December 8, 1997
Spoils of Law
They struck gold -- then fought. Call them the Lawyers of the Sierra
BY PETER KATEL
- IT SOUNDED LIKE A LAWYER JOKE AT first. How do you ruin a lawyers' dinner?
Start talking about cutting their fees. No one was laughing, though. The
evening had begun pleasantly enough, on an August night in the ballroom
of a Palm Beach mansion. Florida Gov. Lawton Chiles was dining with his
"dream team" of trial lawyers working on the state's megalawsuit against
the tobacco industry. Chiles had a surprise for the lawyers, but he waited
to spring it until after the remains of the catered salmon and chicken
dinner had been cleared from the table. Big Tobacco was ready to settle,
and so was he -- the very next day, in fact. It would be the industry's
biggest capitulation and the largest out-of-court settlement in American
legal history -- $ 11.3 billion over 25 years, plus commitments including
an industry-funded antismoking campaign aimed at children and removal of
cigarette billboards near schools. Most of the lawyers were in shock when
they and the governor toasted the deal; they had had no idea that a settlement
was in the works. Then Chiles mentioned some changes in the way the legal
fees would be calculated. As he rose from the table and left the room,
Chiles urged the lawyers to keep talking. What they did was to start yelling.
- It was the sort of problem a lot of people might wish for. At worst,
none of the 11 lead lawyers stands to make less than $ 15 million, plus
costs. Yet the free-for-all that erupted the night of Aug. 24 is still
going on among the dozen law firms that represented Florida in the case.
Accusations of betrayal and of grabbing for tobacco victims' money are
flying -- along with lawyer-filed liens on the settlement money and a lawyer-vs.-lawyer
lawsuit. There's even a police investigation. The spectacle is attracting
attention in Washington, where some congressmen are proposing to cap legal
fees in tobacco cases. It would all seem awfully familiar to the late John
Huston, whose 1948 film classic, "The Treasure of the Sierra Madre," showed
the corrosive effects of a gold strike on everyone involved. "The dream
team has become a nightmare team," says Fred Levin, the Pensacola lawyer
who handpicked its members. "Everybody hates them; they hate each other."
- Unlike the drifter heroes of "Sierra Madre," these Florida lawyers are
men at the top of their profession. But they signed up to fight Big Tobacco
under essentially the same terms as the film's prospectors who set off
searching for gold -- shouldering every bit of the risk. For the lawyers,
that risk was daunting. Mounting major litigation costs millions. And when
the attorneys joined the fight two years ago, Tobacco had been sued hundreds
of times without paying any plaintiff anything. The strategy, as one Tobacco
lawyer put it in an internal memo quoted in The Wall Street Journal
in 1994, was an adaptation of Gen. George Patton's battlefield doctrine:
". . . the way we won these cases was not by spending all of [R. J. Reynolds's]
money, but by making the other son of a bitch spend all of his." The only
way to hire lawyers capable of taking on such a foe, the state figured,
was to offer a contingency-fee deal. If they won anything for the state,
their reward would be commensurate with their risk -- 25 percent of any
- In at least one respect, the Florida lawyers have turned out to be even
more fractious than Huston's gold-hunters. The prospectors don't start
fighting until the gold appears; everyone gets along while the search is
still on. The lawyers began falling out even while they were still preparing
their case, splitting into pro- and anti-settlement factions. One side
argued that it was better to settle with the tobacco companies than bankrupt
them. The other wanted to go all the way. "I said, 'I've bankrupted corporations
who've injured my clients before. That's what I'm in here for'," says Robert
Montgomery, the 67-year-old trial lawyer now at the center of the post-settlement
- The dispute over whether to settle might have remained little more than
a routine difference over legal strategy -- except for one thing. Two of
the lawyers had secretly been let in on the settlement talks between the
State of Florida and the tobacco companies -- and were under orders not
to tell the rest of the team that their client had come to terms with the
enemy. Florida officials and the tobacco companies were afraid that news
of the talks would kill the deal. And the two Tobacco team members in the
talks didn't trust their own colleagues not to try torpedoing the deal.
"I can understand that completely because we were a leaky sieve," says
one lawyer, W. C. Gentry of Jacksonville, who didn't know about the settlement
but supports it.
