreeing to that. We told the client: “Let’s try it, but don’t be too optimistic about you not having to pay those fees.” But, we succeeded.

Chris:

Just to add my 2 cents on this, I think this reinforces something that we tell our clients, which is just because things are getting tense with AG or even you’ve been sued, scorched earth isn’t always the way to go. And I think if you see private counsel on a complaint that maybe your first instinct is, all right, the gloves are off, but what you’ve both highlighted is the importance of continuing to keep that dialogue with the AG’s office to be open, and to have a constructive engagement so that if the private counsel really become a roadblock to the state accomplishing its objectives, there’s ways of resolving that. And there are ways of bringing it to kind of resolution that’s in the interests of the people the AGs supposed to be serving.

Bernie:

There’s no question. These cases are not short term cases. The single case that Lori was referencing was over two years in the making. The New Mexico case was little more than two years. And if you engage in a scorched earth policy, you foreclose your ability to dialogue and an ability to utilize change circumstances to facilitate a settlement. Negotiating is always far less expensive than litigating for our clients. Litigation is fine, and it is necessary in many cases, but it shouldn’t be done in a manner in which it forecloses to have a second, not second chance, but a

Lori:

Parallel path

Bernie:

A parallel path is to the phrase I was looking for. Yeah, because even though the parallel path seems foreclosed for six months, it’ll open in nine months for reasons you can’t even predict today. So you have to keep those opportunities and options available.

Lori:

Do you think, I’ve never thought about this or, or tried to calculate it in my head, but do you think it’s more often the case when outside counsel’s involved that they file a complaint first and then talk later. As we know, the AGs have brought authority, they do not need to file a complaint in order to receive discovery, but it seems to me that you rarely see outside counsel doing a full-on investigation at the start, even under the name of the attorney general, but rather filing a lawsuit and then turning around and having the discussions and doing the discovery. Am I wrong about that, Chris and Bernie?

Chris:

Yes and no. I think it depends on the AG office. I think. So, there are instances where an AG office will actually hire outside counsel to do not only the litigation, but the investigation too. And, and I mean, not to single out an AG, but I’ll single out a state because it’s public record. If you go to the state of Mississippi’s website for the attorney general, there’s a list of outside counsel contracts that they have. And, you know, it was the good judgment of the Mississippi legislature to require that, and maybe more states should, but some of those requests for proposal and contracts, don’t just hire the counsel for litigation. They hire them for the investigations too. And so you’ll have a client, who’ll get a subpoena that again is says state of Mississippi, but it’ll say deliver the boxes to, again, Dewey, Cheatham & Howe, Attorneys At Law. And I couldn’t speak really to whether they, the private plaintiffs do more fulsome investigation or not. I really think it depends on the case, but I do think it gives them a leg up, if they’re able to use the CID or subpoena power of the state to supplement or really even supplant what they wouldn’t be entitled to in civil discovery. I don’t know, Bernie, what are your thoughts?

Bernie:

It’s…, in general, state AGs do an investigation before they sue, I’d say in 90 plus percent of the cases, maybe 95% of the cases because they take their oath of office seriously. They want to have evidence before they go off half-cocked. It’s very rare when a lawsuit is filed without an investigation, but I’ve seen it happen. On the other hand, when private plaintiffs are involved, I would say, lawsuits are just as frequent as investigations. I really haven’t thought about it before you asked a question and I can’t think of examples right off the bat, but my sense and subjective memory tells me that our clients have been sued without an investigation when outside counsel is involved.

Chris:

And I think it’s certainly safe to say that when you’re hiring somebody on a contingency fee basis and you say: “Go see if there’s something that might be wrong here”, their incentive is to find something wrong. It’s not to serve the public interest.

Lori:

Right. And then, to your point about them using this CID power in nefarious ways, and that’s my word, not yours, then do they take that information – oftentimes these are national companies – and use it in their pitch to the next dozen states?

Bernie:

There’s no question in my mind that that takes place. I can’t say by, by everyone, but the whole strategic approach of outside contingency fee counsel firms, not everyone, of course, is: you get one state and then you shop that to another state and another state. And then when you get 10 states prepared to sue with an investigation, or without, it’s a whole different ball game to a company, I mean, we give advice to our clients saying, this is what it might cost. There’s now 10 states involved. It’s going to be more difficult there’s an interrorum effect, there’s a reputational effect. And, and companies take lots of things into account regarding how to handle a case like that. But the private bar knows that the more states they sign up the higher, their pay day is going to be, and the greater likelihood that there will be a settlement.

