A Washington law firm hired by Governor Carcieri’s administration to help out in a major Tiverton pollution case has billed the state $448,000 since last fall, and regulators have proposed seeking $3.5 million more for the firm over the next year.

The decision to hire Sutherland Asbill & Brennan is part of a high-stakes legal struggle between the state and the Southern Union Co., a Houston, Texas, corporation that regulators say must clean up toxic soil dumped in the Bay Street neighborhood more than 50 years ago.

With children unable to play in their yards, families unable to sell their houses and angry residents marching on the State House to demand action, Governor Carcieri has made cleaning up the area a priority.

Nobody has put a price tag on the cleanup, but it could be massive. Last year, regulators sought unsuccessfully to force Southern Union to create a $55-million escrow fund for potential cleanup claims.

But with Southern Union denying responsibility and hiring big law firms to defend it, state regulators say that they needed help. So they turned to Sutherland Asbill & Brennan, which charges up to $680 an hour.

Now, the state may have another mess to clean up — spiraling legal bills.

From late August through February, some 20 lawyers and 8 paralegals worked 1,055 hours, at an average of $404 an hour, and also charged the state $20,000 in expenses, ranging from copying to travel.

Sutherland Asbill billed the DEM $355,000 for January and February alone, and has yet to submit its bills for March, April and May.

The director of the DEM, W. Michael Sullivan, couldn’t say where he would find the money to pay the rest of those legal bills, or for future bills.

Rhode Island has paid the firm only $35,000 to date, and that money came from the DEM’s Environmental Response Fund, which was created to help pay for cleaning up oil spills.

The state is pinning its hopes on proposed legislation that would increase the DEM fines now accruing against Southern Union to $50,000 a day, from $1,000 a day. That money would go into the Environmental Response Fund, and could be used to recoup Sutherland Asbill’s legal bills, said Andrew Hodgkin, Carcieri’s executive counsel.

But to force Southern Union to pay those fines, Rhode Island would have to win its case, which could take years, with appeals. Or the state would have to persuade the company to agree to a big settlement that would include not only cleanup costs, but the state’s legal fees.

“We fully intend to collect that money — that’s why we hired the best law firm,” Hodgkin said. “Is there a mismatch now in terms of the money going out and the money coming in? Yes. But I don’t think that that will necessarily result in a horrible situation for the state.”

The soaring legal costs — at a time when the DEM’s full-time legal staff has shrunk and Governor Carcieri has proposed laying off 1,000 state workers — adds to the debate over the costs of using private companies to work on the public’s business.

Even those who agree with the need to bring in an outside firm question the costs.

“Is this a big case? Yes. But it’s not brain surgery,” said Catherine Robinson Hall, the DEM’s former deputy legal counsel. “This isn’t the kind of case that’s so complex that you need an army of people from our nation’s capital.”

Robinson Hall, who left the DEM in 2001, said she feared that spending so much money could undermine the DEM’s ability to pursue future environmental cases, draining precious resources from the agency. When she was at the DEM, the agency had 10 lawyers, she said. Now, there are five who work under Patty Allison Fairweather.

Louise Durfee, a former DEM director and now Town Council president in Tiverton, said she urged Carcieri’s office to hire an outside firm to assist in the Southern Union case. But she wonders how Sutherland Asbill was chosen, noting that in her tenure she once hired a firm from Boston, but only after seeking competitive bids and carefully weighing the cost.

“If embarrassment over these expenditures leads to a settlement in the case that is detrimental to the residents, then that would be an outrage and a travesty to the state,” Durfee said.

Fairweather, the DEM executive counsel who hired Sutherland Asbill, did not seek competitive bids. When The Journal asked her for all of the legal bills that Sutherland Asbill has submitted, she provided only $92,000 worth of bills, from August to December 2006.

She failed to provide the $355,000 in bills for January and February, or even disclose their amounts, saying that they have not been “finalized.” Nor did she disclose paperwork showing that she has requested $3.5 million more. The Journal obtained that information from other sources.

The bills that Fairweather did give The Journal were heavily censored, so that it is impossible to see what the law firm did for its money, how much individual lawyers billed, details regarding expenses — even the dates worked.

