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STATE POLITICS OFTEN AMOUNTS TO ARGUING over money. More money for fixing bridges can mean less money for fixing schools. During those debates, it’s easy to think that if there were only more money, the arguments would disappear or never arise in the first place. But don’t believe it. With the settlement of the suit between Texas and five big tobacco companies, Texas received a commitment for $15 billion of free money from the tobacco companies to be paid over 25 years. The result has been political feuding between Republicans and Democrats that rivals the old-time feuding of John Connally and Ralph Yarborough or Allan Shivers and Lyndon Johnson.
The feuding began over who got to appropriate the money in the settlement. When Attorney General Dan Morales filed the suit in March 1996, the Legislature either ignored him or looked on in apathy, if not contempt. The general opinion was that Morales had almost no chance of succeeding. After he won, Morales decided that the money was his to spend. For several glorious weeks early in the year, his office issued a stream of happy press releases that detailed the grants he was bestowing on institutions in the state for work on public health, particularly among juveniles. Meanwhile, the Legislature found it impossible to ignore $15 billion. After a few skirmishes, Morales, Republican senator Bill Ratliff, who is the chair of the Senate Finance Committee, and Democratic state representative Rob Junell, the chair of the House Appropriations Committee, announced an agreement in which Morales let the Legislature decide how to spend the first payment from the tobacco settlement. But why did Morales, who clearly loved his role as beneficent savior of the children of Texas, cave in so easily? That brings us to the real fight, which promises to be deadly. It isn’t over the big money—that is, the $15 billion—but over the smaller sum of $2.3 billion that has been designated for lawyers’ fees.
Morales contracted with five lawyers and their law firms to try his case against the tobacco companies. The outside lawyers accepted the case for a contingency fee of 15 percent of any judgment plus expenses. If there was no judgment, they would get nothing, not even reimbursement for expenses.
These are the lawyers and firms Morales hired: Walter Umphrey of Beaumont; John M. O’Quinn, P.C., of Houston; John Eddie Williams, Jr., of Houston; Reaud, Morgan, and Quinn of Beaumont; and the Nix Law Firm of Daingerfield. Depending on your point of view, they are either the Mount Rushmore or the rogues’ gallery of the Texas plaintiffs’ bar. O’Quinn has been reprimanded by the State Bar of Texas for improperly soliciting clients, and the Nix Law Firm represents the plaintiffs in a fantastical and endless mass products-liability lawsuit in Daingerfield (“The Lawsuit From Hell,” June 1996). These lawyers happen to be large contributors to Democratic party causes. They are also, judging by their contributions to him, ardent supporters of Dan Morales. But why should Morales hire his enemies? And even their detractors agree that these are formidable lawyers.
And Morales needed lawyers who had the resources to fight the battle—that is to say, lawyers who were rich. Two years ago, when the suit began, tobacco had not paid a single dollar in damages anywhere in the United States, and its legal tactics produced long, numbing, and expensive lawsuits. Indeed, the outside lawyers are claiming about $40 million in expenses. Critics say this figure is much too high and should be carefully audited. But even assuming the claimed expenses are double what they should be, that still leaves $20 million in expenses, about $1 million a month that the attorneys had to pay out of their own pockets. The outside attorneys were risking all this in a case whose legal basis was, at best, tricky. Texas had allowed the legal sale of cigarettes and collected taxes on every package, which gave the state an interest in actually increasing the sale of cigarettes. Now Texas was turning around and saying the tobacco companies owed Texas money for the harm cigarettes had done. It was as if Texas, after legalizing the lottery and advertising the lottery and taking money from the lottery, were to turn around and sue the operators of the lottery for the cost of caring for compulsive gamblers.
The lawyers Morales hired won. The quality of their lawyering is proved by the very size of the settlement, which is by far the largest of any kind in the history of the United States. The position of the outside attorneys is simple. They say they had a contract, their performance under that contract was successful, and now they want to be paid what they are due. Furthermore, their fees are separate from the $15 billion and do not affect it in any way.
