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Trial lawyers lobby sinks $6.2M in debt

- The Washington Times - Monday, September 28, 2009

The trial lawyers lobby has been awash in debt and bleeding members - just as it embarks on a national campaign to block any clampdown on medical malpractice lawsuits as part of President Obama's health care overhaul.

The American Association for Justice, the most prominent group representing plaintiffs' attorneys, has seen a shake-up in its executive suite and has struggled to deal with what appears to be a mounting budget shortfall. To help it fight congressional efforts to make it harder for patients to sue doctors and lawyers, it recently sent out an extra solicitation to its members, asking them to fork over money for a lobbying campaign.

The most striking evidence of its financial woes is a swift decline in income, which resulted in a more than $6.2 million deficit in its operating budget for the fiscal year ending July 31, 2008, the most recent year for which data are available.

The biggest hit to its books was in membership dues, which dropped from $28.6 million in 2005 to $19.2 million in 2008, according to the annual AAJ financial report for that fiscal year filed with the Internal Revenue Service.

"That is our number-one priority: to strengthen our membership," said Joey Diaz, a member of the AAJ executive committee, speaking by phone from his law office in Madison, Miss. "We have a number of people working on membership and we have reversed that [downward] trend and are starting to move forward again."

Mr. Diaz said he did not know the status of the association's finances because he does not serve on the budget committee.

Officials at AAJ's Washington headquarters declined to answer any questions about finances or the status of the organization. The association's fiscal year ended July 31, and tax filings for that year are not available to the public.

Budget issues didn't stop the group from rolling out a nationwide advertising campaign this week, a response to Mr. Obama's decision to conduct state-run pilot programs that will test alternatives to lawsuits for settling medical malpractice claims.

Dubbed "Put Patients First," the ad blitz warns lawmakers against stripping patients of their rights to sue amid an "epidemic of preventable medical errors." The group is running commercials in Washington newspapers and has created a Web site, 98000reasons.org, which cites an Institute of Medicine study that estimates that 98,000 Americans die each year because of medical errors.

AAJ asked members for extra money to pay for the lobbying campaign in a solicitation last week.

"The stakes are high and the opposition is well organized, but we will succeed because we are on the right side of this issue," an AAJ executive told members in a fundraising e-mail. "A contribution to the Protecting Patients Rights Campaign is an investment in your practice and in your clients' future."

AAJ's Web site also asks members to donate money to an endowment, a political action committee and a fund to pay for AAJ's new Washington headquarters.

The association's financial filings for the past four years reveal that AAJ's operating revenue fell by more than $8 million - from $36.7 million in 2005 to $28.6 million in 2008 - while total yearly expenses remained about the same, at roughly $34 million.

The predicament appears to have forced the trial lawyers lobby to burn through its cash in 2008 and take on more than $14 million in additional debt.

When the association's chief executive officer, Jon Haber, stepped down early from the post in April, he explained that AAJ was in the strongest political position in a generation and that this gave him the opportunity to move on to new challenges.

"We are a far stronger organization today than when I joined AAJ four years ago, working in a positive environment with a pro-civil justice president and Congress," Mr. Haber said at the time.

He resigned after AAJ lost a lawsuit against Wachovia Bank over the collapse of a 2007 loan deal to finance the association's purchase of an office building as its new Washington headquarters.

The association lost more than $670,000 when Wachovia backed out of the loan deal, citing a clause in the agreement that allowed the bank to nix the deal if a "material adverse change" in market conditions hampered its ability to resell all or part of the loan.

AAJ argued in court documents that the bank gave assurances that it did not plan to enforce the clause. A district court dismissed most of AAJ's claims in June 2008.

AAJ was unable to collect the $120 million it sought in the lawsuit. In addition, the collapse of the Wachovia deal forced the group to get other financing to buy part-ownership in the 11-story building in the upscale Penn Quarter neighborhood of downtown Washington, and around the start of 2008 when it likely would have been more expensive than earlier.

After taking part ownership of the building, AAJ reported on its financial filing for the fiscal year ending in July 2008 investments of $23 million, up from $6.8 million the previous year. It listed net building assets of $8 million, compared with $2.7 million in 2007. But liabilities in 2008 topped $32 million, which included a $10 million "advance" and $4.1 million in long-term debt not reported in the three previous years.

In 2007, it had $14.9 million in assets and $15.1 million in liabilities.

The association reported, in its filing that ended in July 2008, an extra $15.2 million in revenue from the sale of its old headquarters.

The association's leaders viewed the move to new headquarters as part of a change in direction for the lobby, which also changed its name in 2006 from the Association of Trial Lawyers of America.

Victor Schwartz, a D.C. lawyer who serves as general counsel to the American Tort Reform Association, said trial lawyers are overstating the threat of malpractice reform in a bid for contributions.

"If they are losing members - or even if they are not - the potential threat of federal malpractice reform, even if remote, has provided AAJ a terrific means to solicit money," Mr. Schwartz said.