Are Lawyers Running America?

By ADAM COHEN

Mississippi trial lawyer Dickie Scruggs walked into a Connecticut Medical Society forum with the smile and swagger of a man who knows he's the main attraction. Not long ago, an aggressive plaintiffs' lawyer entering a roomful of doctors could have used a bodyguard. That's how much the medical profession hated the "ambulance chasers" who were driving up their malpractice premiums. On this visit, however, Scruggs was introduced so gushingly that even he was embarrassed. "You forgot to mention," he chided the society's head, "that I rested on the seventh day."

These days some of Scruggs' best friends have M.D. after their names. Scruggs is the lawyer who, more than any other, was responsible for the $246 billion settlement agreed to by tobacco companies in 1998 to defray the medical costs of smokers who fall ill. And he arrived in Connecticut with a message those managed care-weary doctors were eager to hear: HMOs are next on his target list. "They are second-guessing doctors' medical decisions with accountants and bean counters," he told the crowd indignantly.

Scruggs is confident he can change that--despite a pair of recent Supreme Court decisions that will make it more difficult to collect damages from managed-care companies. He and David Boies, who represented the U.S. Justice Department in its humbling of Microsoft, are leading a syndicate of seasoned plaintiffs' lawyers that is suing seven of the nation's largest HMOs. The lawsuits, which were recently combined before a single federal judge in Miami, allege that the HMOs engage in what Scruggs calls "garden-variety consumer fraud." He argues that HMOs routinely recruit customers by touting their concern for patient health but run their businesses in ways that put cost cutting ahead of optimal care. "What's personally most offensive to me is that the HMOs are creating a fundamental conflict of interest for doctors between their wallets and their duty to their patients," he says.

Scruggs isn't looking for money--or at least not just money. He is aiming to use his lawsuit to do what Bill and Hillary Clinton and the leaders of Congress have failed to do: rewrite the rules of American health care. If Scruggs succeeds, medicine will join a growing list of industries, from asbestos to tobacco to guns, that are being overhauled and regulated by trial lawyers and lawsuits rather than by elected officials.

That may make a dramatic plotline for such hit movies as Erin Brockovich and The Insider, but it is not how the civics textbooks say our government is supposed to work, and it's already a hot issue in the presidential campaign. George W. Bush, whose campaign and Republican Party are financed in large part by the executives who are often defendants in personal-injury lawsuits, promises to be "a President who is tough enough to take on the trial bar." Al Gore and the Democratic Party, who collect big contributions from trial lawyers, supported President Clinton's veto of a 1996 tort-reform bill backed by business interests. Advocacy groups are already running dueling TV ads. One suggests that lawmakers who would limit damages in lawsuits are out to deny victims of asbestos-related illnesses their just compensation, while another depicts trial lawyers as sharks in a feeding frenzy.

Critics of trial lawyers say Scruggs and a cabal of his colleagues are using litigation to hijack hot-button social issues that should be resolved in Congress and the state legislatures. "Trial lawyers are an unelected fourth branch of government," fumes Walter Olson, an author and trial-lawyer foe. Corporate executives complain that the cost of fighting lawsuits, let alone losing them, drives up prices of products ranging from ladders to automobiles and holds down wages and job creation and profits. Adding to the outrage: many plaintiffs' lawyers are getting very rich. The tobacco-settlement legal fees--to be shared by more than 100 law firms--are already approaching $10 billion. Scruggs alone will get about a third of the $1.2 billion being paid to his firm.

Plaintiffs' lawyers retort that they are the only force in public life today that can be counted on to stand up for everyday Americans. "We're the last bastion," says Pensacola, Fla., trial lawyer Fred Levin, a key player in his state's tobacco litigation. "We're the last fighters available for the little guy." They say they've been on the right side of the big issues for decades, from getting air bags in cars to limiting tobacco companies' advertising to minors to forcing gun companies to install trigger locks.

Congress and the White House are so dependent on special-interest campaign contributions and so mired in partisan gridlock, plaintiffs' lawyers say, that it is often impossible to get anything done there. Exhibit A is Congress's failure to act on the Patients' Bill of Rights before it fled Washington for its summer recess. Ask Scruggs if trial lawyers are trying to run America, and he doesn't bother to deny it. "Somebody's got to do it," he says, laughing.

