Smoke-filled room

When Dan Morales brokered Texas' $17.3 billion tobacco settlement, he blew away Governor Bush. He also made sure his friends got a few puffs.

By any measure, January 16, 1998, was a historic day for the state of Texas. At the federal courthouse in Texarkana, Attorney General Dan Morales announced the multibillion-dollar settlement he'd brokered with the tobacco industry--money that would flow directly into state, county, and hospital-district coffers for legislators and local government officials to spend as they pleased.

It was surely the greatest accomplishment of Morales' relatively quiet tenure as state attorney general. Such a clear victory, and the prospect of the financial boon it would bring to the state, initially drew praise from Republican Gov. George W. Bush, who was already considered a front-runner for his party's nomination in the next presidential race.

Indeed, both men, despite their opposite party affiliations, should have been able to capitalize on the state's landmark victory against the cigarette makers. There was enough political bounce to benefit everyone involved--especially Morales, a Democrat, who has hinted to the Dallas Observer that he will someday seek higher political office.

How surprising, then, that the settlement, which eventually added up to $17.3 billion, would soon become the center of a vicious partisan fight.

Though Bush had shown little interest in the tobacco negotiations up until then, he and other Republican lawmakers waged an after-the-fact assault on the 15 percent contingency fee that Morales had agreed to pay the five outside law firms representing Texas' interests in the deal.

The contingency arrangement worked out to $2.3 billion--yes, that's billion, not million--in attorneys' fees. The threat of all that money going to lawyers, particularly plaintiffs' lawyers, who have traditionally channeled millions of dollars into Democratic campaigns, along with the possibility that the state might have to pick up some of those fees itself, finally prompted Bush to get involved in February.

He would ultimately fight a half-hearted battle against the attorneys' fees he described as so "unconscionable." In hindsight, his objections were too timid, too vague, and way too late. Perhaps mindful of his own party's ties to tobacco money, Bush talked tough, but eventually backed down. He showed little stomach for a real fight.

Morales, for his part, didn't stand meekly on the sidelines when attacked. He bargained away the state's right to question the amount the lawyers got, then took the offensive--asking the court to fine the governor and the Legislators $25 million in sanctions for supposedly misrepresenting the law when the Republican group attempted to intervene in the tobacco case and slash the lawyers' phenomenal payday.

Morales paid a price for striking back. He lost his chance to bask in the role of the guy who stood alone--with no support from the governor or the legislature--and beat the tobacco industry. Instead of kudos, he got questions--about his character, about his honesty with the governor, about his own stake in the deal.

Bush's attack on the fees would turn up allegations that Morales, a man with a squeaky-clean image bordering on priggishness, had attempted to solicit funds from lawyers in exchange for hiring them to represent the state in the lucrative litigation. A nationally known lawyer from Houston, Joe Jamail, filed an affidavit in federal court supporting that claim.

Though Morales has vigorously denied the allegation, the Observer has spoken with two other lawyers who say Morales solicited funds from them too while interviewing lawyers to represent the state.

The fine print of Morales' deal makes him vulnerable to charges that he set it up to financially benefit two of his longtime associates--lawyer Marc Murr, and Morales' chief political consultant, George Shipley. At the same time, the attorney general gave the state's outside lawyers plenty of latitude in claiming expenses. He only required them to document a small fraction of the estimated $40 million in expenses.

All in all, it's a troubling outcome for two of the state's most popular politicians.

If Morales and Bush seek national office, their actions and decisions in the deal will no doubt be scrutinized closely. As the Observer has found, their respective roles in the nation's biggest-ever legal settlement raise disturbing questions about their integrity, fortitude, and judgment.

Trading Snubs
These days, Bush tries to keep the tobacco deal at arm's length. "Governor Bush was not involved in the tobacco settlement itself, and thus would never attempt to claim credit for it," spokeswoman Karen Hughes wrote in response to questions posed by the Observer. One of the governor's press aides added that, as a rule, Bush doesn't conduct interviews about the tobacco litigation.

If nothing else, Bush's lack of interest is consistent with the off-handed manner in which he greeted news of the impending settlement on January 16.

Early that morning, Morales, who was camped in Texarkana as the settlement's final details were being hammered out, asked one of his assistants to call Bush's office and schedule a meeting just a few hours later between himself and the governor.

Though Morales offered to fly immediately to Austin, his overture was late. That same day, he planned to unveil the deal at a news conference.

Up until this time, Bush had kept his distance from the lawsuit against the cigarette makers. Had he waded into the fight, the governor's past links with tobacco would have made him vulnerable to charges of hypocrisy. After all, as a Republican, Bush had benefited from the industry's largesse to his party. Furthermore, his top political consultant, Karl Rove, had served as a paid advisor to tobacco giant Philip Morris for five years.

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