Tobacco Fee Fallout
The creation of a new class of trial lawyer portends a legal arms race -- among other calamities

By Charles W. Wolfram

1. According to the majority of a fee-arbitration panel, plaintiffs' lawyers in the Florida, Mississippi and Texas tobacco cases sh ould be awarded fees that will total $8.2 billion. One measure of that immense sum is that it represents about 10% of what all other American lawyers in private practice will collect in fees during 1998. This, pundits will say, gives new meaning to "gross " domestic legal product.

2. Were the efforts of this handful of lawyers worth such stunning awards? Were the fee awards "reasonable" (the standard purportedly followed)? The reasoning of the fee panel majority seems airy to say the least.

3. First, the primary justification was the "risk" the lawyers shouldered. Contingent fees are, of course, risky by definition, but the notion that risk is infinitely elastic is nonsense. At risk for the lawyers was, at most, the money they invested in t he litigation and the value of the legal business they stood to lose while litigating the tobacco cases. Although that was surely a large number, it was only a small fraction of the eventual awards.

4. Second, the base against which the fees were measured--the recovery of the three state clients--is here a strangely skewed multiplicand. The theories of recovery in the tobacco cases were quite unlike the typical injury case, in which the lawyer gets a cut of past damages. The past damages of Florida, Mississippi and Texas were less than half of the eventual settlement figure. Most of it represented the value of claims the states were giving up for future injury that the tobacco companies, in effect, are being licensed to continue to inflict.

5. Think of this part of the fee base as a parallel to the notion that a defendant will be able to act negligently toward a settling plaintiff in perpetuity without being required to pay another dime for it. Thus, the "recovery" of the states ought to be substantially reduced by the provable outlays that the states will be forced to make in the future, without any possibility of compensation, as a result of the settlements.

6. If the awards are nonetheless upheld, what about the future? Will fee awards of this magnitude produce a kind of casual lottery effect--randomly creating fabulous wealth for a few lawyers, but with no secondary effects on society? Or do they portend c onsequences for all of us?

7. The immediate public-relations impact of the awards for lawyers and the legal profession was entirely predictable. Talk-radio hosts are again ranting about the greed and corruption of lawyers, and about a legal profession that is either complicit or u nwilling to prevent such excesses.

8. The immediate monetary effects of the awards obviously will be profound in the lives of those few "winning" lawyers who have been so greatly enriched. However, on the "losing" side, there will also be large monetary consequences. Were the monetary eff ects of the resulting awards limited to mulcting the companies and their shareholders of enormous sums, we could rest content that again the brutal forces of the market economy had worked their unblinking way. But the effects surely will extend far beyon d the tobacco companies. Most obviously, those companies are now hard at work recovering their enormous litigation costs through steeply higher prices for tobacco products. While those of us who are both nonsmokers and paternalistic may rejoice at the enh anced incentive to go cold turkey, many smokers can't or won't--and thus will pay and pay.

9. What is somewhat less obvious, but potentially much more profound, are the legal and political groundswells that are probably already building as direct consequences of the awards. On the legal front, it is unlikely that any defendant will again agree to arbitrate fee-shifting, at least arbitration of the kind the tobacco companies agreed to accept. Perhaps its negative effects will be limited to arbitration agreements equally exotic. The agreement seems to have been risky in the extreme. It contained no maximum range of fees. Most obviously, it placed the collective fate of the treasuries of several large corporations in the hands of a single arbitrator chosen by the tobacco companies. (He, together with the arbitrator chosen by the plaintiffs' lawye rs, chose the third and pivotal arbitrator.)

10. With their newly enhanced wealth, these lawyers will be in a position to bankroll additional litigation. Most likely affected will be areas such as mass tort and similar class actions and shareholder litigation where potentially immense recoveries can be gained only through huge investments in litigation carrying costs that are simply beyond the means of most lawyers and too risky to attract institutional capital. The new money will undoubtedly cause severe stress within the small rank of existing law yers who tend these fields.

11. Perhaps of vastly more importance is the political fallout. Those lawyers who manage to hang onto a substantial portion of their wealth will now be in a position to constitute a new political class. Trial lawyers have long since learned the hard lesso ns of group politics and the vital role of money in flexing political muscle. The national organization of plaintiffs' lawyers--ATLA, the American Trial Lawyers Association--in recent years has been second only to the American Medical Association in natio nal political contributions. ATLA now need no longer content itself with second place.

12. Tort reform of any significant kind will now find the going much more difficult in national and state legislatures, possibly for decades. In states such as Texas, in which judicial elections have already become ritualized scandals of political spendin g, new warfare will break out in attempts to reshape and control the bench. The legal arms race will undoubtedly heat up significantly with this vast new store of political treasure available to fund it. How consumers and the American economy will fare is less clear.

13. This piece originally appeared in The National Law Journal.
    Dean Wolfram, who holds the Charles Frank Reavis Sr. chair at Cornell Law School, was listed, but not retained, as a plaintiffs' expert in the Texas case.