The Trial Lawyers’ Dirty Secret

Remember the tobacco settlement? The 1998 agreement ended a wave of lawsuits filed by states against tobacco companies for allegedly misleading the public on the dangers of nicotine.

The money resulting from that settlement was supposed to benefit states (including Arizona) and their citizens. It surely was not meant to unreasonably enrich trial lawyers or create a taxpayer-supported subsidy for them for the rest of their lives.

But that’s exactly what is happening. To date, attorneys representing the people of the several states have hauled in $2.5 billion from tobacco taxes used to pay the settlement. Some attorneys are now interpreting the settlement to allow them to divvy up an additional $500 million every year forever!

These payments are justified as “attorneys’ fees,” but are paid to all lawyers participating in the settlement agreements regardless of the amount of work they did or the hours they worked. Conceivably, an attorney who merely contributed a few weeks’ worth of effort to the settlement may receive millions of dollars in payments - what one law professor equated to “effective hourly rates of return of tens of thousands - and even hundreds of thousands - of dollars an hour.”

Anybody still willing to shrug at these figures should bear in mind that this isn’t just another story of some lawyers taking unfair advantage of strangers. This is about money that is deliberately being taken away from you -- the people of Arizona -- and residents in other states that are currently suffering from severe financial shortfalls.

In fact, these attorneys’ fees are so obscene that even some of the lawyers receiving payments are embarrassed by them. Michael Ceresi, a pioneer in the tobacco litigation who represented the state of Minnesota, acknowledged that the fees are “far in excess of any of these lawyers’ contributions to any of the state results.”

President Clinton’s Food and Drug Administrator David Kessler, an anti-tobacco crusader, called the fees “outrageous.” Another prominent D.C. lawyer and tobacco settlement backer denounced them as “beyond human comprehension.”

Even the head of the American Association of Trial Lawyers, a politically-savvy group that understands well the public-relations problems inherent in these types of fees, stated: “Common sense suggests that a one billion fee is excessive and unreasonable and certainly should invite the scrutiny [of the courts].”

I think we should do more than “scrutinize” these fees. I think we need to return some of that money back to the people these lawyers were supposed to represent. Legislation that I recently introduced with Senator John Cornyn, the former Attorney General of the State of Texas, would do just that.

Our legislation - which would apply to all cases which result in judgments over $100 million - would cap attorneys’ fees from the tobacco settlement to a rate as high as 500 percent of normal standard fees (giving lawyers who worked on the settlement a more than generous $2,500 per hour). Additionally, our bill would calculate attorneys’ fees based on the amount of actual work these lawyers’ contributed to the settlement, using a formula called the “lodestar standard” that is routinely used by federal courts.

The rest of the money - roughly $9 billion -- would be returned to the states based on population. Even a small state like Wyoming would receive an extra $15 million. Arizona would receive an additional $164 million - with no strings attached. This is money that could be used to help ease the budget deficit or save imperiled programs, and Arizona’s legislative leaders have strongly endorsed the proposal.

Predictably, many trial lawyers have raised all sorts of questions about our bill in an effort to derail it. They claim taking some of the money already received by these attorneys is unconstitutional, for example, even though courts have clearly permitted similar actions in the past. They fret that Congress would be interfering with the “freedom of contract” by enforcing limits on attorneys’ fees in this case. But attorney-client agreements are always subject to reasonableness standards. Attorneys do not have an unfettered right to rip off their clients.

For me, the choice our legislation poses is very simple: do we give billions more to undeserving trial lawyers or do we return billions to the citizens of states that desperately need the money? In the next few months, as we fight to enact our proposal, we’ll see which side people are on.

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