Without Reform, Trial Lawyers, Not States or Individuals, Will Be Biggest Winners from Tobacco Settlement
In the proposed tobacco settlement pending before Congress, it is richly ironic that that greed of the trial lawyers -- which helped create the deal in the first place -- has become one of the chief reasons why the agreement might now fall apart.
Regardless of whether you think the tobacco agreement is good or bad health policy, it is certain to have at least one negative side effect because Congress has failed to enact liability reform. If the tobacco deal is enacted, plaintiff's lawyers will literally have billions of dollars to pay for their next class action extortion attempt.
Just take a quick look at the greasy legal side of the tobacco story.
About 65 of the leading class-action and plaintiffs law firms in the United States have put up $100,000 each to take a whack at Big Tobacco, on behalf of the 40 states that have brought suit for recovery of Medicaid-related health costs. For the plaintiff's bar, this was a small bet for a big hit in the litigation lottery.
Faced with exploding legal costs, the industry agreed in June to a "global settlement" with the states, under which tobacco companies would pay more than $368.5 billion over 25 years and subject themselves to regulation by the Food and Drug Administration. In return, the companies would get liability limits against the proliferating civil suits. Congress must write the unprecedented agreement -- particularly the liability protections -- into law.
An interesting sidebar is that many of the trial lawyers who are working for the proposed deal also represent individual clients who are suing the tobacco industry for personal damages and whose continued right to seek redress would be closed off by the settlement. At least one client -- in Mississippi -- has already sued her own attorney for this possible conflict of interest.
The more important issue is this: How much of the $468.5 billion will go to the trial attorneys, rather than states or individuals with health claims? The answer is: Nobody knows, yet, but it will be a lot.
Although the agreement does not specify what the lawyers' fees would be, published reports indicate it could be as much as a third of the take, or $120 billion out of the $368.5 billion total. The state of Florida, which recently negotiated its own $11.3 billion settlement with the tobacco companies, provided in its contract that the trial attorneys would get 25 percent of the settlement. That's nearly $3 billion from one settlement in one state.
Even in the Litigation League, that's big money. Consider Peter Angelos, a trial lawyer who raked in so much money from asbestos lawsuits he know owns his own personal major league baseball team, the Baltimore Orioles. If the proposed global settlement against tobacco goes through without a limitation on lawyers' fees, Angelos' law firm could be on deck to pocket $1 billion as part of the Maryland Medicare fund's $3 billion share of the settlement. With that kind of pocket change, Angelos could make the Orioles the scourge of major league baseball well into the next century.
These outrageously excessive contingency fees are coming under much-needed scrutiny in Congress, and reports indicate that lawmakers are giving serious attention to abrogating the attorneys' fees built into the deal. The Congressional Research Service is analyzing the lucrative fee arrangements, and House Speaker Newt Gingrich has fired a shot across the bow of the trial lawyers.
Christina Martin, the Speaker's press secretary, recently told reporters that Gingrich's "litmus test" for the tobacco deal is simple: "Whom does it benefit? Our children and their precious health, or a bunch of trial lawyers and their bank accounts?"
The answer is all too obvious. The public should insist that if Congress acts on the tobacco settlement, excessive attorneys fees should be the first provision to go.
Beyond the question of how much the trial attorneys get from the tobacco settlement is what they would do with the money once they get it. Past experience with other class-action lawsuits suggests the plaintiffs' bar would go hunting for another corporate victim with big-bucks potential.
Early indications are the next targets will be the politically-incorrect liquor and firearms industries. It has even been suggested that diet-related concerns involving the fast-food business could be turned into a class-action bonanza for trial lawyers. Without a word from Congress, trial lawyers could effectively end Americans' access to a McDonalds hamburger or a Coors beer -- and make themselves billions doing so.
-Amy Moritz Ridenour is president of The National Center for Public Policy Research.
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