Greed On Trial

The question before the jurors was not whether legal fees amounting to $7,700 an hour were "unreasonable." It was whether the lawyer-plaintiffs should get $1.3 billion more
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My favorite moment during last winter's $1.3 billion Massachusetts tobacco-fee trial came near the end, when Ronald Kehoe, an avuncular, white-haired assistant attorney general, was questioning the state's star witness, Thomas Sobol. Sobol was describing how his former law firm, Brown Rudnick Berlack & Israels, prepared in 1995 to sue Big Tobacco on behalf of the Commonwealth.

Sobol testified that to reduce its risk on what looked like a long-shot lawsuit, Brown Rudnick hired a bunch of cheapo "contract" lawyers, at $25 to $35 an hour, and also cut back on its pro bono commitment, redirecting $1 million worth of work to the anti-tobacco litigation.

KEHOE: Was the tobacco litigation seen by the firm as a form of pro bono activity in part?

ROBERT POPEO [Brown Rudnick's attorney, jumping out of his chair]: Objection, your Honor.

JUDGE ALLAN VAN GESTEL: Sustained.

Did Brown Rudnick view the anti-tobacco lawsuit, which would later pay out the largest legal fee in the Commonwealth's history, as pro bono work? I asked Sobol that question over hot chocolate at Johnny's Luncheonette, in Newton, Massachusetts. Both on and off the stand the forty-six-year-old Sobol cuts a bold figure, closely resembling Bruce Springsteen before the Boss started showing his age. For want of a better term, Sobol—not unlike Jan Schlichtmann, the Boston lawyer who litigated the toxic-waste case made famous in the book and movie A Civil Action—has star quality. In one of several tendrils linking the two cases, which were tried in the same downtown courtroom, Schlichtmann and Sobol were briefly colleagues, before quarreling over the—yes—fees in a high-profile class-action suit, unrelated to tobacco.

Sobol told me that some of his Brown Rudnick colleagues did view the tobacco project as pro bono work. "It wasn't considered 'real lawyering,'" he said, "because we were suing corporate America, not defending corporate America. And we weren't making any money on a day-to-day basis." He added, "But this was a fee transaction. We weren't rendering services for free."

No, not exactly. Brown Rudnick and four other firms representing Massachusetts had secured a 25 percent contingency fee in the tobacco litigation. And that litigation paid off hugely. In 1998 a master settlement agreement (MSA) between forty-six states and Big Tobacco awarded Massachusetts $8.3 billion over twenty-five years, in purported Medicaid losses resulting from smoking. The tobacco companies also agreed to pay the states' legal fees, in many cases relying on an arbitration panel to decide how much each legal team deserved. As the lead law firm for the Commonwealth, Brown Rudnick hit the jackpot. Having invested about $10 million in time and expenses, it won $178 million from the panel, which awarded Massachusetts, of all the states covered by the MSA, the highest legal fees—$775 million in all. In court the state noted that Brown Rudnick's chief of litigation, Frederick Pritzker (also the chairman of its ethics committee), had siphoned off $14 million for seventy hours of work: a rate of $200,000 an hour. Sobol, the lead lawyer, received $13 million. On paper each Brown Rudnick partner stood to make an average of $140,000 a year from this case alone.

But the big numbers equaled only 9.3 percent of the $8.3 billion award. Brown Rudnick asked the state for a compromise between the 9.3 percent and the promised 25 percent fee. Attorney General Thomas Reilly refused to pay a penny more than the arbitration award. Now Brown Rudnick and the four other firms were back in court, asking for the full 25 percent: $1.3 billion more in fees. Brown Rudnick and the others were actually making the tobacco companies look good.

The events that landed the lawyers in Judge van Gestel's cavernous Art Deco courtroom had not exactly heaped honor on either side. Lawyers for every state in the Union had collected unheard-of fees from the lawsuits that led up to the MSA; Big Tobacco had signed the agreement, which reimbursed the forty-six states for $206 billion worth of smoking-related medical costs, in exchange for protection from further litigation by the states. In Florida, one of four states that settled outside the MSA process, lawyers had also negotiated a 25 percent contingency fee; that fee equaled $2.8 billion, a sum that "simply shocks the conscience of this court," one Florida judge observed. A year after Florida settled, arbitrators awarded its eleven law firms an even larger fee: $3.4 billion—or an average of $300 million each.

