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September 9, 2008
Corporate monitors and double standards
By Walter Olson
Last November the Newark Star-Ledger reported on an eyebrow-raising instance of the Justice Department practice of leaning on companies under investigation to appoint "corporate monitors". In particular, New Jersey U.S. Attorney Christopher Christie had "helped the Ashcroft Groupthe consulting firm of ex-Attorney General John Ashcroftobtain a contract worth between $28 million and $52 million to monitor Zimmer Holdings, a medical supply company accused of Medicare fraud." That story quite rightly set off a round of discussion and concern, both because of the dangers of political coziness in the choice of monitor and because the fee numbers seemed high. In July, Democrats on the Hill introduced legislation to impose what it is hoped will amount to an "open, competitive process"going beyond the Justice Department, which had already adopted its own tightened guidelines for the picking of monitors in implicit acknowledgment that the concerns were genuine.
It's funny how these things work, though. For a full decade nowstarting with the great state tobacco-Medicaid litigation, and never really abating since thendebate has raged at the state and local level about the often cozy and uncompetitive process by which governments select outside counsel for the correction of business defendants. In this latter caseexemplified by the gun, lead paint, drug-reimbursement, and many other public-nuisance and mass-tort actions, as well as a wide range of securities class action mattersthe lawyers are hired to sue the businesses, as distinct from monitoring them afterward, and they are compensated through contingency fees, which sometimes sets them up for lower fees than Ashcroft & Co., but often for fees that are very much higher.
You may have noticed that many of the folks who have led the charge on the Christie-Zimmer matter display virtually no interest in this longstanding debate about state and local retention of outside counsel. The Times, for example, has gleefully seized on the Christie/Zimmer affair as a stick to beat the Bush Justice Department, invoking "the kindness of cronies", the use of monitoring positions "to throw patronage to friends and political allies", the danger that prosecutorial judgment will be colored by the chance to generate "a rich payday for a friend", and so forth. Yet the Times never shows the slightest editorial interest in the contingency-fee contracts that governors, mayors, treasurers, comptrollers, and attorneys general keep arranging for close chums and leading campaign contributors, whether it be lead-paint contracts in Rhode Island, Oxycontin contracts in West Virginia, securities and drug-reimbursement suits in many states, insurance cases on the Gulf Coast, or tobacco and gun litigation contracts nationwide including its own back yard of New York, Connecticut and New Jersey. Congress never did show much interest in investigating those contracting abuses either, and it shows essentially none now. So although groups like the U.S. Chamber of Commerce have pressed for transparency in the awarding of such contracts, they face a mostly uphill and unpublicized fight.
Of course, one obvious difference between the two types of potential corruption is that there is not much partisan mileage to be had by going after the contingency-fee kind, because although plenty of Republican officials around the country are in on the game, even more Democrats are. But that can't be relevant. Can it?
Regulation Through Litigation
State Attorneys General