DIRTY DEALS IN SMOKE-FREE ROOMS

...If the first three states to go through arbitration are any benchmark, we can expect the lawyers' compensation in the $206 billion, 46-state case to range between the one-fifth of the settlement that the "free riders" from Texas received and the one-third granted the genuine risk-takers and innovators in Mississippi...

...Between 1989 and 1994, trial lawyers pumped $30.9 million into federal elections, an amount that surpassed the donations of the country's five biggest labor unions...

...The corruption also takes on more explicit personal dimensions...

...The services I've been doing over the years," Daynard argued in the Wall Street Journal in October, "have redounded to the benefit of all the states' cases...

...Dirty Deals in Smoke-Free Rooms By Christopher Caldwell There's an old Russian joke about how the second-worst thing that ever happened to the country was the rise of Lenin—the worst thing, naturally, being the death of Lenin...

...Massachusetts broke that custom in the asbestos suits of the 1980s, and in little more than a decade, tort lawyers have revolutionized the legal system...

...Under the rules of the agreement, the lawyers' fees are to be paid by the tobacco companies—not by the lawyers' ostensible clients, the states...

...Attorney general "Skip" Humphrey had inked a 25 percent contingency-fee agreement with one local firm—Robins Kaplan, Miller & Ciresi—and had vowed to fight for every penny...

...The North Carolina Senate victory of John Edwards— net worth $60 million—is only the beginning of Republicans' troubles...

...And a mere state-by-state look fails to reflect the extensive overlap in tobacco representation, and thus how narrowly the tobacco payoff will be concentrated in the hands of a very few lawyers...

...Certain Republican congressmen, among them Bill Archer of Texas and Christopher Cox of California, are said to be receptive to the idea of an excess-profits tax, along the lines of the one imposed on oil companies during the era of price controls two decades ago...

...The South Carolina tobacco-litigation experts Ness Motley have a special deal that provides them a 10 percent consulting fee from the Texans' take...

...In most cases, this means a company large enough to pay a gargantuan court judgment if found liable or at least to pay millions to keep the lawsuit out of court in the first place...

...About the only concession the companies got was a $500 million cap on annual disbursements to plaintiff's lawyers...

...And while many lawyers vie for the dubious honor of having dreamed up the idea of suing tobacco companies in the name of (innocent) taxpayers, not (those goddamn) smokers, the strategy was first broached in a courtroom by Mississippi's lead attorney, Richard Scruggs...

...What no one had quite absorbed was that fee arbitration was in this case a rigged game...

...In public, meanwhile, Morales said, "I think any discussion or speculation of fees in the multibillion-dollar amount range is laughable...

...Michael Horowitz, a legal analyst at the Hudson Institute, sees another source of conflict in the unusual arbitration arrangements: "What state or smokers' interests," he asks, "were sacrificed by the attorneys general to get the tobacco companies to agree to be bound by multibillion-dollar decisions of arbitrators chosen by parties with interests hostile to theirs...

...Arbitrators set a lodestar of 10 percent...

...The state attorneys general, who brought the case in the first place...

...That is, the lawyers are likely to reap, all told, between $40 and $65 billion...

...This may be the upper extreme...

...This pattern—of favored contributors' getting comfy spots on an attorney general's litigation team— was allegedly repeated in Texas, where five private attorneys were awarded $3.3 billion (or 19 percent) on a $17.3 billion settlement...

...But for now, it's a clear victory for the tort lawyers...

...It will be interesting to watch him throw his muscle around in politics, as he intends to do...

...There are also state rulings on how one procures services and on competitive bidding...

...The reason the agreement included only 46 states is that four states had already settled separate suits against the tobacco companies...

...Legal fees are often subject to arbitration proceedings that demand fees be "reasonable...

...Morales even guaranteed the state would make up the difference if the arbitrators didn't agree to it...

...After multimillionaire tort lawyer John Edwards's resounding victory over Republican senator Lauch Faircloth of North Carolina in November 1998, Republicans shudder to imagine what trial lawyers could do with billions of dollars to tithe into politics...

...In the event, lead counsel Michael Ciresi refused to submit his fees to arbitration, and it was easy to see why...

...Such arrangements offend legal tradition as well...

...Says Olson, with less irony than you'd think: "These Democrats are lucky there's an impeachment on...

...This meant that the tobacco companies were outnumbered two to one...

