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Huge Law Fees from Tobacco Lawsuits?

by Doug Bandow

This article appeared on cato.org on January 27, 1998.

The fight over tobacco has degenerated into an emotional brawl, involving smokers, health lobbyists, tobacco farmers and liberal activists. Only one group seems certain to emerge with clear benefits: the lawyers.

When the big tobacco settlement was first announced, Mississippi trial attorney Richard Scruggs admitted his fees might seem "a little obscene." But that, he explained, was inevitable, since "we have to come up with a fair way to compensate everyone."

Some lawyers, like Scruggs, stand to collect an astonishing 25 percent of their states' payments. Even 3 percent of the total $368.5 billion settlement, which some attorneys characterize as perfectly "fair and reasonable," would amount to an incredible $11 billion.

Not that such a windfall would be unprecedented. In the recent flight attendants' secondhand smoking lawsuit, the tobacco industry agreed to pay $300 million to a research foundation -- not the workers -- and $49 million to the lawyers.

Already some states, which sold their legal souls (adjusting liability law to enhance their chances, for instance) for the prospect of a huge financial gain, are having second thoughts about attorneys' fees. Florida agreed to give a quarter of its winnings to its lawyers, but reconsidered after negotiating an $11.3 billion settlement in August. Instead of paying the attorneys upward of $200 million each, Florida agreed with the tobacco industry to arrive at the eventual legal fees through arbitration.

State Judge Harold Jeffrey Cohen then called the attorneys' demands "unconscionable and clearly excessive." He estimated that the original fee accord would result in $7,716 per hour -- 24 hours a day, every day, during the 42 months the case was pending -- for the 12 lead attorneys. To most people that seems, well, a bit much.

Whatever the outcome in Florida, and several of the attorneys are still pushing for every penny they were originally promised, Congress should prevent a similar national looting spree. There are, in fact, good reasons to kill the entire deal.

It rests on dubious factual premises -- by dying younger, smokers would actually lower government Medicaid expenses. It unfairly immunizes the industry -- if tobacco companies should be liable for the harm caused by their products, then they should be liable in the future as well as the past.

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The attorneys are using politics to make money, so Congress might as well use politics to control what they make.

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If the deal survives, and a lot of interests are lobbying for its prosperity, Congress should ensure that the public rather than the trial bar is the chief beneficiary. Consider what House Speaker Newt Gingrich has already said: "If it simply makes trial lawyers richer, I would be inclined to oppose it."

Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, has proposed establishing an arbitration panel for tobacco case attorneys' fees and setting a fee cap of 5 percent. That is still far too generous -- it could, for example, mean payments of $250 million to law firms like Scruggs, Millette, Lawson, Bozeman & Dent, featuring the aforementioned Richard Scruggs.

Rep. Scott McInnis, R-Colo., chosen by Speaker Gingrich to oversee the tobacco settlement process, would take a tougher approach. He has, along with Rep. Chris Cox, R-Calif., and Rep. Paul McHale, D-Pa., introduced legislation to limit attorneys' fees to $150 per hour. The bill also would restrict ultimate overall payments to .01 percent or $35 million, whichever is less. Finally, the legislation would require the involved law firms to publicly account for their time.

The tobacco industry, which fears any controversy may kill the deal, is willing to live with arbitration and substantial attorneys' fees. But in McInnis' view, that only demonstrates how the settlement is unnecessarily skewed toward the lawyers: "I believe Congress will recognize that the additional money the tobacco companies are willing to pay should be put to a better use than simply creating a few new billionaires." The legislation would also provide some well-deserved scrutiny of the legal lottery that has enriched so many trial attorneys at public expense.

Of course, the litigators are not amused. The Castano group, a collection of class-action lawyers, has argued against allowing their fees to be "politicized." However, the entire tobacco deal is political.

The original lawsuits were a political shakedown that violated traditional liability law. The settlement, which covers everything from federal regulation to anti-tobacco ads, is pre-eminently political.

The attorneys are using politics to make money, so Congress might as well use politics to control what they make. As the saying goes, those who live by the sword die by the sword.

Lawyers, like everyone else, deserve to be rewarded for their labors. But they are not entitled to the multibillion-dollar windfall contained in the tobacco deal. Congress should kill the entire settlement. If not, legislators should at least protect the public from the trial bar.