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.

Morales also contends that the political cost of reneging on his contract with the lawyers would have been greater than the expense he's paid for backing them. "I would take issue with your premise that I would be exiting office somehow with a more acceptable legal victory had I cut the lawyers off," Morales said. "I think it is not an honorable thing to renege on your contracts for political reasons, or because it will cause you some discomfort in public relations."

With the governor and attorney general having agreed to postpone all further legal fighting until the arbitration panel rules on the fees, Morales made a theatrical display of giving Bush the benefit of the doubt.

"We recognized then and we recognize now that the [tobacco] industry is the primary benefactor to the Republican Party," he said, pausing a minute, laughing, and then adding, "just as trial lawyers are to the [Democratic National Party]. I don't take much offense to the governor's position, given his party affiliation versus my party affiliation. I recognize it would be a difficult thing to take on an industry that essentially represents the biggest backer that his party has. I think the governor's decision to intervene is perfectly understandable. I recognize the political necessity of him doing so as someone who wants to run for president in a presidential primary. He simply cannot allow a Steve Forbes...or Dan Quayle to run a 30-second spot in Iowa...saying, 'Governor George Bush, when he was in office, he presided over the largest contingent-fee, trial-lawyer recovery in the world.'

"I recognize that he had to publicly distance himself and indicate an objection to what probably is going to be the largest fee ever. You know, we're all political players around here. I am just like the governor is."

Morales even suggested, in a somewhat condescending manner, that he had the governor's best interests at heart. "We made overt efforts...to engineer scenarios that would lead us to resolution without hurting the governor politically, or lead us to resolution where the governor could save face or at least claim it was a positive outcome for him," Morales said. "There was never any intention or desire over here to harm the governor politically or to harm his presidential prospects. I'm a Democrat. I'm gonna remain a Democrat. But, you know, George Bush...is a good guy, and I think he'd make a good president. There was never any desire to hurt his prospects."

Morales admitted his attempt to sanction the governor was "very aggressive," and claims he filed the motion "with much regret." He argued he did so because "it was just imperative to me to get this dispute back to the courthouse." Indeed, the motion for sanctions forced Bush's side to respond in court.

"If you leave it in the public arena where the intervenors will be able to say, well, these fees are outrageous...that sells among the citizens of our state, but it is absolutely contrary to the law," Morales said.

Attacking an Industry
Morales wasn't the first state lawyer to take on the tobacco industry. Mississippi Attorney General Mike Moore filed the first state claim against the cigarette makers in May 1994, claiming they owed the government for medical expenses incurred by addicted smokers.

In preparation for his case, Moore devised a novel litigation strategy with a key player in tobacco litigation: Ron Motley, founding partner of the Charleston, South Carolina, law firm Ness Motley Loadholt Richardson & Poole. A man who made his fortune in asbestos-related lawsuits, Motley has become the undisputed leader in tobacco litigation. He helped negotiate the ultimately unsuccessful national settlement with the tobacco industry, and his firm has a role in 29 state suits--including the Texas case.

The Texas team of outside lawyers hired Motley as a consultant soon after filing the case. Interestingly enough, Morales had rejected the Motley firm when he screened lawyers to take the state's case. Motley's partner Joe Rice admits their firm made a pitch to Morales, but the attorney general made it clear he wanted to hire in-state lawyers.

During the early stages of his recruiting efforts in fall 1995, Morales recalls, there was a "real swirl" of activity among prospective attorneys. "I would suspect that there were phone calls being made and drafts and letters and proposals between and among literally dozens of firms involving teams that I never even found out about," he says.

In October that year, Morales interviewed Joe Jamail. The 72-year-old plaintiffs' lawyer was no stranger to big, flashy cases. In the mid-'80s, Jamail had earned the title of richest lawyer in America from Forbes magazine when he prevailed in the Texaco-Pennzoil suit. In a case concerning unfair tactics in a hostile takeover attempt, the jury awarded Pennzoil, Jamail's client, $10.3 billion in damages. The company ultimately settled for a $3 billion settlement, and Jamail took home his cut--estimated to be about $600 million.

With plans to lead the Texas tobacco team, Jamail had assembled two partners from Houston's Baker & Botts, the same firm that had shared in the Pennzoil victory, and a number of other prominent lawyers. At a meeting in the attorney general's conference room in Austin on October 16, 1995, according to the recollection of an individual familiar with notes Jamail compiled two weeks after the event, Morales met with Jamail; the Baker & Botts lawyers; Lee Godfrey, a name partner at Houston's Susman & Godfrey; and Tom Luce, then a name partner at the Dallas firm Hughes & Luce.

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