Commentary

States Share Blame for Tobacco Lawyers’ Greed

Insight Magazine, on May 10, 1999 (vol. 15, no. 17), is excerpted from “The Great Tobacco Robbery,” Legal Times, February 1, 1999.>

How would you like to work for $7,716 an hour? That’s a long way from the minimum wage. But it’s less than what each lawyer who negotiated the recent Florida tobacco settlement is scheduled to receive after a panel of three arbitrators got through with the case. Private attorneys in Texas, Mississippi and Florida made out like bandits, fleecing tobacco companies, smokers and taxpayers for $8.2 billion in legal fees. “Incomprehensible!” said former federal judge Richard Renfrew, the dissenting voice on the panel. “These excessive fees will undermine public confidence … in our profession and in our civil justice system,” he added.

Here’s how it unfolded. A handful of private attorneys entered into contingency fee contracts with state governments to recover Medicaid outlays purportedly associated with tobacco-related illnesses. In effect, members of the private bar were hired as government subcontractors — their remuneration tied to the magnitude of their conquest. Thus, the sword of the state was brandished by outside counsel whose overriding duty, as public servants filling a quasi-prosecutorial role, was to seek justice. Imagine a state attorney general corralling criminals on a contingency basis, or state troopers paid per speeding ticket.

States are not poor, unable to afford salaried attorneys. In Texas, for example, the attorney general’s office employs more than 600 lawyers and has an annual budget of $271 million. Nevertheless, state prosecutors doled out multi-billion-dollar contracts to private counsel — not per-hour fee agreements, which might occasionally be justified to acquire unique outside competence or experience, but contingency fees, a sure-fire catalyst for abuse of power. And what is yet worse, those contracts were awarded without competitive bidding to lawyers who often bankrolled state political campaigns. Texas attorney general Dan Morales chose five firms to file the state’s tobacco litigation in March 1996. Four of the five firms contributed a total of nearly $150,000 to Morales from 1990 to 1995. In Mississippi, Attorney General Mike Moore selected his number-one campaign contributor, Richard Scruggs, brother-in-law of Sen. Trent Lott (R-Miss.), to lead the Medicaid recovery suit. In 1992 Scruggs had received a $2.4 million contingency fee for a state asbestos lawsuit, after contributing over $20,000 to Moore’s reelection campaign the year before. To be sure, the industry, not the state, will be paying the lawyers; but that liability obviously affected the size of the negotiated settlement. One way or another, the cost of legal counsel will be borne by the states’ taxpayers.

In Florida, judge Harold J. Cohen — arch-villain to the tobacco industry — denounced the state’s 25 percent contingency contract, observing that the fee was $233 million per lawyer, which “shocks the conscience of the Court.” He cited Florida case law and rules regulating the state bar, which ban enforcement of contracts if, “after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee exceeds a reasonable fee for services provided.” Assuming that the attorneys worked 24 hours per day, 7 days per week, for 42 months, they would earn $92,593 per hour — that’s $7,716 per hour for each of the 12 lawyers. Cohen concluded, “No evidentiary basis can possibly exist for fees of that nature and this Court can never enter an order justifying such hourly rates on any grounds.” How could this outrage have happened? Government is the single entity authorized, in narrowly defined circumstances, to wield coercive power against private citizens. When that government functions as prosecutor or plaintiff in a legal proceeding in which it also dispenses punishment, adequate safeguards against state misbehavior are essential. That is why we need the protections of the Fourth, Fifth, Sixth, and Eighth Amendments; that is why we demand proof beyond reasonable doubt in criminal proceedings; and that is why in civil litigation we rely primarily upon private remedies with redress sought by, and for the benefit of, the injured party and not the state.

Quite simply, contingency fee contracts between a state and a private attorney should be illegal. We cannot in a free society condone private lawyers enforcing public law with an incentive kicker to increase the penalties. As the Supreme Court cautioned more than 60 years ago, an attorney for the state “is the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all.” With 38 states yet to settle claims by tobacco lawyers, arbitrators — or courts if necessary — should shut down this plunder by the plaintiffs’ bar.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute in Washington, D.C.