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The new tobacco deal will generate the largest fee ever--and it may grow.
BY BOB VAN VORIS
NATIONAL LAW JOURNAL STAFF REPORTER
The National Law Journal (p. A01)
Monday, November 30, 1998
THE $206 BILLION settlement of state lawsuits against the tobacco industry, by far the largest legal settlement in history, is expected to generate unprecedented attorney fees of at least $10 billion.But contrary to comments by some state attorneys general, there is no cap on the fees, and some lawyers think the fees could be much higher than expected. In fact, some plaintiffs' lawyers involved in the cases think that the resolution of that part of the settlement involving possible 11-digit fees may turn testy and spawn lawsuits pitting private lawyers against one another, as well as against the states they once represented.
At a Nov. 16 press conference held in Washington, D.C., to announce the settlement, Pennsylvania Attorney General Mike Fisher, who took the lead in negotiating the attorney fees, predicted the fees would be set at a little less than 5 percent of the settlement.
But Prof. Lester Brickman, an expert on attorney fees at Yeshiva University, Benjamin N. Cardozo School of Law, disagrees. He predicts they will be much higher. Some plaintiffs' lawyers agree, saying they may earn more by enforcing their original contingency fee agreements, instead of getting paid under the recently announced arrangement.
At the heart of the fee agreement is an attempt by state AGs to get out from under the contingency fee agreements they negotiated with the dozens of law firms they hired to sue the tobacco industry in 36 state lawsuits across the country. The contracts, many of which promise a fixed percentage of a state's recovery to the law firms, have already sparked lawsuits and have proved embarrassing in Florida and Texas, which settled their suits separately and are not involved in the new deal.
The Fee Agreement
The attorney fee provision is a small part of a complex 131-page settlement negotiated over five months with tobacco industry lawyers. The settlement was negotiated by Washington Attorney General Christine O. Gregoire, along with seven other AGs, including Mr. Fisher, and private lawyers from two of the three firms that represent most of the states and coordinate plaintiffs' strategy at a national level: Charleston, S.C.'s Ness Motley Loadholt Richardson & Poole P.A. and Seattle's Hagens & Berman P.S.By most accounts, the fee fights in Florida and elsewhere motivated AGs to negotiate a process through which the tobacco industry would assume as much of the states' lawyer fees as possible.
"I don't think there'll be more than a handful [of states] where it will be a problem," says Pennsylvania AG Mike Fisher. "I don't think it does the legal profession any good to be painted as greedy attorneys trying to collect every dollar."
Richard Scruggs, whose Pascagoula, Miss., firm, Scruggs, Millette, Bozeman & Dent P.A., is the third dominant plaintiffs' firm in the cases and is counsel to at least 30 states, says he will do all he can to encourage firms to accept the fee agreement and avoid a repeat of "that spectacle that went on down in Florida."
But he recognizes that may not always be possible: Each state's trial team, which can consist of several law firms, must be unanimous in agreeing to tear up their original fee contracts. If they are not, none of the plaintiff's lawyers from that state can participate under the new fee agreement.
New Fee Agreement
The agreement outlines two ways lawyers can claim fees from the tobacco industry. Lawyers may negotiate their fees directly with the industry. These negotiated fees would be paid within five years but are capped at $1.25 billion total. To be eligible, the lawyers must waive all rights under their original fee agreements with the states. This option is likely to be most attractive to lawyers with relatively small fee claims who are interested in quick, hassle-free payouts, said lawyers familiar with the plan.But under an alternative plan, involving arbitration, lawyers could get more than they would have under the first proposal, but it could take them longer to get it. Lawyers may seek fees from arbitration panels selected by both sides. Although payouts to lawyers under arbitration cannot exceed $500 million per year, there is no limit on the total that can be awarded. Lawyers retain the right to seek payment from the states if arbitration awards are less than the amount promised in contracts with the states.
In addition to possible litigation between plaintiffs' lawyers and the states, one plaintiffs' lawyer, who spoke on condition of anonymity, predicted litigation over fees between local firms representing their home states and the out-of-state firms coordinating the litigation on a national level. Mr. Scruggs, of Scruggs Millette, says he believes differences will be settled by negotiation, not litigation.
Robert L. Habush, the Milwaukee lawyer whose firm Habush, Habush, Davis & Rottier S.C. is lead local counsel for the state of Wisconsin, is angry that AGs from other states, abetted by the national tobacco firms, set up a process that is almost certain to slash the 20 percent contingent fee his team contracted for. But he says it is unlikely he will sue his own attorney general.
"I don't think many lawyers would like to make that stand and become a public pariah and whipping boy," he says.
Lawsuits against AGs may also be discouraged by ethics rules, which prevent lawyers from charging excessive fees. Professor Brickman, hired by Texas' governor, who opposed the fee award in that state's tobacco case, says the rules so far have proved toothless in tobacco litigation. He says, by his calculation, plaintiffs' lawyers in Texas asked for fees that came to $92,000 per hour.
He says he believes the $10 billion figure is much too low because lawyers will win higher fees in arbitration than the AGs say they will, and many lawyers will sue the AGs to add to their take.
Meanwhile, attorney fees have already spawned political controversy and litigation across the country nearly every previous time the issue has come up:
* In Florida, a vicious fee battle broke out among lawyers who helped win a $13 billion settlement for the state, immediately after the deal was announced in August 1997. It resulted in legislative hearings and a raft of lawsuits.
In the latest development, the state supreme court ruled Nov. 13 that the lawyers had a valid claim to 25 percent of the settlement under a contingent fee agreement--but appeared to leave them at the mercy of a hostile state legislature to collect.
* In Texas, which settled in January for $17.3 billion, Gov. George W. Bush and a group of state politicians went to court to overturn a 15 percent contingent fee claimed by a five-member team of law firms representing the state. The outside lawyers are currently making their case for fees before a panel of arbitrators.
* In Minnesota, a state legislator and a republican activist sued to overturn $440 million in fees the tobacco industry agreed to pay Robins, Kaplan, Miller & Ciresi L.L.P. for representing the state in a lawsuit that settled for $6.6 billion in May. A Minneapolis state court judge dismissed the case Nov. 10. An appeal is likely.
* Senators considering a failed $516 billion national settlement proposal this spring debated and accepted a proposal to cap attorney fees.
Still, the AGs and plaintiffs' lawyers hope they can avoid fee litigation. "There's no reason for it," says Mr. Scruggs. "There's plenty of money."