Article -- Donations linked to contracts: Petro denies that campaign funding affects who gets special counsel work

(Submitted 11/20/05) By Laura A. Bischoff Dayton Daily News COLUMBUS The Columbus law firm of Kegler Brown Hill & Ritter received $8.5 million in fees over three years as an outside counsel hired by Ohio Attorney General Jim Petro's office. Meanwhile, since 1999, the year it became clear Petro would run for attorney general, lawyers and others associated with Kegler Brown contributed $74,495 to his campaign fund. That averages $1 for $114 in business. Benesch Friedlander Coplan & Aronoff, another Columbus law firm, accounted for $77,481 in contributions, and did $1.13 million in state work between 2003 and 2005, an average of $1 for every $14 to the firm. The law firms and the attorney general's office don't see a quid pro quo. Petro says there's no connection between contributions and contract work. Most of the law firms he has under contract for outside work did similar work for previous administrations, he said. The lawyers say they get the business because of their expertise and experience, not campaign giving. "It's not at all related. We give to a lot of political campaigns. The fact that we do legal work is unrelated to those donations," said Kevin Kerns, a Kegler Brown partner. But a Dayton Daily News examination of fees and contributions of the 355 special counsel law firms found a correlation between those that made campaign contributions and those that received special counsel work. In general, the ones that gave the most made more in fees. •The 49 firms that gave Petro's campaign more than $10,000 through their lawyers, spouses and political action committees, were paid $71 million for state work between fiscal years 2003 and 2005, or an average of $1.45 million for the three years. •The 94 firms that gave between $1,000 and $10,000 received $37.6 million in fees for 2003-05, or an average of $399,924. •The 212 firms that gave less than $1,000 received $20.1 million, or an average of $94,745. Certainly, there were exceptions. In fact, 168 of the special counsel firms, 47 percent, did not contribute to Petro's campaign, and more than two dozen of them still got six-figures in legal fees. Seven other firms contributed thousands but have received nothing in legal fees, although most of them are working on a contingency basis on cases that have yet to be concluded. Trend predates Petro The analysis found the same trend under the previous attorney general, Betty Montgomery special counsel firms that gave the most money, got bigger fees. Montgomery was attorney general for eight years, is now state auditor and, like Petro, is running for governor. On her watch, special counsel firms that accounted for more than $10,000 in contributions, received legal work worth $1.3 million on average over three years. Those that gave between $1,000 and $10,000 averaged billings of $239,844 over three years and those that gave less than $1,000 averaged billings of $117,736. "Clearly there is an expectation that if you're going to get significant work from the attorney general's office you're going to have to contribute to his campaign," said state Sen. Marc Dann, D-Warren, one of two Democrats running for attorney general next year. He said Petro has "privatized" the attorney general's office, farming out work that could be done less expensively by state employees. All told, Ohio paid outside attorneys $129.2 million for legal work over the last three fiscal years. These law firms — through their political action committees and their attorneys and spouses — have given the Petro campaign fund $2 million, more than 90 percent of it since 1999, the year Petro made it known he would run for attorney general in 2002. He was state auditor at the time, but could not seek re-election. For Petro, 57, a Republican, it's not surprising that people who have a stake in state government, who are active and involved, would want to contribute. "I don't mind the notion of publicly financing campaigns. I don't know how you raise money in a campaign if people who have any involvement at all in government aren't allowed to give," he said. "If we put so many constrictions on who can give money to candidates for office, all we would elect in Ohio is Tafts, Browns and Sweeneys. Somebody named Petro has no name familiarity whatsoever." Petro acknowledged that there can be campaign finance abuses, but said the current system — which requires full public disclosure — isn't as bad as portrayed by the media. Issues are separate Petro and others from his office, including Matt Cox, a former special counsel director who just resigned last month as Petro's campaign manager, said there is no connection between campaign contributions and contracts. D. Michael Grodhaus, first assistant attorney general, said he and his staff never even look at campaign finance reports to see who is giving. "I don't want that information rattling around in the back of my head," he said. The attorney general has 358 attorneys on staff but hires outside attorneys for cases that require special expertise. This special counsel work is unbid. Grodhaus said the office never developed in-house expertise for low-volume work or in specialty areas that are so lucrative in the private sector the state's $41,500 starting salary can't compete. State agencies also will request to use an outside law firm and Petro's office often acquiesces, officials said. 'An appearance issue' Still, a situation where major contributors can secure unbid work invites questions. "I think it's an unavoidable conclusion that there is a correlation between the amount of campaign cash that is going into Petro's pocket and special counsel contracts that these firms are getting," said Ned Wigglesworth, an analyst with TheRestofUs.org, a newly formed campaign finance watchdog group based in California. "Even if everybody else is doing it doesn't make it right," he said. Political scientist John Green of the University of Akron was more cautious in his assessment. "These kinds of correlations between money and contracts are suggestive but not definitive," Green said. "It certainly can be an appearance issue." Three of four prospective candidates for attorney general next year said they would have an objective process for picking special counsel and would attempt to do more legal work in-house. Democrat Subodh Chandra, a former federal prosecutor and former Cleveland law director, said Petro overuses special counsel and there's a questionable pattern of campaign donors getting the work. "If that's not a conflict of interest, it has the appearance of a conflict of interest," Chandra said. Dann and state Sen. Tim Grendell of Chesterland, the only Republican in the race so far, said they, too, would bring more work in-house and pick outside counsel based on objective criteria. "The root of this is we