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Lawyers ready to split tobacco billions
April 18, 1998
BY ROBERT A. RANKIN
WASHINGTON -- To hear the politicians tell it, the government's fight with Big Tobacco is all about saving children from the evils of smoking.
But it's also about turning a few hundred lawyers into multimillionaires.
Peter Angelos, the lawyer who owns baseball's Baltimore Orioles, is on the verge of raking in up to $1 billion -- that's 1,000 millions -- all by himself from suing the tobacco industry for the State of Maryland.
Angelos is but the latest lawyer strolling down this golden path. Eleven law firms are set to split about $2.8 billion in fees from Florida's $11.3-billion settlement with major U.S. cigarette companies.
And a handful of Texas lawyers won $2.3 billion from a similar $15.3-billion settlement, although like Florida's, their fees are being challenged in court.
Nationwide, 300 to 400 lawyers stand to collect more cash from Big Tobacco settlement fees than the combined 1996 revenues of all 40,000 lawyers at the 100 biggest U.S. law firms, according to an estimate before Congress.
Critics say every dollar that goes to lawyers is one less dollar for tobacco-related health care costs.
Trial lawyers insist they deserve the money, but business executives -- and not just those from the tobacco industry -- denounce the fees as obscene. And, increasingly, some Republicans sense a potentially hot political issue ready to ignite.
"I can tell you, when the public finds out that billions and billions of dollars will end up in the pockets of trial lawyers, they are going to go nuts," said Frank Luntz, a Republican pollster.
The trial lawyers see the issue as a question of fairness. They each were retained by state governments to sue tobacco companies for reimbursement of state Medicaid funds spent on tobacco-related health expenses.
The lawyers' terms were simple -- they would be paid nothing unless they won, but they would get a specific share of any winnings. In each case, those terms were guaranteed by contract.
Such contingency-fee contracts are standard procedure in risky class-action lawsuits. Eight states -- Florida, Minnesota, South Carolina, New Jersey, Maryland, Connecticut, Massachusetts and Utah -- agreed to give the lawyers representing them 25 percent of winnings. Other states set rates ranging from 3 percent to 33 percent.
For its suit, the Michigan Attorney General's Office contracted with two of the nation's top antitobacco lawyers -- Richard (Dickie) Scruggs of Pascagoula, Miss., and Ronald Motley of Charleston, S.C.
According to Fortune magazine, Scruggs and Motley control lawsuits in 28 of the 41 states that have sued the tobacco industry.
But unlike some other states, Michigan has not promised Scruggs or Motley a percentage of any settlement or award. Instead, their fees --should the state win -- will be "entirely within the sound discretion" of the trial judge, according to the state's contract with the lawyers.
"The trial lawyers who took on the giant tobacco companies faced enormous -- perhaps even unprecedented -- risk, expense and complexity," Richard Hailey, president of the Association of Trial Lawyers of America, said in defending the contingency arrangements before Congress. "Indeed ...no attorney general in any state was either able to commit the staggering expense, or willing to bear the substantial risks," without hiring outside lawyers on contingency-fee terms, Florida's outside lawyers spent more than $10 million of their own money pressing their case, according to Steven Yerrid, one of the attorneys. Texas' lawyers spent around $60 million, the trial lawyers association said.
If they had failed, the states would not have reimbursed them. Instead, however, they forced the tobacco firms into mammoth settlements and then lined up to get their cuts.
Then last June 20, facing losses on many fronts, the tobacco companies cut an omnibus deal with attorneys general from 40 states.
In exchange for limiting their liability to future lawsuits, the five big cigarette companies -- Philip Morris, RJR Nabisco, Brown & Williamson, Lorillard and U.S. Tobacco -- agreed to pay $368.5 billion over 25 years to settle outstanding claims.
The new deal muddled the question of lawyers' fees and left it unresolved. Under its terms, fees for lawyers would be paid separately from the $368.5 sum; the tobacco companies asserted they could afford no more than $500 million a year for this.
Moreover, the June 20 deal recommended that state lawyer fees would be set anew by an arbitration panel.
A pending Senate bill, which seeks to extract more money from the tobacco companies, endorses the same fee-setting procedure. Some trial lawyers involved were willing to go along, others were not. The trial lawyers' association opposes the arbitration process, saying it would infringe upon their rights, and insists that the courts already hold power to determine if lawyer fees are fair and reasonable.
Several of the Florida law firms already are pressing the question in court. They are suing their state government, seeking to enforce a contract that promised them 25 percent of what turned out to be a $11.3-billion settlement struck before the June 20 deal.
If all such state contingency-fee contracts are enforced by courts, the lawyers would get about $18.6 billion over 25 years, said Lester Brickman, a professor at Yeshiva University's Cardozo School of Law, in testimony before the House Judiciary Committee.
The issue is striking political sparks, and it has partisan overtones because the trial lawyers are among the Democratic Party's most generous supporters.
Staff writer David Zeman contributed to this report. Assistant Nation-World Editor Douglas W. Delp, who edited this report, can be reached at 1-313-222-8752.
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