State Auditor Andrea Lea agreed to pay inexperienced out-of-state attorneys a contingency fee nearly twice as high as other states have committed to pay in the long-odds pursuit of unredeemed U.S. Treasury bonds that belonged to Arkansans.
The law firms that got the no-bid contract promising 25 percent of the value recovered were introduced to Lea by one of her campaign contributors, controversial Texarkana attorney John Goodson.
The firms that got the contract are Cooper & Kirk of Washington and Kessler Topaz Meltzer & Check of Radnor, Pennsylvania. Goodson, husband of state Supreme Court Justice Courtney Goodson, and an attorney from Kessler Topaz were among the 17 attorneys threatened with sanctions by U.S. District Judge P.K. Holmes III of Fort Smith for maneuvering to get a more favorable judge in a class-action case.
In hiring the firms that Goodson recommended, Lea passed over the out-of-state lawyers who first pitched the idea of fighting the federal government for ownership of the bonds and who are doing the same work for other states for 13 percent or less.
Lea was able to enter the contract with the Cooper and Kessler firms thanks to legislative language inserted by state Sen. Jeremy Hutchinson, R-Little Rock. Language that Hutchinson added to Senate Bill 356 last year allowed Lea to choose counsel independent of the state attorney general’s office without seeking bids.
The contract calls for the firms to collect a relatively modest 10 percent of the value of the savings bonds already in Arkansas’ possession, those that have been abandoned in safe deposit boxes. Those fees are estimated in the tens of thousands.
But in a vastly bigger and more difficult case, the firms would earn 25 percent if they can manage to get title on the state’s behalf to the matured, unclaimed bonds that were held by people with last known addresses in Arkansas. The value of those bonds is estimated to be $160 million, so the case could be a money-loser for the firms or it could be worth as much as $40 million.
Lea told Arkansas Business that getting title to what the lawyers have called “absent bonds” will be a “long shot.” The Treasury is fighting in the U.S. Court of Federal Claims states’ efforts to obtain title to those absent bonds. (See Kansas Begins Rush to Claim Treasury Bonds.)
So far, no state has been successful in getting title to the absent bonds, but 10 states have hired the same consortium of lawyers that brought the idea to the attention of Arkansas legislators. That consortium — represented by J. Brett Milbourn of Walters Bender Strohbehn & Vaughan of Kansas City, Missouri, and Jonathan Compretta of the Mike Moore Law Firm of Flowood, Mississippi — is charging the other states contingency fees of 13 percent or less.
Cooper & Kirk and Kessler Topaz, the firms Lea hired to represent Arkansas, had no previous experience in this narrow area of law, and it showed when they first filed suit in Pulaski County Circuit Court. Judge Alice Gray denied their request to take title to unclaimed U.S. bonds — neither the paper ones in the hands of the state’s unclaimed property managers nor absent bonds the Treasury believes were last owned by Arkansans.
The attorneys from Cooper and Kessler subsequently got the case in front of an amenable judge by refiling their suit in Washington County with the assistance of Fayetteville lawyer W.H. Taylor. (Taylor has been a frequent co-counsel of John Goodson and is also among the lawyers facing possible sanctions for what Judge Holmes called “forum-shopping” in a class-action case that originated in Polk County.)
Goodson, his law partner and other associates donated a total of $20,000 during Lea’s 2014 bid for auditor. Lea said in a recent interview that Goodson’s campaign contributions didn’t play a role in her choosing the firms he recommended.
Goodson didn’t return a call or email from Arkansas Business.
“I had six years in the Legislature,” Lea said. “I look at every bill separately. I look at each issue separately, not based on any contribution. I never associate with any contribution. That’s really important to me because that’s who I am as a person.”
She also said that, to her knowledge, neither Milbourn nor Compretta tried to contact her after the legislation passed that allowed her to pursue the kind of litigation they had encouraged.
Even if they had, she said, she had concerns about the quality of their work because the bill they crafted initially stumbled in a legislative committee.
“I met the one group already but wasn’t impressed,” Lea said. “They weren’t able to get the bill out of committee. To me, that’s kind of the first step. Getting a bill out of committee is a big deal.”
In an attempt to determine how the Cooper and Kessler firms got the contract, Arkansas Business conducted multiple interviews and reviewed hundreds of pages of documents obtained from the auditor’s office in response to Freedom of Information Act requests. The documents included emails detailing proposals from the various law firms that Lea’s former chief of staff had sent to Lea’s private email account. The auditor’s office turned over those emails only after Arkansas Business learned of their existence and requested them specifically.
Learning the size of the contingency fees that Lea agreed to “borderline gave me heartburn,” said state Rep. Joe Jett, D-Success (Clay County), a sponsor of the bill allowing the litigation.
