Story as it appeared in the
Austin American Statesman

Las Vegas law firm drafting slot-machine bill
State's hiring of lawyers who represent casinos raises ethics questions

By Ken Herman
AMERICAN-STATESMAN STAFF

Thursday, May 20, 2004

A Las Vegas law firm that represents casinos is being paid up to $250,000 by Texas to write the proposed legislation that would allow slot machines in the state.

To date, Lionel Sawyer & Collins has billed the state $176,743 for its work in drafting a proposal that was the basis for a provision considered, and rejected, during the special legislative session that ended this week.

The measure would have allowed "video lottery terminals," which are no different than slot machines, at the state's pari-mutuel racing tracks and on Native American property. Gov. Rick Perry proposed the concept as a way to raise money for public schools while allowing property tax cuts.

The concept will come up again when, and if, Perry calls another special session on school finance.

The hiring of the law firm, which is being paid by the Texas Lottery Commission, has raised questions from legislators on two fronts:

* By paying the law firm to draft legislation, has the Lottery Commission violated the ban on legislative lobbying by state agencies?

* Is it a good idea to let a firm that represents casinos draft the law that could govern the opening of a major new market for those clients?

Barry McBee, top aide to Attorney General Greg Abbott, on Wednesday defended the hiring of Lionel, Sawyer & Collins. Abbott's office approved the arrangement, which was initiated late last year when Perry, Lt. Gov. David Dewhurst and House Speaker Tom Craddick asked for help in preparing gambling legislation.

McBee said his agency, as well as the Lottery Commission, did not have in-house expertise on the topic. In consultation with Lottery Commissioner Jim Cox of Austin, who garnered casino industry experience as president of the resort and aviation groups of the Howard Hughes estate, several law firms were identified before Lionel Sawyer & Collins was picked, McBee said.

McBee defended the selection.

"It is difficult to have expertise in a subject matter unless you have represented people in that subject matter area," he said.

Before signing the contract, the firm assured state officials "it will not represent any client in connection with (video lottery terminals) in Texas," McBee said.

Dan Reaser, a partner in the firm, on Wednesday referred all questions to Abbott's office.

John Dzienkowski, who teaches legal ethics at the University of Texas Law School, said the law firm had an obligation to tell the state about its clients who could be affected by the legislation, and to make sure it did not represent any of those clients in any matter in Texas.

"You balance things. If you find a law firm that has no knowledge in gaming, they won't have casino clients, but they are going to be less knowledgable about that type of legislation," he said.

Lionel Sawyer & Collins is Nevada's largest law firm and was founded in 1967 by former Nevada Gov. Grant Sawyer. It offers full-service civil representation and claims its gaming law section is "the largest and most respected anywhere."

A list of "representative clients" on the law firm's Web site includes the MGM Mirage, Aladdin Gaming, Tropicana Hotel, Mandalay Resort Group, the Nevada Resort Association and the Venetian Casino Resort.

Out-of-state casino companies have held differing positions on the legalization of slot machines in Texas. Some oppose it as unwanted competition. Some see it as the opening of a huge new market. All want a piece of the action if it happens.

An invoice submitted by the law firm April 9 shows it began working for the state Dec. 16 and was working on draft legislation by late February. Perry announced his support for video lottery terminals on April 8.

According to the invoice, the firm is billing the state $200 to $250 per hour. There is a $250,000 maximum in the contract.

Two lawmakers -- one a leading opponent of gambling expansion and the other a constant Perry critic -- questioned the contract this week.

Gambling foe Sen. Jane Nelson, R-Lewisville, brought it up during a Tuesday hearing of the Texas Sunset Advisory Commission, of which she is a member.

"And (Perry, Dewhurst and Craddick) asked you to take Lottery Commission money and contract with a Las Vegas firm to write language for Texans to use to consider bringing gambling to Texas?" Nelson asked Reagan Greer, the Lottery Commission's executive director.

Greer said the law firm was brought in to assist the Lottery Commission's role as a "resource."

Perry spokeswoman Kathy Walt on Wednesday confirmed that her boss asked the Lottery Commission to look into how other states handled slot machines. She said Perry's office told the attorney general's office it "might want to consider hiring some expertise in drafting the legislation."

Rep. Jim Dunnam of Waco, head of the House Democratic Caucus and a Perry critic, said Wednesday it's not unusual for an industry to draft legislation and shop it to lawmakers. But he said this contract was a bad idea and violated the ban on lobbying by state agencies.

"This, to me, is the (Lottery) Commission taking a position," he said. "And what happened in this thing is the Texas taxpayers have to pay for the drafting of the legislation. I can't recall any time an agency has used taxpayer money to procure drafting of legislation from a third party."

At the Tuesday hearing, Kimberly Kiplin, the Lottery Commission's general counsel, called the arrangement an "unusual circumstance."

"This is the first time I've seen this," she said of her agency paying for outside lawyers to draft legislation. "We just did not possess, and I don't believe the attorney general's office was able to identify, anybody who had that expertise within the attorney general's office."

McBee said lottery officials were not out of line.

"They are providing information to the Legislature as part of the legislative process. They are not lobbying," he said.

Dunnam, citing the law firm's client list, also raised the conflict of interest issue.

"It creates the potential for conflict, and it's definitely not the kind of appearance you want in state government," he said.

kherman@statesman.com; 445-1718