COLUMN: Striking a balance on legal fees
It was just the latest high-profile telling of a too-oft-repeated tale that tort-reform proposals never manage to address in a smart way.
But it takes two sides to settle any lawsuit, and we don’t often think of the flip side: Sometimes people who file lawsuits agree to settle for less than they could win in court, because it would cost them more to make that case than the extra money they would receive for doing so.
And sometimes their lawyers make that same determination.
That’s one of the problems Attorney General Alan Wilson is trying to address as he rolls out an updated version of the state’s special-counsel agreement, which also asks more of outside attorneys who file lawsuits on behalf of the state.
Then-Attorney General Henry McMaster designed an agreement a decade ago to curb abuses real and perceived in the process of hiring outside counsel. Recall the suit against cigarette companies, and the more recent ones that charge drug companies with overcharging Medicaid.
That agreement replaced the industry-standard 25 percent (minimum) contingency fee for winning attorneys with a scale that maxed out at 23 percent and slid down to less than 4 percent on awards of more than $100 million.
As a result, South Carolina paid its attorneys just 14.5 percent of its $45 million award against drug maker Eli Lilly – more than only Arkansas at 13 percent and significantly less than fees and expenses of 20 percent, 30 percent and even 35 percent in other states that filed similar suits against Lilly.
Attorneys have been willing to sign such agreements because some of the most lucrative suits can only be brought in the name of the state, and even when there is no such restriction, suing on behalf of the state rather than trying as an individual attorney to hold together a class-action suit can streamline and speed up the process, and add an unquantifiable heft to the case.
But Wilson worries that such low fees for supersized awards can work against the state’s interests, encouraging attorneys to settle solid cases rather than spend the extra money to go to trial. A decade ago, it was unimaginable that South Carolina would win a judgment of $100 million – or even $50 million. Two years ago, the state won a $327 million judgment.
The McMaster rates meant that a law firm would receive only $2 million more if it won a $150 million verdict than if it settled for $100 million before trial. Because of the risk inherent in any trial, the firm might decide that spending a half-million dollars in out-of-pocket costs isn’t worth the potential payoff, so the state would lose out on $48 million. In fact, Mr. Wilson suspects that happened in one case, though he declined to say which one.
The attorney general makes the call as to whether to settle a case, but he has to rely on the judgment of his counsel, and besides, it’s not particularly smart to go to trial with an attorney who doesn’t want to.
At the same time judgments in these cases have increased, defendants have become more aggressive about fighting back. Companies used to settle routinely when states came after them; today, they file countersuits, and when the state wins a judgment, they appeal.
Under the McMaster contract, the attorney general had to handle the countersuits and appeals, a costly endeavor that his office is not always prepared to handle. The state is already two years into fighting an appeal of the $327 million deceptive-marketing verdict against Janssen Pharmaceutica.
So Wilson will now require outside counsel to represent the state in countersuits and appeals, working for an hourly rate that ranges from $80 to $185, depending on the experience of the attorney and the type of case. A separate change to the contract eliminates reimbursements for most out-of-pocket expenses, relieving his office of having to verify those expenses.
Mr. Wilson, who has been looking into changes to the contract since he took office two years ago, says it’s hard to imagine that law firms would be willing to sign agreements that require them to handle appeals at cut-rate hourly fees for a contingency fee of just 4 percent. His goal, he said, is to find the right balance, to “adequately compensate them without overly compensating them, and get the most money back for the state.”
The first proposal he showed me would have increased the fees for awards of more than $150 million from 4 percent to 17 percent. When I pointed out that this was a more-than fourfold increase – the fee on a $200 million award would jump from $8 million to $34 million – he went back to the drawing board.
The contract he finally emerged with leaves fees at 4 percent for awards of $150 million or more but increases fees for $125 million-$150 million awards to 9 percent and for $100 million-$125 million to 11 percent. On smaller settlements, the fees range from 13 percent to 24 percent, up from the old fees of 7 percent to 23 percent.
I worry about attorneys general turning themselves into super-legislatures, using the courts to change policy in a way the people elected to do that sort of thing won’t, but they do need to be able to bring suit when the state clearly has been wronged, as in the Medicaid cases.
Although righting wrongs is the only acceptable motivation for government-initiated lawsuits, the fact is that the cases can mean serious money for the state: In addition to the Janssen case, the state’s outside counsels have won 19 cases, worth a total of $87 million, in the decade since McMaster put his agreement into place.
But attorneys general usually don’t have the staff or expertise to bring complex civil suits themselves, much less front the expenses that can mount for years before a settlement or verdict. That means the only way legitimate cases can be pursued is through outside counsel.
So Mr. Wilson has legitimate reasons to worry about making sure the fee arrangement works. The question is whether he has come up with the right numbers. And the jury’s still out on that.Cindi Ross Scoppe is an associate editor with The State newspaper in Columbia.