THE SOUTHERN UNION case dates to 2002, when construction crews installing a new sewer main in Tiverton discovered blue soil. The color signaled that the soil had been contaminated by an old process that utility companies once used to turn coal into gas.

The DEM was notified and tested the soil, finding traces of cyanide and other hazardous substances. Further investigation determined that the waste material had been dumped in the Bay Street area more than 50 years earlier from the nearby Fall River Gas plant, which once converted coal into gas. More than 50 acres was affected in the working-class neighborhood, including the residences of more than 70 families.

Southern Union, which purchased Fall River Gas in 2000, denied responsibility, arguing that there were other sources of contamination. In 2005, more than 70 Tiverton residents sued Southern Union in federal court.

Last summer, when Carcieri appointed Fairweather as the DEM’s executive counsel, the agency was preparing to file a notice of violation against Southern Union, to force the company to clean up the site. A notice of violation is like a lawsuit, and is tried before an independent hearing officer, whose decision can then be appealed to state courts.

Members of Carcieri’s staff and officials at the DEM agreed on the need to hire an outside law firm to help with the case, which would involve hundreds of boxes of documents, numerous discovery issues and depositions and, ultimately, barring a settlement, a trial before an independent hearing officer. There are also related matters in state and federal court.

“We’ve never had anything of this magnitude,” said Sullivan, the DEM director. “We have 125 manufactured-gas sites [like Tiverton] in Rhode Island, and doing the first case well is very important to me. This will set an important precedent. I would hope that once we achieve a victory that subsequent ones will be easier to address.”

Fairweather was familiar with Sutherland Asbill, a firm that she had worked with in the governor’s office. Since late 2004, Carcieri’s office has paid Sutherland Asbill $315,000 for representing Rhode Island, primarily in its efforts to block controversial liquefied-natural-gas terminals in Providence and Fall River. The firm still advises the governor.

Although Sutherland Asbill is a leading law firm representing the LNG industry around the country, Hodgkin, the governor’s chief lawyer, credits the firm with developing the legal arguments that persuaded federal regulators to block an LNG facility in Providence.

Sullivan said the firm also has experience in dealing with manufactured-gas sites such as the one in Tiverton, though he could not cite any specifics. He said that Sutherland Asbill was recommended by various people, including Fairweather and Hodgkin.

“We were looking for someone who could represent us efficiently,” Sullivan said. “They were a known entity with a broad environmental-law portfolio. We needed someone with their breadth and depth. I have five lawyers on my payroll, and if I had them all focus on this case, even though they’re all capable, we would still be understaffed.”

Hodgkin said that competitive bidding was not required when seeking professional services, since price was secondary to finding someone qualified to do the job. But he did note that when he originally hired Sutherland Asbill, he shopped around, and the firm’s rates were comparable to others he considered.

Sullivan said there was no qualified Rhode Island law firm that didn’t have a conflict. Fairweather, in an e-mail, said no large Rhode Island firms had “the complete package we sought and/or had already embarked upon a legal strategy that raised concerns for us or specifically in the case of DEM were or had been in opposition to us on other environmental matters raising conflict-of-interest concerns.”

Although she did not seek competitive bids, Fairweather said she did call other “firms of interest,” though she did not elaborate as to whether she compared prices. The engagement letter that she signed with Sutherland Asbill commits the state to pay the firm’s usual rates, with no mention of any negotiated reduced rate.

Robinson Hall, the former DEM deputy counsel, questioned the need to go as far as Washington when there are capable firms in Rhode Island or, if those have a conflect, in Massachusetts.

And while competitive bids are not required, ex-DEM Director Durfee said she thought it prudent to seek bids when she had occasion to hire a firm in Boston to assist in a DEM case.

“A big firm can put bodies on top of things, like discovery, and push things forward so that the case doesn’t just sit while residents are waiting for relief,” Durfee said.

But a key consideration, she said, is “at what cost?”

Durfee said she sought competitive bids, interviewed each of the three bidders and assessed each firm’s qualifications and costs.

