The lawyers who negotiated the 1998 settlement between the states and the tobacco companies stand to pocket $11 billion in legal fees. Some lawyers late to the game with copycat suits could be paid $200,000 an hour, according to the Hudson Institute’s Michael Horowitz. Outrageous? Yes. But Horowitz’s solution – treating lawyers as fiduciaries under the Internal Revenue Code and imposing a 200 percent tax on “excess” fees – is the wrong way to go.
Naturally, the business community is eager to turn off the lawyers’ spigot of money, which subsidizes more lawsuits and fattens the coffers of mostly Democratic politicians. That’s why James Wootton of the U.S. Chamber of Commerce, writing in the Wall Street Journal, calls the Horowitz plan a “simple but ingenious reform.” And that’s why President Bush says in his budget that he will generate more money for the states by “extend[ing] fiduciary responsibilities to the representatives of States in tobacco lawsuits.”
The goal of de‐funding the lawyers is noble, but this too‐clever idea is bad public policy and undermines core constitutional values. For starters, conservatives have justifiably railed against using the tax code to reward special interests and penalize the politically disfavored. How, then, can they advocate altering the Internal Revenue Code to punish unpopular anti‐tobacco lawyers?
Second, Horowitz wants to apply fiduciary standards to all attorneys paid contingency fees in large class action litigation. He does not distinguish cases in which the government is the plaintiff, like the Medicaid recovery suits, from cases in which contingency fees are paid by private parties. If respect for free markets and the right to contract mean anything, they mean that private parties can negotiate fee arrangements for legal representation without government interference. Otherwise we should not be surprised when liberals seek to extend fiduciary standards to the fees charged by doctors, accountants, investment managers, you name it.
Public sector contracts with private lawyers are different. Imagine a state attorney paid a contingency fee for each indictment he secures, or state troopers paid per speeding ticket. The potential for corruption is enormous – especially when contracts are awarded, often without competitive bidding, to lawyers who bankroll political campaigns.
Third, a tax law singling out trial lawyers probably violates the constitutional ban on bills of attainder – legislative acts that inflict punishment on an identifiable group without a trial. Legislative bodies are supposed to enact general rules, broadly applicable. In this instance, a court could readily conclude that it was Congress’s intent to punish lawyers rather than regulate for a legitimate public purpose.
Fourth, the Horowitz proposal would be retroactive, thereby violating the due process guarantee of the Fifth Amendment. As the Supreme Court observed in Landgraf v. USI Film Products (1994): In response to political pressures, legislatures may “use retroactive legislation as a means of retribution against unpopular groups or individuals.”
Finally, Horowitz’s scheme would flout principles of federalism. Some 60 years after the New Deal Court eviscerated the constitutional doctrine of enumerated powers, the Rehnquist Court has begun reviving it. Long overdue, that revival would be dealt a body blow if conservatives, champions of federalism, attempt to vest the national government with powers it doesn’t have, merely because the outcome might be congenial to business interests and adverse to the hated trial lawyers.
That doesn’t mean the instant billionaire anti‐tobacco attorneys have carte blanche to finance extortionate lawsuits while recycling megabucks to their political pals. To begin, state governments should prohibit new contingency fee contracts between government and private attorneys. We must not condone private lawyers enforcing public law with an incentive kicker to bring the boot of government down more heavily on the neck of the defendant.
States can also implement a “government pays” rule for legal fees when a governmental unit is the losing plaintiff in a civil case. Access to the courts would be preserved for less affluent, private plaintiffs with legitimate grievances, but defendants in government suits could resist meritless cases brought solely to force a large financial settlement.
Steps can also be taken to wage war against contingency fees already awarded under the multistate settlement. Some state statutes or bar rules now impose a fiduciary obligation on attorneys. Those laws should be vigorously enforced. Even more important, the settlement itself can be undone. In a nutshell, 46 state attorneys general sold antitrust immunity to the tobacco giants for a quarter of a trillion dollars. An antitrust challenge is pending before the U.S. Court of Appeals for the Third Circuit. A constitutional challenge, on Commerce Clause and Compacts Clause grounds, will soon be appealed in the Fourth Circuit.
The Bush Justice Department should join those suits and fortify the case that the tobacco settlement is illegal and unconstitutional.