Subcommittee on Courts and Intellectual Property
Committee on the Judiciary
U.S. House of Representatives
Oversight hearing
On
Attorney's Fees and the Proposed Global
Tobacco Settlement
2237 Rayburn House Office Building
1:00 P.M.
TESTIMONY OF JOSEPH F. RICE
PARTNER,
NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE
BEFORE THE HOUSE JUDICIARY SUBCOMMITTEE ON
COURTS AND INTELLECTUAL PROPERTY
DECEMBER 10, 1997
Mr. Chairman and members of the Subcommittee, thank you for the opportunity to
testify on the proposed tobacco agreement and the issue of attorneys' fees. It is a privilege for
an attorney born and raised in the small towns of the Carolinas to appear before a
congressional hearing.
Mr. Chairman, I believe that a thoughtful, sober review of this issue will find that if
Congress enacts the historic legislation before it to protect children and the public health from
the dangers of tobacco and takes no action on legal fees the attorneys who brought this
complex litigation will be reasonably compensated commensurate with the risk undertaken and
results achieved and at zero cost to the taxpayer.
To summarize the position of my firm, Ness, Motley, Loadholt, Richardson and Poole,
and, I believe, the overwhelming majority of plaintiffs' bar:
* First, our contracts with the states are reasonable arrangements between
informed parties under which our firms agreed to take on 100 percent of
the financial risk of this untested litigation on behalf of the taxpayers,
and under which contingency fees were set reflecting the risk involved at
the time the litigation was brought. In fact, in many instances, a
contingency fee arrangement was the only way in which the litigation
could proceed. You will also note that over the course of time, as the
litigation progressed and risks were reduced, contingency fees with the
states dropped commensurately.
* Second, despite the intrinsic reasonableness of these contracts, given the new reality of
a once-intransigent industry suddenly willing to settle on favorable terms to our clients,
we have agreed in Mississippi and Florida to the alternative compensation process
proposed by the tobacco industry that an impartial arbitration panel be convened to
determine fair and appropriate fees to private counsel.
* Third, every last penny won through resolution of this litigation should compensate our
clients the taxpayers of the states that sued the tobacco industry. Legal fees should
not come out of these damages rather, they should be paid in addition, directly by
industry.
I believe these positions are consistent with the public interest and with accepted
standards of legal ethics and practices.
As you listen to the panels today and when you return next year to further consider the
various legislative proposals to reduce tobacco use among children, I ask you to keep in mind
the demanding and complex legal battles without which we never would have reached this
point today. In particular, I ask you to step back in time to 1992. While just five years ago, it
is an eternity in terms of the sea change that has occurred in tobacco litigation.
In the world of 1992, the tobacco industry had never paid a penny to any party injured
by its products. The tobacco industry had never been required by any governmental body to
compensate a victim or pay damages to any individual or entity. Nor had the industry agreed to
limit advertising targeted to children. Both by its legal tactics and its results in the courtroom,
Big Tobacco was the proverbial 500 pound gorilla.
As one tobacco industry attorney states in a memo dated April 29, 1988, and I
quote:
The aggressive posture we have taken regarding depositions and
discovery in general continues to make these cases extremely burdensome and
expensive for plaintiffs' lawyers, particularly sole practitioners. To paraphrase
General Patton, the way we won these cases was not by spending all of
Reynolds' money, but by making that other son-of-a-bitch spend all of his
money.
At that time, the Ness, Motley firm and most people thought we were crazy
decided to explore how to bring the tobacco companies to justice. We are a firm with 65
attorneys and a support staff of 400 based in offices in Charleston, Greenville and Barnwell,
South Carolina; Raleigh, North Carolina; Providence, Rhode Island; and New Orleans. We
had more than two decades of experience representing victims of toxic exposures in complex
litigation. And we felt we could bring significant expertise and resources to bear in
representing victims of tobacco exposure though matched against a tobacco industry that
spends $600 million annually on legal costs, we were still David compared with their
Goliath.
A small group of attorneys led by my partner, Ron Motley, and Richard Scruggs of the
Scruggs, Millette firm, began meeting with other legal counsel, and with Mississippi Attorney
General Mike Moore. Attorney General Moore had a deeply-held personal concern about the
impact of tobacco on children particularly the under-age marketing efforts epitomized by the
macho man from Marlboro country and that cool cartoon, Joe Camel. He also had a fiscal
concern about the drain on his state's treasury from treating victims of tobacco-related
illness.
Together, this group theorized that it was not fair for taxpayers to pay for the injury
caused by tobacco, while these companies earned ever-higher profits from a product that is
addictive and deadly. We also felt that litigation along these lines could be structured to help
protect children from tobacco marketing and usage. Historical principles of law and equity
were revived from the shelves of the law libraries. And on May 23, 1994, Attorney General
Moore filed the first suit on behalf of a state against the tobacco industry a suit that was
widely described as hopeless, meritless, and even laughable. There were few supporters. No
other state was willing to join us in the beginning.
Attorney General Moore's decision to bring this lawsuit that would change the world
was made possible not only by the untested but innovative legal theories he developed in
consultation with legal counsel but also by the willingness of our firm, the Scruggs, Millette
firm, and several others to pay the freight every step of the way. Our prospects for
compensation were questionable at best. And I must tell you that there were not many people
standing in line to undertake this battle back in 1993 and 1994.
Similar to what transpired in Mississippi, when Lawton Chiles was elected governor of
Florida, he came to office with a longstanding record in support of protecting children and the
public health. He also was concerned about the burden on taxpayers imposed by health care
costs rising at the rate of 20 percent a year. An analysis revealed one of the biggest causes
that the state was spending more than $400 million a year for tobacco-related injuries. It was
this problem that caused Governor Chiles, Attorney General Bob Butterworth and the state to
focus on the tobacco industry, and to enact the Recovery Statute. Florida then filed suit in
February 1995.
