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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth E. Phillipps who wrote (508774)	12/13/2003 6:37:38 AM
From: Kenneth E. Phillipps	Read Replies (1) \| Respond to of 769667

A deal is a deal is a deal By Steve P. Crosby, 12/13/2003 IN THE FALL of 2001, the Commonwealth of Massachusetts faced a $300 to 500 million budget deficit. Tax receipts were collapsing -- sales, income, capital gains, and corporate. But one revenue stream held steady: the approximately $300 million annually that Massachusetts had received from the Tobacco Settlement Agreement. The agreement was achieved in significant part due to the audacity and tenacity of Massachusetts Attorney General Scott Harshbarger and his team of public and private sector lawyers. Across the country state budgeters thanked their lucky stars that they had their share of the $246 billion settlement to help cushion the impact of the failing economy. Today we take the settlement for granted. We forget that for some 40 years, the tobacco companies crushed all litigation, winning 813 consecutive lawsuits, spending billions to buy off legal and legislative opposition. We forget that Harshbarger refused to accept failure, kept working on legal strategies, and ultimately took considerable political risk to persevere. And now we may forget the deal we struck to get lawyers to handle this case. When Harshbarger decided to sue the tobacco companies and help orchestrate a Lilliputian national strategy among attorneys general to ensnare them, no one thought he had any realistic chance of success. The lawsuit would cost millions, and Harshbarger knew that the Commonwealth could not afford it. So he chose the only possible solution: He hired private law firms on a "contingent fee" basis. Only one major Boston law firm, Brown Rudnick Freed & Gesmer -- who ultimately teamed with four smaller firms -- was willing to risk investing the $30 million in expenses and labor that was eventually required. So Harshbarger made the deal: The lawyers ran the risk of getting nothing (which is what virtually everyone expected), but if they did win, in court or settlement, they would get 25 percent of whatever was paid to the Commonwealth. The tobacco companies challenged the contingent fee, fearing that it might generate the legal resources to contest their invincibility. In defense the Commonwealth was blunt: "The true substance of the contingent fee transaction is that the Commonwealth stands to recover 75 percent of a potentially very large sum in circumstances where it would otherwise recover nothing, because the case could not be brought. The choice is not between the Commonwealth receiving 100 percent of the recovery or 75 percent of the recovery; the choice is between 75 percent and nothing." Harshbarger made a good deal then, and it is a good deal now. The tobacco companies settled and the payment to the Commonwealth over 25 years is expected to be more than $8 billion, which means the lawyers will get more than $2 billion. But now the Commonwealth is refusing to pay, claiming, essentially, that that was not what it meant by 25 percent -- that it is not "reasonable" compensation. What does the Commonwealth think is reasonable? It says $775 million. Why? Because that is the additional amount that the tobacco companies agreed to pay the lawyers. But the fee agreement says that anything paid by the tobacco companies will be deducted from the 25 percent, and the Commonwealth will pay the balance. So under the agreement, the Commonwealth owes an additional $1.3 billion over 25 years or about 16 percent of the settlement. Anyone would agree that a $2 billion fee is extraordinarily generous. Perhaps the lawyers should settle for less or give half of the payment to charity. But that is up to them. Under the law, a deal should be a deal. And anyone who has made a business deal knows that whether or not it is "reasonable" looks very different with hindsight. Remember Harry Frazee's sale of Babe Ruth to the New York Yankees? Of course, this deal does not look reasonable now that the outcome of the extraordinary gamble is known. The issue should not be "reasonable in light of the outcome." The issue should be "what incentive was required at the time to get the lawyers to try to produce the outcome." It took a 25 percent contingent fee to get the law firms to sign up and invest $30 million. It turned out unfathomably well for them, but if the Commonwealth wins this case and is permitted to redefine "reasonable" after the fee is known, what happens when some other attorney general has the will, but not the money, to try to recover damages from another powerful industry -- like gun manufacturers? If you ran a law firm and a contingent fee was offered to induce you to take a considerable risk, what would you do? Stephen P. Crosby was secretary of administration and finance with Governor Paul Cellucci and Acting Governor Jane M. Swift. © Copyright 2003 Globe Newspaper Company.