Protecting American Taxpayers From Payment of Contingency Fees?
Last week President Bush signed an executive order titled “Protecting American Taxpayers From Payment of Contingency Fees.” It prohibits the U.S. government from contracting with private counsel to have any legal work performed on a contingent fee basis.
The cheerleaders for business and insurance hail this as a positive development. There is no doubt the effect of the executive order will be to reduce the incentives and resources available for the federal government to go after tobacco companies and other business wrongdoers.
The argument in favor of disallowing the government using private lawyers on contingent fees basis is that it creates a conflict of interest: lawyers acting on behalf of the government should be neutral, impartial and not have a stake in the outcome of a case. But what is really going on is the administration is doing what it can to reduce the likelihood of effective oversight and policing of bad corporate behavior.
Why do I say that? Because the model of private attorneys joining with the U.S. Department of Justice on a contingent fee basis to act in the name of the government is very old and well accepted. There’s nothing nefarious or troubling about it at all. Take the federal False Claims Act (“FCA”), commonly known as the whistleblower, or qui tam, statute. It was initially put in place during the Civil War to ferret out military contractors defrauding Uncle Sam.
An individual with knowledge of fraud provides that information to the U.S. government. He is referred to as a "relator" and, acting on behalf of the government and in its name, sues the fraudster. The Department of Justice then reviews the claim and makes a decision about whether it will “intervene,” that is, take over the handling of the case and pursue it with government attorneys and resources. If the government attorneys do intervene and there is a recovery, the relator gets a percentage of the money recovered. If it does not intervene, the relator is still free to go forward with the case but must continue to do so in the government’s name and he will receive a higher percentage of the recovery than he would if the government intervened. In either case, if there is no recovery, the relator gets nothing.
Under the False Claims Act, both the government and the relator have an interest in the outcome. It is that financial interest that enhances the likelihood that meritorious cases will come to light and be zealously pursued. The arrangement promotes the essence of entrepreneurial spirit in the legal context. It is one of the most successful examples of public and private teamwork ever devised. Recognizing the beneficial effects of the FCA, Congress took steps in 1986 to make whistleblower claims even more attractive to relators. Since then, more than $12 billion has been returned to the public treasury from fraudulent activities through the FCA.
How can President Bush’s executive order be reconciled with the tremendously beneficial public policy behind, and effect of, the FCA? It can’t. What we are seeing is simply an attempt to disable effective partnering of government and private resources. If you are interested in protecting the taxpayer dollar, it makes no sense. However, if your primary goal is to lend a helping hand to corporate America, things become more clear: the executive order is intended to increase the ability of businesses to do what they want with minimal oversight and enforcement. After all we’ve seen from this administration, can anyone doubt there is no other purpose, no high minded concern about protecting the taxpayer, at work here?