83 A.B.A. J. 74 (1997)
Contingency Fees - Should Plaintiffs Lawyers in the Tobacco Settlement Receive Billions of Dollars

handle is hein.journals/abaj83 and id is 989 raw text is: - AT ISSUE

Contingency Fees
Should plaintiffs lawyers in the tobacco settlement receive billions of dollars?

As the dust settles after the epic negotiations
that led to a $368.5 billion settlement in states'
lawsuits against the tobacco industry, the question of
attorney fees remains to be sorted out,
Most of the contingency fees agreed to range
from 10 percent to 25 percent, with many at 25
percent. The settlement, which creates a partnership
between the states and the tobacco companies,
includes an initial payment to the states of $7 billion
and subsequent payments of more than $175 billion
over a 25-year period with a substantial portion to be
rebated to the federal government.
If the contingency fee agreements-many of
which apply to the gross recovery-are enforced,
they will likely yield attorney fees in excess of $30

billion over the first 25 years, apart from enormous
fees separately generated by 17 class actions and
individual representations.
Is this fair?
Charles Silver, a University of Texas law
professor who has written widely on attorney fee
litigation, says this is fair and to deny it smacks of
hypocrisy. It was the contingent fee bar that made
the settlement possible, Silver says, and the states
should pay the going rate.
For Lester Brickman, a Benjamin N. Cardozo
School of Law professor with extensive publications
on contingency fees, however, a host of reasons lead
to the conclusion that the agreements should not,
and will not, stand.

Yes: The attorneys who took the risks deserve compensation

Bill Gates holds 23.5 percent of Micro-
soft's common stock; company insiders own
38.6 percent. If, overnight, the stock rose by
$368.5 billion, Gates' share would be $86.6
billion; insiders as a group would reap
$142.2 billion. Other shareholders wouldn't
complain about the insiders' cut. They would
be too busy celebrating their own $226.3
billion payday.
The Wall Street Journal would cite Mi-
crosoft's prosperity as evidence that compen-
sation arrangements that benefit managers
are good for outside investors, too. Journal
editors would never think to suggest that
Congress trim the insiders' share. Govern-
ment rewrite a bargain that increased a
company's value by $368.5 billion? Absurd!
But when lawyers helped the states re-
cover $368.5 billion-found money for tax-
payers-the possibility of lawyers earning
billions in fees set off alarms. Newt Gingrich
announced that his job was to keep down
legal fees. The Wall Street Journal encour-
aged him to intervene. The paper didn't note that the fees
are within the 15 percent to 25 percent range Congress
mandated in the False Claims Act for people who help re-
cover federal funds. Instead, it published an inane op-ed
piece encouraging Congress to limit fees to 0.01 percent.
The attorneys general couldn't have brought the
tobacco industry to its knees on their own. They didn't
have the political muscle to convince their states to risk
scarce tax dollars on lengthy, easy-to-lose suits. They
needed help-and found it in the contingent fee bar.
The attorneys general negotiated terms favorable
to themselves and the states. Private lawyers agreed to

gamble tens of millions and an indefinite
amount of time on an incredible long shot. If
the suits failed, and it seemed likely that
they would, the lawyers would lose millions.
The attorneys general would appear to
have fought the good fight while preserving
states' resources.
If the states won, the attorneys general
would be heroes; again the states would pay
nothing. The federal government pays legal
fees that states reasonably incur in recover-
ing Medicaid funds. The settlement sweet-
ens the deal by requiring Big Tobacco to pay
fees on top of the $368.5 billion, so even the
federal government has no complaint.
Aha! you say. States' money wasn't on
the line, so the attorneys general had no in-
centive to minimize legal fees. Think again.
Lawyers have never been more despised.
The attorneys general can't afford to be
known for making lawyers rich. They had
strong incentives to bargain for good terms,
the same incentives that now are causing
them to pressure lawyers to accept lower fees.
If entrepreneurial lawyering were properly respect-
ed, the settlement would be seen as the ultimate vindi-
cation of the contingent fee, which rewards agents who
take risks and generate good results quickly. Private at-
torneys did a spectacular job for the states. They should
be fully compensated.
Taxpayers could learn about incentives from cor-
porate America, which makes widespread use of result-
based compensation. If Gingrich's salary were inverse-
ly related to the size of the federal budget, we might see
some serious deficit cutting.

74 ABA JOURNAL / SEPTEMBER 1997

ARAI/PETER 5ILVA

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