Up in Smoke

How Dan Morales beat Big Tobacco but lost his reputation.

HOW COULD DAN MORALES HAVE BEEN SO STUPID? What made him damage his public reputation and risk a criminal indictment to get his longtime friend—the diminutive, bookish Houston lawyer Marc D. Murr—a large chunk of the historic $17.3 billion settlement reached in January 1998 between the State of Texas and the nation’s tobacco manufacturers?

If investigators are to be believed, the former attorney general of Texas fraudulently schemed to have Murr awarded as much as $519 million. Morales allegedly created two bogus contracts regarding Murr’s involvement in the state’s 1996 lawsuit against the eight major cigarette producers and went so far as to give a sworn affidavit in which he called Murr “the state’s primary adviser regarding negotiation/settlement of the litigation”—an amazing statement, considering Murr attended no court hearings, depositions, or strategy meetings, wrote no memos or legal briefs about the case, apparently never spoke to any of the other plaintiffs attorneys, and was asked to leave two settlement negotiation sessions because no one from either side was sure who he was or whom he worked for. Indeed, one of Morales’ former top assistants who helped supervise the progress of the tobacco case has said that Murr did not make a single contribution to the lawsuit.

The big question is, Why would Morales fight so hard for Murr, who first met him when the two joined the same Houston law firm in 1981 and later helped raise money in Houston for Morales’ political campaigns? Morales had already been battered by public outrage for hiring five prominent Texas plaintiffs lawyers (Walter Umphrey, John Eddie Williams, John O’Quinn, Harold Nix, and Wayne Reaud) to handle the litigation. In return, the Big Five, as they became known, would receive 15 percent of whatever the state recovered. But the Big Five didn’t exactly have to break a sweat. They basically copied the same lawsuit that other states had developed, then hired a well-known South Carolina plaintiffs attorney who specialized in tobacco litigation to prepare the case. When the tobacco companies settled before trial, the Big Five walked away with a $3.3 billion payday. Critics demanded to know why Morales couldn’t have used his best lawyers within his own office to do the same work. The criticism only intensified when it was learned that on the day of the settlement, Murr arrived at the federal courthouse in Texarkana with an official State of Texas contract, signed on January 31, 1997, by himself and Morales, that entitled him to a “reasonable fee” for his work on the case.

Murr wasn’t talking about what his legal services were, but his lawyer, high-profile Austin defense attorney Roy Minton, said that Murr was Morales’ “copilot,” helping develop strategy as far back as 1995, a full year before the lawsuit was filed. Morales acted as if he barely made a move without first talking to Murr, who worked out of a modest office in Houston, had no staff, and had an embarrassing lack of experience in major litigation against billion-dollar corporations.

 Nevertheless, through all of 1998, his last year in office—Morales had surprised political observers in late 1997 by deciding not to seek reelection—he kept trying to get money for Murr. After the federal judge in the case agreed to allow Murr’s fees to be determined by a state arbitration panel, Morales, Murr, and Minton handpicked the three judges for the panel (even though the federal judge was supposed to pick one), which Morales convened in secret. There, he suddenly produced another contract that he said he and Murr had signed in October 1996, this one giving Murr 3 percent of the state’s total recovery. The panel refused to give Murr the full $520 million, but it did award him $260 million, which by law had to be paid by the state. Morales then took the extraordinary step of flying to New York to plead Murr’s case to a national arbitration panel, which, by agreement of both parties, had been convened to decide what the tobacco companies should pay the plaintiffs lawyers. That panel awarded only a $1 million fee to Murr—which still wasn’t bad for a guy who had never made a single appearance in the federal court overseeing the tobacco case until it came time to ask for money.

There seemed little anyone could do except cry foul. Enter Morales’ successor, Republican John Cornyn. Just before he took office in 1999, a couple of Morales’ top aides privately came to him and said something was wrong with the contracts. Harry Potter, the former assistant attorney general who had supervised the case, reportedly told Cornyn that Murr had admitted to him as late as December 1997 that he had no contract at all. Cornyn’s first assistant attorney general, 37-year-old Andy Taylor, a former Houston corporate attorney, began to investigate, sifting through reams of paper in the office and studying old files on the hard drive of the attorney general’s main computers. His break came weeks later, when he heard that there had been a third contract involving Murr over the tobacco case, one never heard about in public. Taylor flew to Dallas to see a lawyer named Will Pryor, who went to Harvard Law School with Morales and later worked for a year and a half as his top assistant in the attorney general’s office. Pryor said that Morales had come to Dallas with Murr in January 1997 to ask if Pryor and Murr would provide legal consultation on the lawsuit. In return, Morales promised, the two would get to split 6 percent of the recovery. Pryor, who would become the chief administrative counsel, jumped at the chance, as did Murr. But within months, Pryor quit, telling Morales that all that he could find to do was read some court documents and surf some tobacco litigation Web sites. In a letter that he later wrote to Andy Taylor, Pryor said he quit because “I was concerned about the appearance of impropriety.” According to insiders in the attorney general’s investigation, Morales told Pryor he

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