Judge: Kentucky AG can use contingency-fee lawyers in case vs Merck

May 28, 2013

U.S. District Judge Danny Reeves of Frankfort, Kentucky, has just contributed a new episode to the ongoing saga of whether state attorneys general may hire contingency-fee lawyers to prosecute cases on behalf of consumers. Last Thursday, in a thoughtful 33-page opinion, the judge ruled that Kentucky’s attorney general,Jack Conway, has not violated Merck’s constitutional due process rights by using the private firm Garmer & Prather to litigate consumer claims related to Merck’s marketing of the pain reliever Vioxx. Reeves rejected arguments by Merck’s counsel at Skadden, Arps, Slate, Meagher & Flom that contingency-fee lawyers should not be permitted to represent the AG in a quasi-enforcement action.

As you probably recall, AGs’ use of private law firms is a hot-button policy issue for the U.S. Chamber of Commerce and the American Tort Reform Association, which are generally opposed to the practice. They’ve lobbied hard for state legislatures to enact limits on the use of contingency-fee counsel or, at least, regulations to govern relationships between AGs and outside counsel. So far, according to ATRA president Tiger Joyce, 13 states have enacted such laws. But law professor Amy Widman of Northern Illinois University, who specializes in AGs’ enforcement of consumer protection laws, has testified before Congress that state lawyers need to be able to tap the resources of the private bar or else consumer laws will go unenforced by resource-strapped AGs.

That was the context for Reeves’s ruling, in what I’ve previously called the leading litigation challenge to state use of private lawyers. After Kentucky’s suit bounced between state and federal court, finally alighting in Franklin Circuit Court, Merck filed a declaratory judgment action in federal court, seeking a ruling that Kentucky’s use of contingency-fee lawyers was unconstitutional. The judge denied the pharmaceutical company’s motion for a preliminary injunction but also twice refused the AG’s motion to dismiss the suit. Last week’s ruling came on Merck’s motion for summary judgment.

The heart of the issue, Reeves said, is who controls the case. The judge agreed with Merck’s argument that it has a fundamental right to a “neutral prosecution” in what amounts to an enforcement action (because the AG is seeking statutory penalties). The litigation must be untainted by the financial incentives of the lawyers prosecuting the case, Reeves said. To determine whether it is, he pointed to helpful but non-binding guidance by the state Supreme Courts of California and Rhode Island in very similar cases, and said he had to look both at the letter of the contract between the AG and Garmer & Prather as well as at the AG’s actual oversight of Kentucky’s Vioxx litigation.

The contract was a relatively simple matter. Under the revised version signed in July 2012, the AG has final authority over all discretionary decisions in the case, including settlement. But the extent of that authority in practice was more complicated. The deposition testimony of the state lawyer tasked with overseeing the Vioxx litigation indicated that she wasn’t up to speed on day-to-day decisions in the case, such as the hiring of expert witnesses. Nor did any state lawyer sign the letter rejecting a proposed settlement, Merck said. “The AG’s office cannot control critical decision-making when it knows virtually nothing about the lawsuit it is supposed to be directing,” Merck argued.

Judge Reeves said it was “troubling” that the state lawyer could not say under oath that she was aware of the retention of experts. But he said there’s a difference between knowledge and control. “Evidence of the AG office’s lack of knowledge would have to be nearly overwhelming for the court to grant summary judgment to Merck on that basis,” the judge said. (He also found that state lawyers were involved in the decision not to settle the case, even if the letter to that effect was signed by outside lawyers.) Reeves declined to dictate a bright-line rule for what constitutes adequate AG control of the litigation, noting that any such inquiry would run into privilege issues. He opted instead for what he called “common sense analysis.”

“As long as the AG’s office is reviewing the contingency-fee counsel’s work before adopting or approving it – and Merck has cited no evidence in the record to convince the court that it is not – the AG has retained and exercised his decisional authority,” Reeves wrote. “The court will not second-guess the AG’s decision to grant a certain amount of ‘room for the outside attorneys to … exercise their professional skills in putting a lot of (the litigation) together.'”

Merck lead lawyer John Beisner of Skadden referred me to the company, which said in an email, “We are obviously disappointed with the court’s ruling, and the company is considering its options.” The Kentucky AG sent an email: “Judge Reeves’ decision reaffirms the long-standing practice of state attorneys general utilizing outside counsel to assist with consumer protection litigation. It allows the Commonwealth to level the playing field when enforcing Kentucky law against an entity whose yearly revenue exceeds the annual budget for the entire state.”

Each side of the policy debate, meanwhile, can use the ruling as a new talking point. Law professor Widman said Reeves got it right: “The court said, ‘We’re not going to micromanage,'” she told me. “That’s the clear and right answer. So long as the attorney general is supervising … control is oversight and ultimate authority.” ATRA president Joyce disagreed, of course. “With all respect to the judge, we think this situation makes the case for the legislature and the governor to look very carefully at how this is done,” he said. “What level of control did outside counsel really have?”

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Implicit is the fact that plaintiff lawyers do a far better job representing their clients than the Attorney General staff. That is why the drug company is trying to get them out of the case.

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