The winning bidder, she recalled, agreed to charge the state a “blended rate,” a kind of discount in which it reduces the hourly rate of the most expensive and experienced lawyers assigned to the case.

According to a rate sheet attached to Sutherland Asbill’s engagement letter, the firm has assigned 20 lawyers to the Southern Union case, with rates ranging from $265 to $680 an hour, plus 8 staffers. Five of the lawyers earn upward of $500 an hour, and a sixth, Jake Dweck, commands $680.

Durfee said that before she spent any money on outside lawyers, state purchasing rules required her to get authorization from the state Department of Administration. Hodgkin said this was true, but that in some situations the firm will start working before the authorization is received.

On Aug. 23, according to the DEM, Sutherland Asbill billed its first hour to the DEM.

It wasn’t until three weeks later — the same week that the DEM filed its notice of violation against Southern Union — that Fairweather sought authorization to hire Sutherland Asbill. On Sept.14, she submitted paperwork asking for $60,000, which was subsequently approved.

“Our objective,” Dweck wrote Fairweather on Sept. 11, “is to help achieve your legal enforcement and environmental goals in a cost-effective manner.”

One matter that increased the state’s legal costs was a snafu last fall in which the DEM inadvertently turned over privileged documents to Southern Union’s lawyers, in response to a subpoena in the Tiverton residents’ federal lawsuit.

Fairweather blamed Brian Wagner, a longtime DEM lawyer. She removed him from the case, and assigned Sutherland Asbill lawyers to fight to have the records returned. According to DEM records obtained by The Journal, a projected budget for Sutherland Asbill’s fees estimates its costs for handling that ongoing dispute at $75,000 to $100,000.

Wagner countered that he was really being disciplined for confronting Fairweather for allegedly filing a federal court document under his signature, without his knowledge — a document that had been drafted with assistance from Sutherland Asbill lawyers. That led to a physical altercation in Fairweather’s office in which Wagner and Fairweather each allege being struck by the other. Wagner was fired in March, and has vowed to sue to recover his job.

Sutherland Asbill’s first two bills, through November, totaled $35,000. Terrence P. Maguire, the DEM’s assistant director for financial and contract management, said he paid those bills, but not the next one, for $57,000 for services in December, because it pushed the law firm’s total above the $60,000 that had been authorized.

But the case was heating up, with key discovery issues and court disputes, and the billable hours were piling up.

In January, Sutherland Asbill worked 365 hours and billed the state $157,737.

In February, the firm spent 480 hours on the case, charging $197,668.

According to uncensored bills for those months, obtained by The Journal, Sutherland Asbill partner Lewis Wiener worked 279 hours in January and February, at $505 an hour, for a total of $141,248. Another partner, Gerald J. Pels, billed the state for 161 hours in January and February, at $530 an hour, for a total of $132,288.

The top-paid staff lawyer at DEM earns $89,000 in an entire year. The two DEM lawyers who are working with Fairweather and Sutherland Asbill on the Southern Union case earn $64,000 and $57,000. Fairweather’s salary is $91,000.

On Feb. 14, before the deposition of a crucial witness, Wiener and Pels each worked 8.2 hours. Pels worked 7.2 hours the day before, summarized as follows: “Review documents and reports to prepare for Souza deposition, develop outline of questioning, identify and copy exhibits, multiple conferences with Ms. Fairweather, etc.”

The firm billed Rhode Island for $15,977 in expenses for January and February, including about $5,700 in February for four trips to Rhode Island by Wiener, and one trip by Pels, who works out of the firm’s Houston office.

The Journal asked to review the law firm’s receipts for travel, hotels and meals, but Fairweather said the DEM didn’t have any receipts or expense reports.

Asked about the firm’s expenses, Sullivan, the DEM director, said: “I won’t pay any bill without full disclosure and everything fully itemized.”

PAYING THE BILLS, however, is an unresolved issue at the DEM.

Spiraling costs were apparently a concern, because when the DEM’s Maguire received copies of the law firm’s invoices for January and February, which were submitted on March 30, there were two versions — one for the original amount, and another with a “10% holdback per agreement.” The 10-percent deduction shaved the combined legal fees for those months by $24,000.