Lea Runs for Auditor
When Charlie Daniels announced in 2013 that he would not seek re-election as state auditor, Lea was finishing her third term as a Republican state representative for a district that covered Pope County. She also had experience serving on the Pope County Quorum Court and the Russellville City Council.
“She is a passionate advocate for good government, and as a Justice of the Peace, she led the debt-free construction of a new detention center in Pope County,” the state auditor’s website says of Lea. “As a legislator she served as chair of State Agencies and in this role she sought to make state government more efficient and less expensive.”
It was during her time as a legislator that she met Texarkana attorney John Goodson, her spokesman, Skot Covert, said in an email response to a question from Arkansas Business.
“Mr. Goodson is a normal, professional acquaintance,” Covert wrote.
As a candidate for auditor, Lea said that “Transparency should be the foundation of any public office,” according to an Oct. 22, 2014, article by the Arkansas News Bureau.
She received 57 percent of the vote in November of that year, beating Democrat Regina Stewart Hampton and Libertarian Brian Leach.
Meanwhile, the groundwork was being laid for the state to cash abandoned U.S. savings bonds, both in the state’s possession and those absent bonds being held by the Treasury.
Sometime before the start of the regular session in January 2015, Ruth Whitney, a Little Rock lobbyist representing Milbourn’s firm, approached state Sen. Jake Files, R-Fort Smith, about the possible pursuit of abandoned savings bonds.
“From everything I saw, it looked like there weren’t a lot of downsides to it from a public policy standpoint,” Files told Arkansas Business. “It looked like maybe something that could be a benefit for Arkansans to get some of their money, but also secondly, a way to have additional revenues without raising taxes.”
Files agreed to sponsor the legislation.
Before Lea was sworn in as auditor on Jan. 13, 2015, she said, she received a call from Files about the proposed legislation.
“I looked at it as Arkansans’ money,” Lea said. “But being a former legislator, I wasn’t going to stick my nose in legislators’ business. It was like, ‘If you guys want to pass this, go ahead.’”
Whitney introduced her clients, the attorneys handling similar legislation for Kansas and other states, to the new auditor. “She brought them by my office, I met them and that was about it,” Lea said.
On Feb. 12, 2015, the bill sponsored by Files, Sen. Jason Rapert, R-Bigelow, and Rep. Jett was filed.
Compretta, the Mississippi attorney, and George Franks, chief deputy of the auditor’s office at the time, testified in front of the Senate Insurance & Commerce Committee a week later. But some committee members were unpersuaded, including Jeremy Hutchinson.
“I don’t remember, but I remember I initially opposed that, as did most of the committee,” Hutchinson said in a recent interview.
State Sen. Larry Teague, D-Nashville, also had concerns about the legislation and voted against it in committee and when it went to the Senate floor.
“I’m not big on taking folks’ money away from them,” he told Arkansas Business. “It’s not as easy to get that money back as they act like it is.”
Jett, the House sponsor, said the bill was not a top priority for him, but he remembers that it stalled. “I knew something was amiss and my recollection being Sen. Hutchinson had questions about it,” he said.
Although Hutchinson told Arkansas Business that he didn’t remember doing so, the legislative record shows that he proposed the amendment allowing the auditor’s office to hire a firm of its choosing to pursue the abandoned bonds without taking competitive bids.
After Hutchinson’s amendment, the bill passed through the Senate and House and became Act 563 on March 24.
Hutchinson said John Goodson wasn’t involved in passing the legislation “at all.”
“We talked about it afterwards,” Hutchinson said. “He asked about it. I knew he was going to recommend lawyers to Andrea [Lea].”
Hutchinson’s amendment turned out to be key because it allowed the auditor’s office to hire any firm it wanted with no limit on fees. Curiously, Hutchinson was simultaneously involved in limiting the fees that another constitutional officer can pay to outside counsel.
Hutchinson sponsored successful legislation during the same 2015 session that, in his words, “made it very, very difficult for the AG’s office to hire outside counsel” by placing strict caps on the contingency fees outside attorneys could be paid. Under the new law, the attorney general must cap contingency fees at 5 percent for any recovery exceeding $25 million, which the auditor’s litigation may. Only if a recovery is less than $10 million could a firm contracted by the AG’s office be paid the 25 percent that the auditor’s outside counsel will be paid.
Hutchinson said the AG’s office probably couldn’t handle the bond litigation because “it was very unusual.” Jett, however, would have liked for the AG’s office to be in charge.
“I can’t definitely say how the process played out,” Jett said. “It just didn’t sit well with me, I remember that.”
Jett said that he now regrets not adding a clause requiring bids for the work. “My naiveté was I just assumed the state would bid it out,” he said.