should have in place a system of picking special counsel based on qualifications and capabilities. And if you have that in place, you wouldn't have a concern about connections between contributions and contracts," Grendell said. Law limits contributions Petro appeared as a special guest Oct. 5 at a $250 per person fund-raiser in Cleveland for Franklin County Prosecutor Ron O'Brien, a Republican who is considering running for attorney general. All 10 firms or individuals listed as co-hosts were special counsel under Petro. Grendell said O'Brien "is clearly following the special counsel solicitation process. And I think that's unfortunate." O'Brien said he does not know who has special counsel contracts with Petro's office. "I would say to Marc Dann and Tim Grendell, who are in the legislature, introduce a bill that prohibits special counsel from contributing to the attorney general," O'Brien said. "They should introduce a bill. They haven't done it." State law already limits companies or individuals who get unbid contracts from contributing more than $1,000 to a candidate in the two years prior to getting the contract. In practice, this is interpreted to mean individuals getting such work are limited to $1,000 contributions. Another interpretation is that the limit is $1,000 per firm, said Catherine Turcer of Ohio Citizen Action. Turcer said the interpretation in practice allows a firm with 100 attorneys to give as much as $100,000. "It becomes not a true limit," she said. Petro's retainer agreements specify that the no-bid contract is void if the special counsel gave more than $1,000 to The Jim Petro for Attorney General Committee. His spokesman, Mark Anthony, said the contributions are legal and publicly reported. Petro, Montgomery and Secretary of State J. Kenneth Blackwell are the three major Republican candidates seeking the party's nomination for governor. Reports in July showed Petro with the largest war chest, with $3.1 million on hand, compared Montgomery's $1.5 million and Blackwell's $1.1 million. Lawyer fees vary For some special counsel work, there are standard fees: $125 an hour is the basic rate for legal work. For debt collection, it's 33 percent of the first $30,000 collected followed by 10 percent on debt collected above that. Other law firms negotiate higher hourly rates — such as $600 an hour for attorney Robert J. Kenney of Hogan & Hartson for University of Cincinnati work on a hospital issue and up to $500 an hour for John Carey of Watkins Bates to advise state universities on federal health insurance privacy laws. Hogan & Hartson attorneys did not give to Petro's campaign fund, while Watkins Bates accounted for $15,462 in contributions. Kari Hertel, Petro's director of special counsel, said state agencies, such as the pension systems, universities, and government offices, sometimes request specific law firms. The agencies, then, provide the money to pay these lawyers. Attorneys hired to handle bond issuances are typically paid based on the size of the deal. That work is spread around on a rotating basis, or when it comes to university bonds, based on which law firm the institution wants, Hertel said. In other cases, law firms are paid on contingency, where they get a percentage of what they may win in a lawsuit or nothing if they lose. Contract to a chairman That's the arrangement for attorney Michael Colley, the former Franklin County GOP chairman and one of Petro's statewide campaign chairmen, a volunteer post. Likewise for Democrat Stan Chesley of Cincinnati, who held a fund-raiser in January that resulted in about $50,000 for the Petro campaign. Colley was hired, along with the New York law firm of Milberg, Weiss, Bershad, Hynes & Lerach to represent the Ohio Tuition Trust Authority in a federal lawsuit against Putnam Investments. Putnam, which is accused of defrauding investors, held more than $2 billion in investments for the tuition trust. Ohio is lead plaintiff in this national class action suit. Milberg Weiss can keep up to 20 percent of whatever settlement they win and would share a portion with Colley's firm. Dann said Milberg Weiss is a nationally recognized expert in securities fraud, but Colley has no expertise in the matter. Dann sits on the Ohio Tuition Trust Authority board and objected to the Colley appointment in December 2003. "It's essentially handing Mike Colley's law firm a multi-million dollar windfall," Dann said. Colley disagreed. Petro matched a top securities firm with a top local trial firm, he said "When we accept representation in a case, we are qualified to represent the client," Colley said. Collecting government debts Ohio is owed about $8 billion in unpaid taxes, student loans, university library fines, hospital bills and other debt, some of which is decades old. The attorney general is in charge of collecting it. Petro's 120-member collections enforcement staff tries to collect debt for three to six months before sending it to collection agencies or attorneys, who try for up to five years before the debt is sent to a company that specializes in hard to collect debts. Petro trumpets the fact that the state has collected $550.4 million since he took over as attorney general in January 2003, compared with $1.17 billion collected under the Montgomery administration between 1995 and 2002. Seventy-five percent of the collections are done by state staff. When outside attorneys get the job, they usually receive one-third of the first $30,000 they collect and 10 percent on anything above that. Most of the $1.7 billion in active debt accounts are for less than $30,000. Collections, contributions Over the last three fiscal years, Ohio paid $41.2 million in legal fees to collect $144.8 million, which works out to be an average of 28 percent for the lawyers. Collections attorneys have contributed to Petro's campaign as well. The 10 firms that made more than $1 million in collections fees over the last three years all made contributions. They ranged from $2,500 from Lee Smith Associates in Columbus to $53,233 from Dayton-based Flanagan Lieberman Hoffman and Swaim. Sue Pohler, senior deputy attorney general in charge of collections, said she assigns work to firms that have the software, staff and experience to handle it. She also tracks lawyers' collection rates and cuts off work for those that under-perform. Chandra, the Democrat running for attorney general, said he negotiated a lower rate for attorneys doing collections work for the city of Cleveland. Pohler said she doesn't think Petro should do the same. The higher rate ensures a level of professionalism, she said. "I can get the attorneys to do the work for less. I can't get attorneys to do good work for less," Pohler said. "We work for the state. I'm not going to go throw granny out of her house and we're not going out twisting back pinkie fingers to get a payment." Contact Laura A. Bischoff at (614) 224-1624.