The top trial lawyers in the U.S. are living large. Texas tort king Joe Jamail is widely known as the world's richest lawyer, with a net worth of $1.2 billion. When Frederick Furth, a top San Francisco trial lawyer, isn't litigating antitrust cases, he is engaging his passion for wine at his 1,200-acre Chalk Hill vineyard in Sonoma County, Calif. Wayne Reaud (pronounced Ree-oh) has used his hundreds of millions of dollars in fees from asbestos and other "toxic tort" litigation to buy the local newspaper and a chunk of downtown real estate in his hometown of Beaumont, Texas. Maryland trial lawyer Peter Angelos, who has been involved in asbestos and tobacco litigation, owns the Baltimore Orioles.

Despite the luxe, most of them are populists at heart. Reaud has a photograph in his office lobby of one of his heroes, firebrand United Mine Workers president John L. Lewis. Levin says one of his formative experiences was being part of the first racially integrated class at the University of Florida Law School. Furth, whose father was a union steelworker, is a fervent New Dealer who drives a Rolls-Royce with the license plate ROBEY ST. to remind him of his humble beginnings on the far South Side of Chicago.

Most of these lawyers grew up working class or as outsiders. Scruggs and most members of his tobacco and HMO litigation teams were born in the small-town South. Jamail is the son of Lebanese immigrants. Levin is the son of a Jewish pawnbroker. Angelos, a child of Greek immigrants, put himself through law school working in his family's tavern. Most started out small. Reaud began by representing workers in the East Texas petrochemical industry who had smashed their fingers and toes at work. In Levin's first case, he won a $50,000 verdict against an insurance company for a woman whose house had burned down.

But something changed in the '70s: the awards began to get a lot larger. In 1978 Jamail brought a case against Remington for defects in a gun that injured a man in a hunting accident. The $6.8 million settlement landed him in the Guinness Book of World Records. Furth won his clients $70 million in 1973 on an antitrust price-fixing case against gypsum-wallboard manufacturers (and got a $4.3 million fee).

The supersize awards didn't just make victims and lawyers rich. They also got corporations to take notice--and to change their conduct. The Ford Pinto, alleged to be prone to erupt in flames after rear-end collisions, was taken off the market. Drugs with severe side effects, such as "phen-fen," were yanked from pharmacy shelves. A $1.8 million verdict in 1980 on behalf of a four-year-old girl who had been badly burned in 1970 persuaded a manufacturer to stop making flammable pajamas--and helped spur more rigorous federal regulations on children's sleepwear.

But it was asbestos that really demonstrated the power of lawsuits to reshape an entire industry. In the 1970s, lawyers started suing on behalf of victims of asbestosis, a deadly inflammation of the lungs caused by inhaling loose asbestos fibers that were widely used for insulation and fireproofing in shipbuilding and other industries. In addition to winning billions in damages, the lawsuits sharply reduced the amount of asbestos to which Americans are now exposed. After the asbestos litigation, trial lawyers had the expertise to bring complex lawsuits, and the huge fees--Scruggs' firm alone took in $25 million from asbestos--meant they could fund research, expert witnesses and trial preparation. They were ready for a new target.

That's when Scruggs and Mississippi attorney general Michael Moore--a classmate from the University of Mississippi Law School--decided to go after tobacco. There had long been a major obstacle: cigarette companies defended themselves by arguing that smokers knew about the dangers and assumed the risk. Scruggs and Moore decided to try to get around these "personal responsibility" defenses by suing on behalf of states, not individuals, seeking reimbursement for the Medicaid money the states had paid out for smoking-related illnesses.

Scruggs took the lead and organized the tobacco litigation with military efficiency. He selected law firms to join the team, assessed each firm a share of the expenses, doled out work assignments and figured out in advance how any fees would be distributed. Scruggs functioned "like a CEO," says Paul Minor, a trial lawyer in Biloxi, Miss. "He's our general and chief strategist, the leader and manager of all these law firms and big egos."

