In this issue...

Let The Attorney General Do His Job

Consumers Win Big Again From Tort Reform

Mass Torts

Some Class Actions Benefit Everyone But The Consumer

Spread The Word!

Let The Attorney General Do His Job

On January 16, 1998, the same day a $15 Billion settlement was agreed between the State of Texas and the Tobacco companies, five lawyers hired by former Attorney General Dan Morales asked a federal judge to award them 15% of the State™s settlement as legal fees. Six days later, Federal Judge Folsom confirmed the largest settlement in the history of the world “ and awarded the five lawyers $2.3 Billion, then the largest legal fee in the history of the world.

Within ten days, John Cornyn and a bi“partisan group of seven legislators filed two separate lawsuits in the Texas Supreme Court. The tobacco lawyers and Morales immediately moved both to Federal Judge Folsom. The seven legislators and Governor George W. Bush then filed two separate interventions directly in Federal Court. All challenged only the fees, not the State™s tobacco settlement. Over the last nineteen months, the Federal Judge has never ruled on the key fee issues.

Most importantly:

1. Can these lawyers sue the State on a State fee contract without legislative permission?
2. Should the Texas fee dispute be in a federal court or a Texas court?
3. Can Joe Jamail be deposed over legally questionable conditions he says Morales tried to impose on the State tobacco fee contracts?

Why does it take a mere six days to rule on the largest settlement and largest legal fee in the history of the world but there is no answer for nineteen months to fundamental questions of law asked by the Governor, John Cornyn and seven legislators? The five tobacco lawyers now want this same Federal Judge to supervise General Cornyn™s investigation into their $2.3 billion claim and their conduct against the State. Why do these lawyers fear the light of public scrutiny on the heretofore secret details of their tobacco deal?

John Cornyn was elected Attorney General and took office a brief eight months ago. Within his first five months in office, by doing his own investigation into dealings between Dan Morales and a sixth lawyer, Marc Murr, General Cornyn has already saved the State of Texas $260 million dollars of its tobacco settlement money. As soon as General Cornyn revealed evidence that the Murr-Morales contracts had been manipulated and doctored (experts hired by the Dallas Morning News agreed), Murr withdrew his $260 million œarbitration claim against the State without a single word of opposition¦not one word.

Now General Cornyn is asking Judge Folsom to dismiss the five tobacco lawyer™s $2.3 billion claim against the State. The five tobacco lawyers were supposed to decide whether to drop that claim as soon as they got an œarbitration fee award direct from tobacco companies. But the lawyers refused to drop their claim against the State even though the arbitration award was $3.3 billion.

General Cornyn is also investigating the five tobacco lawyers™ conduct. If these lawyers have breached their fiduciary duty to the State, there is ample case law on the books that would dictate a partial, if not a full, forfeiture of their $3.3 billion dollars¦to the State.

None of this is any of the tobacco companies™ business. The case against the tobacco companies is closed. The judgement is final. The tobacco companies have to write the checks they have agreed to write. The $2.3 billion fee fight is between the State and the five tobacco lawyers.

The legislature and the State agencies certainly need to focus on getting tobacco dollars to indigent children and Texas health care institutions, but at the same time it would be a travesty not to allow the Attorney General reasonable time to complete his investigation.

You have to give the five tobacco lawyers credit for their very sophisticated public relations campaign to œmove on and to œget this behind us. If there has been œtoo much time spent on legal fees, it is because the five lawyers have stalled (i.e., they have not responded to repeated demands from the Attorney General for even the simple documentation of expenses) and the Federal Judge has not ruled. When Judge Folsom begins to rule on the many motions in front of his court, whoever loses can appeal to the Fifth Circuit.

Maybe then we will finally be able to œmove on.

CONSUMERS WIN BIG AGAIN FROM TORT REFORM

As further proof of the consumer benefits resulting directly from sound tort reform laws, Insurance Commissioner Jose Montemayor is days away from ordering another cut in insurance rates. This will make the fifth year in a row that regulated insurance rates in Texas will be cut directly because of savings from tort reform. Since 1995 Texas insurers will have been ordered to cut liability rates by almost THREE BILLION dollars because of the 1995 legislation that linked savings from the elimination of frivolous lawsuits and a more balanced and fair legal system to insurance rates in the state.

œIn 1995 critics of tort reform efforts were claiming that consumers would never see a penny in insurance rate reductions. But now these same critics are arguing that savings as a result of tort reform are actually higher than the ordered cuts, said Richard Trabulsi, Chairman of Texans for Lawsuit Reform™s Legislative Committee.

