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.

A few days later, Morales lashed back, filing a motion to personally sanction Bush and the legislators for $25 million.

While the governor and attorney general sniped at each other, events taking place in another state would help bring a resolution to Texas' fight. In May, Minnesota's attorney general, Hubert H. Humphrey III--who hadn't received any help from the Ness Motley gang--landed the biggest per capita settlement from the tobacco industry to date: $6.1 billion. Minnesota hired just one law firm to fight its case, and it got 7 percent of the settlement, payable over two years.

The Minnesota attorney general had pushed the case all the way to trial. While the jury was deciding a verdict, tobacco decided to settle.

For Texas, the Minnesota pact had immediate and significant consequences. To his credit, Morales had included in his agreement with the tobacco industry a clause giving Texas the right to renegotiate its settlement to incorporate any favorable provision from other state agreements that might sweeten Texas' deal.

Specifically, the Minnesota deal allowed the state's settlement and its lawyers' fees to be severed. It also raised Texas' original settlement amount by $2 billion. Morales could now give Bush his severance and the counties their own money.

Naturally, the governor's camp puts a different spin on the eventual truce between Morales and Bush. Gonzales claims that attempts to reach an agreement between the governor and attorney general only got serious when Texas' team of plaintiffs' lawyers made an end run around Morales.

In May, the lawyers asked to meet with Bush. At the time, the governor wasn't speaking to Morales abut the tobacco deal. Bush agreed to talk to the lawyers only by telephone; his spokeswoman says that the "the plaintiffs' lawyers wanted quick confirmation of the governor's position one weekend, and we arranged for them to speak by telephone."

Bush told the lawyers he wasn't trying to slash their fees, Gonzales says. He just wanted to sever that issue from the overall settlement.

By late July, the federal judge in Texarkana had ordered all the parties to get together and come to terms. Morales agreed to sever the fee issue and let the lawyers take their fight to the state if the arbitration panel awards them less than 15 percent. By that time, Morales will no longer be in office.

As part of the final deal, Bush and Morales agreed to drop all of their motions against each other--including Bush's motion to question Jamail. "They insisted on that," says Schenkkan, who believes Morales' willingness to compromise hinged on that point. "When do we have the so-called settlement? Right after we notice Jamail's deposition."

Bittersweet Victory
For Morales' camp, the $17.3 billion tobacco settlement has yielded a bittersweet victory, given the allegations against the attorney general.

"The irony of all these suggestions is we were very, very careful," George Shipley says. "We did a good and righteous thing. They could just not stand the fact that a Harvard-educated, Mexican-American Democrat had outflanked them."

Charles Silver, the UT law professor hired by Morales to monitor ethical issues for the state's lawyers, says the allegations unjustly diverted attention "from a spectacular result for the state."

Indeed, John Cornyn has threatened to revisit the allegations against Morales if he gets elected--which appears unlikely. Cornyn's spokeswoman, Michele Kay, says "if he wins, he will investigate the whole contract between the lawyers and the state to ensure there was no breach of fiduciary obligations."

Gov. Bush takes his characteristic hands-off approach to this scenario. "That's a decision that would have be made by the new attorney general who will be elected by the people of Texas," his spokeswoman wrote.

Morales, just a few months away from his private-sector career, seems unfazed: "I don't care who looks at it. It's all sour grapes. It's all baloney."

Has the attorney general benefited personally in any way from his relationship with the state's tobacco lawyers? Morales pauses a moment before answering. "I don't know. I guess...when you win the biggest lawsuit in the history of American jurisprudence, I guess that could be a political benefit to you if you decide to run for something later," he says.

"So...did I receive something of value? I guess so. Am I going to capitalize on that? Not now. Four years from now if I run for some office, am I going to talk about it? I think so.

Published:Last week's cover story, "Smoke-filled room," transposed the original tobacco settlement amounts for the states of Florida and Mississippi. The correct figures are as follows: Florida, $11.4 billion; Mississippi, $3.3 billion. We regret the error.

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