LAWYERS IN TOBACCO CASE WILL RECEIVE $8.2 BILLION

The lawyers who represented the first states to settle with the tobacco
industry over health care costs were awarded $8.2 billion in fees Friday,
the richest legal payday in the nation's history.

The money, which will be divided among dozens of lawyers who represented the
states, Florida, Mississippi and Texas, is the first to result from a series
of tobacco cases that culminated last month in a $206 billion settlement
between tobacco companies and 46 states and five United States territories.
That broader settlement, which did not include Florida, Mississippi and
Texas, appears likely to produce billions more for plaintiffs' lawyers.

The three states settled their suits for a total of $34.4 billion to be paid
by cigarette makers over 25 years. The legal fees awarded Friday were
determined by an arbitration panel set up under an agreement between tobacco
producers and plaintiffs' lawyers that will also be used to award legal fees
from the larger settlement last month.

The fees will be paid by cigarette makers, and their payments, which are
limited to $500 million annually, will run until all the lawyers' claims are
settled. The payouts will not affect the amounts received by the states.

Cigarette makers are likely to pass on the fees, like the rest of the recent
$206 billion settlement, to smokers.

In awarding $8.2 billion, the arbitration panel gave the lawyers credit for
taking the risks of being first to test the legal strategy of suing the
tobacco industry to recover Medicaid costs related to smoking. It awarded
far less than some of the lawyers had claimed; five trial lawyers hired by
Texas, for example, wanted $25 billion for negotiating that state's $17.3
billion settlement.

But the size of the awards -- those five Texas lawyers will get $3.3
billion -- quickly provoked criticism from legal experts who said the huge
recovery by the states did not justify traditional contingency-style
rewards.

"Twenty-five percent of $1 million is one thing," said Geoffrey Hazard, a
professor of law at the University of Pennsylvania who earlier opposed
payment of large fees to the Texas lawyers. "Twenty percent of $1 billion is
another thing."

In determining fees, the arbitrators started by awarding lawyers in the
three states 10 percent of their state's settlement. Then the panel
multiplied those figures 1.9 to 3.5 times depending on what it perceived to
be the risks and work undertaken by the lawyers in each state.

Under those formulas, lawyers hired by Florida received $3.4 billion for
reaching a $13 billion settlement last year and lawyers for Mississippi got
$1.4 billion for forging a $4.1 billion settlement last year. The
Mississippi lawyers got the highest percentage award, 33 percent, after the
panel determined that they had taken the greatest risk by representing the
first state to sue the tobacco industry, in 1994.

In the tobacco litigation, state attorneys general hired lawyers to pursue
their claims against tobacco producers under contingency-style contracts
that gave the lawyers 10 percent to 25 percent of a state's recovery.

But in reaching the three state accords and the recent $206 billion
settlement plan, the tobacco industry and plaintiffs' lawyers agreed to
submit the lawyers' fee claims to arbitration for resolution. For each
settlement, fees would be determined by a three-member panel, one member
selected by the tobacco companies, one by the plaintiffs' lawyers and the
third by common agreement.

Cigarette makers had championed arbitration as an equitable way of resolving
fees. But they quickly chafed last week when they reviewed fee requests from
plaintiffs' lawyers, and yesterday the arbitrator they selected sharply
dissented over the size of the awards.

In a statement, that arbitrator, Charles Renfrew, a former United States
District Court Judge, said that although he believed the results achieved by
the lawyers were outstanding, the awards exceeded all reasonable limits and
that some lawyers had not even keep time records.

"Each of the three state awards rendered by the majority is clearly
excessive and to me incomprehensible," Renfrew wrote.

The neutral member, John Calhoun Wells, said in a telephone interview
yesterday that the unhappiness of tobacco and plaintiffs' lawyers over the
awards indicated that the arbitration process had worked.

The situation of the three states was unique because tobacco producers had
formally agreed not to argue against the lawyers. Industry lawyers said no
such agreements exist with lawyers representing other states and Wells said
that the bar would be far higher for the next lawyers seeking fees.

"These three states were of a totally different cast," he said. "They were
trailblazers."

In Minnesota, where the state and a health insurer settled their cases this
year for $6.5 billion, tobacco companies agreed to pay the plaintiffs'
lawyers $427 million, or about 7.1 percent of the recovery. Those lawyers
were highly regarded by many observers and the size of Minnesota's
settlement increased the recoveries by Florida, Texas and Mississippi and,
as a result, awards to those lawyers.

The biggest winners in yesterday's awards and others to come soon from the
arbitration panel are Dick Scruggs, a plaintiffs' lawyer from Pascagoula,
Miss., and Ronald Motley and Joe Rice, who work in the same law firm in
Charleston, S.C. Along with shares of the Texas, Florida and Mississippi
cases, the men represented more than 30 other states in cases against the
tobacco industry.

Steven Yerrid, a plaintiffs' lawyer in Tampa, who had helped represent
Florida in its case said that he believed that the $3.4 billion paid to him
and his colleagues was justified. He said that the costs come from the
industry, rather than the state, and added that he would have received
nothing if the lawsuit had failed.

"We just wanted everyone to live up to the bargain," Yerrid said. "Because
if we would have lost under that bargain we won't have gotten a dime."

The state lawsuits were based on novel legal theories that asserted that
cigarette makers were responsible for the health care costs created by their
products. To pursue the claims, some lawyers spent tens of millions of
dollars and invested years investigating cigarette makers and producing
thousands of previously secret documents. All the cases, however, were
settled.

John Coffee, a law professor at Columbia University, said the agreement
between industry and plaintiffs' lawyers to arbitrate fees privately was an
effort to avoid potential political roadblocks.

In the Congressional debate over a $516 billion Senate tobacco bill that
failed earlier this year, several amendments were offered that would have
sharply limited lawyers' fees.

Coffee said that his concern was not so much with size of the fees but the
fact that some state attorneys general had hired trial lawyers who had
contributed to their campaigns.

"I think we need plaintiffs' attorneys but we need the process in which they
represent the public to be purged of political overtones," said Coffee.
"This was probably the biggest pay-to-play issue of all time."

Checked-by: Don Beck