The contract between the state of Florida and the trial team is attached to this statement,
but it deserves focus now:
The State of Florida cannot handle this lawsuit on its own . . . it
is expected to last two to five years. . . . The tobacco companies are known for
their scorched earth litigation tactics, and can be anticipated to simultaneously
do everything possible to drag out the litigation.
If the State handled it, the suit would take literally hundreds of lawyers and
expend most of the State's legal resources. . . . In order to obtain taxpayer
dollars without having the risk of losing taxpayer dollars, the State of Florida
located the top lawyers in the state with experience pursuing similar actions and
who would agree to aggressively pursue this case using their own money . . .
[with] these lawyers taking the full risk.
In light of the fact that the trial team is taking all of the risks, and the fact that
not a single case of this nature has ever been won, the State of Florida has
determined that it is not appropriate to place taxpayer dollars at risk.
Please note as well, Ethical Consideration 2-20 of the Code of Professional
Responsibility of the American Bar Association:
< blockquote> Contingency fee arrangements . . . often, provide the only
practical means by which one having a claim against another can economically
afford, finance and obtain the services of a competent lawyer to prosecute his
claim . . .
And the courts have held that contingency fee contracts are as much for the benefit of the
client as of the attorney.
Indeed, contingency fee contracts are the ultimate form of "pay for performance," a method
of compensation for which this Congress, on other bills, has supported.
In this tobacco litigation, it was the dogged determination of the attorneys general and the
willingness of the trial lawyers to take all the risks and work under contingency fee
arrangements that brought the tobacco industry to the point of entering the settlements
compensating the states of Mississippi and Florida, and the proposed Global Agreement.
Given the enormous risks present in the original litigation, our contract with the State of
Florida set contingency fees of 25 percent, as did Minnesota, another early state a rate
significantly lower than the commonly held stereotype about plaintiff attorney fee
arrangements. But a review of the more than 30 agreements now in place demonstrate clearly
that fee arrangements varied as more states filed suits and other law firms decided to join the
fight. As the litigation advanced and its prospects for success grew, contingency fees declined
concordantly, to a low of a flat $200,000 cap in one state.
In fact, if all of the states paid legal counsel according to their contracts, under the
terms of the June 20, 1997 proposal Global Agreement, aggregate attorneys' fees would not
exceed 10 percent of the total money paid by the tobacco industry to all injured parties.
Let me repeat attorneys' fees would not exceed 10 percent of all compensation. And
they would be paid by industry over and above that compensation.
As you know, Mississippi and Florida are the first two states in which plaintiffs'
counsel is to receive compensation. Under the process agreed to in Mississippi and proposed
by the tobacco industry in Florida, which Ness, Motley has agreed to accept, the industry and
private counsel would mutually select a neutral, non-political arbitration board. The arbitration
board would be presented all relevant information concerning work done on behalf of the state,
including the risks that were taken and the results achieved. The panel would determine what
fair and reasonable amounts would fully compensate private counsel for the work performed.
At the end of the day, the tobacco industry would accept the arbitration board's findings and
pay the fees it sets. Under the industry's proposal, this process would be final and binding.
That money would be paid out over a period of time, subject to an annual aggregate global
cap..
In the Florida contract, it was clearly stated, "The states will ask the court to require
the tobacco companies to pay all the attorneys' fees and costs." With the industry paying these
fees in addition to the settlement amounts it maximizes the recovery to our clients the
states.
It is my opinion that this proposal was accepted in Florida and was part of the basis for
the ultimate settlement of the state's lawsuit. Unfortunately, others have disputed this issue and
it is currently in litigation. Regardless of what may be said about the merits of the various
sides, if my firm's position prevails, the state and thus the taxpayers will receive the most
compensation possible under the agreement from the tobacco industry without having to worry
about legal fees and the attorneys will be fairly compensated. And regardless of the ultimate
outcome, without the work of all the private attorneys on the trial team and many others, we
would not have a resolution of the Mississippi and Florida lawsuits, nor the Global Agreement
before Congress.
Let me also emphasize my firm and others continue to assume significant risk. As
we speak, plaintiffs' legal counsel are preparing Attorney General Morales in Texas, Attorney
General Humphrey in Minnesota, and Attorney General Gregoire in Washington to bring their
lawsuits to trial. If Congress chooses not to enact comprehensive tobacco litigation, and these
and other state cases are not settled, it will all come down to what juries decide. And despite
my confidence in the merits of our position, we all know that there is no such thing as a lock in
the courtroom.
To conclude, Mr. Chairman, the attorneys fee issue is the reasonable result of equitable
and appropriate agreements between informed, consenting parties acting in the public
interest.
Due largely to the work that resulted from these agreements, you and your
distinguished colleagues have an unprecedented opportunity to save children's lives, and
address America's number one public health problem one which results in the premature
death of 400,000 Americans annually and costs untold billions of dollars. I respectfully urge
this Congress to keep its focus on the enormous public good that can be achieved through
comprehensive tobacco legislation modeled on the June 20, 1997 Global Agreement.
Speaking for my firm, we are extremely proud to have worked with Attorney General
Moore, Attorney General Butterworth, and the attorneys general of many other states in
initiating this litigation and achieving a fair resolution that puts children and the public health
first. And I am proud to have the opportunity to share my views on this issue with you and
your subcommittee as you make vital decisions on these issues.
Thank you again, Mr. Chairman, for your time and consideration.
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