The MSA fee arbitration resulted in the doling out of checks on a generous if unscientific basis. The first states to sue won a bonus for getting the ball rolling; the Massachusetts lawyers' $775 million (which amounted to an average of more than $7,700 an hour) reflected the state's role as one of the key participants. In other states lawyers lifted their fingers to the wind of public opinion and eventually settled for the arbitration awards, which were by any reasonable standard gargantuan. (Lawyers in Texas ended up accepting "only" $3.3 billion. They had asked for $25 billion—more than the state's settlement amount—but soon came around. The former Texas attorney general is in jail for trying to defraud the tobacco fund; but that, as they say, is another story.) Brown Rudnick and a co-plaintiff, the San Francisco partnership of Lieff Cabraser, Heimann & Bernstein, decided to sue for their full fees.

While the lawyers were grubbing, the state was hardly covering itself in glory. Scott Harshbarger, who as the Massachusetts attorney general signed the contingency-fee deal in 1995, ran for governor three years later. His opponent, the incumbent Paul Cellucci, made the "obscene" tobacco fees a campaign issue—as did Governor George W. Bush in Texas. In the heat of the campaign Harshbarger pulled Massachusetts out of the increasingly controversial MSA negotiations. He lost the election anyway, and the state joined the agreement. This allowed Cellucci and his Republican successors to feast on the multimillion-dollar settlement revenues.

By 2000 the word was out across the country that many states were squandering the vast sums raining down on them from the MSA. In theory the money was earmarked for medical care, or for anti-smoking education targeted especially at young people. In practice most legislatures used it for budget balancing or more exotic purposes. In Los Angeles some of the money was designated for improving wheelchair access on sidewalks; and then-mayor Richard Riordan proposed using some to settle abuse claims filed against the Los Angeles Police Department. In Massachusetts the governor and the legislature pillaged the tobacco awards in short order to balance the state budget.

Perversely, the tobacco money proved to be addictive. In 2003 the attorneys general of thirty-three states sided with Philip Morris against an Illinois court that wanted the company to post a $12 billion bond after it lost a huge class-action case. Philip Morris loudly proclaimed that posting the bond would bankrupt it, thus threatening its MSA payments to the states. The litigating lions saved the shorn tobacco lamb; at the behest of the states, the court reduced the bond to a more manageable $6.8 billion.

During the course of Brown Rudnick, et al. v. The Commonwealth of Massachusetts, in a sidebar conversation with Robert Popeo and the Commonwealth's lead attorney, Dean Richlin, the sixty-eight-year-old Judge van Gestel, an old-fashioned lawyer who referred to the law in wistful tones as a "learned profession," expressed shock at the states' plumping for Big Tobacco.

VAN GESTEL: That's, in my view, a very sad event, in that the states have to keep the evil empire, as it's been called, afloat.

RICHLIN: Exactly so.

VAN GESTEL: The next thing you know, the states will be having Joe Camel as the logo. I mean, I only meant that partly facetiously ... To me, it's an outrage.

The humorist Dave Barry had great sport with the tobacco litigation, noting,

[The states] are distributing the money as follows: (1) Legal fees; (2) Money for attorneys; (3) A whole bunch of new programs that have absolutely nothing to do with helping smokers stop smoking; and (4) Payments to law firms. Of course, not all the anti-tobacco settlement is being spent this way. A lot of it also goes to lawyers.
Skirmishes

To sue the Commonwealth, Brown Rudnick hired the Boston firm Mintz Levin Cohn Ferris Glovsky & Popeo, perhaps best known for its partner Robert Popeo. A compact bantam of a man, the ferocious Popeo, who is sixty-five, once garnered a few moments of national fame by halting on camera a 60 Minutes interview with his sulfurous client John Silber, then the president of Boston University. Popeo likes high-profile clients (he recently represented Suzy Wetlaufer, the inamorata of General Electric's retired chief executive Jack Welch, when she was leaving her job as editor of the Harvard Business Review), and he is quite comfortable in a courtroom. The youngest of six children from an Italian-immigrant East Boston family, he comes by his flat vowels honestly. His hard-earned affluence notwithstanding, Popeo put on a credible still-a-man-of-the-people act for the jury and did his best to jolly up the judge.

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