The Nevada Supreme Court is expected to take up arguments in a high-profile robo-signing case in which a mortgage processing services firm is challenging the legal authority of the state’s attorney general to hire Cohen Milstein Sellers & Toll on a contingent fee basis.
Lender Processing Services Inc. has petitioned the state’s high court to overturn a ruling that allowed Cohen Milstein’s Betsy Miller to be associated as counsel to Nevada Attorney General Catherine Cortez Masto. Masto has a pending complaint alleging that Lender’s robo-signing of mortgage documents contributed to the state’s economic recession.
In its brief, Lender argues that the attorney general’s office violated a state law in hiring Cohen Milstein on a contingent fee basis and that, by granting the outside firm considerable authority in the case, has held the company hostage in settlement negotiations. Masto’s office has insisted that its actions were legal.
The Nevada Supreme Court has scheduled oral arguments for Wednesday.
The U.S. Chamber of Commerce and the American Tort Reform Association, longtime critics of contingent fee arrangements between private attorneys and government agencies, have filed an amicus brief.
"The contingency fee arrangement not only runs afoul of Nevada law, but represents a troubling example of a state ceding control of litigation on behalf of its citizens to private plaintiffs’ lawyers whose interests are driven by financial gain rather than the public welfare," said Lisa Rickard, president of the Chamber’s Institute for Legal Reform, in a prepared statement sent by email to The National Law Journal.
Jennifer López, a spokeswoman for the Nevada attorney general’s office, declined to comment. Mark Connot, a partner at Fox Rothschild in Las Vegas who represents Lender, which is based in Jacksonville, Fla., declined to comment.
Miller, of Washington’s Cohen Milstein, did not return a call for comment.
Masto filed her complaint against Lender Processing Services in 2011. On June 27, 2012, the company objected to the attorney general’s motion to associate Cohen Milstein — and Miller, specifically — into the case. Clark County, Nev., District Judge Elizabeth Gonzalez granted that motion on July 19. Lender filed a writ of mandamus to overturn that ruling on July 31.
At the heart of the debate is Nevada statute 228.110, which reads: "No officer, commissioner or appointee of the Executive Department of the Government of the State of Nevada shall employ any attorney at law or counsel at law to represent the State of Nevada within the State, or to be compensated by state funds, directly or indirectly, as an attorney acting within the State for the State of Nevada or any agency in the Executive Department thereof unless the Attorney General and the deputies of the Attorney General are disqualified to act in such manner or unless an act of the Legislature specifically authorizes the employment of the other attorneys or counselors at law."
Neither exception, Connot wrote, applies in this case.
On January 31, Lender agreed to settlements with the other 49 states totaling more than $127 million. "Cohen Milstein has been given virtual veto power over any settlement offer, making a settlement similar to those already achieved with 49 other State Attorneys General and the District of Columbia impossible," the Chamber’s Rickard said.
Moreover, under the contract with Cohen Milstein, the attorney general’s office has agreed not to settle for injunctive relief unless the defendant provides costs and hourly fees for the law firm’s services, wrote Joseph Brown, a director at Fennemore Craig in Las Vegas who represents the Chamber and the American Tort Reform Association.
He went one step further, arguing that contingent fee contracts with outside counsel by government attorneys were inherently unethical and violate a defendant’s due process rights.
"Delegation of enforcement of state law to private lawyers with a profit interest in the litigation is contrary to legal and government ethics, constitutional law, and sound public policy," wrote. Such agreements have led to "exorbitant fee awards" and "millions of dollars to private lawyers," he wrote.
Frankie Sue Del Papa, who was Nevada’s attorney general from 1991 to 2002, wrote in an October 1 amicus brief that the high court should be suspicious about Lender’ brief, given that corporate defendants have unsuccessfully raised similar arguments in the past.
In a September 10 answering brief, Nevada Solicitor General Wayne Howle wrote that the Nevada Constitution and common law permit the attorney general’s office to hire outside law firms on a contingent basis. Nevada statute 228.110, he wrote, was designed to preserve the office’s ability to hire outside counsel but limit that of other executive agencies to do the same.
Furthermore, lawyers in the attorney general’s office have directed the litigation, with Masto personally conducting at least three settlement discussions without Cohen Milstein, he wrote.
"LPS’s only purpose in filing this Petition is to gain a tactical advantage in the State’s case — by diverting resources from the State’s prosecution now and ensuring that the State cannot match its resources in the future," Howle wrote.
The contingent fee issue isn’t the first challenge to the Nevada attorney general’s pursuit over lending practices at Lender. On February 25, Clark County, Nev., District Judge Carolyn Ellsworth threw out more than 300 counts of a criminal indictment against two of its former executives, Gary Trafford and Gerri Sheppard, after finding that the attorney general’s office had committed prosecutorial misconduct before a Nevada grand jury. Specifically, the court found that the office’s attorneys had given jurors an improper definition of what constituted a forgery and threatened a witness into pleading guilty.