PhillyDeals: Penn awash in law firms after only asking for one

Lawyers for Gov. Wolf, who campaigned for competitive bidding and lower fees in state legal contracts, told one of the state's biggest employers to hire three Philadelphia law firms - not just the one it wanted - as a condition for routine state and federal tax breaks last month.

Back in March, the University of Pennsylvania Health System wanted to borrow up to $400 million for building projects in Philadelphia, Chester County Hospital, and Radnor outpatient offices. Penn Health went to the Pennsylvania Higher Educational Facilities Authority, one of several state-backed agencies that help issue income-tax-exempt bonds.

Penn Health asked to hire well-connected Ballard Spahr L.L.P. as its bond lawyer. The authority's board, with representatives from state agencies, legislators, and the elected auditor general and treasurer, approved Penn's plan unanimously March 10.

But when the Penn Health bond prospectus was made available to would-be investors by Merrill Lynch, JP Morgan, and Penn Health's other underwriters April 16, Ballard was listed with three other firms: Obermayer Rebmann Maxwell & Hippel L.L.P., Ahmad Zaffarese L.L.C., and Turner Law P.C.

The Obermayer and Ahmad firms were added by Wolf's Office of General Counsel, which reviewed lawyer hiring using a new process that favors small and minority firms, the board was told in an April 21 memo from Wolf's Office of General Counsel.

The move caught authority board members by surprise. "We don't know how this happened. Why are there three more law firms? We need answers," Auditor General Eugene DePasquale told me.

"We were very, very surprised to learn that the Office of General Counsel selected other bond counsel," Sen. Lloyd Smucker (R., Lancaster) told me. "I'm not sure that was Penn's choice. We're not sure [state officials] have the authority to do that."

Counsel found Ballard was the high bidder - at $200,000 - but also the only one ranked "Excellent" for understanding, experience, and qualifications.

Obermayer was rated only "Good." But Obermayer also promised to give 40 percent of its work to the Ahmad firm, whose small size and minority ownership gave it special consideration under the new Wolf-era criteria. Ballard, which initially had "0% Small/Diverse Business Participation," invited the Turner firm to share.

Wolf's top lawyer - who heads the office that told Penn what law firms to hire - is Denise Smyler, a veteran municipal attorney.

Smyler was a named partner in the Ahmad firm: It was Ahmad Zaffarese Smyler before she left to work for Wolf.

Coincidence? "Denise Smyler had no knowledge that Ahmad Zaffarese was listed by Obermayer. Denise only knew the identity of the prime firms, not the subcontractors," Wolf spokesman Jeffrey Sheridan told me.

The memo naming Ballard, Obermayer, and Ahmad for the Penn Health job was signed by a Smyler deputy, who Sheridan says handled the case to help avoid conflict. The governor's office says the lawyers ended up costing Penn $200,000, same as Ballard offered.

Penn's capital-raising goals "were achieved," Penn Health spokeswoman Susan Phillips told me. But Penn Health declined to comment on how executives felt about having to split its legal work and fees among the state-mandated firms, not the one it wanted.

PFM, the authority's financial adviser, says local public school borrowers have backed off plans to finance bonds with the authority because of the recent changes, the authority's executive director, Robert Baccon, told me.

At least one of the authority's rivals, the Philadelphia Industrial Development Corp., is taking advantage. "In light of recent procedural changes at the state

level," college finance officers were invited to a May 12 conference at Philadelphia's Hotel Monaco to hear PIDC chief John Grady show how a PIDC affiliate can prepare tax-free bonds "with no restrictions on the selection process" for lawyers and bankers, said a flier promoting the event.

"I don't think this is us trying to take business from the state," Grady said. PIDC collects fees of up to $100,000 for every bond issue it helps prepare.

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