The Open “Gate” To Legal Fees

By paying $1 million at $600/hour for an internal review of Bridgegate, the State of New Jersey has opened a debate about whether there should be such a high disparity between public and private hourly rates for legal services.

Like all consumer service products, the market price for legal services is generally based upon the level of risk or reward to the consumer and the costs to the provider.  For businesses in northern New Jersey, a $600/hour legal fee is a very strong hourly rate and not particularly competitive.   For public entities, however, the market rate practically never exceeds $200/hour except for matters involving extraordinary risk to taxpayers.

Excluding the state’s 20 largest municipalities, any NJ town that spends more than $1 million in legal fees for all of its legal work each year would be criticized by the public and probably reviewed by the State comptroller’s office.  Those towns might even find themselves the subject of a critical state report and have their state aid suspended until they follow best practices when they hire their lawyers.

The State of New Jersey is a public entity and unless something new is revealed, a review of what happened to cause lane closings at the George Washington Bridge in September, 2013does not pose an economic risk to taxpayers sufficient to justify three times the market price for public legal services. That is not to suggest that a $200/hour top rate is reasonable.  Considering the risk to taxpayers when things go wrong in a town, the current market price for lawyers representing public entities is too low.

The National Law Journal’s recent analysis of government data obtained from a federal database maintained by the Treasury Department is eye opening.

The database details payments made by the little known Judgment Fund. It is a permanent, indefinite appropriation used to pay judicially and administratively ordered monetary awards against the United States and fund settlements negotiated by the Department of Justice. Pursuant to 31 U.S.C. 1304, payments from the fund are authorized when funds are not legally available to pay the award from the federal agency’s own appropriations. It was established in 1956 to facilitate prompt payments and avoid interest.

In total, the federal government expended upwards of $4 billion to resolve lawsuits in 2012, a $1.3 billion (41 percent) increase over the prior year. The 7,000 payments involved a variety of claims, including medical malpractice, personal injury and employment discrimination. The most common were motor vehicle accident claims involving government employees or government vehicles.

As detailed by the National Law Journal, some lawsuits involved mistakes by federal employees, such as an air traffic controller who was talking on his phone when an accident occurred. Meanwhile, others reflected widespread agency issues, including $1 billion towards contract breaches by the Department of Energy.

Still others reflected sizable class-action judgments. The Department of Agriculture, which generally has some of the lowest payouts amounts among federal agencies, paid $3.4 billion in 2012 to resolve allegations of lending discrimination against a class of Native Americans. The legal fees alone totaled $99 million.

When taxpayer dollars like this are spent on judgments and settlements, a $200/hour top fee for lawyers representing public entities seems very low.  In this context, when the State of New Jersey spends $600/hour for lawyers on a matter that has no obvious taxpayer exposure, what is that?

Donald Scarinci is a managing partner at Lyndhurst, N.J. based law firm Scarinci Hollenbeck.  He is also the editor of the Constitutional Law Reporter and Government and Law blogs. The Open “Gate” To Legal Fees