The 20-attorney legal department in Providence mostly defends the city against lawsuits. But since 2011, it has partnered with outside law firms to file more than two dozen lawsuits alleging a variety of securities and antitrust violations. The outside law firms have funded the litigation in return for a share—a third—of any monetary award.
The “affirmative litigation” model—while not without controversy over potential conflicts—has been growing in popularity among municipal legal departments in recent years amid a slow economic recovery and uneven regulatory enforcement at the state and federal level, say city attorneys, trial lawyers and legal experts. And because plaintiffs’ firms bear the litigation load, cities enjoy only the upside of potential victories and monetary awards.
Municipalities have moved beyond such securities litigation in recent years, filing lawsuits alleging among other things that defendants sold them products at unfair prices, damaged the environment and infrastructure, illegally marketed painkillers and discriminated against minority residents.
Jeff Padwa, Providence’s city attorney from 2011 to 2014, said he devised an affirmative-litigation strategy over dinner with then Mayor-elect Angel Taveras days beforeMr. Taveras’s 2011 swearing-in. At the time, the city’s unemployment rate was 11% and its tax base was shrinking.
Mr. Padwa said he modeled the legal department after the Connecticut attorney general’s office in the 1990s under Richard Blumenthal, who positioned the state as one of the leaders in the tobacco litigation and joined other states in a suit against Microsoft over alleged antitrust violations. [In fact, Blumenthal had nothing to do with the tobacco litigation for years; when it appeared on the cusp of success, he jumped in front of the cameras and claimed the spotlight.]
Since 2011, Providence has filed 15 cases against corporations and banks alleging securities violations as an institutional investor. Most of the cases are still pending, but judges have dismissed some.
In August, a federal judge in Manhattan rejected a Providence lawsuit alleging Nasdaq and other stock exchanges gave certain traders an unfair advantage, according to court documents. Nasdaq declined to comment.
The city sued Brazilian electric company Eletrobas in August 2015, alleging current and former officers made false and misleading statements to investors in connection with a bribery scheme. The company’s lawyers said the complaint is based on “a wholly unsupported assumption” that the company’s costs were inflated.
The city’s 2015 lawsuit against drug maker Cephalon and other pharmaceutical companies alleges they conspired to delay the introduction of a generic version of narcolepsy drug Provigil. Lawyers for the companies, which deny the allegations, have asked a federal judge in Rhode Island to dismiss the case.
Mr. Padwa said cases filed by Providence have resulted in more than $200 million in recoveries. In class actions, the city sues to recover its own losses as well as the losses of scores of others allegedly harmed by a company’s conduct. As a result, its cut has been small relative to the total.
In three cases that have settled, Providence has been awarded a total of $62,000, according to current city solicitor Jeffrey Dana. A few of the cases have been dismissed, but most are pending.
The relationships between plaintiffs’ firms and public officials have long faced scrutiny and generated controversy, especially when firms donate to the campaigns of state attorneys general and are later hired by those same officials to represent the states in lawsuits.
The U.S. Chamber Institute for Legal Reform, the legal arm of the U.S. Chamber of Commerce, and others have scrutinizedrelationships between plaintiffs’firms and state attorneys general, raising concerns about potential conflicts of interest, favoritism and the use of a public entity for personal gain.
“Cities and counties are very, very ripe for these kinds of sales pitches, because there is the promise of millions of dollars at a time when a lot of them are really very cash-strapped,” said Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform.
Whatever the role of municipal government was intended to be in the daily lives of its citizens, enriching trial lawyers and lining the pockets of politicians was probably not among them.