The lawyers who negotiated the 1998 settlement between the states and thetobacco companies stand to pocket $11 billion in legal fees. Some lawyerslate 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 InternalRevenue Code and imposing a 200 percent tax on “excess” fees – is the wrongway to go.
Naturally, the business community is eager to turn off the lawyers’ spigotof money, which subsidizes more lawsuits and fattens the coffers of mostlyDemocratic politicians. That’s why James Wootton of the U.S. Chamber ofCommerce, writing in the Wall Street Journal, calls the Horowitz plan a“simple but ingenious reform.” And that’s why President Bush says in hisbudget that he will generate more money for the states by “extend[ing]fiduciary responsibilities to the representatives of States in tobaccolawsuits.”
The goal of de-funding the lawyers is noble, but this too-clever idea is badpublic policy and undermines core constitutional values. For starters,conservatives have justifiably railed against using the tax code to rewardspecial interests and penalize the politically disfavored. How, then, canthey advocate altering the Internal Revenue Code to punish unpopularanti-tobacco lawyers?
Second, Horowitz wants to apply fiduciary standards to all attorneys paidcontingency fees in large class action litigation. He does not distinguishcases in which the government is the plaintiff, like the Medicaid recoverysuits, from cases in which contingency fees are paid by private parties. Ifrespect for free markets and the right to contract mean anything, they meanthat private parties can negotiate fee arrangements for legal representationwithout government interference. Otherwise we should not be surprised whenliberals 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 stateattorney paid a contingency fee for each indictment he secures, or statetroopers paid per speeding ticket. The potential for corruption isenormous – especially when contracts are awarded, often without competitivebidding, to lawyers who bankroll political campaigns.
Third, a tax law singling out trial lawyers probably violates theconstitutional ban on bills of attainder – legislative acts that inflictpunishment on an identifiable group without a trial. Legislative bodies aresupposed to enact general rules, broadly applicable. In this instance, acourt could readily conclude that it was Congress’s intent to punish lawyersrather than regulate for a legitimate public purpose.
Fourth, the Horowitz proposal would be retroactive, thereby violating thedue process guarantee of the Fifth Amendment. As the Supreme Court observedin Landgraf v. USI Film Products (1994): In response to politicalpressures, legislatures may “use retroactive legislation as a means ofretribution against unpopular groups or individuals.”
Finally, Horowitz’s scheme would flout principles of federalism. Some 60years after the New Deal Court eviscerated the constitutional doctrine ofenumerated powers, the Rehnquist Court has begun reviving it. Long overdue,that revival would be dealt a body blow if conservatives, champions offederalism, attempt to vest the national government with powers it doesn’thave, merely because the outcome might be congenial to business interestsand adverse to the hated trial lawyers.
That doesn’t mean the instant billionaire anti-tobacco attorneys have carteblanche to finance extortionate lawsuits while recycling megabucks to theirpolitical pals. To begin, state governments should prohibit new contingencyfee contracts between government and private attorneys. We must not condoneprivate lawyers enforcing public law with an incentive kicker to bring theboot of government down more heavily on the neck of the defendant.
States can also implement a “government pays” rule for legal fees when agovernmental unit is the losing plaintiff in a civil case. Access to thecourts would be preserved for less affluent, private plaintiffs withlegitimate grievances, but defendants in government suits could resistmeritless cases brought solely to force a large financial settlement.
Steps can also be taken to wage war against contingency fees already awardedunder the multistate settlement. Some state statutes or bar rules nowimpose a fiduciary obligation on attorneys. Those laws should be vigorouslyenforced. Even more important, the settlement itself can be undone. In anutshell, 46 state attorneys general sold antitrust immunity to the tobaccogiants for a quarter of a trillion dollars. An antitrust challenge ispending before the U.S. Court of Appeals for the Third Circuit. Aconstitutional 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 casethat the tobacco settlement is illegal and unconstitutional.