Law Firms Will Get $775 Million in Massachusetts Tobacco Battle

A panel of independent arbitrators on Thursday awarded $775 million to five law firms that prosecuted a case against the tobacco industry that yielded an $8.3-billion settlement for the state of Massachusetts.

The award, which is to be paid by the tobacco companies and cannot be appealed, is far short of the $2 billion that the law firms were seeking but far more than the $26.4 million that the tobacco industry said the firms should get.

Brown & Williamson spokesman Mark Smith blasted the award as “unreasonable and unwarranted,” saying the money would be enough to pay the president’s salary for more than 3,000 years.

The attorneys say their big payday is justified, noting that at the time they filed their case in 1995 the tobacco industry was considered legally impregnable and had never paid out a dime in damages. When the Massachusetts attorney general’s office sought out firms to represent the state on a contingency basis, many spurned the chance.

“This piece of litigation was the most labor-intensive effort in the history of the Commonwealth,” said Thomas M. Sobol, one of the lead lawyers on the case. “Tobacco use is the biggest single public health threat. We fought the tobacco industry and we won. Massachusetts is a better place for it.”

Earlier this year, Massachusetts’ new governor, Paul Cellucci, denounced the attorneys’ $2-billion fee request as “obscene.” On Thursday, his spokeswoman Ilene Hoffer said that even though the $775 million is less than half what the attorneys wanted, “it’s still a fairly outrageous sum.” She said Cellucci has introduced legislation seeking to prevent the attorneys from enforcing their prior contract, which called for a contingency fee of 25%.

The three arbitrators split 2 to 1, with the dissenter, Washington attorney Harry Huge, saying the law firms were entitled to considerably more money because of the uniqueness of the case, the gigantic settlement they achieved and the quality of the legal work.

The majority said that among the primary factors in their decision were the contribution the lawyers made to a $206-billion settlement the industry reached with 46 states last November; the fact that Massachusetts’ pending trial in early 1999 contributed to pressure on the cigarette companies to settle; and the fact that Massachusetts intensively litigated the case for three years.

But John Calhoun Wells, a veteran arbitrator, and Charles Renfrew, a former federal judge, said they would not award the law firms the 25% of the state’s award that they asked for, in part because Massachusetts had benefited substantially from work done by four other states that sued the industry earlier and settled their cases for about $41 billion.

The panel also cited the fact that Massachusetts dropped out of the national settlement negotiations before an accord was reached. Moreover, the majority said that civil servant attorneys working for the state attorney general’s office made significant contributions to the state’s case.

It may take up to 25 years for the money to be paid out. A provision in the 1998 national settlement caps the industry’s annual legal fees at $500 million.

Late last year, the Tobacco Fee Arbitration Panel awarded $8.1 billion to a group of law firms that represented Mississippi, Florida and Texas, the first three states to settle with the industry.

The panel still has not considered fee requests from more than 30 other states, including California. As each award is made, it will diminish the amount of money that various firms will get per year, as they are drawing out of the same $500-million pot.

However, the wealth of some firms is going to escalate dramatically. Prime among them is Charleston, S.C.’s Ness, Motley, Loadholt, Richardson & Poole, which represented more than two dozen states suing the tobacco industry. Ness Motley is to get 25% of the Massachusetts award--about $194 million--as well as a share of the fees from Mississippi, Florida and Texas.

The San Francisco firm of Lieff, Cabraser, Heimann & Bernstein, which represented six states in tobacco cases, is to get 20%. The rest will be shared by three Boston firms led by Brown, Rudnick, Freed & Gesmer, at 23%. The other two firms are getting 20% and 12% each.

The lawyers had signed a contingency fee contract with Massachusetts for a 25% share of any settlement. It is theoretically possible that they could go to court to attempt to get the state to make up the shortfall. Sources said that all the firms except Brown Rudnick already have told the state they will not do that. Brown Rudnick lawyers declined to comment on the issue Thursday.