Commentary

Trial Lawyers on Trial

By Stephen Moore
This article was published by Scripps Howard News Service, May 2, 2003.

This is a story of one of the greatest heists in modern American history. Five years ago a small group of trial lawyers became fabulously wealthy off of other people’s pain and suffering, and it looked like they got away with it.

But maybe not.

I am referring to the 1998 tobacco litigation agreement reached between states and tobacco companies. This famous legal settlement required the tobacco companies to reimburse states nearly $250 billion over 25 years for the smoking-related health care costs incurred by state financed Medicaid programs.

In that deal, a small gang of several hundred trial lawyers walked off with settlement money of an estimated $10- to $15 billion. If you filled Madison Square Garden with people who made $1 million, their total wealth would be slightly less than what the trial lawyers received in these settlements.

And so, as it turns out, the grand winner from these tobacco settlement cases was not the smokers who got cancer or heart disease. It was not their families. It was not taxpayers. It was not states and cities, which bore the health costs. It was lawyers — about 500 of them. Some lawyers received more than $50,000 an hour in contingency fees for lawsuits that never even went to court.

Never before have so many billionaires been created out of thin air overnight. And in the past five years these tobacco lawyers have bought luxury yachts, Rolls Royce autos, Citation jet planes, and politicians (through millions of dollars of campaign contributions). “These fees were outrageously excessive,” fumes Michael Horowitz, a legal expert at the Hudson Institute. “This money should have gone to states, not to make billionaires out of lawyers.”

But this grotesque story of lawyer avarice may have a happy ending after all. Last month, two Republican senators — Jon Kyl of Arizona and John Cornyn of Texas — decided to take on the trial bar by demanding that a good chunk of the tobacco settlement lawyer fees be returned to states from whom it was pilfered. Senators Kyl and Cornyn have discovered that the multi-billion dollar settlements awarded the trial lawyers violate legal ethics rules.

Under decades of legal precedent, lawyers are prohibited from receiving fees that are “excessive or unreasonable.” If there were ever a case of unreasonable fees it is this one. As a Missouri Court has ruled: “Reasonableness is an implied term in every contract for attorney’s fees.”

Here is what Kyl and Cornyn propose. If a reasonable fee of $400 an hour were to be applied, and if the tobacco lawyers were permitted to receive settlement money that paid them a contingency fee of even five times that amount (i.e., $2,000 an hour in fees), the states will be able to recapture a net present value of an estimated $9 billion from the tobacco lawyers. And that is money that many indebted states can use to help balance their budgets that are awash in red ink.

Kudos to Kyl and Cornyn. They are trying to right an egregious wrong.

They have come up with a formula in which everyone wins. States win because they get $9 billion. Children win because some of this money will be used for anti-smoking campaigns to educate school kids on the dangers of smoking.

Our health care system wins because some of this money can be used to develop cures for cancer and heart disease.

And trial lawyers still win a magnificent pot of gold — just one that will make most of them millionaires, rather than hundred millionaires.

They will still receive fees that will pay them more for an hour’s work than what many American workers earn in a month. And for this the bar association will moan and complain about the injustice of it all.

This will be a wonderful test of the priorities of the Democrats in Congress, who are largely funded with trial-lawyer dollars. Will the Daschle Democrats side with states and cities and children and cancer patients, or will they side with their millionaire benefactors. Let us hope that for once common sense prevails over the persuasive power of political contributions.

Stephen Moore is a senior fellow at the Cato Institute.