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

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.


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.

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Alex Beam is a columnist for The Boston Globe and the author of Gracefully Insane, a portion of which appeared as "The Mad Poets Society" in the July/August 2001 Atlantic.

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