Kansas City attorney Milbourn said he tried to get another meeting with the auditor after the legislation cleared a path for litigation, but he was disappointed. “She wouldn’t interview us,” he said.
“We had worked hard to help educate the state and the auditor and bring them the idea,” Milbourn said. “And then to turn around and not even get an interview was a little bit frustrating.”
He said his firm returned to its business with other states.
Compretta, the Mississippi lawyer, was similarly frustrated.
“We did feel that it was kind of odd that we didn’t have the opportunity to at least make a proposal on representing Arkansas,” he said.
While Lea told Arkansas Business that she has “no recollection of them wanting to meet with me a second time,” her staff hadn’t forgotten Milbourn and Compretta. Franks, then her chief deputy, sent an email to Lea’s personal email address on May 14 detailing the firms’ original pitch. It was one of two emails that were released only after Arkansas Business asked specifically for notes that Franks said he was instructed to send to Lea’s private email account. (Covert, Lea’s spokesman, said she rarely uses the private account for state business, but Franks said using it was standard when he was her chief deputy.)
Lea told Arkansas Business that she didn’t consider taking bids from law firms interested in representing the state in its efforts to redeem the Treasury bonds. “It was a very unique situation, and to be perfectly frank, I knew getting it from the federal government was going to be a long shot,” she said.
Instead, she said she was focused on the bonds that were already in hand.
“I think it was John Goodson who said, ‘Can I recommend a firm to you?’” Lea said. “I said, ‘Sure, I’ll meet them.’”
On June 19, Goodson emailed John Ahlen, the auditor’s general counsel, extensive resumes of the two firms he recommended for the job: Cooper & Kirk and Kessler Topaz.
Goodson has worked with the Kessler firm on several class-action cases, including the Polk County case that gave rise to last week’s show-cause hearing by Holmes, the federal judge.
The Kessler and Cooper firms are working together on class-action complaints against Volkswagen. Neither firm claims to have handled issues similar to the bond claims, but Cooper says its practice “reflects a dual commitment to hold the United States accountable for its unlawful actions and advocating for the prerogatives of sovereign States.”
At a meeting in the auditor’s conference room at the Capitol on June 23, Goodson sat at the head of the table and “made it clear that he was receiving no retainer or consideration” in exchange for recommending the two law firms, Franks told Arkansas Business.
In addition to Goodson and Franks, the meeting included Ahlen and two other members of the auditor’s staff, according to Franks, who is now an associate professor of government at Stephen F. Austin State University in Nacogdoches, Texas. The Cooper and Kessler firms each had a representative at the meeting, he said.
Lea was not present, Franks said, but he took notes and emailed them the same day from his private account to Lea’s private account.
Cooper & Kirk and Kessler Topaz proposed a 25 percent contingency fee for litigating the savings bonds that aren’t in the state’s possession, according to Franks’ notes.
Franks said he asked what the fee would be for the bonds that were in the state’s possession. “They said they were unsure, because they were focusing on the other issue, but asked if I had a suggestion,” Franks wrote in the email. “My response was that I did not think it should be more than we give third party finders, and told them that we were limiting that fee to 10%.”
The firms said that sounded fair, according to Franks’ email.
Franks also said in the email that he was familiar with the Kessler firm because it has done work for the Arkansas Teacher Retirement System.
After learning the details of the meeting, “I said, ‘Let’s go with them,’” Lea told Arkansas Business. “They had the better resume and didn’t mess up the bill in committee.” (Neither the Kessler firm nor the Cooper firm was involved with the legislation before it was passed.)
Lea said she did “a minor amount of research” because “I knew this was a long shot” and concluded that the Cooper and Kessler firms were experienced at “fighting on the national level against the federal government, as a matter of fact.”
Franks resigned after six months at Lea’s office, and he said the handling of the contract was one of the reasons for his departure.
“I assumed that we would sign on with the firm … representing Kansas,” Franks said.
His last day on the job was July 23, the same day Lea signed the contract with the Cooper and Kessler firms.
Lea said she didn’t want to use the attorney general’s resources “towards a long shot” in getting the unclaimed bonds from the Treasury. The outside firms will be paid only “if they can make this happen,” Lea said.
She also said that she didn’t realize that Milbourn’s group was seeking a much lower contingency fee.
“I did not take notes, and I admit that,” she said. “My recollection of that meeting is it was 25 percent.”
Attorney Joseph Meltzer, who signed the contract for Kessler, didn’t return a call or email from Arkansas Business. Attorney David Thompson, who signed the contract for Cooper, referred questions to the auditor’s office.
On Aug. 5, Lea’s new lawyers filed a lawsuit in Pulaski County Circuit Court to obtain title to the unclaimed paper savings bonds that are in the state’s possession and to those absent bonds that the U.S. Treasury believes were owned by Arkansans. Her suit asked for a judgment declaring Arkansas to be the legal owner until the rightful owners come forward to claim them.
