March 08, 2003
Morales responds

Former Attorney General Dan Morales surrendered himself to federal authorities on Friday after being indicted for multiple counts of fraud in the 1998 tobacco lawsuit settlement, and he had some harsh words to say about it.

"Every single allegation of wrongdoing included in this indictment is false," Morales said.


"When I decided to take on what I think many would recognize as one of the most powerful, one of the wealthiest and one of the most politically potent industries in our country, I recognized that it would not be an easy fight," Morales said.

"More importantly, I recognized that there probably would be a price that I would have to pay politically and personally and otherwise."

Morales called the U.S. Justice Department's investigation of him a "stacked deck." He said he never had an opportunity to present his side of the story.

Formal arraignment is March 18, so the trial itself is likely months away, maybe more depending on pretrial motions and whatnot. Should be interesting, that's for sure. In the meantime, there are a couple of bits at the end of this story that are worth pondering:

Morales, a Democrat, did not seek re-election in 1998, the year the lawsuit was settled.

Almost as soon as the settlement was announced, then-Gov. George W. Bush announced his opposition to $2.3 billion in fees the tobacco industry was going to have to pay to the major trial lawyer firms representing the state.

Bush called the fees excessive. Later arbitration raised the fees to $3.3 billion.

Bush political adviser Karl Rove also had been a consultant to the R.J. Reynolds tobacco company shortly before the tobacco fee fight began.

That year, Bush talked Republican John Cornyn into running for attorney general. Cornyn made the attorney fees a major issue in his winning campaign.

Almost as soon as he took office, Cornyn announced an investigation of the attorney fees and Morales' side legal deal with Murr. Cornyn's investigation formed the basis for the FBI investigation of Morales and Murr.

Part of the argument over the fees had to do with who would pay them. In the end, the litigators chose the arbitration panel's $3.3 billion award, to be paid by the tobacco companies over many years. Here's an excerpt from the Chronicle story of December 12, 1998, when the panel made its ruling:

The lawyers said the three national arbitrators, who included Texas Tech Law School Dean Frank Newton, set a base fee of 10 percent of the state's $17.3 billion settlement. Then the panel increased that by a so-called "difficulty" factor to take into account Texas' "contributions as pioneers in tobacco litigation and the tremendous results we obtained."

That put the award at about 19 percent of the Texas settlement. A contingency agreement the five lawyers signed with Morales when the anti-tobacco suit was filed guaranteed them only 15 percent of whatever damages the state won or negotiated.

Cigarette companies will limit their payments to lawyers representing Texas and other states involved in anti-tobacco litigation to $500 million a year. Since most states have reached settlements with the industry, it will be an undetermined number of years before the lawyers are paid in full.

The tobacco company Brown & Williamson said the awards are obscene and shouldn't be viewed as a precedent for awards to the rest of the states.

If five lawyers alone were to share the $3 .3 billion award, it would compute to about $120,000 to $150,000 an hour, based on full-time work during the nearly two years that elapsed between the time the anti-tobacco suit was filed and the settlement was announced in January.

But as many as 120 lawyers may share in the award, including other members of the five firms, a spokesman for the lawyers said. Part of the award - an amount not disclosed - will go to Ron Motley, an anti-tobacco specialist from South Carolina who participated in the Texas case.

Civil justice reform groups immediately fired broadsides at the award.

John Butler, chairman of Texans for Reasonable Legal Fees, a Houston-based group, said the size of the award "shocks common sense."

Jon Opelt, executive director of Houston Citizens Against Lawsuit Abuse, said the fees were "horrific and wholly unjustified."

Arbitrators also set fees for attorneys in Mississippi and Florida, the only two states to settle anti-tobacco suits before Texas. The private lawyers in Florida, which settled with cigarette makers for $13.2 billion, were awarded $3 .4 billion, or a 26 percent contingency fee. Lawyers in Mississippi, which settled for $4.1 billion, got $1.4 billion or 34 percent.

The contingency percentages for the lawyers in those two states were higher than those for the Texas team because of a greater "difficulty" factor.

Brown & Williamson was not pleased. "When we reached a settlement with each of these three states, we agreed to pay 'reasonable compensation' to the lawyers representing the states. The award of $8.1 billion defies anyone's definition of 'reasonable,' " the company said.

So to review, Bush and Cornyn criticized the attorneys' fees from the beginning, then a federal arbitration panel gave them a higher award. Tort reform groups criticized the fees. Tort reform is, of course, one of Bush's major policy initiatives. Tobacco companies criticized the fees. Karl Rove once worked as a consultant for RJ Reynolds. Oh, and the US attorney who brought the indictments was a Bush appointee. Such a tangled web.

None of that may have any bearing on the actual charges, which have to do with money Dan Morales himself handled and money that was awarded to his friend Mark Murr. The tobacco settlement kerfuffle is really nothing more than background in this case. But given the background, one can at least see where Morales is coming from when he claims the charges are politically motivated. He'll have to do better to convince a jury, but he's at least got a place to start.

Posted by Charles Kuffner on March 08, 2003 to The great state of Texas | TrackBack

I'm 1000% against tobacco lawsuits and the verdict, but Bush and Cornyn (two men I voted for twice) were wrong on this. Morales may have given an ally a sweetheart deal, but that was the deal and the price Morales pays for it should be political and not criminal.

But as you mention, the charges seem to go around what Morales benefited, which of course makes it criminal, if true. Time will tell.

Posted by: R. Alex on March 12, 2003 5:47 PM