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Statement of Alan Morrison, Director of the Public Citizen Litigation Group, Regarding Kyl Amendment on Attorneys Fees (S. 887)

May 7, 2003

Statement of Alan Morrison, Director of the Public Citizen Litigation Group, Regarding Kyl Amendment on Attorneys Fees (S. 887)

With no hearings and no warning to the public, Sen. Jon Kyl of Arizona is planning to offer an amendment to the tax bill that will be marked up Thursday in the Senate Finance Committee that, under the guise of tax law, will write new substantive standards for awarding attorneys fees in large cases in federal and state courts. The amendment, which incorporates Kyl’s bill (S. 887), will apply retroactively to all fees paid after June 1, 2002. Public Citizen urges the committee not to accept this radical amendment, both because the Tax Code and the Internal Revenue Service have no business supervising legal fees and because the substantive goals of the Kyl bill are misguided and in many respects unconstitutional.

Public Citizen takes a back seat to no one in its concern about excessive legal fees. We have worked tirelessly to assure that no client pays excessive fees and that all lawyers, on both sides of a case, are paid only fees that are reasonable. In class actions, our lawyers have been among the few willing to oppose unreasonable fees – often to the displeasure of class counsel. But if there is a problem in this area, this amendment is clearly the wrong way to go about solving it.

Although labeled a tax bill, the undeniable purpose of S.887 is to impose on all large lawsuits what its sponsors believe to be the “right way” to calculate attorneys fees. The bill uses the gimmick of imposing a 200 percent penalty on what its sponsors call “excess” legal fees, which means that there is no choice but to follow federal law, even though most cases, including the tobacco cases at which the sponsors claim to be directing this amendment, are based on state and not federal law. That has not stopped the two sponsors (the other is Sen. John Cornyn of Texas), who claim to be supporters of principles of federalism and states’ rights, from attempting to pass federal legislation telling the states what their laws must be on attorneys fees.

The bill would:

  • Create a new system in both state and federal courts for “auditing” legal fees to determine whether they are excessive, even if no one objects, and then require the already-overworked and understaffed IRS to become the law enforcer for attorneys fees;
  • Change the laws that Congress recently passed to prevent abuses in the securities class action field, by depriving the lead plaintiff of the right to negotiate a fee with class counsel, and by bringing in the federal government to “prevent” the very plaintiff that Congress has directed to lead the action from deciding what a reasonable fee is in a particular case. Most federal judges now reject the so-called “lodestar method” demanded by this bill in large damages cases, because that method can be very time-consuming and costly to implement, is often unfair and rewards inefficiency. Yet S. 887 would insist on it as the only way to calculate fees.
  • Take away from federal and state judges their traditional function of supervising fees in class actions, without requiring the slightest showing that they are not, by and large, doing their job properly.
  • Prevent state and local governments from compensating their chosen attorneys on whatever basis they decide is best, on the theory that somehow Congress knows best.
  • Apply to “qui tam” actions under both state and federal law, with a potential adverse impact on the efficacy of this important litigation method for rooting out corrupt practices that victimize governments and the public.

And its provisions on “aggregation” of similar claims seem to apply to mass torts like asbestos where, if a lawyer or law firm, or even “related” firm, recovers for hundreds or thousands of plaintiffs a total of more than $100 million, no matter how many years it takes, once that threshold is reached, all future fees are subject to the new limits.

To top it all off, S. 887 applies not just to contracts entered into and cases filed and even settled before the bill becomes law, but it covers any fee paid after June 1, 2002 – 10 months before the bill was even introduced.

S. 887 is wrong as a matter of policy, and it unwisely entangles the IRS in matters that have nothing to do with tax collection and everything to do with the judiciary. The obvious goal of the bill is to create a congressional rule for attorneys fees in large cases. Sen. Kyl is attempting to slide this non-tax amendment into the tax bill pending before the Finance Committee, which is focusing on true tax issues.

We urge the committee to reject Sen. Kyl’s attempted misuse of the Internal Revenue Code and his effort to make Congress the final arbiter of attorneys fees. The only saving grace in all this mess is that at least its retroactive provisions (so much for property and contract rights) and its attempted application to state court and state law cases are almost certainly unconstitutional.