Up in Smoke

How Dan Morales beat Big Tobacco but lost his reputation.

August 1999By Comments

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 understood his decision and asked him to tear up the copy of the contract he had signed with Murr and Morales.

But Pryor either forgot to tear it up or felt some need to hold on to it. In front of Taylor, he pulled out the contract. It was dated January 31, 1997—the same date that Morales and Murr had supposedly signed their two-man pact for Murr to provide legal consultation in return for a reasonable fee. Taylor looked at the signatures, and he couldn’t believe what was there. The signatures of Murr, Morales, and Morales’ then first assistant Attorney General Jorge Vega (who also signed all outside contracts) were exactly as they appeared on the Morales-Murr “reasonable fee” contract—too much alike, in fact. Forensic specialists would later verify they were identical. Taylor was certain someone had made a photocopy of those signatures, cut them out, and then switched them to Murr’s “reasonable fee” contract.

Taylor concluded that Murr’s “reasonable fee” contract—the one he presented before the federal court—had been created weeks if not months after January 31, 1997. He also concluded, based on evidence reportedly found on the attorney general’s office computers, that the 1996 “3 percent” contract, which Morales had shown to the state arbitration board, was actually created in 1998. Based on that information, Cornyn filed a motion in federal court last May, accusing Morales of “fraudulent manipulation of a court document” and claiming the alleged fraud by Morales and Murr was part of their “joint effort to achieve a half billion dollar award.” Cornyn added that Morales “wanted to hide the fact that Murr and Pryor had been previously retained on a 6 percent contingency fee.” If word leaked out that Pryor, the “chief administrative counsel,” had had nothing to do, then how would that look for Murr?

Murr stayed quiet, as always, but he made a stunning retreat, forfeiting any claim to both his $260 million and $1 million awards. Morales, meanwhile, angrily told the press that there was “not a shred of evidence or a single document to support these lurid accusations.” He called Cornyn a “liar” and claimed that his charges about fraudulent contracts were simply a politically motivated attempt to keep Morales from running for governor in the future.

By June, a federal grand jury was issuing subpoenas for an investigation of criminal fraud on the part of Morales, and legal specialists following the case were speculating that Morales and Murr could be disbarred, held in contempt of court, or indicted under the federal False Statements Act. There was also another FBI investigation over allegations that Morales required any private lawyer joining his tobacco legal team to put at least $1 million into a fund that he would control, purportedly to defend himself against attacks from the tobacco companies. Such a fund, if it existed, might have broken a federal bribery law involving public officials. No one expects this mess to end soon; it could take prosecutors six months to dig through all the evidence already accumulated against Morales and Murr, to interview new witnesses, and then to prepare their cases. Several more months might pass before the federal grand jury decides whether to indict Morales and Murr. Instead of basking in the glow of what could have been a triumphant victory over tobacco companies, Texans are only going to be reminded for a long, long time of what a former friend of Morales now calls “a shame and a disgrace.”

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