The state tobacco litigation succeeded beyond anyone's expectations. A whistle-blower, former Brown & Williamson chemist Jeffrey Wigand, turned up with damning testimony and internal documents. In the end, Big Tobacco folded, accepting a settlement that included major restrictions on advertising--no billboards, for example--and $246 billion in damages, to be paid to the states over 25 years.

The lawsuits on behalf of individual smokers that have been filed across the country may ultimately prove even more costly. In Florida a jury last year found that tobacco companies had engaged in "extreme and outrageous conduct" by selling a product it knew to be dangerous. The jurors are now considering damages. The tobacco companies are worried that the total bill could be as high as $300 billion. They have said the case could bankrupt them--a result even Scruggs and Moore would hate to see. "An unregulated black market in tobacco," Moore says, "would not be in the public interest."

Guns are already being touted as "the next tobacco." The breakthrough lawsuit came last year, when a jury in Brooklyn, N.Y., held 15 gun manufacturers liable for negligently distributing handguns that were later used in crimes. At least 30 cities and counties have filed lawsuits against gun manufacturers, and the industry is running scared. Smith & Wesson, the oldest and largest handgun manufacturer in the U.S., agreed last month to adopt several kinds of safety measures--among them installing "smart-gun technology" on all its guns within three years in exchange for being dropped from numerous lawsuits. Colt has stopped making most of its guns for sale to individuals, focusing on the police and military markets instead.

And trial lawyers are finding new targets. Angelos, the Baltimore trial lawyer, is going after paint companies. He has filed a lawsuit on behalf of Maryland children whose lead poisoning was caused in part, he says, by lead paint in their homes. The Rhode Island attorney general has filed a similar lawsuit on behalf of victims in that state. As the government's antitrust lawsuit against Microsoft heads into the remedy phase, more than 100 individual lawsuits have already been filed by trial lawyers on behalf of computer and software buyers.

Other lawyers are considering suits against the alcoholic-beverage industry, which they would hold responsible for drunk-driving deaths and other alcohol-related losses, using the same "negligent marketing" allegations that have been lodged against gunmakers. What could be next? Suits against burger chains for selling foods they know are unhealthy? Suits blaming sellers of gore-drenched video games for outbreaks of youth violence? Already, in one of his more expansive moments, Scruggs has mused that Wal-Mart would be a good target because it puts so many mom-and-pop stores out of business.

But is this any way to run a country? Critics of law-by-trial-lawyer say it's an undemocratic way for a nation to decide its approach to controversial issues like handgun and tobacco regulation. The key players--the lawyers and often the judges--are unelected, and most of the critical decisions in litigation are made in secret. "The settlements are hammered out in back rooms," says Olsen. "There are going to be losers who aren't part of the negotiations."

And they say lawyers can't always be counted on to put their clients' interests ahead of their own. There have been a few notorious cases, such as a class action against the Bank of Boston for alleged improprieties involving escrow fees. The lawyers were awarded $8.5 million in fees, which was taken directly from customers' bank accounts. One class-action member discovered that $91.33 in legal fees had been deducted from his account--although he received only $2.19 in interest from the settlement award. Even in more traditional fee arrangements, the sheer size of some damage awards can mean that lawyers end up pocketing gargantuan amounts. Fees in nationwide tobacco litigation, for example, could top $30 billion. That's money that could be going to address the underlying problems at which the lawsuits were aimed.

Critics offer a solution: tort reform. They have been pushing for years for restrictions that would make it harder for trial lawyers to collect large punitive-damage awards, which often far exceed the actual damages. Forty-five states have enacted civil-justice-reforms laws that limit such awards; and the Republican-backed Litigation Fairness Act, which is pending in the Senate, would make lawsuits filed by the government subject to the same procedures and laws that apply to injured persons.

Supporters of tort reform complain that trial lawyers are fighting it by contributing millions of dollars to the campaign coffers of sympathetic elected officials and judges. Last year trial lawyers gave $2.7 million in soft money to the national Democratic Party. Angelos personally gave $400,000. In fact, most of this trial-lawyer money went to Democratic candidates for Congress--the group that has been most instrumental in holding the line against national tort reform.

