News: CJ Exclusives

Lawyers Spent Gas-Tax Funds on Beer and Candy

AG’s office says expenses ‘appropriate and necessary’

Washington lawyers assisting Attorney General Roy Cooper in his suit against the Tennessee Valley Authority used North Carolina gas-tax revenue to purchase alcohol, candy, airline flight upgrades, and valet parking, an investigation by Carolina Journal reveals.

The expenses, confirmed by invoices obtained by CJ, were part of $1 million in gas-tax revenue paid to the Ayres Law Group, which was hired at a cost of up to $515 per hour to assist Cooper in the widely publicized pollution control case.

Meanwhile, a worsening economy is putting the pinch on North Carolina’s already strained transportation account, a portion of which is funded through gas tax revenue. The N.C. Department of Transportation is tightening its belt in anticipation of a hefty state budget shortfall, postponing three-fourths of its planned projects and trimming road maintenance, including pothole repair.

Observers have long criticized use of gas tax funds for projects unrelated to roads. “One of the reasons we have the problems we have in transportation now is because of the constant siphoning off of money that’s collected in road taxes, including the gas tax and the highway use tax, to nontransportation expenditures,” said State Senate Minority Leader Phil Berger, R-Rockingham.

In addition to funding the travel and billable hours of the Ayres Law Group, the dwindling gas tax revenue funded the travel and billable hours of a second firm, Resolution Law Group, which specializes in environmental risks, insurance coverage, and securities brokerage issues. Its lawyers took dozens of trips connected to the TVA suit, spent thousands on upscale hotels, airfare, and restaurants, and were reimbursed for a number of extraneous expenses, including premium bottled water, snacks, and beer. State law prohibits reimbursements for alcoholic beverages.

Records show that, in addition to gas tax funds, Cooper’s office received $659,085 for the TVA litigation from inspection and maintenance fees for cars and trucks. The funds also went to legal fees and travel expenses for the law firms.

Noelle Talley, public information officer for the department, said her office would ask to be reimbursed for the alcohol purchase. The other expenses “were both appropriate and necessary,” she said.

“Successful prosecution of this case resulted in an injunction requiring more than one billion dollars worth of pollution controls by TVA which will benefit North Carolina’s health and our travel and tourism industry,” Talley said.

U.S. District Judge Lacy Thornburg in January sided with Cooper in the suit, ruling that four TVA plants in Tennessee and Alabama were a public nuisance to the citizens of North Carolina. The court ordered the plants to install pollution control measures and reduce pollution output. TVA has yet to appeal the ruling.

Legal fees

In 2007, Resolution Law Group charged as much as $258,012 per month in fees. Licensed attorneys, including the firm’s lead counsel in the TVA case, billed out at $225 per hour in 2007 and $235 per hour in 2008. Paralegals billed out at $100 per hour.

Ayres Law Group, which focuses on “all aspects of air pollution policy, regulation, and litigation,” according to its Web site, billed out at $515 per hour for its managing principal, $270 per hour for associates, and $220 per hour for senior analysts, according to a July 2007 invoice. It also charged a $15,000 monthly retainer fee.

Additional thousands went to retain expert witnesses on behalf of the state. For example, the Justice Department paid Susan Tierney, managing principal of the Analysis Group, $515 per hour in expert deposition fees.


Other records obtained by CJ show that Resolution staff traveled extensively at taxpayer expense. Attorneys and paralegals traveled to or from Washington state, California, Indiana, Massachusetts, Maryland, Tennessee, and North Carolina for trial preparation.

Often staff billed the Justice Department for their stays at upscale hotels, including the Marriott Renaissance Asheville Hotel and the Sheraton Needham Hotel in Needham, Mass.

Barbi Sloan, a paralegal for Resolution, stayed in a king suite at the Embassy Suites Hotel at the Chevy Chase Pavilion in Washington, D.C., for almost a month, racking up $6,939.99 in room fees.

Other hotels in the metro area cost far less. For example, the Comfort Inn & Suites, located 3 miles from Capitol Hill, charges $119 per night for a king suite, not counting taxes, and Homestead Studio Suites Hotels, located in Rockville, Md., offers a deluxe studio room with one king bed and a sleeper sofa for $94.99 per night.

Sloan “usually works in Indiana and needed to travel to Washington, [D.C.], to work with attorneys to make sure more than 400 lengthy exhibits were ready for trial,” Talley said.

Among other hotel expenses, Gary Puls, founder of LegalEdge Trial Technology Consulting, stayed at the Marriot Bethesda in Bethesda, Md., for $370.42 per night, according to an invoice.

Another reimbursement report shows $552.56 for two nights at the Westin Hotel in Seattle, Wash., for an unnamed Resolution staffer. It included two payments of $35 for valet parking and $5.50 for one Seattle Lager, plus $17 for a seafood cobb, at the hotel’s restaurant.

“Alcoholic beverages are not reimbursable by the state and the state will be reimbursed by the law firm for this purchase,” said Talley.

One receipt shows a purchase of over $60 in snack foods, including Nestle candy bars and Hershey’s Snacksters. “The snacks were provided during the weeks before and during the trial for four attorneys, two paralegals, and the trial director who were routinely working on this case 12 hours a day, seven days a week,” Talley said.

Michael Goodstein, Resolution Law Group’s lead counsel in the TVA case, filled one of the most expensive reimbursement requests — $3,776.42 — for a trip between Washington, D.C., and Asheville.

Records show that lawyers paid extra for upgraded airfare at least once. Resolution attorneys Stacey Myers and Anne Snyder traveled “special class” for $1,245.60 for a roundtrip flight between Washington, D.C., and Knoxville, Tenn.

The Justice Department redacted many portions of the invoices and receipts provided to CJ, including the names of travelers, their destinations, and where they stayed. Talley said this was done because the TVA litigation is ongoing.

Asked why some details were omitted and others were not, Talley said, “It depends on what and where the trial preparation material was.” Goodstein and his staff declined to answer questions about the expenses.

‘A dramatic blow’

State lawmakers included provisions in the last two budgets that allowed for the transfer of gas tax and inspection and maintenance fees from the N.C. Division of Air Quality to the Justice Department.

DAQ receives a small portion of the gas tax, directed by statutory law to its pollution control program. Similarly, state law requires that fees collected from inspection and maintenance “be applied to the costs of developing and implementing an air pollution control program for mobile sources.”

The General Assembly waived both of these requirements when it transferred the funds for the TVA litigation. The move, however, did not sit well with Keith Overcash, director of DAQ.

In a memo to Bill Ross, secretary of the Department of Environment and Natural Resources, Overcash said the gas tax transfer was “a dramatic blow” and would “cut some critical funding for the state’s air quality program.”

“I am quite concerned, as you can see from my comments in this memorandum, that our program will not be able to sustain its current high level of effectiveness and performance as a result of losing the subject money from our account,” Overcash wrote.

CJ submitted questions to Overcash through e-mail asking for specifics on how the air quality program suffered because of the transfers. Tom Mather, public information officer for DAQ, said Overcash was too busy to respond.

David N. Bass is an associate editor of Carolina Journal.