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Banking commissioner Tom Grady pursued lawsuit against state for legal fees

Before Tom Grady could take his new job as Florida's Office of Financial Regulation commissioner, his friend Gov. Rick Scott told him to drop his involvement with an ongoing lawsuit he filed against the State Board of Administration.

Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi are trustees of the SBA, which manages the state pension fund.

“He couldn’t be suing the state and take this job,” Scott said. “I didn’t want that to happen.”

Grady, a wealthy securities attorney and one-time state representative, and Tampa attorney Guy Burns sued the state in March 2010, five years after SBA leaders refused to pay them $1.4 million in legal fees stemming from an unsuccessful lawsuit against Alliance Capital Management.

Alliance had invested state pension money in Enron as the energy company began to fail, resulting in a $300 million hit to the pension fund. The SBA hired Grady and Burns to sue the New York money-managing firm for damages.

The jury ruled in favor of Alliance. Before the verdict, however, SBA leaders went against Grady's advice and signed an agreement with Alliance saying neither side would appeal the decision. With no chance of a courtroom victory, Grady and Burns billed the SBA for fees including travel and lodging, computer research, investigation and expert witness, and copier services, according to court documents.

The SBA promptly rejected their invoice, citing a contingency clause in their legal contract that required a "favorable" courtroom result for payment of legal services.

Five years later, as the statute of limitations threatened to expire, the lawyers filed suit to compel mandatory binding arbitration. Their client, they said, had blocked their ability to get a favorable result.

"I thought at some point the SBA would probably say, you know you're right," Grady said in an interview. "We thought the attitude might change."

A Leon County circuit judge issued an order compelling arbitration in November. The Attorney General's office and SBA appealed that decision in December.

Oral arguments in the appeal were Aug. 2, the same day Scott and the Cabinet enthusiastically approved Grady as the new commissioner. They made no mention of the squabble playing out across town at the same time.

The arguments proceeded without Grady's stake in the case. Grady assigned all of his rights and interests to Burns, according to an assignment of claims dated May 16.

Scott said he didn't know all of the details about the lawsuit but said Grady couldn't be in that position. Grady agreed, saying in a phone interview that he was "a little uncertain as to whether to file in the first place."

"After the governor was elected, after I saw where all of the chips fell, I decided there would likely be some opportunity for me in public service," Grady said. "I would not want to be involved in any kind of dispute with the state at the same time I would like to be pursuing my public service, so I got out of it."

Grady begins his tenure as commissioner on Aug. 29. At an annual salary of about $133,000, he will keep his job until Cabinet members unappoint him or he resigns.

Read more about Grady in a Times/Herald story scheduled for this weekend.