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Cahill’s legal costs soaring

He and lottery head fight suit on bid dispute

GOING HIS OWN WAY Cahill’s decision to give the contract to Scientific Games came against advice from his staff that the company’s role be cut back. GOING HIS OWN WAY
Cahill’s decision to give the contract to Scientific Games came against advice from his staff that the company’s role be cut back.
By Frank Phillips and Walter V. Robinson
Globe Staff | Globe Correspondent / December 18, 2009

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State Treasurer Timothy P. Cahill and his lottery director have racked up $393,000 in publicly funded legal costs over the last seven months and are on track to spend another $500,000 as they use two elite law firms to defend themselves in a lawsuit accusing them of rigging contracts in exchange for campaign donations.

Though state officials at times rely on outside counsel in litigation, the legal expenses in this case, for nine attorneys working at premium hourly rates, appear to be unusually high and could climb to more than $1 million if the dispute endures without an out-of-court settlement.

The Lottery Commission already voted last month to authorize tripling the original legal budget, to $900,000, to fight the $20 million federal lawsuit, which Cahill aides say is without merit. But the current expenses cover only the early skirmishes in the suit, which has political ramifications for Cahill, a former Democrat who is running for governor as an independent. The legal work has involved only a handful of preliminary motions, minor document filings, and several court hearings. Only one deposition has been taken so far.

In its suit, Bingo Innovative Software of Rhode Island alleges that Cahill and the executive director of the Massachusetts State Lottery, Mark J. Cavanagh, rigged contracts in a “pay to play’’ scheme that favored the huge international gaming company Scientific Games International. Bingo contends that Scientific Games, the state Lottery’s longtime supplier of scratch tickets, was given preferential treatment in a separate $22 million contract five years ago, in exchange for donations to Cahill’s political account. Cahill has said those accusations are baseless.

Grace H. Lee, Cahill’s in-house legal counsel, said the decision to hire outside counsel in February was forced on Cahill because Attorney General Martha Coakley, concluding that her office faced potential conflicts, decided it could not defend him or Cavanagh. At the time, the State Ethics Commission was investigating Cahill and the contract issue and could have referred the case to Coakley for prosecution.

“The attorney general made that decision out of an abundance of caution,’’ Lee said. “This is not a situation we sought.’’

The potential conflicts that prompted Coakley to decline to take the case have not existed for some time. One of those investigations, the Ethics Commission’s review of Cahill’s role in the Scientific Games contract, ended several weeks after the contract with the private law firms was signed. The other potential conflict involved Secretary of State William F. Galvin’s review of possible lobbying activities by Thomas F. Kelly, Cahill’s close friend and political associate, who was secretly paid by Scientific Games to help win its contract. Galvin has not referred the case to Coakley.

The issue of Cahill’s legal bills comes as the Legislature wrestles with its own large legal bills, which taxpayers are also funding. The House has been embroiled in a controversy over $378,000 that it has paid so far to a Boston firm for representing the chamber in the federal investigation of former speaker Salvatore F. DiMasi. Bending to demands from his colleagues, Speaker Robert A. DeLeo agreed to hire a private attorney or auditor to review the bills.

Cahill, who oversees the lottery, decided on one week’s notice to give the legal work to two politically connected law firms: Mintz Levin, which has done millions of dollars of bond work for the treasurer’s office, and former attorney general Scott Harshbarger and his firm, Proskauer Rose LLP.

Four lawyers at Proskauer Rose have represented Cahill, including Harshbarger, charging $500 an hour. Cavanagh has used a five-member legal team from Mintz Levin at $484 an hour.

Those rates fall in the top range for Boston law firms. The secretary of state’s securities division paid $300 an hour for a Boston firm, Sloane & Walsh, to represent it in court appearances on a case related to convicted swindler Bernard Madoff. It cost the taxpayers $45,265.

’’Litigation is expensive, and good litigation is costly,’’ said Robert M. Delahunt Jr., the lead attorney for Mintz Levin on the Cahill lawsuit. ‘’We are being extremely, extremely efficient and careful as we can with the public monies here.’’’

Harshbarger did not return calls seeking comment.

A review by the Globe of the US District Court filings shows that the two law firms have done some parallel work. On April 3, the two firms filed separate motions to dismiss the lawsuits. Each firm filed with its motion a 19-page legal memorandum, one signed by Harshbarger and three other lawyers at Proskauer Rose, and the other by Delahunt and two other Mintz Levin attorneys. Because the claims in the lawsuit against both men were essentially the same, so too were the legal arguments to dismiss.

The Globe reported last year that Cahill’s decision to give the contract to Scientific Games was made against advice of his senior staff that the company’s role be cut back. Scientific Games began payments of $3,000 and $4,000 a month to Kelly as part of lobbying to keep its state work, because of his close relationship with Cahill. The payments to Kelly were directed through Regan Communications, the politically influential public relations firm hired by the gaming firm.

While Cahill and the lottery pondered the contract, Kelly was pushing Scientific Games executives to donate to Cahill’s political committee, according to sources involved in the procurement process. The executives said they would not donate until after the contract was awarded. Three months after the award, the firm threw a fund-raising event in New York that raised $20,000 for Cahill.