Now in Legal Rebels:
Posted Jul 01, 2010 08:20 am CDT
The four-lawyer firm Yerrid founded in 1989 had already had racked up tens of millions of dollars in judgments and settlements, and the future appeared just as bright.
Yerrid says he joined the tobacco case because of the weed’s pernicious health effects that reach nearly everyone at one time or another, including his own family. And the industry never had lost in court, making it one of the most challenging cases ever.
But 13 years after the state extracted an $11.4 billion settlement from the tobacco industry, grief still flows from the current attorney general, Bill McCollum. He claims another $3.4 billion in lawyer fees owed by the tobacco companies should go to the state.
Though the private lawyers and others regard McCollum’s assertion as little more than a political joke, his argument proved strong enough to persuade the GOP-dominated legislature this spring to impose a $50 million fee cap on private lawyers who represent the state on a contingency basis.
The law becomes effective July 1.
“If they asked me to represent the state of Florida today, I wouldn’t do it,” Yerrid says.
McCollum and the measure’s supporters used the tobacco fees to help marshal the votes they needed in the legislature. And he’s made the new caps an issue in the state’s November gubernatorial election, where he’s the Republican nominee.
Though some states don’t use outside counsel to fight their battles, and others employ strict legislative oversight, Florida is one of only three states, behind Colorado and Kansas, that demand a cap on fees paid to private lawyers who represent the state.
Attorneys general typically employ outside counsel for litigation when the state lacks either the manpower, expertise or both. Moreover, in Florida’s portion of the national tobacco case, state officials deemed the litigation too risky to fund with tax money, so they reached a 25 percent contingency fee deal with the private lawyers, which they later abandoned after the cases settled.
Under the Florida cap imposed this year, private lawyers would receive 25 percent of any recovery up to $10 million, which drops incrementally to 5 percent for recoveries of more than $25 million. The law limits the maximum payout to $50 million for any matter, regardless of the number of cases filed or number of lawyers working on them.
By comparison, depending on the point where a case ends, state bar rules allow lawyers to collect as much as 40 percent on the first $1 million, down to as little as 15 percent on recov eries of more than $2 million, with no upper limit.
Critics are at a loss for practical motives behind the caps. Since coming to office, McCollum never has hired private lawyers to work for contingency fees. And because McCollum leaves in January, regardless of the outcome in the governor’s race, the critics say all he has done is bind his potential successors, including state Sen. Dan Gelber, a Democrat from Miami Beach who is running for attorney general.
“It’s just so bizarre how silly this thing is,” Gelber says.
The law only applies to the attorney general’s office, presumptively leaving other state agencies free to hire outside lawyers as they see fit. But supporters are eager to curb them as well.
“I think it means we can anticipate that future attorneys general will be the sole ones to file litigation for the state,” says William Large, president of the Florida Justice Reform Institute, an alliance of business groups backing the cap. “I think that in the future—five to 10 years—a meritorious suit will go through the attorney general, and 99 cents out of every dollar will go to the state treasury.”
McCollum has pressed for broader state acceptance of compensation caps. Months before the legislature acted, he urged the state agency responsible for securities litigation to adopt his policy. This time, as one of three trustees for the state Board of Administration, McCollum had a vote. The board manages $112 billion in state pension funds and $22 billion in other accounts. And McCollum, along with Republican Gov. Charlie Crist and Democratic state CFO Alex Sink (who is McCollum’s chief opponent in the gubernatorial election), voted unanimously to cap compensation for a pool of five firms designated in December as standbys to handle major cases involving the state funds.
The move may amount to little more than a gesture. The board only hires its own lawyers in cases where it’s the lead plaintiff, and it hasn’t done so since 1995. That case is still pending, meaning the agency hasn’t paid a dime to its private lawyers. Still, the agency has recovered some $150 million in the last five years in cases where it wasn’t the lead plaintiff.
McCollum declined an interview request, but spokeswoman Sandi Copes, in an e-mail response to questions, maintained caps should discourage pay-to-play deals, where lawyers routinely contribute to both parties and their candidates in hopes of landing state work. Supporters say competitive bidding and extensive public disclosure requirements in agency policy and the new law also should discourage the practice.
(McCollum awarded a no-bid deal to his former law partner to represent the 13 states challenging recently passed federal health care legislation, at $250 an hour to a maximum of $50,000. Copes says the contract falls outside the law because it’s not based on a contingency fee. And with each state’s share divvied up, Florida gets to fight health care at a bargain-basement rate of less than $20 an hour.)
While Sink, the Democrat, opposes the across-the-board caps mandated by legislators, she acquiesced on the board policy, according to staff; she did this partly in an attempt to disarm McCollum of a campaign weapon and because the policy promised few, if any, practical effects on the agency.
“I think you could classify it as that,” says Sink campaign spokeswoman Kyra Jennings.
What irritates some of Florida’s leading plaintiffs lawyers is the drumbeat started by McCollum and the cap’s supporters: That somehow the state would have received more money from the tobacco case had the lawyers been paid less. The fees for private attorneys, however, were separate and apart from the payout to the state.
The state had initially agreed to pay the private lawyers 25 percent of any recovery. But when tobacco settled for $11.4 billion, the industry agreed to pay the lawyer fees, over and above the settlement amount, to be determined by a panel of three arbitrators: one picked by tobacco, the other by the private lawyers and a third by mutual agreement.
To everyone’s surprise, including tobacco’s, the arbitrators awarded the whopping fees, which came out of the companies’ coffers, not the state’s bank account. Had the state honored the first 25 percent contingency fee contract and paid the lawyers with settlement proceeds, the $11.4 billion award would have dropped by nearly $3 billion.
At first, plaintiffs lawyers considered McCollum’s efforts ridiculous. No case before or since has generated the kinds of fees or controversy spawned by tobacco. The only hypothetical situation that would come close would have been an oil spill caused by future off-shore drilling. Then the Deepwater Horizon rig blew April 20 in the Gulf of Mexico off the Louisiana coast, threatening to foul Florida’s sugary white-sand beaches with millions of gallons of oil.
“Now it’s not so damned funny anymore,” says former tobacco lawyer Robert G. Kerrigan of Pensacola.
Though Copes maintains that the Florida AG’s office “is fully capable of handling this litigation,” she adds “it defies imagination that a $50 million attorney fee … would not be enough money to pay lawyers to represent this state, even in the most significant cases.”
That’s something Kerrigan would like to see, noting that the cases arising from the infinitely smaller Exxon Valdez spill lasted for more than 20 years. And Kerrigan says litigation against an oil company likely would resemble suing the tobacco industry, from abusive discovery practices to sending 20 or more lawyers to court at a time at $500 an hour each as a show of strength against two or three law-yers for the state.
Oh, sure, Kerrigan says, he’d gladly help the state research legal theories of liability. In fact, he says he’d do that pro bono.
“But to litigate against these scorched-earth guys you’re going to get?” he wonders. “You’re going to cap and trap yourself for decades. I wouldn’t do it.”