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Renewed lobbying priority -- tax breaks for contingency-fee suits

The American Association for Justice has just filed its first quarter 2010 lobbying disclosure form, reporting $1.05 million in lobbying expenses for the three-month period. That's compared to the $1.33 million reported in the fourth quarter 2009.

Having successfully lobbied against any medical liability reform in the new health care law -- and boasting of that success -- the AAJ can now turn to other legislative priorities. From the lobbying disclosure, the association's website, www.justice.org, and other sources, we'd identify those priorities as the Medical Device Safety Act -- ending federal preemption for FDA-approved devices -- legislation to ban pre-dispute arbitration clauses, and bills to restore notice pleadings, i.e., to reverse Iqbal/Twombly. These will all be familiar topics to Point of Law readers.

The lobby also appears ready to resurrect H.R. 2519/S. 437, bills to allow the deduction of attorney-advanced expenses and court costs in contingency fee cases. This is the Holy Grail for the trial lawyers, described by Victor Schwarz and Chris Appel of Shook, Hardy, and Bacon in a May 2009 Washington Legal Foundation paper, "Federal Government Bailout for Trial Lawyers." Excerpt:

In the 110th Congress, the Joint Tax Committee scored the federal bailout for trial lawyers at $1.57 billion over 10 years. We do not believe the American taxpayer will want to bear this cost. At that time, The Wall Street Journal editorialized that the tax change "would allow plaintiffs lawyers to deduct the up-front expenses of pursuing contingency-fee lawsuits, even in cases where the lawyer is expecting to be reimbursed for these expenses. . . Allowing these big deductions now would mean that future reimbursements are taxed, but with some monster class-actions, the lawyers could avoid the tax bill for a decade or more. Naturally, this would be an incentive to file more class-action suits, because the lawyers could write off their up-front expenditures to pursue them." Editorial, The Bill Lerach Tax Cut, WALL ST. J., May 30, 2008, at A14. [Here].

We thought the disinfecting sunshine of public scrutiny had killed those provisions, but AAJ must believe otherwise. Not only are the bills listed on the lobbying report, the AAJ has also just hired an outside lobbying firm to work the issue.

On March 1, the Washington Tax Group filed its lobbying registration form with the American Association for Justice listed as its client. Listed as the lobbyist to represent the AAJ is Noushin Jahanian, former chief counsel to Sen. Debbie Stabenow (D-MI), a member of the tax-writing Senate Finance Committee.

Trade associations don't normally spend money on outside lobbyists if an issue is dead.

There's been talk of Sen. Arlen Specter (D-PA), sponsor of S. 437, trying to add various special-interest legislation to the financial regulation bill, but the trial lawyer bailout seems too hot for that maneuver. Our guess is that lobbyists will try to add it to an omnibus or disaster aid spending bill later in the session. A post-election, lameduck Congress in which the Democrats still control large margins in the House and Senate could try for one last bill to reward political allies. A tax deduction for contingency fee lawsuits would be quite a gift to the AAJ, one certainly worth lobbying for.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.