Look Who's Burning Tobacco TWO LAWYERS PULL A COAST-TO-COAST COUP
(FORTUNE Magazine) – Much has been made in the past year of the wave of anti-tobacco litigation. But what has gone unnoticed in many news reports is the fact that two attorneys in particular are riding that multibillion-dollar wave: Ron Motley and Richard "Dickie" Scruggs.
These two honey-voiced Southerners control the lawsuits in 28 of the 41 states that have sued the tobacco industry. (In January, Texas became the third state they've represented to reach a multibillion-dollar settlement with tobacco, following the lead of Mississippi and Florida.) And by the time it's all over, Motley's and Scruggs' fees could run to the billions of dollars. But more important, the two have perfected the art of the mass tort product-liability suit, turning the case against tobacco into a product in itself--one they've sold nationwide, one state at a time.
Motley and Scruggs began their association in the mid-'80s, during the gold rush for asbestos damages. It was then that the duo learned the ins and outs of the mass tort product-liability suit. According to Scruggs, it was then as well that the uncanny impunity of the tobacco industry--an obviously similar case--"started sticking in [their] craw." Motley and Scruggs knew that if they could crack that wall, untold riches would pour forth.
In 1993, Scruggs caught wind of an intriguing legal tactic that called for suing the tobacco industry not in the name of individual smokers (whom juries often found unsympathetic) but in the name of state governments. Based on the legal principle of "unjust enrichment," the premise was that tobacco companies knew full well their product was harmful but had nevertheless passed on the enormous medical costs of smoking-related illnesses--via Medicaid--to the states. They had thus profited at the states' expense and were liable for damages.
Scruggs immediately called up Motley: "I thought I was going to have to give him a Valium or something," Scruggs recalls. "He was so excited he didn't know what to do."
There was just one sticking point. The states couldn't risk millions of taxpayer dollars on such a gamble. But if private lawyers were to front the costs and labor of the lawsuits in return for a portion of the damages... It was a perfect solution. Scruggs convinced his old friend Mike Moore--Mississippi's attorney general--to take on the tobacco industry with Motley and himself as counsel. In 1994, Mississippi filed the first state medicaid suit. In July 1997, the case was settled--to the tune of $3.6 billion.
As Motley and Scruggs were preparing that case, it dawned on them just how portable their tobacco strategy was. After all, the industry had employed the same tactics in all 50 states, and the legal liability argument was not going to be radically different from one to the next. So Scruggs, with attorney general Moore, hopped on his Learjet and started pitching his tobacco package at meetings of the National Association of Attorneys General.
As states signed on, the logistics and costs ballooned. Motley and Scruggs again drew on the network of old asbestos warriors to put together teams of lawyers to handle the state-specific legal work. They also turned to a group of those attorneys in Texas to help finance the nationwide suits. The Texas consortium would pony up $5 million per year in return for 7% of Motley's and Scruggs' fees. As Scruggs puts it, "We took a portion of the litigation public for these Texas lawyers to invest in."
Motley and Scruggs deny any financial motivation for their national strategy, even though the contracts they signed in the three states that settled would, in theory, net them an average of $318 million per state. Instead, they argue that the tactic was designed to force the industry to settle, a key approach of any mass tort lawyer. In fact, their ultimate dream is for Congress to pass a global settlement--which they helped design. That would end all current litigation (except suits brought by individuals) and virtually immunize the tobacco industry from future litigation in exchange for a $369 billion payout. It would also mean that the lawyers and the states would be guaranteed their fees and damages without the costs and risks of litigating each case.
It is a vision that infuriates many public health advocates, who say it would let tobacco companies off the hook without imposing strict controls on their future behavior. Scruggs scoffs at that argument: "A global settlement is the only way to set in place a national tobacco control program," he says. Plus, he adds, he'd "make more money off the state suits."
Perhaps. But Motley and Scruggs are masters of their craft, and they'll get rich either way. If they can get a global settlement under their belts, it would be the ultimate proof of their mastery. And if they can't, well, there's still plenty to prove at the bargaining table in those 28 states.