Alabama Attorney General Fires Outside Counsel Suing BP

Posted on January 30, 2011 by Jeff Blackwell

Last week, news sources reported that Alabama's new Attorney General Luther Strange fired the outside law firms representing Alabama in the BP oil spill litigation.  Now, Attorney General Strange says he will personally assume the role of lead counsel for Alabama.  This is an interesting development.  The big question is -- Did our Attorney General make a good decision or a bad mistake by firing competent outside counsel and assuming the lead role himself?  In all honesty, I see the merits of each side in this debate.

Alabama has a significant history of hiring private law firms to represent our State in litigation seeking to recover damages.  Our last Attorney General Troy King used private firms on several occasions to represent Alabama in complex civil claims.  Some of these claims included:

  1. Litigation against certain drug manufacturers as a result of excess charges against Alabama's Medicaid Agency;
  2. Litigation against ExxonMobil related to royalty payments owed Alabama;

These claims resulted in the recovery of millions of dollars for the State of Alabama.  So, we have a history of some success with outside private counsel before the BP litigation ever started.  This brings us to the present issues involving Alabama and the results of BP's oil spill.  Without question, Alabama suffered one of the greatest impacts from BP's conduct.  Many of our citizens suffered huge damages, including damages to their property and businesses.  This has resulted in a significant number of personal lawsuits against BP.  Likewise, the State of Alabama has sustained huge losses from the BP oil spill.  According to some estimates, our State lost $148 Million in tax revenue as a result of the catastrophe.  Before he left office, our last Attorney General again engaged private legal counsel to protect Alabama's public interests in the resulting litigation.

Thus, Attorney General Strange's decision last week alters a course already set in motion by his predecessor.  How did he justify changing course?  When he assumed the lead role for Alabama in the BP litigation, Attorney General Strange argued that his decision would save the taxpayers outside legal fees.  

While I commend any effort to save the taxpayers money, the issue is not quite so simple.  First, the fees are contingent.  That is, the State incurs no fees if the claims are not successful.  Second, complex claims like those involved in the BP litigation require significant skill and experience.  Any attorney can claim that he has the skill to handle complex civil litigation.  However, the reality is far different.  Experience and skill make a significant difference in reaching a successful result.  I see this reality on a daily basis talking to individuals who called an attorney that simply advertised for injury cases or civil litigation without the real expertise to handle the claim.  Typically, the results more than justify the contingent fee paid to skilled litigation counsel.

I don't write this simply to criticize Mr. Strange and argue his decision to fire Alabama's private counsel in this case was short-sighted.  I hope that he has the personal experience (or litigators in his office with the skill and experience) to handle this important litigation.

I also agree with Mr. Strange on one point.  Our last Attorney General was strongly criticized for his conduct in hiring private outside counsel.  This criticism was fueled by the fact that the same outside law firm appeared to get most of this lucrative business.  Maybe the attorney selection process was fair and equitable.  Even if so, the appearance was otherwise.

Our Attorney General has a real opportunity here.  Now that he has assumed the lead for Alabama in the BP litigation, he has a real opportunity to seek full justice for Alabama against BP.  He has the opportunity to make his office a true legal advocate for our citizens.  He also has the opportunity to establish some clear and fair rules for the future use of outside counsel that can assist our State.  Clearly, in a world of complex and varied legal issues, the need for competent outside counsel will always exist.  So, Mr. Strange can take this opportunity to establish fair and equitable rules for the future.  Will Mr. Strange use these opportunities for the public good?  I hope so.

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Alabama Cities Sue On-Line Travel Firms

Posted on January 12, 2010 by Jeff Blackwell

In December, nine Alabama cities filed suit against several internet travel companies.  These nine cities include Birmingham, Huntsville, and Decatur.  The defendants include such well known internet travel companies as Orbitz, Expedia, Priceline, and Travelocity.

This case is certainly one to watch as it progresses.  At issue is the money collected by these internet firms from consumers as a "tax" when hotel rooms are booked.  These Alabama cities assert that the internet companies failed to pay proper hotel lodging taxes.  According to an article in The Montgomery Advertiser which mentions the lawsuit, it is estimated that Birmingham, alone, could realize an additional $5 million if its claim is correct.

What is the tax issue here?  As any hotel guest realizes when they get their final bill, most cities impose significant lodging taxes.  How do these Alabama cities claim such large and well-known travel companies have short-changed them on lodging taxes?  Basically, the allegation is that these internet companies rent large blocks of rooms at discount "wholesale" rates.  The internet companies then rent the rooms to individual customers at a higher "retail" rate.  That is how they realize a profit.  I see nothing wrong with providing a valuable service for a legitimate profit. 

The problem, if the allegations are true, is that the internet companies collect the lodging tax from each customer based on the actual "retail" room rental rate.  They actually charge and collect an amount listed as "tax" from each consumer.  Yet, they only pay actual lodging taxes on the lower "wholesale" rate and pocket the difference.  It is easy to see how these cities could gain substantial revenue if the defendants paid their lodging taxes based on the actual room rental cost of each guest.  Again, this will be an interesting case to watch as it progresses.  Here's an additional point to consider:  If the travel companies are ultimately successful in this lawsuit and only owe the smaller amount in taxes, does it then raise the issue as to whether they collected additional money from consumers based on the misrepresentation that is was all a "tax" charge?

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