Trial lawyers insist that the role they play is a vital one. The ability to sue for injuries is a basic American right, they say, one that supporters of tort reform are scheming to take away. "[Tort reform] is no more than a code to close the courthouse down to poor and middle-class people," says Jamail. "You don't see these corporations being tentative or bashful about running to the courthouse against each other or against individuals who don't pay their bills."

Leaving important public-policy decisions to elected branches might make sense, trial lawyers say, if those branches did their jobs. But they are so indebted to special interests--including Big Business and the National Rifle Association--that they tend to stay gridlocked. After the shooting rampages at Columbine and elsewhere last year, a large majority of Americans support new controls on firearms--yet Congress has passed no new gun laws.

At almost every stop in his bid for the G.O.P. presidential nomination, Senator John McCain of Arizona asked, "Why can't we get HMO reform? Because the Republicans are in the grip of the insurance companies, and the Democrats are controlled by the trial lawyers." McCain adds today that Congress "can't get anything done [on the Patients' Bill of Rights], so what is Dickie Scruggs doing? He's suing the HMOs. Is Dickie Scruggs doing the right thing? No. But do you blame him? No." Scruggs adds that "we wouldn't have made the progress we've made in civil rights in this country without the courts' acting when the Legislative Branch wouldn't."

Plaintiffs' lawyers say their fees are justified by the amount of their own money they risk--knowing they will be paid nothing if they lose. In Mississippi alone, 12 law firms laid out about $12 million on that state's suit for research, travel, depositions and other expenses. "When we filed the tobacco lawsuits, our peers--good lawyers and great lawyers--laughed at us," says Reaud. "They told us there was no way we were ever going to win." Scruggs put almost all his financial assets at the time--about $3 million--into the case. "Some of us get paid amounts that are hard to justify," he admits, but so, he says, do many other professions today, from prizefighters to Internet entrepreneurs. Levin concedes his firm's $300 million take was "totally obscene" and says he's giving much of it to charity.

As for their campaign contributions, trial lawyers insist their opponents give more. Last year tobacco companies contributed nearly $1.7 million to the Republican Party. The NRA gave $478,100. "We are in a real fight, and we are the only people on this side of the fight with any money," says Mike Gallagher, a Houston trial lawyer. "Labor unions don't do it. Consumer groups don't do it. I give a lot of money, and I plan to give a lot more."

On most issues, Bush and Gore seem to be trying to meet in the political center, yet they disagree sharply over the role of plaintiffs' lawyers. Bush pushed a sweeping tort-reform package through in Texas in 1995, including caps on punitive damages. Gore has opposed tort reform and has lately presented himself as a populist enemy of "big drug companies" and "big oil."

It could get ugly. In fact, it already has. Last fall during a congressional fight over the right to sue HMOs, the managed-care industry broadcast TV commercials showing a shark feeding as an announcer said archly, "America's richest trial lawyers are circling--and your health plan is the bait." The trial lawyers, for their part, recently targeted Senator Conrad Burns, a Montana Republican, for sponsoring a bill that would make it harder to sue asbestos manufacturers. Their ad featured a Montana woman walking in a graveyard and accusing Burns of "standing up for the people that made me sick and killed my father."

On the same road trip that took Scruggs to the meeting of Connecticut doctors, he dropped in on a Washington law firm to address a less-friendly group: lawyers who represent insurance companies and HMOs. He came to tell them it was in their clients' interest to settle. "One of these days, one of the industry's lawyers in court someplace like Jefferson County, Miss., is going to call headquarters and say, 'This jury just returned a $1 billion verdict,'" Scruggs said. "Just think what that will do to the company's stock."

If he was trying to scare his audience, it seemed to be working. One lawyer, perhaps hoping his own clients would be able to dodge the Scruggs juggernaut, asked if the wave of managed-care lawsuits would ever reach smaller HMOs. "Man, we're going to sue everybody," Scruggs said as the room filled with nervous laughter. "You have somebody in mind?"

--With reporting by John F. Dickerson, Dan Goodgame, S.C. Gwynne, David S. Jackson and Flora Tartakovsky

With reporting by John F. Dickerson, Dan Goodgame, S.C. Gwynne, David S. Jackson and Flora Tartakovsky