- Even more infuriating to some of the lawyers was their suspicion that
the secret settlement was aimed at punishing Tobacco's enemies by cutting
their fees. Instead of the 25 percent contingency fee, the lawyers would
receive "reasonable" payment to be determined by a panel of arbitrators.
The panel would be part of the national, so-called global settlement now
before Congress that would shield Tobacco from all future liabilities.
Montgomery, who sank a half-million dollars of his own money into the case,
is horrified by the fee mechanics the governor accepted, because the tobacco
side helped design them.
- Montgomery has filed a lawsuit against Michael Maher, a 56-year-old
Orlando attorney who was one of the two lawyers in on the secret. The suit
accuses Maher of teaming up with Big Tobacco to sell out the Florida lawsuit
and the lawyers who wanted to take Tobacco before a jury. Maher calls the
accusation ridiculous. His allies say Montgomery's real problem is that
he first agreed to the settlement and then changed his mind. "Where I come
from, when you give your word you stick to it, even if it's a bad deal,"
Gentry says, sounding not unlike a grizzled prospector.
- Plenty of others are unhappy with the deal. Tim Howard, a 36-year-old
former state-government lawyer, was the team's liaison with Chiles's office.
A veteran of political campaigning and legislative work, Howard didn't
have the track record of the other lawyers or their investment in the case.
As far as a number of the other members were concerned, he was a $ 102,000-a-year
employee of the legal team. Nevertheless, Howard had signed the 25 percent
contract along with everyone else. After the settlement was announced,
he and some of the other lawyers held a series of increasingly contentious
discussions about his fee.
- Howard staked his claim by filing a lien on the payout. The team members,
seeking to prove Howard was a mere hired hand, hunted for a witness who
could report what he had told his staff about his status with the team.
They found a former employee of Howard's, who told them something even
more useful: over the past two years, Howard had lent money to a member
of Governor Chiles's staff named Harold Lewis. The state's inspector general,
Lewis had worked closely with Howard on tobacco matters. And Lewis got
Howard appointed to the litigation team. The police are investigating whether
the $ 30,400 in loans was a quid pro quo for that. Meanwhile, Lewis has
resigned. Both Lewis, through his lawyer, and Howard deny that there was
anything improper in Howard's appointment.
- The settlement has not only set lawyer against lawyer, but lawyers against
their client, too. Florida has yet to collect Tobacco's first $ 750 million
installment. That's partly because of liens filed by Howard, as well as
by Montgomery and his allies. The lawyers insist that the liens block only
some part of the payment. Even so, they still look like they're holding
up what Governor Chiles refers to as "the children's money." Courtly and
soft-spoken, Chiles quietly suggests that the lawyers would be better off
not harping on their original 25 percent contract. That deal, he says,
covered only the portion of the lawsuit that sought to recover the state's
Medicaid costs for treating smokers, not counts added later. And the Medicaid
damages are worth only $ 1.3 billion. Arbitrators would base the legal
fees on the entire $ 11.3 billion settlement. His message is clear: quit
complaining and take your money. The judge in the case said the lawyers'
demand amounts to $ 2.8 billion, which "shocks the conscience"; he rejected
the liens filed by Montgomery and others.
- Florida's tobacco loot has also attracted the attention of the Feds.
Washington has extended its hand for a share of the settlement, arguing
that it funds 55 percent of Medicaid. The lawyers have their own problems
in Washington. One House member is floating a proposal to limit plaintiffs'
lawyer fees in tobacco cases to $ 150 an hour -- a rate that lawyers of
this ilk haven't charged since they were junior associates.
- Meanwhile, the Florida tobacco money shimmers in the distance. Except
for reimbursement of some costs, no one's been paid. It's not healthy to
dwell on it, but even some lawyers outside Florida can't help it if the
money flits through their minds from time to time. Richard Daynard, director
of the Tobacco Products Liability Project at Northeastern University, did
some work on the Florida case and plans to bill for his time. "I'm not
counting the money yet," he says. Spoken like someone who has spent time
around the prospectors' campfire.
This is a page in the section entitled Lawyers
Make Billions at Expense of Sick and Dying Smokers in the Web site
entitled Legal Reform Through Transforming the
Discipline of Law into a Science.