Texas-Size Lawyers' Fees Rankle in State Tobacco Suit

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Two years ago, when Texas Attorney General Dan Morales hired a posse of lawyers to fight the tobacco industry, few balked about his payment plan: 15 percent of the cut if they won, nothing if they lost.

Then in January, the industry agreed to pay Texas $15.3 billion. It was the largest court settlement in US history.

Now, about that 15 percent. It adds up to $2.3 billion. Some Texans, including Gov. George W. Bush (R), think that figure is excessive, and they worry that the fees will significantly erode taxpayers' windfall and whittle at their right to decide how it is spent. Others say Texas wouldn't be having this debate if Mr. Morales's lawyers hadn't won the settlement in the first place, at their own financial risk. But beyond the parochial politics of Texas is a larger question of legal ethics - one that is certain to crop up in the dozens of states that plan to take the tobacco industry to court. What is an appropriate fee for lawyers who invest their time and, in some cases, millions of dollars to prepare state lawsuits? "If you think that the market system works, then you can let people bid for the services that they want," says Jeffrey Harris, an economist at the Massachusetts Institute of Technology in Cambridge. Alternative schemes, such as arbitration or pay-by-the-hour, may be attractive now that states seem to have a chance of beating beleaguered Big Tobacco, "but they don't reward lawyers according to the risk they incur." To be sure, a lawyer's investment of time and money can be costly. In Texas, the state's private lawyers spent a reported $40 million gathering evidence and expert testimony. If they had lost, the money would be lost too. "You have to remember, at the time these cases were filed, the tobacco industry hadn't lost a case, and they're still doing pretty well," says Gregory Joseph, chairman of the litigation section of the American Bar Association. "The amounts of money we're talking about are staggering, but it's up to the judge to decide what's reasonable." Judge calls fees 'reasonable' In the case of the Texas settlement, federal Judge David Folsom has already ruled that the 15 percent fee was reasonable. (In personal-injury cases, for instance, contingency fees are much higher, often 33 percent.) But Governor Bush and a group of legal experts acting on his behalf are asking the judge to reconsider his decision. …