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Texas Tobacco Deal Threatened

March 20, 1998

TEXARKANA, Texas (AP) _ The tobacco industry said Thursday it will scrap a $15.3 billion settlement with Texas if a dispute over attorney’s fees means paying more money directly to the state.

``That’s unacceptable and that’s no deal,″ said lead attorney Dan Webb, who represents Philip Morris. ``We’re not going to let the state of Texas screw this deal up in such a way that we have to pay more money.″

Webb’s comments followed a daylong hearing Thursday at which Gov. George W. Bush and seven state legislators argued to intervene in what Texas officials called the largest monetary settlement in U.S. legal history.

Bush and the lawmakers said Attorney General Dan Morales, who brokered the deal, did not have the authority to promise a 15 percent cut, amounting to $2.3 billion, to five private attorneys who worked on the case for the state.

The tobacco industry has agreed to pay the fees directly to the private attorneys, severing the money from the state deal. The cigarette makers worry that paying any of the fees into state coffers would raise the Texas payment higher than $15.3 billion and cause a ripple effect on other settlements. Mississippi and Florida, which settled earlier, indexed their deals to later state settlements.

Regardless of how it is paid, the governor and seven legislators say they should get a say in the attorney fees.

``The private attorneys work for us. So the state would have an interest in that money,″ said Bush’s spokeswoman Karen Hughes. ``The tobacco companies want to write two checks and that’s fine, but we have an interest in both checks.″

Tobacco industry attorneys didn’t give their opinion until the end of the hearing. Attorney Dan Scarboro, who also works for Philip Morris, said that even though the industry doesn’t care if fees are severed, it does care about the outcome.

``I say this in fair warning. If this settlement cannot be in agreement according to terms, there is a provision that if there is any modification, it can be canceled,″ he said.

The earlier discussion centered on whether Morales could set up the deal in the way he had.

``The attorney general has simply failed to protect the state’s taxpayers interests and possibly has left it on the hook,″ said Bush’s lawyer, Margaret Wilson.

But Arthur Miller, a Harvard University legal scholar, called this a case of micromanagement.

``Is the attorney general a constitutional officer of the state or a running dog for the governor?″ he asked.

The attorneys put up their own money to start work on the case and by working on a contingency basis, they risked everything if they had lost, Miller said.