...Even if the agreement could be shown to have been carried out only thanks to the oligopolistic shape of the cigarette market, don't expect a Sherman Act anti-trust case soon...

...It was, six months ago, the highest contingency fee in American history...

...The $208 billion agreement signed by 46 state attorneys general and the Big Four tobacco companies in November may be worse than the deal it replaced...

...They are also among the most prolific givers to the Democratic party, which receives 91 percent of their campaign contributions...

...There are obvious possibilities for collusion, bad law, and conflict of interest...

...Depending on whom you talk to, tort lawyers are either (a) justly rewarded Protectors of America's Children and Unfortunates or (b) bullies who pervert the spirit of the law to operate a legally sanctioned shakedown racket...

...In Texas, the big issue was "free-riding": Whereas in Minnesota and Mississippi the lawyers did significant original work, Texas's attorneys had to do little beyond signing up clients...

...then a "multiplier" is determined that adjusts the fee for such intangibles as effort and risk...

...While each has its peculiarities, together they tell us that attorneys' fees will reach hitherto-unthinkable levels...

...Both parties assumed this was a means of stretching payments out over the next decade or so...

...Certainly evidence of changing times, when Manhattan is so empty of lawyers that the New York attorney general has to look to Mississippi and South Carolina to find litigators to represent the state on official business...

...What's more, an appendix to the agreement included an extraordinary gag rule regarding lawyers' fees: "Settling Defendants will not take any position adverse to the size of the award requested by Private Counsel nor will they express any opinion (even upon request) as to the appropriateness or inappropriateness of any proposed amount...

...According to Walter Olson, such an arrangement looks suspiciously like the medieval practice of tax farming...

...Florida lawyers got the most in dollar terms—$3.4 billion, a quarter of the damages...

...One Ness Motley lawyer, Joe Rice, represents at least 20 states, and Dick Scruggs has nearly as many...

...How come no one's noticed...

...The legal theory behind the strategy has never been tested at trial, but one can already credit Scruggs as an innovator and a risk-taker...

...Almost all of the states hired plaintiff's attorneys, also known as tort lawyers or trial lawyers...

...Both Scruggs and Rice, it's interesting to note, are lawyers for New York's tobacco agreement...

...This means a cash infusion for Democrats that could leave Republicans begging for the campaign-spending caps they gleefully scuttled just two months ago...

...Probably not, though there are some possibilities...

...Mere weeks ago, the New York Times estimated that fees to tobacco lawyers in the 46-state settlement could total $8 billion—a mark surpassed by these three states alone...

...The big fallout from the tobacco debacle, though, will be in politics, for trial lawyers are among the most politicized people in the country...

...Is there a way to subject the 46-state agreement to similar ethical limits, given its multiple jurisdictions...

...Umphrey justified his claim by citing a Yale professor's assessment that the inflation-adjusted value of the Texas part of the settlement over time is $106 billion...

...The agreement itself is less harmful than the apparently limitless opportunities it opens up for plaintiff's attorneys...

...Even after the original reasoning broke down, and contingency-fee lawyers began taking wealthy clients, there was a consensus that such arrangements were unethical in government suits...

...The Supreme Court is unlikely to take much interest...

...the high multiplier (3.5) came from state attorney general Michael Moore's having been the first to file suit...

...Northeastern University professor Richard Daynard, chairman of the Tobacco Products Liability Project (who throughout the congressional negotiations last summer was quoted as an "impartial" scholar in hundreds of articles generally favorable to anti-tobacco forces), has retained a litigator of his own to demand 5 percent of all fees settled in states Scruggs is handling, claiming Scruggs promised him as much verbally...

...There's something offensive to common sense in legal arrangements that use the power of the state to generate private fees that could reach $100,000 per hour—even catapulting a handful of ambulance-chasers onto the Forbes 400 list of the richest men in America...

...Minnesota's suit was settled for $6.5 billion...

...If this had been done with highway resurfacing instead of cigarette law," he says, "what do you think the Public Integrity section of the Justice Department would have to say about it...

...But who would make that argument...

...Mississippi lawyers got $1.4 billion, 35 percent of the state's take...

...Last week, the remaining three separate suits were arbitrated in Mississippi, Florida, and Texas...

...Because Scruggs is not just Michael Moore's best friend from law school...

...The settlement stipulated that each panel would consist of one arbitrator chosen by the tobacco industry, one by anti-tobacco lawyers, and one by the states bringing the suit in the first place...

