Lawyers reap big money from Big Tobacco
There's an irony - for Gov. Foster a sour one -- behind the eye-popping legal fees awarded last week to lawyers involved in Louisiana's $4.6 billion settlement with the big tobacco companies: The lawyers might have gotten less if Foster had not sounded of
Foster's opposition is one of a handful of factors cited by the otherwise secretive Tobacco Fee Arbitration Panel in announcing last week a $575 million award to the 17 law firms tapped by Louisiana to take up cudgels against the industry.
To the lone dissenter on the three-member arbitration panel, the award is a sum that "shocks the conscience." By a long shot, it's the largest award of legal fees the state has ever seen, though the payouts -- which come from a separate fund, not the settlement itself -- will be spread over 20 years or more, rather than collected in a lump sum as they usually are in liability cases. In terms of dollars, it's the fifth-largest award by the panel -- a private body set up by the tobacco industry and the lawyers who sued to recoup public money spent treating sick smokers.
It is also less than half what the law firms asked for. Just what kind of jaw-boning led to the final figure is shrouded in secrecy. Neither the lawyers who represented Louisiana nor their industry counterparts would comment, citing strict confidentiality agreements. Questions to lawyers about how they will divide the money among themselves were met with chortles.
But the lengthy fee ruling itself offers glimpses into a process that has grown increasingly contentious since the panel ignited a public uproar in December 1998, when it announced its first awards: a total of $8 billion to lawyers representing Florida, Texas and Mississippi.
To help make their case, the Louisiana law firms enlisted some high-powered help, including, at one point, the man who had hired them: Attorney General Richard Ieyoub. Ieyoub testified in October at a two-day closed hearing in a Washington, D.C., hotel. Three former Louisiana Supreme Court justices offered their views in a videotaped statement. A former Tulane Law School dean and a nationally recognized expert in legal fees from New York University law school chimed in as expert witnesses.
How much did they think they were owed? A whopping $1.3 billion, according to the tobacco industry's man on the panel.
*** A panel unparalleled ***
If the dollars are unprecedented, so is the panel itself.
It was formed in 1998 as part of the massive, $206 billion tobacco settlement.
The tobacco industry named Charles Renfrew, a former federal judge in San Francisco, as its representative. The Louisiana lawyers followed the lead of Florida, Kansas and Massachusetts in appointing as their panel representative a venerable public interest lawyer named Harry Huge -- his son works at a South Carolina law firm that itself reaped millions from the tobacco settlement. The panel chairman, a consensus candidate, is John Calhoun Wells, former director of the Federal Mediation and Conciliation Service. Wells mediated settlements in several high-profile labor disputes, including the 1997 Teamsters-United Parcel Service strike.
Most arbitrations are conducted confidentially, but the door to the tobacco fee face-off briefly flew open last year as Massachusetts lawyers secured their take. To the dismay of arbitrators, word leaked that the lawyers had requested $2 billion. The tobacco industry had countered by offering a fraction of that: $26.4 million.
In July, the panel awarded the lawyers $775 million, or about 9 percent of Massachusetts' $8.3 billion share of the overall settlement.
Since then, the panel has awarded fees for Hawaii, Illinois, Iowa and, on the same day as Louisiana, Kansas.
So far, the awarded fees have come to $9.86 billion in nine states. But as part of the original agreement, the tobacco industry will pay no more than $500 million a year in fees. That means 50-year-old lawyers from Louisiana won't see their final checks for two decades. There are no cost-of-living adjustments.
The amount is prorated, and each firm will get quarterly checks, which will shrink as the panel sets fees in additional states, said Eric Berman, a spokesman for the panel.
"Because as more states come through, the percentages change," he said. "You cannot predict how long it will take."
And once the panel rules, there is no process of appeal.
*** Shock to the system ***
In setting Louisiana's fees, the arbitration panel considered several factors. It said that Louisiana's lawyers were involved in a highly complex case and noted that they spent millions of dollars in their own money while working without the usual contingency fee contract that assures lawyers a third of whatever settlement is reached. They contributed mightily to the national settlement, the panel majority said.
