Attorney General Alan Wilson said Loftis didn't initially disclose details of his longtime relationship with lawyer Mike Montgomery. When Wilson learned of them later, he signed off on Montgomery's involvement because he believed it wouldn't affect taxpayers.
Loftis said he told Wilson about his connection to Montgomery from the start and "did everything to say, you know, 'This is my guy,' " when he sought clearance from Wilson.
Wilson sees no harm and said such connections are common in South Carolina's relatively small legal community.
Montgomery's engagement in a contingency fee case, in which lawyers get paid a percentage of whatever their client wins, does not violate any laws. But when The Associated Press described details of the arrangement, legal experts and government watchdogs said it raises questions about how the state distributes legal work and the role relationships might play in deciding who gets to spin the wheel on contingency fee contracts. Other states have moved to systems requiring more vetting.
"It smacks of political patronage," said Gerald Finkel, a Charleston School of Law professor and past president of the South Carolina Trial Lawyers Association, now called the South Carolina Association for Justice.
Contingency arrangements and hiring outside lawyers have been top issues for the American Tort Reform Association for years. The group has pressed states' attorneys general to pledge to be more open in how they award that lucrative work. The arrangements are rare in South Carolina -- just six contingency fee contract lawsuits have won approval since 2008 -- and they leave unanswered questions about how taxpayers can be sure the best qualified lawyers are handling their interests.
Taxpayers should expect the state to field its best legal minds because the defendants will bring their best, said Darren McKinney, the association's spokesman. "You can rest assured they'll have their hall of famers in the lineup. It would be suicidal not to," McKinney said.
MORE THAN A YEAR AGO, former state Treasurer Converse Chellis tapped Columbia lawyer Mitch Willoughby to look at a lawsuit against Bank of New York Mellon Corp. The state had a contract for short-term conservative investments for state and retirement cash. The state alleges the bank lost money by investing in long-term, mortgage-backed securities, a claim that bank spokesman Tim Steele said has no merit.
In January, as Loftis prepared to succeed Chellis as treasurer, Willoughby briefed Loftis and Montgomery on the case. Montgomery, a Loftis friend since 1978 when they were Pi Kappa Alpha brothers at the University of South Carolina, has handled Loftis' legal work for more than 20 years and continues to do so. At the time of the Bank of New York Mellon conversation, he was working as Loftis' unpaid transition lawyer.
Willoughby, who had no previous connections with Loftis, came out of the briefings thinking that Montgomery should be added to the lawsuit's legal team, though he insisted no one pressured him to make that move. He had worked on different sides of cases with Montgomery, who had known him for about 20 years and respected his work.
Montgomery had another tie to Loftis: political donor. Campaign finance reports show Montgomery gave at least $1,052 to Loftis during his bid for treasurer last year.
THE BANK OF NEW YORK Mellon case involves other connections between lawyers. Willoughby, for instance, had known Chellis for years before being hired. Chellis, a certified public accountant before his election as treasurer, had testified on cases Willoughby had argued.
Even Wilson, who approved the hiring of Montgomery, had been special counsel in Willoughby's firm for two years before last year's election and had known him for years through the South Carolina Army National Guard.
Finkel, the professor, said it's unusual to add another lawyer as far into a case as Montgomery was, particularly against a major opponent like one of the nation's largest banks. "Getting a lawyer or switching horses midstream generally is not done that far into the litigation," Finkel said. "And it just doesn't pass the smell test if there are personal relationships that have colored the employer relationship."
Loftis said the state could be repaid $200 million from the bad investments. If the state wins back the full amount, the lawyers would be paid $14 million under a contingency contract that pays them 23 percent of the first $5 million and decreasing percentages for damages exceeding that. Willoughby's agreement with Montgomery gives him 77.5 percent of the fee, or $10.9 million before expenses; Montgomery would get $3.1 million.