But not so fast. The sheer size of the fees was enough to create real outrage. John Cornyn, the former justice of the Texas Supreme Court who is running for the Republican nomination for attorney general, filed suit to challenge the validity of the lawyers’ contract. A group of seven state representatives and senators (five Republicans and two Democrats) headed by Senator Troy Fraser of Horseshoe Bay filed a challenge to the legality of the contract and the reasonableness of the fees. Governor Bush filed a motion that, among other things, seeks an evidentiary hearing on the fees. Federal judge David Folsom in Texarkana, who presided over the original settlement, has set a hearing on these matters for March 19. The theme that dominates all these legal efforts is not really legal at all. Instead, it’s this: $2.3 billion is just too damned much money. Fraser’s filing says that this would be the fee of fifty lawyers working forty-hour weeks at $230 an hour for one hundred years.
Last August tobacco companies settled a similar case in a Florida state court for a paltry $11.3 billion, but Florida’s outside counsel had a contingency fee of 25 percent that would net them $2.8 billion in fees. In November the judge in that case ordered that the fees be arbitrated. The judge wrote “. . . a figure of 2.8 billion dollars must be unconscionable and clearly excessive. . . . Perhaps tens of millions or hundreds of millions of dollars might be reasonable but 2.8 billion dollars simply shocks the conscience of the Court. It is per se unreasonable.”
When Morales announced Texas’ settlement on January 16, he was asked about attorneys’ fees. Morales said that the notion of billions of dollars in attorneys’ fees was “ridiculous” and “laughable.” These comments might be described as peculiar, although other words certainly come to mind. He must have known that the attorneys’ fees would certainly be in the billions of dollars because that same day he had signed a private agreement with the outside counsel obligating Texas to “urge the arbitration panel to make a full and fair award of attorneys’ fees to Private Counsel.” “Full” and “fair” here mean the full 15 percent.
Under the agreement, the fees will be discussed before a panel of three arbiters. Much is at stake here for Texas. If the panel decides that the tobacco companies should pay less than $2.3 billion, Texas is obligated to pay the difference.
Lately, Morales has shown his temper in public, which is unlike his normally buttoned-down demeanor. The settlement, he says, will be nullified if any significant part of it is changed through any appeal—and the fees are part of the settlement. Thus, Morales insists that the legal challenges to the fees by Bush and others risk losing the whole agreement and $15 billion for Texas. Bush and the other opponents say they don’t question the settlement itself, only the fees, so the agreement is not threatened at all. But what, in Morales’ mind, is motivating the Republican challenge? It’s this: The tobacco companies contribute to Republicans, and this is payback for past contributions and service for future ones for a presidential campaign. The evil mastermind behind all this is supposed to be Bush’s adviser Karl Rove, who has done political work for tobacco companies. When Rove denied any involvement, Morales’ own political adviser called him a “liar.” Morales failed to point out that if the fees are upheld, then $2.3 billion will go to some very generous Democratic contributors. That much money, conservatively invested, could finance presidential campaigns in perpetuity.
The fascination of this fight is that each opposing theory makes perfect sense. To the Republicans, Morales made a devil’s agreement with his cronies and supporters. After they hit the jackpot, he maneuvered further to protect their windfall so that they could enrich themselves and any other person or cause they choose to favor. Bush’s worst-case scenario is that there will be a national tobacco settlement, Texas will get a small fraction of its $15 billion, and the lawyers will demand that Texas pay the full amount they have been awarded in a federal court order.
To the Democrats, Morales and the outside attorneys took a big risk that resulted in a victory for Texas. The outside lawyers deserve their contractual fees. And now the Republicans would scuttle the whole thing rather than see so much money come from their tobacco allies and go to their plaintiff’s lawyer enemies.
The simple truth is that the lawyers did have a contract, but its result is too much money. In the fight, one truth will have to yield to the other. People will line up on one side or the other according to their politics, as once again politics amounts to a fight over money.