Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘tobacco settlement’

ABA Journal on tobacco settlement

The piece’s subtitle: “How greed, hubris and high-stakes lobbying laid waste to the $246 billion tobacco settlement”. Without necessarily endorsing every point in the piece — this is the ABA Journal, after all — it’s still striking how what was once a lonely critique of the settlement has now been accepted as history’s verdict:

The only big winners in the litigation appear to be the tobacco companies, the state treasurers and the lawyers who represented both sides….

…$15 billion has been awarded to the private lawyers hired by the state attorneys general. That’s the largest attorney fee award in history. More than $100 million — Big Tobacco won’t say precisely how much — has been paid to the lawyers defending the companies.

“The tobacco litigation was a failure of historic proportions,” says Linda Eads, a law professor at Southern Methodist University’s Dedman School of Law in Dallas. “A complete and utter failure in every sense.”

(Mark Curriden, “Up in Smoke”, ABA Journal, March).

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West Virginia Attorney General Involved in Medicaid Fraud?

One of the tricks states have used in recent years to raise money without raising taxes is to sue companies for the products they manufacture, on the legal theory that the use of those products lead to increased state health care spending. (The most prominent example, obviously, is the tobacco Master Settlement Agreement.) Not surprisingly, it often turns out that this legal theory is more of a pretext by state attorney generals to get their names in the paper than it is to actually remedy the alleged harms caused by the companies.

In 2004, West Virginia settled with Purdue Pharma, the manufacturer of Oxycontin, over the increased Medicaid costs allegedly caused by addiction to the drug. The settlement was worth $10 million. Logically, then, that $10 million should have gone to the state’s Department of Health and Human Resources to defray Medicaid costs. But there was a problem. Two problems, actually. The first was that giving the money to the DHHR wouldn’t allow Darrell McGraw, the state Attorney General, to dole out money as he saw fit. The second was that the state shares its Medicaid expenses with the federal government, so giving money to the DHHR would enable the federal government to recover part of the settlement.

The first issue has caused political controversy in West Virginia, because McGraw has given out the settlement proceeds to pretty much everybody except the underfunded DHHR, including private law firms that he hired to work on the case. But even the money that the state actually kept was handed out by McGraw based on his personal whims ($500,000 to establish a state pharmacy school (!) at the University of Charleston) rather than by the state legislature, which is constitutionally tasked with making spending decisions about state money.

But the second issue may be causing legal controversy. Legalnewsline reports that the federal government is now investigating the state’s handling of the funds, trying to find out why it hasn’t been credited for its share of the Medicaid funds. But it’s not as if it’s a secret; the deputy attorney general recently testified as to their thinking:

“We have arranged a methodology that has prevented the federal government from coming back and seizing money,” Hughes said.

Or maybe not. If you’re going to try to cheat the federal government, you should probably be a little more subtle about it. No formal charges have been filed, to be sure, and the federal government may simply resolve the problem by withholding future federal payments to the state. But that certainly won’t fix the problem caused by McGraw’s behavior; it will leave a large hole in the state’s budget which could make them worse off than if he hadn’t sued Purdue in the first place.

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December 8 roundup

  • Can reformers declare victory? [Point of Law; American Lawyer]
  • Mississippi Supreme Court reaffirms: no litigation tourism for asbestos plaintiffs. [AP/Commercial Dispatch (h/t SB); Coleman v. A-Bex; Albert v. Allied Glove]
  • More asbestos frauds in the Wall Street Journal. [Point of Law]
  • LA judge will decide whether to censor Borat DVD. Earlier: Nov. 9. [Reuters]
  • Guacamole dip fallout: “Is the goal here to get guac with more avocados or to create more work for the abogados?” Earlier: Dec. 6. [LA Times via Bashman]
  • Quelle surprise: the tobacco settlement money is being treated by Missouri like general revenue, i.e., a tax. [Mass Tort Litigation Blog]
  • Quelle surprise: Stephanie Mencimer caught exaggerating case for plaintiffs’ lawyers. [Point of Law]
  • Epstein: What’s good for pharma is good for America. [Boston Globe]
  • Heather Mac Donald: No, the cops didn’t murder Sean Bell. [City Journal]
  • Well, suing several major Ontario Jewish organizations and releasing a press release that they’re all part of the Israel lobby is one way to convince people that you’re not a bigot, right? [Bernstein @ Volokh]
  • The case against (and for) Jeff Skilling helps explain why CEOs are paid so much. [Point of Law; Kirkendall]
  • Lame-duck Republican Congress wasting final hours with committee hearing on contract dispute, but one of the parties is famous, so it’s okay, right? [Kirkendall]
  • Environmental group on the web speaks out against Dihydrogen Monoxide. [DHMO.org]
  • The problem of Institutional Review Boards. [Carpenter @ Volokh; Point of Law]
  • Will Danny DeVito play Gretchen Morgenson in the movie? NY Times and Sen. Grassley get snookered by unsuccessful trial lawyer. [Ideoblog; WSJ]
  • New York Times web commenters are unimpressed with the fact that Nintendo needs to warn Wii users not to throw their remote. [The Lede]
  • “The conventional wisdom is that we would be better off if politically powerful leaders were less mediocre. Instead, my view is that we would be better off if mediocre political leaders were less powerful.” [Kling @ TCS Daily via Kirkendall]
  • “If Democrats allow lower prices here, they may even have to tolerate Wal-Mart.” [WSJ letter @ Cafe Hayek]
  • Lindsay Lohan wants to enlist Al Gore in a lawsuit against her former assistant. [Defamer; Access Hollywood]
  • Hey, we’ve slightly tweaked our right-hand sidebar. What do you think?

