PHOENIX - Attorney General Terry Goddard has hired an outside law firm to investigate possible predatory-lending practices by home builders and their mortgage firms, including whether any lender provided borrowers with false or misleading information.
Bid documents obtained by Capitol Media Services show Goddard has agreed to pay a Washington, D.C., law firm a share of whatever it helps him recover in civil penalties against those being investigated. Under the terms of the deal, the firm could get up to one-fifth of anything collected.
But that contract has generated a lawsuit of its own, with the largest U.S. home builder and its lending arm accusing Goddard of violating their constitutional rights by hiring a law firm with links to a major labor union to investigate them.
Legal papers filed in U.S. District Court in Washington, D.C., by Pulte Homes and Pulte Mortgage charge that the arrangement between Goddard and attorneys at the D.C. firm of Cohen Milstein Sellers & Toll gives those lawyers access to certain government information. They contend that the law firm can then turn around and use that information to help labor unions, which the companies say "are engaged in a harassment campaign against Pulte and other home builders."
The companies also are specifically challenging the state signing a deal that makes the law firm's payment contingent on getting money from the home builders it investigates. Attorneys for Pulte say Arizona law specifically prohibits outside law firms from being hired on a fee-contingent basis.
Goddard press aide Molly Edwards said her office was aware of the lawsuit and was studying the issues. She would not comment on the merits of the lawsuit. She also would not say why Goddard, a Democratic candidate for governor, hired the outside firm.
Neither the Cohen Milstein law firm nor the union at issue in the dispute immediately responded to requests for comment late Thursday.
In the legal papers filed in federal court, Pulte attorney Andrew Sandler does not challenge the state's right to conduct the investigation.
But according to Sandler, the Cohen Milstein attorneys who will be involved in the inquiry against Pulte also represent the Laborers' International Union of North America, which "is waging an extensive campaign against Pulte" designed to coerce Pulte and other home builders into forcing their subcontractors to sign union contracts.
The union could not be reached for comment, but last year its spokeswoman, Dawn Page, said of ongoing disputes with Pulte: "Pulte workers and (the union) want Pulte to be a successful and profitable company, but a responsible company also."
Pulte's Sandler said the company already has provided the Attorney General's Office with more than 70,000 pages of materials the state has requested as part of its investigation. That information also is being shared with the Nevada Attorney General's Office, which is conducting its own inquiry - and which also hired the same outside firm.
As investigators for the state, the lawyers for Cohen Milstein have access to confidential information, Sandler said, which the firm could then use in its separate actions against Pulte on behalf of the union.
The suit makes virtually identical charges against Nevada Attorney General Catherine Cortez Masto.
No hearing has been set on the matter.