Controversy Over State Use Of Outside Legal Counsel Expands To Robo-Signing Lawsuit

CARSON CITY – When state Sen. Greg Brower asked the Attorney General’s office earlier this month about the $6 million in outside legal costs incurred so far in defending the state in a freeway construction dispute, he said his motives were purely fiscal in nature.

“We just don’t have money to waste,” said Brower, R-Reno. “At least this particular situation seems to suggest that maybe we are. Maybe there are good answers to all of these questions I raised in my letter but there is only one way to find out and that is to ask them.”

State Sen. Greg Brower, R-Reno. / Nevada News Bureau file photo.

But the use of outside counsel is being questioned in another case where Brower’s law firm, Snell & Wilmer, is representing a company being sued by Attorney General Catherine Cortez Masto, who is also using the services of a private law firm.

The lawsuit was filed on Dec. 16, 2011 in Clark County District Court against Lender Processing Services Inc. (LPS) alleging deceptive practices against Nevada consumers related to the default servicing of residential mortgages in Nevada, specifically loans in foreclosure.

“The robo-signing crisis in Nevada has been fueled by two main problems: Chaos and speed,” Masto said in announcing the filing of the lawsuit in December. “We will protect the integrity of the foreclosure process. This lawsuit is the next, logical step in holding the key players in the foreclosure fraud crisis accountable.”

Masto obtained approval from the state Board of Examiners and the Legislature’s Interim Finance Committee in 2009 to hire the law firm of Cohen, Milstein, Sellers & Toll to investigate and prosecute mortgage lending cases, including the current case against LPS. The firm works on a contingency basis, not getting paid unless the firm obtains settlements or court judgments.

Attorney General Catherine Cortez Masto. / Nevada News Bureau file photo.

In a statement in response to the lawsuit issued in December, LPS said the use of the Washington, DC law firm is apparently a violation of Nevada law.

“Unfortunately, the company’s efforts to engage in meaningful discussions with the Nevada Attorney General’s office have been frustrated by the Nevada Attorney General’s decision to outsource its investigation to Cohen Milstein Sellers & Toll PLLC, a plaintiff’s law firm located in Washington, DC in apparent violation of Nevada law,” the company said in a statement. “The complaint highlights misconceptions about LPS and seeks to sensationalize a variety of false allegations in a misleading manner.”

The firm on Tuesday filed a motion to dismiss the civil complaint.

In an interview Friday, Brower called the two legal matters “apples and oranges.”

Brower said the questions in his Jan. 12 letter to Masto asking about the use of the Washington, DC, firm of Watt, Tieder, Hoffar & Fitzgerald to handle the case filed by Ames Construction against the Nevada Department of Transportation over construction of the first phase of the Carson City bypass are strictly related to the $6 million in legal costs incurred by the state in the matter, which remains unresolved. He also asked why the state hired an out-of-state firm, and whether the Attorney General’s office could have handled the matter itself.

Gov. Brian Sandoval also raised concerns about the legal costs at a January meeting of the Board of Directors of the Transportation Department. So did board member Tom Fransway.

In the LPS dispute, Brower said he arranged a meeting between the Attorney General’s office and the company last year to discuss the matters of concern before the lawsuit was filed, but Brower said he will not be representing LPS in the dispute going forward.

The state has frequently employed outside legal firms for various matters over the years, including the successful pursuit of a settlement agreement by Nevada and other states against the nation’s big tobacco companies in the 1990s. Since the settlement was reached in 1998 under then-Attorney General Frankie Sue Del Papa, Nevada has collected $505 million for a variety of programs through 2011.

The state Agency for Nuclear Projects has also employed the Washington, DC, law firm of Egan, Fitzpatrick, Malsch & Lawrence since 2001 to represent it in its ongoing dispute over construction of the nuclear waste dump at Yucca Mountain. The contract was also approved while Del Papa was attorney general and the late Kenny Guinn was governor. Payments through 2012, including expert witnesses, are expected to total $33.4 million, most of which is federal funds.

State Sen. Ben Kieckhefer, R-Reno, said he also has questions about the legality of using Cohen, Milstein, Sellers & Toll to sue on behalf of the state, and has asked Masto in a letter to respond to his concerns. He first raised questions at a meeting of the Legislature’s Interim Finance Committee in December.

The statute is clear that the Attorney General’s office has the authority to hire outside counsel to defend the state or in the case of a conflict of interest, he said.

“But to hire counsel to then go out and prosecute or go after other private entities doesn’t seem legal within our current statutory framework,” Kieckhefer said.

Kieckhefer said he also asked for more information on the use of a contingency fee for the contract.

“When you’re trying to execute justice, you’re suddenly putting a monetary incentive into the execution of justice, and that seems inherently problematic to me so I’ve asked for a little bit more information on that as well,” he said.

There is a difference in the two contracts. The firm representing NDOT is being paid an hourly rate. The state Transportation Board approved an additional payment amount to get the case to an arbitration hearing next month. The legal costs including the new amount will total $6 million.

The contract with Cohen, Milstein is a contingency agreement, meaning Nevada will not have to pay unless the firm is successful against LPS. The firm is eligible to receive up to 15 percent of any settlement.

In yet another wrinkle in the use of outside legal counsel, Brower’s firm was also employed by the Department of Transportation in a construction dispute similar to the one he has raised questions about. Snell & Wilmer was paid nearly $2.9 million to represent the agency in a dispute that was settled with the firm Parsons Brinckerhoff in Feb. 2011.

The litigation involved the design and construction of the Interstate 515/215 interchange in Henderson.

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Audio clips:

Sen. Greg Brower last week expressed concerns about the legal fees associated with an NDOT contract dispute:

020212Brower :31 to ask them.”

Sen. Ben Kieckhefer questions if the Attorney General has the legal authority hire a private law firm to sue a private business:

020212Kieckhefer1 :31 current statutory framework.”

Kieckhefer says he also has concerns with the use of contingency fees in such legal actions:

020212Kieckhefer2 :20 that as well.”