State will pay lawyers $295-an-hour to keep Seven Counties from leaving the retirement system

10/08/2013 05:21 PM

While lawmakers generally oppose paying outside law firms legal fees exceeding $125-an-hour, a panel on Tuesday approved spending more than twice that amount to fight a non-profit from leaving the Kentucky Retirement System.

Seven Counties Services Inc., one of the commonwealth’s largest mental health services agency, is attempting to leave the Kentucky Retirement System by filing bankruptcy. The state and the Kentucky Retirement System are digging in with everything they can muster to keep the quasi governmental agency in the system — and paying its share.

Officials with the Finance and Administration Cabinet told lawmakers on the Government Contract Review Committee on Tuesday they did bid out the legal work but did not go with the lowest bidder. Instead, they chose Frost, Brown Todd, whose attorneys specialize in bankruptcy litigation. While those attorneys normally charge more than $500 an hour, the state negotiated their rate to $295 an-hour to fight Seven Counties’ attempt to leave the retirement system.

The Kentucky Retirement System is counting on Seven Counties and other organizations to make increased pension contributions into the system in order to meet obligations to fund retirees and current employees pensions and healthcare.

The mental health center’s pension payments will jump from 13 percent of its payroll cost this year to 40 percent by fiscal year 2015, which starts July 1, 2014.

If a federal judge allows Seven Counties to leave the retirement system, lawmakers fear others will follow suit leaving the state with a woefully underfunded retirement system and owing $18 billion more in healthcare and retirement benefits.

Jeff Mosley, the general counsel for the Finance and Administration Cabinet, explained that the importance of this case warranted bringing in specialists in bankruptcy litigation above the $125 hourly rate.

State Sen. Chris McDaniel, R-Taylor Mill, told Mosley that he finds the case “ridiculous” and hopes the state can recover attorney’s fees spent fighting Seven Counties.

“There are other ways to handle this then the very poor manner that Seven Counties has,” McDaniel said. “I will be supporting the contract. I hope and look forward to our prevailing in this.”

The contract with Frost, Brown Todd started on September 5, 2013, and extends through June 30, 2014 and allows the attorneys to charge $295 an hour. The contract allows for $80,000 in fees and the payment will come from state general funds.


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