...They also executed a contract getting Texas to waive all rights to revise the fee...

...Contingency fees, as legal scholar Walter Olson notes in The Litigation Explosion, are banned in other countries—banned because they inevitably cause corruption...

...In litigation-mad America, contigency fees used to be considered a necessary evil, but they were hedged with safeguards in order to ensure they were used only for indigent clients...

...By whatever name, these are specialists in identifying an allegedly harmful agent—dioxin, asbestos, McDonald's coffee hot enough to burn you, and now tobacco—and finding someone to blame for it...

...I think that the court is going to do something appropriate, something responsible...

...on salary but for "contingency fees" that would pay them up to one third of the damages—but only if they won...

...Nor did they take any great financial risks: Even before the case came to arbitration, the five had already got $100 million from cigarette makers and $50 million from the state...

...The lawyers also worked to get many of the most controversial issues resolved by arbitration, leaving them less subject to outside review...

...In one of the strangest episodes, Texas lead attorney Walter Umphrey revised his request, asking for not 15 percent of the recovery but 145 percent—$25 billion in fees...

...The $440 million Ciresi was awarded over two years was 7 percent of the total Minnesota settlement, but it still looked like a very good deal given the relatively low number of billable hours...

...Nobody anticipated that the lawyers' fees would reach such a level that the question would arise whether they could be paid off within the next century...

...What's more, they billed the state for $40 million in expenses, with only $1.7 million of it documented...

...Horowitz was perhaps the lone advocate among conservatives of last summer's federal settlement, largely because of its treatment of the legal-fee issue: In the late stages of congressional debate, Washington senator Slade Gorton offered an amendment to limit attorneys' fees in the case to $4,000 an hour—eight times the hourly rate of Washington's best lawyers, and sixteen times what the tobacco lawyers arguing the opposite side were getting, but well below the casino rates of the latest deal...

...But now it looks like Ciresi made at best a third of what he could have...

...On the same day last January that Texas settled its tobacco case for $15.3 billion (the sum was later revised upwards), attorney general Dan Morales's private lawyers sought immediate approval of a 15 percent contingency fee...

...In the 46-state tobacco agreement, the trial lawyers who arranged the deal worked, as is their custom, not Christopher Caldwell is senior writer at THE WEEKLY STANDARD...

...Next time out," Horowitz warns, "you could have five races where each guy is worth $600 million...

...If cigarette-price increases are seen as a de facto tax, then the argument can be made, state by state, that taxes can only be levied by the legislature...

...Since Moore is now in the running for next fall's Mississippi governor's election, it's noteworthy that Scruggs was the biggest contributor to Moore's attorney-general campaign in 1991...

...Michael Horowitz is now warning his fellow Republicans that the tort lawyers are active not just as donors but as candidates...

...Which they did...

...Americans interested in tobacco legislation may be living a version of that joke...

...Lawyers involved in Moore's initial tobacco suit contributed $24,166 to his 1995 reelection campaign...

...An agreement between attorneys general, tobacco moguls, and tort lawyers is unlikely to meet the most lenient of such standards...

...If the second-worst turn of events in the politics of tobacco was the drafting of last summer's $600 billion federal tobacco bill, the worst may have been its killing...

...It passed narrowly, 49-48...

...In the case of tobacco, given that the fee caps will stretch the tobacco companies' payments over decades, the same powerful tort lawyers who took on the tobacco industry now have a long-term vested interest in keeping it highly profitable...

...he's also Senate majority leader Trent Lott's brother-in-law...

...In May, Minnesota became the first of these four to address the question of legal fees, and it did so under conditions extremely favorable to the tort lawyers...

...As the Wall Street Journal points out, the great tort lawyer Joe Jamail billed just $5 million total expenses for Texaco v. Pennzoil, which resulted in a $300 million fee award, the largest in pre-tobacco history...

...It is perennially loath to invoke constitutional "takings" doctrine...

...This insulates the lawyers (up to a point) from inevitable claims that they are taking money that would otherwise go to overburdened public-health agencies...

...Of the individual state settlements, Texas's has come in for the most scrutiny, largely thanks to Texans for Reasonable Legal Fees, a watchdog organization founded by a number of good-government and low-tax civic groups...

...Reasonableness is determined first by setting a "lodestar," a basic payment reflecting the award and billable hours...