My latest story on Legal Newsline:
HOUSTON (Legal Newsline) – Harris County, Texas, considers itself a highly sophisticated government entity, with a population larger than 16 states and a territory larger than Rhode Island. Yet when it hired outside lawyers to represent it in lawsuits against the opioid industry, Harris County agreed to pay a contingency fee of 35%, more than double the rate in Dallas County and equal to the highest in the state.
Harris County’s contract with three outside law firms also requires the county to pay a fee based on its total recovery before expenses, while many municipal clients have negotiated more favorable deals in which the contingency fee is a percentage of the recovery after expenses.
The difference between the two can be significant and provide a strong incentive for lawyers to keep expenses low. On a $20 million recovery with $2 million in expenses, a law firm with a 35% contingency fee based on the net takes in $6.3 million, or $700,000 less than one paid on the gross.
Even 25% is too much for this type of litigation, said Lester Brickman, the emeritus professor of law at Yeshiva University’s Cardozo School of Law who has written extensively on contingency fees and the ethics of mass tort lawsuits.
“The county and city lawyers who negotiated contingency fee agreements were in over their heads when they agreed to pay 25% and even 35% and to pay 100% of expenses instead of splitting expenses with the lawyers,” Brickman said.
That the two largest counties in Texas could have such different contracts illustrates the extraordinary complexity – and ethical challenges – embedded in opioid litigation, in which hundreds of plaintiffs ranging from small towns to entire states are suing a diverse group of defendants to recover costs associated with addictive drugs.
Several national law firms are leading the litigation in federal court in Ohio, where U.S. District Judge Dan Aaron Polster oversees cases routed to a single court under federal multidistrict litigation rules. Hundreds more cases are still in state courts around the country, with many law firms representing clients in both court systems under widely varying contracts.
An examination of more than 50 Texas opioid contracts by Legal Newsline shows little uniformity, even though the facts and legal strategy in most opioid lawsuits will be almost identical (only the damages claimed by municipal clients will be different, based on expenditure records). Fees range from Dallas County’s 12.5% up to the 35% negotiated by Harris County and at least nine other counties.
The majority of contracts are for 30%, although Maverick County, with its modest population of 58,000, negotiated a 25% rate with Luis Roberto Vera of San Antonio and Napoli Shkolnik, a national firm based in New York.
Law firms with large numbers of clients and leadership roles in the litigation have such economies of scale that it is unlikely they will devote anywhere near as much time to individual municipal clients as in a typical personal injury case, where fees of 30% are the norm.
The fact that some counties agreed to pay all of the expenses associated with their cases while others will pay fees net of expenses also shows a lack of sophistication and the potential for gamesmanship, Brickman said. Lawyers in asbestos cases and securities litigation have been accused of double-billing and allocating the same expenses to multiple cases, and it can be difficult for individual clients to uncover wrongdoing unless they obtain records showing the overall distribution of expenses and recoveries – something lawyers rarely provide.
Dallas County’s contract with Simon Greenstone and the law firms of Mark Lanier and the late Johnnie Cochran, all well-known personal injury lawyers, sets the contingent fee at the lesser of 12.5% or a “base fee,” calculated as four times hourly rates ranging from $900 an hour for partners to $200 for paralegals.
On any settlement into the tens of millions of dollars, the percentage rate is likely to be the lowest. A number of states have statutory caps on the fees outside attorneys can earn, such as Florida’s $50 million limit.
Harris County’s 35% fee reflects the fact the county hired “the best legal team in the world,” said Terry O’Rourke, assistant county attorney in charge of the opioid litigation.
“You don’t auction professional services,” said O’Rourke, who cited other successful partnerships with outside counsel including a $29.2 million settlement lawyers at Baker Wotring negotiated with Waste Management in 2014.
“From our perspective, certain cases are better handled by contingent-fee outside counsel,” O’Rourke said. “Mainly because if we don’t win, we don’t pay.”
Politics may also play a role. O’Rourke’s boss, Harris County Attorney Vince Ryan, is a Democrat and two of the lawyers he hired, Michael Gallagher and Tommy Fibich, are heavy contributors to the party. Fibich and his firm have contributed more than $130,000 to Democratic causes in the past two years, including $75,000 to First Tuesday, a PAC that helps elect local Democrats in Houston.
Gallagher’s firm has contributed more than $200,000 to Democrats since 2016, according to the Texas Ethics Commission and Followthemoney.org.
It’s not uncommon for elected officials to hire their political allies for contingency fee work. A Legal Newsline investigation earlier this year found that lawyers pumped $110,000 into the campaign of Bexar County District Attorney Nico LaHood after he hired them. The contract with Mikal Watts, The Gallagher Law Firm, Fibich Leebron Copeland & Briggs and Phipps Anderson Deacon is still intact, even though LaHood lost the election.
Simon Greenstone, the law firm representing Dallas County along with fellow asbestos plaintiff attorney Mark Lanier, has contributed more than $100,000 to Democratic and trial lawyer-associated causes since 2016. Lanier, a rare Republican trial lawyer, has contributed more than $326,000 to mostly GOP causes over the same period. Dallas County Judge Clay Jenkins, who hired him, is a Democrat.
The most likely end to opioid litigation is a national settlement negotiated by state attorneys general and lawyers leading the MDL in Ohio, including Simmons Hanly Conroy, Greene Ketchum Farrell of West Virginia, Motley Rice and Lieff Cabraser. Most MDL settlements produce a matrix with benefits distributed according to each plaintiff’s damages, but it is not clear how the opioid litigants and defendants will work out a similar scheme given many of the plaintiffs are municipalities competing actively with their sovereigns, the state governments, for a limited pool of money. It’s also not clear how lawyers with large and small clients will represent each vigorously, or how they plan to distribute expenses.
“Few of the cities and counties have required that the expenses claimed by the lawyers be detailed, including providing receipts and other supporting documents,” Brickman said. “There’s a possibility that some lawyers will emulate `The Producers’ and charge aggregate expenses that are in excess of actual expenses,” as has happened with asbestos litigation.
Texas law requires outside counsel to maintain records of hours and expenses, although it may be difficult for individual cities and counties to pull the records of every other municipal client represented by the same law firm or firms. Watts and Gallagher represent at least 10 counties together and Simon Greenstone has more than 30 municipal clients in Texas. Neither firm responded to a request for comment.
The Dallas County contract specifies which expenses are reimbursable, excluding “normal overhead” and travel expenses within the county. The Harris County contract refers to “reimbursable expenses” without defining them.
If nothing else, the level of fees in Texas reflects the national reality that plaintiff lawyers, unlike their counterparts on the defense, rarely budge from a one-third contingency fee regardless of the difficulty of the case.
“If a client attempts to bargain because his brother-in-law lawyer told him that there is no issue as to liability and the Fortune 500 company truck that rear-ended him and caused severe injuries to his wife will produce a settlement in the millions of dollars, the lawyer will say the fee they is fair because all other lawyers charge the same percentage,” Brickman said.
“There’s a greater likelihood that a golfer will hit two consecutive holes-in-one than a contingency fee lawyer will cut his rate.”