New Hampshire Court Deals Setback to Contingency-Fee “Parens Patriae” Suits

new hampshireFollowing the Supreme Court’s decision in Mississippi ex rel. Hood v. AU Optronics, state attorneys-general and their trial bar friends have been able to avoid federal court altogether by simply bringing their class and mass actions through the AG’s office as a parens patriae suit. Not only does this clever maneuver treat courtrooms as cash registers and corrode the integrity of the judicial process, but it also constitutes a staggering conflict of interest, as WLF has long argued.

Under this mutually beneficial arrangement, the trial lawyers receive big contingent-fee awards and the AGs’ campaigns receive out-of-state contributions from those same lawyers. According to a recent report, for example, plaintiffs’ firm contributors to the Mississippi AG “were all [from] out of state, and they made no contributions to any other candidates for statewide office in Mississippi.” In only two instances where contingent-fee law firms represented Mississippi in securities fraud class actions did the firms not make a previous contribution to the AG’s campaign, and they both did so subsequently.

A recent development in New Hampshire has dealt a significant setback to this disturbing trend—at least in the Granite State. In State of New Hampshire v. Actavis Pharma, Inc., New Hampshire AG Joseph Foster had retained the prominent plaintiffs’ class-action firm Cohen Milstein to file suit under the state’s consumer protection act against five leading drug manufacturers for their allegedly improper marketing of prescription opioids. But New Hampshire Superior Court Judge Diane Nicolosi ultimately held that the contingency-fee agreement between New Hampshire and Cohen Milstein was invalid because the AG failed to obtain the requisite legislative approval to retain the firm:

To interpret the statutory scheme so as not to require the [AG] to obtain legislative approval prior to executing a contingency contract creates the possibility that the [AG] will usurp the legislature’s appropriations function, an outcome that could run afoul of our constitution.

Although the court’s decision turned primarily on specific New Hampshire laws that require the joint approval of the legislative and executive branches before the AG may hire outside counsel, it also implicated basic separation-of-powers concerns that apply in every state government. The decision may therefore offer a roadmap for other defendants desiring to challenge such cozy contingency-fee arrangements in parens patriae suits brought by other state AGs.

Also published by Forbes.com on WLF’s contributor page.

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