The panel acknowledged that another factor that boosted the fees awarded was what it saw as Louisiana's political hostility to the whole idea of states assuming the role of plaintiffs in a suit against the tobacco companies. This made the lawyers' investment of time and money a riskier proposition, the panel explained, entitling them to more of a reward than lawyers from states whose executive branches actively backed the tobacco suits.
Though Louisiana ranks third per capita in the number of smoking deaths in the country, it was the only state in which both the governor and the state's top public health official opposed the lawsuit. The panel called "unprecedented" an affidavit the secretary of the Department of Health and Hospitals filed in support of dismissing the lawsuit.
"If one's conscience were to be 'shocked,' as suggested by Judge Renfrew, it should be 'shocked' by the actions of Louisiana's governor, elected and sworn to uphold the people's interest, and Louisiana's top public health officer, sworn to protect the health and well-being of the men, women and children of Louisiana," the majority wrote.
Foster on Friday defended his opposition to the lawsuit. "Like I've always said, I'm not a fan of government suing legal businesses, not even ones that make products as reprehensible as cigarettes," he said through a spokeswoman Marsanne Golsby.
Golsby added: "This is just another attempt by some group to take a pot shot at the governor."
Rusty Jabour, who was the DHH director of communications at the time of the affidavit mentioned in the ruling, said the panel's characterization of the secretary's role was a "gross misrepresentation."
He said the affidavit was signed at a time when tobacco industry lawyers were contending that Ieyoub did not have authority to file the state's lawsuit without authorization from the governor and the DHH secretary.
Jabour said Bobby Jindal, the secretary at the time and now president of the University of Louisiana system, signed the affidavit in 1996, with the assent of both sides in the case, and that all it did was stipulate that nobody from Ieyoub's office had sought the department's approval for the suit. In the end, the court ruled that the authorization was not needed anyhow.
Charles Castille, the general counsel for DHH at the time, said the department helped the attorney general calculate the scope of the damages the state was seeking.
The Louisiana team estimated it spent 85,000 hours on the effort but did not provide hourly logs, according to the fee decision. Its presentation to the panel included a slide show, expert reports and a videotape that featured former Supreme Court justices Revius Ortique and Pike Hall. Dr. David Burns, one of the country's leading anti-smoking advocates, testified about Louisiana's role in the long process, including forging the final settlement.
John Kramer, a former Tulane Law School dean, served as an expert witness on standard fee practices. He called the case unique because the fees were not lopped off what the client -- in this case Louisiana -- will get, but rather will be paid from a separate fund.
The group effort also set it apart, he said.
"To me, as a law professor, it was a remarkable cooperative effort among lawyers. It is not something we teach our students. They are taught to be individualists," Kramer said.
Remarkable, indeed. Though lawyers fees in liability cases are typically calculated as a percentage of the overall award recovered, critics of the Louisiana deal have pointed out that the fees comes to $6,700 an hour for the lawyers involved, compared to the $300 to $400 an hour earned by the city's top corporate litigators. Renfrew pointed out that $6,700 was more than one-third the annual per capita income in the United States in 1998.
He said the majority subjected Louisiana's request to a less rigorous analysis than other states faced. He said the "complexity" for which the state's lawyers were hugely rewarded was partly of their own making, a strategic and time-wasting blunder that involved suing the companies that insure tobacco companies in addition to the companies themselves. The majority rebutted that criticism with the contention that suing the insurers actually helped force the tobacco companies to settle.
In addition, Renfrew criticized Louisiana's hired counsel for trying -- unsuccessfully, as it turned out -- to convince the panel to factor in inflation and the long payout period, something that has been done for no other state.
In the end, the fee for Louisiana lawyers came to 12.5 percent of the state's estimated share of the big settlement over the next 25 years. That's slightly less, the majority noted, than the 13.4 percent average fee awarded in a sample of 20 "megafund" cases since 1981 in which the recovery exceeded $100 million. Those cases covered issues ranging from bad drugs and chemical exposure, to hotel fires and securities fraud.
To counter Renfrew's carping about $6,700-an-hour fees, the panel majority drew a comparison from the world of pro sports. The New York Yankees pay shortstop Derek Jeter $17 million a year, which, with a 162-game schedule, translates to roughly $35,000 an hour for each three-hour game, the majority noted.
Jeter, they pointed out, is "a great shortstop, but the health benefits and financial benefits to a state and a nation are hard to discern in his superb play."