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Update: Great 1998 Tobacco Robbery

Per Jacob Sullum (Nov. 14),

Yesterday a federal judge in Louisiana rejected a motion to dismiss [the Competitive Enterprise Institute’s] lawsuit challenging the Master Settlement Agreement that established a government-backed cigarette cartel for the benefit of state treasuries, trial lawyers, and the leading tobacco companies. The judge’s order is here [PDF]. CEI’s complaint and various other documents related to the case are here.

(see Aug. 4, 2005).

Also, Stanford economist Jeremy Bulow has published another in his series of always-excellent papers on the great tobacco robbery. As the Milken Institute’s Oct. 20 press release puts it, Bulow argues that

the public was conned: the tobacco companies passed on more than 100 percent of the cost to smokers, many states were locked into terrible financial settlements and billions in fees were set aside for trial lawyers.

“Few people trust tobacco companies, trial lawyers or politicians,” he writes. “But somehow when the three groups got together and spoke with one voice they were able to convince most people – particularly nonsmokers who benefit from higher cigarette tax revenue – that the settlement had achieved a noble public health goal. In reality, the settlement preserved tobacco companies’ profits, while it gave the trial lawyers an incredibly large ongoing source of income gouged from the hides of smokers, and handed state politicians bragging rights as Davids to Big Tobacco’s Goliath.”

(“The tobacco settlement: when trial lawyers meet tobacco execs”, Milken Institute Review, December)(reg). For more from Bulow, see PoL, Nov. 18, 2005, and Jan. 20 and May 18, 2006.

The 1998 multistate tobacco settlements were a central theme of my 2003 book The Rule of Lawyers and have been covered in depth on this site, including Aug. 4, 2005 and links from there, Sept. 11, 2005, and Jan. 3, 2006, as well as at Point of Law: May 17, Jul. 20 and Jul. 26, 2004, Oct. 6 and Oct. 14, 2005 and Mar. 20, Mar. 29 and Apr. 12, 2006.

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Motley Rice and its 9/11 cases

September 11 litigation as an industry, courtesy of the asbestos/tobacco zillionaires from South Carolina:

While other lawyers have resolved most or all of their cases — at least 32 of the roughly 90 total lawsuits have settled — Motley Rice has settled only three. …According to several lawyers and plaintiffs in the case, Motley Rice has made unusually high settlement demands, often 5 to 10 times higher than similar plane crash cases. The higher demands stem from Motley’s calculations for what it calls “terror damages” — compensation for the amount of time frightened victims knew they were fated to die — of between $750,000 and $1 million a minute, according to those lawyers and clients, who requested that their names not be used because the settlement process is confidential.

The story deserves a place in the “Not About The Money” files because client after client informs the Boston Globe that their litigation stance is entirely unrelated to that disdained cash nexus; presumably it’s just happenstance that they have wound up represented by lawyers who are making monetary recovery a very high priority indeed. Somehow one is reminded of the character in Flannery O’Connor: “Mrs. Hopewell had no bad qualities of her own but she was able to use other people’s in such a constructive way that she never felt the lack.” (via Lattman)(cross-posted from Point of Law).

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New guestblogger Hans Bader

Joining us this week as a guestblogger is Hans Bader, Counsel for Special Projects at the Competitive Enterprise Institute in Washington. Hans is a frequent visitor to our comments section; his current projects for CEI include constitutional challenges to the 1998 tobacco Master Settlement Agreement and to the Public Company Accounting Oversight Board created by Sarbanes-Oxley. Before joining CEI he was at the Center for Individual Rights where his work included constitutional and civil rights litigation, including free speech and workplace claims.