Maguire, who is in charge of paying the bills at the DEM, wrote Fairweather early last month about the discrepancy.

“Patty, I’m still having difficulty receiving accurate documentation,” he wrote.

Fairweather responded with a note saying that the 10-percent “holdback” was correct, but did not explain to Maguire how or why it was negotiated. Maguire said in an interview that he didn’t know anything further about how it was negotiated.

It is not clear whether the “holdback” is a permanent discount offered by Sutherland Asbill, or whether the firm would seek to collect the money down the road, for instance, if the state wins its case against Southern Union.

Sullivan and Fairweather declined to explain the 10-percent holdback, or whether it would apply to future bills.

“Those discussions have gone on,” Sullivan said. “I would ask for consideration on any ongoing bill. If I get an estimate to fix my car for $500 and it costs $700, I’m going to question the difference.”

Lawyers for Sutherland Asbill did not respond to requests for comment.

Meanwhile, when the DEM received a $287,000 check in April from the cleanup of a well in Pascoag contaminated by gasoline, Maguire said that Fairweather asked about using the money to help pay Sutherland Asbill. But she was rebuffed. State and federal rules required the money to go back into a fund to clean up leaks from underground storage tanks.

In February, Fairweather submitted a new purchase requisition request to the Department of Administration, asking to spend $250,000 more. People familiar with the situation say that it was rejected. Fairweather would say only that it has not been approved.

But even an additional $250,000 would not have been enough to pay the $413,000 that Rhode Island still owes Sutherland Asbill for the invoices that have been submitted — not to mention those yet to come.

On April 25, Fairweather signed another purchase requisition request, for $3.5 million, for the next 12 months. A related form noted the need for hiring Sutherland Asbill: “Highly specialized area, no state employees currently practice in this area.”

“That’s news to me,” Maguire, DEM’s chief financial officer, told The Journal last Wednesday when asked about the $3.5 million. “I’m out of the loop on that.”

Sullivan acknowledged the request for $3.5 million, saying that it “deals with one strategy, what we figured would be reasonable” if the case proceeds through a full trial.

“We’re trying to do our due diligence for all possible options,” he said. “We’re committed to addressing and resolving this case . . . I’m a frugal man. Costs are important to me. But I have to look at all the options.”

An estimated budget of the case, prepared in April and recently obtained by The Journal, predicts that the firm’s services could cost $2.2 million to $2.7 million.

That includes as much as $350,000 for reviewing more than 800 boxes of Southern Union documents, $300,000 for more than 50 depositions, $350,000 for developing and reviewing expert reports, $250,000 for “ongoing case strategy and development,” $350,000 for pretrial motions, and $600,000 for a three- to four-week trial.

“Opportunity to settle is minimized if RIDEM does not vigorously defend its position,” the document states.

Apprised of those figures, Catherine Robinson Hall, the former DEM lawyer, said, “Omigosh!”

“This is a case that directly affects the citizens of Rhode Island,” she said. “They should have confidence that the state is protecting both their environmental and their fiscal interests.

“Is this going to take away from protecting our resources elsewhere? Because you know that money’s going to have to come from somewhere. If the money’s not there for some future, undetected hazard, because we did this one so over the top, then that would be too bad.”

Today, the DEM is scheduled to be in court for a hearing on its motion to force one of Southern Union’s law firms, Hinckley Allen, to withdraw from the case because of an alleged conflict of interest.

Jeffrey Grybowksi, Carcieri’s former chief of staff, recently went to work at Hinckley Allen. He denies any conflict or involvement in the Southern Union case, and he disputes Fairweather’s allegations that he offered to involve himself in settlement talks.

Hinckley Allen questions whether the DEM’s allegations are sparked by Rhode Island’s efforts to settle the case, to cut its legal costs and to divert attention away from scrutiny of the outside legal bills.

The DEM has hired another outside lawyer to represent it in the case, this time from Providence — Jeffrey C. Schreck, who will bill $200 an hour but promises not to charge extra for expenses.

Schreck’s estimated cost, according to DEM records: $20,000.

mstanton@projo.com