œThe argument over whether savings to consumers as a result of lawsuit reform is really three billion dollars or six billion dollars is simply music to the ears of those of us who thought that our legislative efforts would produce huge consumer savings.

The original legislation to link insurance savings to the results of fair and balanced tort reforms was written by then “ State Legislator Mark Stiles, an influential Democrat who was a staunch supporter of the tort reform efforts.

The law was designed to last five years, beginning in 1996. After 2000 the law expires because of the expectation that savings from lawsuit reforms “ such as the ability of lawyers to handpick courts to bring lawsuits “ are expected to be a part of insurer™s rates.

Former Insurance Commissioner Elton Bomer ordered cuts of about 6 percent for 1996 and 1997, and cuts of about 9% for 1998 and 1999. The latest round of insurance rates reductions are expected to be in that range.

MASS TORTS

Mass Torts are a particularly egregious source of lawsuit abuse in Texas. Some trial lawyers use Mass Torts as a way of forcing quick settlements: the leverage of combining damage claims by multiple plaintiffs to force quick settlements with monumental attorneys™ fees is too much to bear for most defendants, even if the defendant believes they have a strong case. Texas has seen three types of mass tort cases:

1. The class action, where a œclass of thousands or even millions of people are often involuntarily named as plaintiffs by lawyers they have probably never met. Defendants stunned by the expense of defending such a case often settle even though the case against them may be very weak. This abuse is still in full flower in Texas.
2. The bulk handled client case such as the asbestos and breast implant cases. This category of abuse was reduced by the Texas Supreme Court in 1999. Texans for Reasonable Legal Fees, supported by TLR, offered Amicus briefs in this case to the Texas Supreme Court.
3. The governmental contingentfee state lawsuit. In this gambit, an attorney general or other governmental authority gives handpicked plaintiff lawyers a huge cut of the enormous claims made by the State, County or Municipality of Texas on behalf of the general public. The State version of this abuse was stopped cold in its tracks by a statute strongly backed by TLR and enacted in the closing hours of the 1999 legislative session.

The class action is a procedural device to bring a œclass of similarly situated persons before one court. The lawyer brings the suit in the name of the few actual clients, œclass representatives, often recruited by the lawyer, but on behalf of everyone who may have a similar claim.

It was originally conceived as a way for a large group of aggrieved people, who cannot afford to bring their small claims individually, to band together in a single lawsuit.

The class action has proven to be an accommodating lawsuit abuse platform. The reason is deceptively simple: The plaintiffs™ lawyer files suit in a place with a sympathetic judge, and the judge œcertifies the case as eligible for treatment as a class very early in the case. Facing litigation costs ranging into millions of dollars that would never be recoverable, the risk of an enormous judgment correctable only years later after appeal, and the negative publicity that could never be corrected, defendants often enter into the kind of forced token settlements we have all seen. The consumer receives a discount coupon of dubious value, a trivial credit on future purchases, or even pennies or nickels, while the plaintiff lawyers walk away with millions.

TLR backed legislation in the 1999 legislature that would have allowed the Texas Supreme Court to solve these problems, but trial lawyers™ influence blocked passage of the reform.

In these cases the plaintiffs™ lawyer signs up multiple individual clients on a mass production basis. The asbestos litigation stands as the supreme example in Texas. A relatively small group of plaintiff lawyers raked in hundreds of millions of dollars in fees while frequently delivering mostly small settlements to their mass production clients. These lawyers selected judges and venues to attract clients not only from Texas but nationally. The Breast Implant litigation was another celebrated bulk-handled mass tort, but there are many less notorious examples.

The asbestos bonanza taught the trial lawyers the magic of big numbers: it takes little more time, effort or skill to serve up homecooked justice for a thousand clients than for a single client.

In a little noticed development, however, the Texas Supreme Court recently made lawyers™ abuse of mass production tort cases riskier for the lawyers. Under Burrow v. Arce the Texas Supreme Court unanimously held that a plaintiff lawyer cannot wheel and deal in settlement talks to his client™s disadvantage “ as was reportedly common in many past bulkmanaged cases “ without risking a complete or partial forfeiture of his fee. This result applies even when the client concedes that the ultimate settlement amount was satisfactory to him: a breach of fiduciary duty will always have a remedy, the Court held.

Texans For Reasonable Legal Fees, an organization of which TLR is a co“founder and supporter, filed an extensive friend of the court brief and sparred with the œethics advisor to the tobacco plaintiff lawyers, who filed his own unsuccessful Amicus briefs opposing fee forfeiture by the mass tort plaintiff lawyers in that case.

