Alaska is paying a New York law firm a $91.3 million contingency fee for a case it could have handled itself, after the Alaska Legislature in 2007 balked at funding the case.
The Alaska Department of Law sought an appropriation of $12 million to pursue the Alaska Retirement Management Board's claims against Mercer, Inc., an actuarial firm it said gave it flawed advice that helped drive the state to a multi-billion dollar future deficit.
The settlement won for the state by the firm Paul, Weiss, Rifkind, Wharton & Garrison LLP was for $500 million, but only $403 million will go to the Public Employee Retirement System and Teacher Retirement System trust funds.
"It would have been nice to have tried it ourselves and not have to give up any of the funds," said Rep. Beth Kerttula, D-Juneau, a lawyer and former assistant attorney general.
Department of Law attorney Mike Barnhill told the members of the Legislature's Finance Committees in 2007 that the state's case against Mercer was strong and could win a big settlement or judgment for the ARM Board. Mercer is a subsidiary in insurance giant March & McLennan, a publicly traded company with a stock market value of $14 billion.
Key legislators were unwilling to pay the costs of pursuing the case, however. Senate Finance Committee Co-chair Bert Stedman, R-Sitka, balked at the Department of Law's request and suggested that if the state attorneys were confident in their case they should find someone to take it on contingency.
Stedman's counterpart in the House, Rep. Mike Hawker, R-Anchorage, doubted the state could even win the case, likening it to "suing the weatherman for a bad forecast."
As it turned out, the state won what Attorney General Dan Sullivan called a record settlement for an actuarial malpractice suit. Mercer's estimates for Alaska's future health care costs were not only flawed, but were given to the state even after the company knew they were flawed, the state said.
Neither Hawker nor Stedman has returned calls since the settlement was announced Friday.
The state negotiated an unusually low contingency fee of 18.5 percent, Sullivan said, which will result in a payment of $91.3 million.
By contrast, the entire Department of Law budget next year will be $84 million.
Barnhill, though, said its not clear the decision to use the contingency arrangement was a bad idea.
"I'd be reluctant to call it a mistake," he said.
While the original estimate of lawsuit costs was $12 million, Barnhill said he was told by the attorneys representing the state that work performed, if it had been done on an hourly basis, would have cost $26.3 million.
"One could say we'd have gotten more money if we'd done it on an hourly basis," Barnhill acknowledged. That would have meant the state could have put an additional $65 million into its retirement funds.
However, Barnhill said, that would have entailed returning to a reluctant legislature to seek more money midway through the case.
"You can always armchair quarterback this after the fact, but I don't see the point in it," he said. "We're happy with the results, the Legislature is happy with the results, the ARM Board is happy with the results."
ARM Board Chair Gail Schubert, general counsel for the Bering Straits Native Corporation, agreed.
"The result that the folks at Paul, Weiss obtained was a really excellent result, everybody was really happy with that," she said.
She, too, was reluctant to second-guess the Legislature.
"I was not part of the deliberative process the Legislature went through," she said, but "I'm sure they considered the pros and cons before they made their decision."
While they won a strong settlement, as Barnhill predicted, a bad outcome could have meant spending millions of dollars and obtaining nothing, she said.
It may not have been necessary to use the contingency process however, Kerttula said.
"I'm loath to say Alaska lawyers couldn't have handled this," she said. "Alaska has some great lawyers in Mike Barnhill and the other lawyers in the AG's office, and we often hire (additional) contract attorneys.
"I believe in local hire," Kerttula said.
Contact reporter Pat Forgey at 523-2250 or firstname.lastname@example.org.
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