The money would sit in unclaimed property funds and eventually move into the state’s general fund, as do other unclaimed assets.
“These bonds — worth many millions of dollars — belong to Arkansas and its citizens, but the proceeds are currently lying in the coffers of the United States Treasury,” the lawsuit said. “By granting Plaintiff declaratory relief, this Court can put this valuable property back in the hands of Arkansans, where it belongs.”
Charles Harrison, an attorney with McMath Woods of Little Rock, served as local counsel for David Thompson, Peter Patterson and John Ohlendorf, all of the Cooper firm, and Joseph Meltzer and Melissa Troutner of Kessler Topaz.
Less than two weeks after the complaint was filed, Thompson was in front of Circuit Judge Alice Gray in an attempt to get a temporary restraining order. He said he wanted temporary title to the bonds because the Treasury Department is “attempting to frustrate the will of the Arkansas Legislature” by promulgating rules that would make it difficult for states to get title to the unclaimed bonds.
“The Treasury Department is trying to make sure that 30 days from now, when notice is given, that it will be moot and irrelevant,” Thompson told Gray on Aug. 13, according to a hearing transcript. “There will be no way for Arkansas to get these bonds back, to get this money back into the state, and that the Treasury will get to keep it forever.”
Judge Gray had several concerns with the request, including the auditor’s lack of effort to locate the absent bondholders, and denied the temporary restraining order. Gray also criticized Lea for not attending the hearing to clarify issues or answer any questions from the court.
The ruling was a setback for the auditor’s office, and Milbourn, one of the attorneys representing Kansas and other states, criticized the lawyering performed by the firms that got the contract he wanted.
“They made an attempt to duplicate our work and were unsuccessful, of course,” he told Arkansas Business. “The first time around they didn’t know what they were doing in the first court, and then they forum shopped for a different court. … I would say they figured out what to do.”
Lea said the attorneys decided “to punt” the case out of Pulaski County Circuit Court.
The case was dismissed on Oct. 9, and Lea said she told the attorneys to address Gray’s concerns and refile the case.
They had time to get a new ruling because the U.S. Treasury didn’t change its rules until the end of 2015.
On Oct. 16, the lawsuit was refiled in Washington County Circuit Court. This time, attorney W.H. Taylor of Taylor Law Partners of Fayetteville, a frequent co-counsel of John Goodson, was the local attorney who filed the complaint with the attorneys from Cooper & Kirk and Kessler Topaz.
The outcome was better. On Nov. 20, Circuit Judge Beth Storey Bryan ruled that the state of Arkansas has legal title to bonds that are matured and unclaimed if the last known address of the purchaser or owner was in Arkansas.
And the judge noted that state auditor Lea planned to follow the lead of the lower-priced lawyers who weren’t hired to represent Arkansas:
“In the event that Treasury refuses to redeem the bonds, it is [Lea’s] intent to file an action similar to the action filed by the State of Kansas in the United States Court of Federal Claims,” Bryan wrote in her order.
As expected, the Treasury refused to cash the bonds, and the case is pending in the federal claims court.
Cast of Characters
|Andrea Lea||state auditor since January 2015|
|George Franks||Lea's chief deputy until July 2015|
|John Ahlen||general counsel for the auditor's office|
|Skot Covert||spokesman for the auditor's office|
|Sen. Jake Files, R-Fort Smith||sponsor of legislation enabling litigation in pursuit of unclaimed U.S. Treasury bonds|
|Sen. Jason Rapert, R-Bigelow||co-sponsor|
|Rep. Joe Jett, D-Success||House sponsor|
|Sen. Jeremy Hutchinson, R-Little Rock||who amended the bond legislation to allow the state auditor to hire outside counsel|
|J. Brett Milbourn
Walters Bender Strohbehn & Vaughn of Kansas City, Mo.
Mike Moore Law Firm of Flowood, Miss.
|representing a consortium of lawyers who have pursued unclaimed bonds for 10 states|
|John Goodson||Texarkana class-action lawyer, husband of Arkansas Supreme Court Justice Courtney Goodson and financial supporter of Lea's run for auditor|
|Cooper & Kirk||Washington law firm recommended to Lea by Goodson|
|Kessler Topaz Meltzer & Check||Philadelphia area law firm and frequent co-counsel of Goodson, who recommended the firm to Lea|
|Charles Harrison||Little Rock attorney who served as local counsel for unsuccessful litigation in Pulaski County|
|W.H. Taylor||Fayetteville lawyer and frequent co-counsel of Goodson who served as local counsel when litigation was moved to Washington County|