July 20. 2013 9:27PM

Outside counsel fees help push NH litigation tab over $2.3m

New Hampshire Union Leader

A legal challenge to the state's mental health system, seven homicides and a costly dispute over an ill-fated construction contract are among the cases that pushed the state's litigation expenses nearly $2 million over budget by the end of fiscal year 2013 in June.

And next year is likely to bring more of the same, according to Associate Attorney General Ann Rice, who told the governor and Executive Council recently, "I anticipate that those kinds of costs are going to continue for a while."

Legal expenses are difficult to predict, so rather than load up the litigation budget, lawmakers have chosen over the years to under-budget litigation and make up the difference in a series of supplemental appropriations at the request of the Department of Justice.

In the past year, the attorney general had to go back to the Legislature for extra money three times, starting the fiscal year with a budget of $350,000, then requesting an additional $600,000 in September, $850,000 in January and $500,000 in June.

The department spends $60,000 to $90,000 a month on outside attorneys and related costs in an average year, which makes an annual budget of $350,000 a complete fantasy.

When the requests for more money come in, the Joint Fiscal Committee at the State House has to find it in underspent accounts or unexpected revenue, subject to final approval by the Executive Council.

"Historically, litigation expense has been budgeted at about $350,000 a year, and we've had to come back and request more, depending on what our expenses are," Rice told the governor and council in June. "This is an extraordinary year in terms of expense, but we will exceed the $350,000 even in normal years."

Costs triple in a year

The $2.3 million appropriated in 2013 far exceeds the $710,000 spent on litigation in 2012 and was mostly for outside counsel. The Department of Justice has 53 staff attorneys and a budget of $27.6 million.

"Litigation costs are very difficult to forecast," former Attorney General Michael Delaney wrote in his second supplementary request of the year. "This year, the department has been faced with exceptionally complex and expensive legal challenges to the state's mental health system, Medicaid disproportionate share payments, the Medicaid Enhancement Tax, the Medicaid reimbursement system and changes to the state retirement system."

The biggest stress on the budget has been the lawsuit challenging the constitutionality of the state's mental health system, which the federal government has joined as an intervenor. In May, newly appointed Attorney General Joseph A. Foster said the case had already generated $1.18 million in payments to outside attorneys. By the end of the fiscal year, the price tag was at $1.48 million.

Another costly case has been called "the tobacco litigation," in which the state has been fighting for its share of a national settlement with major tobacco companies at a cost $71,725 for outside counsel in 2013.

One of the highest profile cases of the year, the lawsuit pitting the state against ExxonMobil over MTBE contamination of groundwater, doesn't even factor into the equation. The San Francisco law firm prosecuting the case is being paid from settlement proceeds or penalties, although plenty of DOJ staff time was tied up in the three-month trial.

'A ticking time bomb'

While the tobacco case is winding down, other cases are just starting to heat up. Executive Councilor Chris Sununu, R-Newfields, recently expressed his concern over a lawsuit filed by TLT Construction Corp. of Wakefield, Mass., has already cost the state $106,569 for outside counsel, second highest on the list for 2013.

The company was awarded a $26.6 million contract in 2011 to build a new training center and barracks for the National Guard in Pembroke. The state pulled the contract in 2012 and ordered the contractor to vacate the site, claiming significant portions of the concrete foundation failed stress tests, among other problems.

"This is in my mind a ticking time bomb for a large amount of money," Sununu told Rice at the June meeting. In a subsequent interview, he expressed his fear that if the state doesn't resolve the lawsuit and resume the project, it will lose the federal funding.

Foster believes the state could move cases along and save money by hiring more staff attorneys in the Department of Justice and relying less on outside counsel. At a recent presentation before the state's Business and Industry Association, he said the DOJ has 53 staff attorneys today compared with 55 in 1984, when the state had a much smaller population and enjoyed greater immunity against lawsuits.

Keeping cases in-house

Sometimes the DOJ has no choice but to go outside for the necessary expertise, but many of the cases now farmed out could be handled internally with more attorneys, Foster said.

He pointed out that the typical hourly rate for outside counsel is $250 to $275 an hour. At that rate, it only takes 1,000 hours to generate $275,000 in billings. The department's attorneys make between $63,180 and $83,382 a year in base pay, according to the state's "Transparent NH" website. With benefits, their annual compensation package averages $100,000.

The attorney general makes $116,000 a year.

"I plan to bring those sorts of thoughts to the Legislature for the next biennium and have them think about it," Foster said. "I think if we had the bodies, we could do a lot of the work in-house."

Executive Councilor Chris Pappas, D-Manchester, thinks the argument has some merit.

"It's almost like that issue that came up two weeks ago with a consultant the Department of Education was looking to hire," Pappas said. "There's something to be said for having state employees on the job to do the work as opposed to contacting things out in ways that become more expensive."