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Party like you’re a tobacco lawyer

To celebrate Beaumont tobacco/asbestos lawyer Walter Umphrey’s seventieth birthday, fellow Texas Tobacco Five member John Eddie Williams took over a private aircraft hangar — Umphrey’s own, in fact — “moved out the two private jets and the helicopter, added on a two-story party tent and threw a no-holds-barred tribute to Umphrey.” Music was provided by Chuck Berry, Jerry Lee Lewis and Rotel and the Hot Tomatoes, performing on two different stages, and there was some pretty decent food too. Among the 400 attendees: gubernatorial candidate Carole Keeton Strayhorn. (Shelby Hodge, “Wild soiree in hangar was Western to the hilt”, Houston Chronicle, May 14). Of course it was a mere kaffeeklatsch compared with a Willie Gary or Mark Lanier party.

Now back to your previously scheduled news story about excessive CEO compensation.

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Lawyers’ reputations soaked in Poland Spring fight

“Mutually assured character destruction”: that’s what Boston Globe columnist Alex Beam says to expect from a trial that started March 7 in Portland, Me. federal court that pits some of the country’s better-known members of the plaintiff’s bar against each other. Among the cast of characters: Jan Schlichtmann, of “A Civil Action” fame, Steve Berman of Seattle-based Hagens Berman Sobol Shapiro LLP, and Massachusetts tobacco litigator Thomas Sobol of the same firm, and Alabama’s Garve Ivey. At issue is whether lawyers breached legal ethics or sold out the interests of class members in their sharp-elbowed maneuvers to control the process of litigation and reach a lucrative settlement with Poland Spring’s parent company, Nestle. Also testifying is celebrity enviro-pol Robert F. Kennedy Jr., who had signed up a water company he controls as one of the plaintiffs — gee, who knew RFK Jr. was tied in with hotshot plaintiff’s lawyers? (Alex Beam, “An uncivil action in Maine”, Mar. 8; Gregory D. Kesich, “Water bottlers in court to recoup lost settlement”, Portland Press Herald, Mar. 8; “Law firm’s handling of Poland Spring case at issue in trial”, AP/Boston Globe, Mar. 8; Gregory D. Kesich, “Water case puts lawyers’ ethics on trial”, Portland Press Herald, Mar. 10; “Witnesses tell of how Nestle case fell apart”, Mar. 17). The trial is expected to conclude this week. For more on the Poland Spring class actions, see Sept. 10, 2003, Feb. 2, 2004 and Jun. 25, 2004.

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George Will on tobacco and the states

Reacting to the recent Philip Morris decision (PoL Dec. 15, etc.), the columnist is in righteous form:

The Illinois Supreme Court’s ruling stimulated the market for “tobacco-revenue munis.” Those are municipal bonds backed by tobacco revenue streams resulting from a real fraud — the Master Settlement Agreement. In 1998, 46 states conspired to seize $246 billion from companies that sell products made from a commodity — tobacco — the cultivation of which was then subsidized by the federal government….

The MSA is a deal struck between the state attorneys general and trial lawyers. For the latter, it was a financial windfall, netting about $13 billion in fees that sometimes amounted to tens of thousands of dollars per hour of work. For the former, it was a political windfall, enabling their states to finance this and that with billions paid by smokers, who are disproportionately low-income people….

The states’ ability to continue treating the tobacco industry as a “budgetary Alaska” — the last frontier for exploitation — depends on brisk sales of cigarettes far into the future. So all 50 states, which in 2004 reaped $12.3 billion in cigarette taxes, have an incentive to carefully calibrate these taxes so as to maximize revenue. They want high taxes, but not high enough to cause large numbers of smokers to quit the habit that is so lucrative to states.

(“The States’ Tobacco Addiction”, syndicated/Washington Post, Jan. 1)(more on tobacco litigation).

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Canada high court OKs tobacco-recoupment suits

The Supreme Court of Canada has unanimously upheld a law enacted by the province of British Columbia which announces a retroactive right to recoup from tobacco companies money spent on illnesses due to smoking. (commentary: Edmonton Sun, Ezra Levant). Canada thus becomes the first country to emulate the principle announced by state attorneys general in the U.S., which culminated in the notorious $246 billion state-tobacco settlement. As parents used to say: if you saw your friend jump off a cliff, would you do that too? (cross-posted from Point of Law)

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