Soak the Trial Lawyers

This is a story of one of the greatest heists in modern American history. It is a story of how billions of dollars were transferred from taxpayers to a small group of avaricious trial lawyers.

Five years ago these trial lawyers became fabulously wealthy off of other people’s pain and suffering-and they did it with impunity.

That is, hopefully, until now. I am referring to the 1998 tobacco litigation agreement reached between states and tobacco companies. This famous legal settlement required the tobacco companies to reimburse states nearly $250 billion over 25 years for the smoking-related health care costs incurred by state-financed Medicaid programs.

Here is where the highway robbery is involved. In that deal, a small gang of several hundred trial lawyers walked off with settlement money of an estimated $10 to $15 billion. If you filled Madison Square Garden three-fourths of the way with millionairs, their total wealth would be just slightly less than what the trial lawyers received in these settlements.

$50,000 An Hour

And so, as it turns out, the grand winner from these tobacco settlement cases was not the smoker who got cancer or heart disease. It was not the ailing smokers’ families. It was not taxpayers. It was not states and cities, which bore the health costs. It was trial lawyers-about 500 of them.

Some trial lawyers received fees of more than $50,000 an hour in contingency fees for lawsuits that never even went to court. Never before have so many billionaires been created for doing so little. In the past five years they have bought luxury yachts, Rolls Royce autos, Citation jet planes, and politicians (through millions of dollars of campaign contributions). In 2002 the trial lawyers were the second-largest giver to Democratic candidates.

"These fees were outrageously excessive," fumes Michael Horowitz, a legal expert at the Hudson Institute. "This money should have gone to states, not to make billionaires out of lawyers."

He’s right: in a sane world, these funds should have been used to develop new treatments for cancer; they should have been used for anti-smoking campaigns; they should have been used to help balance state budgets. The trial lawyers have acted no less greedily or dishonorably than the tobacco firms, which tried to hide the health consequences of smoking.

But this grotesque story of lawyer abuse may have a happy ending after all. Last month, two courageous Senators-Jon Kyl of Arizona and John Cornyn of Texas-decided to take on the trial bar by demanding that a good chunk of the tobacco settlement lawyer fees be returned to states from whom it was pilfered. Kyl and Cornyn have discovered that the multi-billion-dollar settlements awarded the trial lawyers violate legal ethics rules.

Under decades of legal precedent, lawyers are prohibited from receiving fees that are "excessive or unreasonable." If there were ever a case of unreasonable fees it is this one. As a Missouri court has ruled: "Reasonableness is an implied term in every contract for attorney’s fees."

Here is what Kyl and Cornyn propose. If a reasonable fee of $400 an hour were to be applied, and if the tobacco lawyers were permitted to receive settlement money that paid them a contingency fee of even five times that amount (i.e. $2,000 an hour in fees), the states will be able to recapture a net present value of an estimated $9 billion from the tobacco lawyers. And that is money that many indebted states can use to help balance their budgets.

Kudos to Kyl and Cornyn. They are trying to right an egregious wrong. They have come up with a formula in which everyone wins. States win because they get $9 billion which can be used to avoid tax hikes. Children win because some of this money will be used for anti-smoking campaigns to educate school kids on the dangers of smoking.

And trial lawyers still win a jackpot-just one that will make most of them millionaires, rather than hundred-millionaires and in some cases billionaires. They will still receive fees that will pay them more for an hour’s work than many Americans earn in a month.

And for this they will moan and complain about the injustice of it all. This will be a wonderful test of the priorities of the Democrats in Congress, who are largely funded with trial lawyer dollars. Will they side with states and cities and children and cancer patients? Or will they side with their millionaire benefactors and their mountainous bag of campaign contributions?

To ask the question is to answer it.