Tuesday, April 14, 2009

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Taxpayers to foot bill for defense of Cahill, officials say

The Boston Globe, 4/14/09
By Frank Phillips

Massachusetts taxpayers will pay up to $300,000 for outside lawyers to defend a federal civil suit against state Treasurer Timothy P. Cahill because the state attorney general's office declined to handle the case, citing potential conflicts with two state investigations, according to officials involved in the case.

The state Lottery Commission, which is led by Cahill, this month authorized hiring the two law firms, Proskauer Rose LLP and Mintz Levin, to fight a $20 million suit brought by a Rhode Island-based gaming firm, Bingo Innovative Software.

Bingo Innovative Software is alleging that Cahill and Lottery director Mark J. Cavanagh conspired in a "pay-to-play" scheme in which a national competitor, Scientific Games, was awarded lottery contracts as a result of its fund-raising activities for Cahill.

Typically, the attorney general's civil division represents state officials who are sued over their official actions. But in this case, the outside law firms were required because two state investigations into the contracting process could end up in Attorney General Martha Coakley's office, the sources said.

The Ethics Commission is investigating Cahill's role in awarding a 2004 contract for scratch tickets to Scientific Games. And Secretary of State William F. Galvin is reviewing the possible lobbying activities of Cahill's close friend and associate, Thomas F. Kelly, who was secretly paid by Scientific Games to help it win the contract. Either of those probes could result in a referral for prosecution to Coakley.

Coakley's office declined to comment on its reasons for not accepting the case.

Cahill's top deputy, who has described Bingo Innovative Software's suit as "absurd" and "frivolous," said in an e-mail that it is not unusual for the treasurer's office to seek private legal representation.

"We often use outside counsel or special assistant attorneys general in unique and complex cases. This qualifies as both," said Grace Lee, the first deputy treasurer. The treasurer's office oversaw the procurement for the legal work. "We will seek to recoup all legal fees on behalf of the Commonwealth, upon the resolution of this case."

Cahill's defense is being handled by a four-member team at the New York-based Proskauer Rose. It is led by former attorney general Scott Harshbarger, whose rate is set at $500 an hour, according to its contract with Cahill's office. Cavanagh is represented by the Boston firm Mintz Levin, which is charging up to $484 an hour for two partners and an associate, according to the firm's contract.

The hourly rate for the lawyers who head the attorney general's litigation divisions is $49.

Cahill's legal costs are more expensive than some other outside legal work for the state. For example, with the consent of Coakley's office, the Secretary of State's securities division recently paid $300 an hour for a Boston firm, Sloane & Walsh, to represent it in court appearances on a Bernard Madoff-related case.

The legality of the Lottery Commission's vote to pay up to $300,000 for Cahill and Cavanagh's legal bills is being challenged by Bingo Innovative's lawyer, Lee Blais. He filed a complaint with the state Ethics Commission, saying the two men's activities cited in the suit were not within the scope of their official duties, so taxpayers are not liable for their legal bills.

The treasurer's aides said the activities were in his official capacity. Lee, the deputy treasurer, dismissed the allegation as a maneuver to "bolster a meritless case." She said it "reflects at best a limited understanding of the law, and at worse an unethical attempt to leverage and politically pressure the state treasurer" to give Bingo Innovative a contract.

The suit poses potentially serious political problems for Cahill as he begins to lay the groundwork to run for governor next year. His legal team last week filed motions to dismiss the suit. But if it does proceed, the discovery process alone would include witnesses testifying in depositions under oath and the production of internal documents that could prove embarrassing or politically damaging.

A central issue in the litigation will be his relationship with Kelly, one of his chief fund-raisers and closest friends. Kelly collected about $200,000 over a five-year period from Scientific Games, which had hired him to help them land the lottery contract. At the same time, Kelly was under contract with Bingo Innovative to help the firm win lottery work, even when the two were bidding on a project to create an electronic bingo game.

The Globe reported last month that an investigator from the state Ethics Commission who collected internal e-mails, campaign finance reports, and other documents recently interviewed Cahill about his decision to award Scientific Games the largest share of the work to produce scratch tickets. His decision was made against the advice from his senior staff that the company's role be cut back.

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