Chris:

Yeah. I don’t think it’s coincidence that you see the same lawyers’ names on the same lawsuits against the same pharmaceutical companies and financial service companies, in different states, not as a multi-state, but one, and then three months later, another, and then three months later, another,

Lori:

Right. And, you know, back to the point we talked about earlier on, on the fact that these contingency fee counsel groups or firms are large donors to, and not just Hector Balderas and, and Brian Colon, but I think before that Gary King and, and Patsy Madrid, I think this has been going on a while in New Mexico. Some might say, well, that’s what the election laws are for. They provide for transparency and that’s what public RFPs or contracts that have to be disclosed, like you said, Chris, on Mississippi’s website. And so why shouldn’t they give contributions to people they like to work with?

Bernie:

Going back to what you, you asked, I think we should, I would like to say that while we’ve talked about New Mexico, we’re not picking on New Mexico. We can name another dozen states, easily, except this is about New Mexico. You have the same tendency towards utilizing outside counsel. And I have no doubt it’s not for nefarious or inappropriate reasons. It’s for philosophical reasons. And when this outside counsel thing started, you had predominantly democratic AGs using them and the business community was pretty irate that the Democrats were anti-business and were extorting money. I would say today, you have as many Republican AGs as Democratic AGs using outside counsel, often time, the same firms. And what I have found very, very surprising is with only an exception or two, the firms utilized are well known, you know, Democratic-leaning firms. And, we once did a study of who’s getting contributions from firms X, Y, and Z. And the money, even though was predominantly going to Democratic AGs, Democratic governors, Democratic candidates for the Senate, and not Republicans, yet Republican AGs were using the very same firms, rewarding them with huge fees. And a lot of that money was going to political opponents of these Republicans. So I’ve always found that pretty amazing.

Lori:

Bernie, I think we really reflected after the states started to bring cases on the opioid crisis, I think most of the first states that used outside counsel were all Republican. It was large states like North Carolina, Washington state, who were hard chargers with respect to that issue, did those cases themselves. New York did not use outside counsel, and it was definitely Republican states who were first to pull that trigger.

Chris:

Yeah. I, I think it was mentioned earlier, some of these AGs inherited cases filed by predecessors, including predecessors of other political parties that hired the outside counsel in the first place. And those included some of the first companies to sue on opioids, if my memory serves. But I think there’s some momentum to it too, because once you start relying on outside counsel and the guys sell to you that they’re the experts on this, you can talk yourself, I think into saying, oh, these guys are hard charging litigators. They have experience here. We should just let them do their thing and sit back and vindicate the rights of the citizens of our states. But as we talked about, that takes you to places where, especially on something like opioids, or tobacco even before that where it’s a serious public policy issue, the motivation of the lawyers that are really in charge of the litigation and the motivations of the state officials that are trying to bring that to solve a public problem don’t always line up and they don’t always line up in a way that really doesn’t serve the citizens of their states.

Bernie:

Well, I think this has been extraordinarily illuminating, Chris. We thank you for your insights. We thank you for your time. I’d like to do a promo for our next show. I know that many of our listeners will miss me, but I know you’ll get over that because next week we’re going to have my co-chair, Lori Kalani, doing a women’s AG podcast and her special guests will be former Ohio Attorney General, Betty Montgomery, who also was an auditor of state before she became AG of Ohio, and Frankie Sue Del Papa, former Attorney General of Nevada. Betty was a Republican. Frankie Sue was, and remains, a Democrat. And we’re going to have our colleague from Philadelphia, Mira Baylson, join Lori in that next podcast. And so I will look forward to listening to it, just as I hope you all will.

Lori:

Thanks, Bernie. I look forward to it as well. As you know, I’m from Nevada. So I’ve known Frankie Sue for a long time, and I’ve worked with Betty for over a dozen years. So I consider them both trailblazers and it will be great to hear their perspective on where we are today and what things look like when they were attorneys general. Chris, thank you very much for joining us.

Chris:

Oh, it was an absolute pleasure. I had a lot of fun. Thank y’all.

Bernie:

Thanks Chris.

Lori:

We’ll see you all next week. You have been listening to State AG Pulse brought to you by Cozen O’Connor’s State AG Group. Research for this podcast was provided by our associates Ryan Bottegal, Hannah Cornett, Gianna Puccinelli, and Keturah Taylor, as well as our policy analyst, Elisabeth Hill Hodish. If you enjoyed this week’s episode, please leave us a five star rating and review. That will help our visibility and will allow other listeners to learn about the podcast. And of course, please tune in again next week.

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