SOME CLASS ACTIONS BENEFIT EVERYONE BUT THE CONSUMER

Class action lawsuits are increasing at an alarming rate. In Texas the backlog of these cases has increased eight-fold in the past decade. Some of these class actions have provided real gains for consumers by forcing product changes or recalls or stopping discriminatory behavior. Others, however, represent the worst examples of lawsuit abuse, producing pennies, coupons or offers of service for victims but huge fees for lawyers. Only changes in the law, such as the law the U.S. House of Representatives passed Thursday, or appropriate discretion by judges can correct these abuses.

Of the growing litany of class action abuses, the recent œoffer of service settlement with Southwestern Bell InLine subscribers is one of the most cockamamie. The supposed gain for consumers is that they get a $15 one-time credit or three-month access to one of three optional Southwestern Bell services, at no cost. The lawyers pocket $4.5 million in fees.

About six million Southwestern Bell customers are automatically parties to the suit unless they opt out in writing. Those who choose the free three months of service will quickly learn there is a catch. In the fourth month, and forever more, these folks will be getting a bill unless they call Southwestern Bell and tell them to turn off the service that was previously free. Many customers will come to realize they would have been better off had the suit been dismissed.

A recent class action suit was settled against Dell Computer and others regarding claims made about the sizes of their computer monitors. Class members received a $13 rebate toward the purchase of $250 in new computer equipment or the right to a $6 rebate next year “ enough to cover the cost of a mouse pad. The lawyers make do with $5.8 million in fees.

In a recent escrow abuse lawsuit, class members received 23 cents per year up to a maximum settlement of 83 cents. The lawyers received $150,000 in fees.

In many class actions, defendants pay more money to lawyers and the Post Office than they pay to the class members themselves. Class actions should provide restitution for consumers and not just foraging for attorney fees.

So, what™s the problem? A court™s decision to certify or approve a class of plaintiffs creates enormous pressure to settle, regardless of the merits of the case. Plus, the mere designation of classes can be damaging to class members and the defense. This leads to settlements that don™t necessarily benefit those truly harmed. Overly broad class designations cause some individuals to receive dollar damages even though they have not suffered an injury. Formula payouts, often seen in class actions, deprive those truly injured of fair compensation.

Consumers seem to be at the mercy of an unstated conspiracy by some defense and plaintiff lawyers in class action suits. Defendants want out of the lawsuit at any cost and under any condition, while plaintiff lawyers want to negotiate a deal that best serves them. Oftentimes, the consumer is dealt out.

Class actions have also become an effective court shopping tool. Current statutes allow attorneys to game the system and dictate where a class action is heard. The lawyer can virtually handpick the judge or jurisdiction as well as the state in which the laws are most favorable to his chance of winning.

Smaller suits, suits of a local nature or suits against the state or state officials, should rightfully be heard in state court. But, big suits with interstate interests should logically be heard in federal court. Yet, plaintiff lawyers are adept at keeping cases out of federal court, knowing that federal judges are more apt to apply the law as written rather than create their own law from the bench.

For instance, the lawyer can establish local jurisdiction by naming a plaintiff who lives in that county, or the lawyer may make a statement such as œour client seeks a very small amount of money in this case as a way of keeping defendants from transferring the case to federal court. After one year, however, the attorney recants his statement, since at that point, current statutes bar removal of the case to federal court.

Not all class action lawsuits are bad. Many of these suits provide a legitimate way to address grievances by a group of people with similar claims. Others, such as civil rights actions, serve a worthy public goal. There can be little doubt, however, that the class action tool is being abused in many ways. Class actions are supposed to be the œlittle guy™s best shot at justice. Often, however, these suits provide minimal benefit to consumers and maximum benefit to lawyers. Is this a œbest shot at justice, or simply jackpot justice for a few lawyers?

SPREAD THE WORD!

This fall, Texans for Lawsuit Reform is traveling to various cities across Texas to deliver the positive message of lawsuit reform to our members and local civic leaders.

We kicked off the program last week with a stop in Kilgore. A.P. Merritt, President of Merritt Tool Company, chaired the event along with Ruben Martin and Jackie Wood. Ford Lacy, TLR Board Member from Dallas, spoke to the energized crowd. Mr. Lacy updated the group on TLR™s progress and plans for the future.

Many thanks to A.P. and his friends for getting together such an interested and diverse cross-section of the business and professional communities “ it was an outstanding success!

Upcoming events are being scheduled in Nacogdoches, El Paso, Tyler, and Midland “ just to name a few.