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The James Gang Robbed Banks. Lawyers Today Have A Better Idea.

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The James Gang Robbed Banks. Lawyers Today Have A Better Idea.

April 27, 2001
Legal ReformOther

If Jesse James and his gang were alive, they would be fleecing taxpayers instead of plundering Missouri banks. Being a tort lawyer representing Missouri against tobacco companies is far more lucrative and far less risky than robbing banks.

Missouri attorney Thomas Strong and his merry band of politically connected tort lawyers were aided by such people as Attorney General Jay Nixon in trying to raid Missouri’s treasury. Now the state needs a posse of legislators to head them off at the pass, before the trial lawyers collect as much as $ 200 million for joining the state’s suit against the tobacco companies after the matter was virtually settled.

By May 1997, when Missouri filed its copycat tobacco case, the risk in the litigation was virtually zero. Instead of waiting for the Master Settlement Agreement, which was being worked out, Nixon in June 1998 hired Strong and the other tort lawyers to take over Missouri’s suit. Nixon agreed to pay hourly rates for most of the lawyers of $ 250 if the case were settled by Jan. 1, 1999. After that, lawyers would get 6.15 percent or 7.15 percent of the settlement depending on when the matter was resolved.

Was his decision influenced by contributions the lawyers made to Nixon’s political campaigns exceeding $ 70,000 in the previous five years? Presumably, Nixon denies any such linkage.

On Nov. 23, 1998, a mere five months after the favored few attorneys got the most lucrative retainer agreement in Missouri history, Nixon announced a settlement. Nixon’s chosen band agreed to accept fees set by arbitration and paid directly by the tobacco companies. By this strategem, they sought to insulate their fees from Missouri’s ethics code, which requires that attorney fees be reasonable. The scheme would have worked had not state Sen. Peter Kinder and Rickey Jamerson intervened.

Late in 2000, the Missouri Supreme Court held that the people, through their Legislature, could still determine how employees of Missouri are to be paid. The court said the “General Assembly can ... enact ... legislation that forbids the attorney general from entering into the (current) fee arrangement or otherwise provide an alternative mechanism for compensating” the private lawyers.

A bill now in the Legislature, SB454, would allow taxpayers to capture the fees to be awarded -- an estimated $ 150 million to $ 200 million -- and allow reasonable payments to the private lawyers. The attorneys would have to go through arbitration to obtain legal fees that would go into a state trust fund for distribution. The measure would cap attorney fees at $ 500 an hour.

Critics of SB454 have advanced four arguments that range from feeble to frivolous to fatally flawed:

1. States are prohibited by the U.S. Constitution from “impairing the obligation of contract.”

2. Even if constitutional, the proposal is retroactive legislation that interferes with the “right to contract.”

3. The Missouri Supreme Court held that, while the Legislature can reject the fee arrangement by which the tobacco companies pay fees directly to the attorneys, it cannot modify the arrangement.

4. If the Legislature rejects the fee arrangement or attempts to modify it in ways unacceptable to the private attorneys, they may reject arbitration and assert their rights to payment under the contingency fee agreement of June 29, 1998.

Fee agreements between lawyers and clients are not ordinary commercial contracts. Because lawyers are fiduciaries, their fees are always subject to post-contractual review for reasonableness. Therefore, enforcing this ethical duty and fiduciary obligation neither “impairs the obligation of contract” nor constitutes retroactive action.

The Missouri Supreme Court said the Legislature can “control the payment arrangement” and can provide “an alternative mechanism for compensating” the lawyers. Since the Legislature can create an “alternative mechanism,” obviously it can modify the fee arrangement.

Finally, if SB454 were enacted, Nixon’s band of lawyers would not be free to reject arbitration and seek a contingency fee under the original contract. Doing so would deprive the state of funds to be paid by the tobacco companies. By thus causing financial injury to Missouri, the lawyers would violate their duty of loyalty, commit malpractice and breach their fiduciary obligation. In any case, the lawyers’ claim would be limited to hourly rates set forth in the original contract since the settlement occurred prior to Jan. 1, 1999.

In other states where legal ethics fought with big money, money talked and ethicswalked. Which will win in Missouri?

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