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.

On another day in the same conference room, the individual says, Morales met with lawyers Walter Umphrey, Ron Krist, and Wayne Fisher. Krist and Fisher were friends of Jamail's. Umphrey, Krist, and Fisher met with Morales to propose a separate team to work on the tobacco case. Jamail didn't attend the meeting, but according to his notes, learned about it from Fisher.

The Observer has spoken to five of the seven outside lawyers who attended those two meetings with the attorney general. Three of them declined to comment, but two agreed to talk on the condition that they not be identified.

In his affidavit to the Texarkana court, Jamail stated about his meeting with the attorney general that "Morales imposed certain terms and conditions on my retention as lead counsel that I found to be totally unacceptable. I refused the terms and conditions, and terminated the meeting immediately, along with the other lawyers I had assembled to meet with the attorney general. We left the offices immediately...The primary reason for immediately terminating the interview and leaving the attorney general's office, with the other outside attorneys that had accompanied me, was that it was my belief that the unacceptable terms and conditions Mr. Morales stated...were legally questionable and suspect, although the actual legality or illegality is a matter of law for a court."

In his notes, Jamail reportedly states that Morales insisted the lawyers each chip in $1 million for a kitty to "defend myself" against attacks by the tobacco industry, as a condition of getting the state's contract. State statutes forbid public officials from seeking "anything of value" for themselves in exchange for a public contract.

One of the attorneys who spoke to the Observer says he left a meeting with the attorney general because he was convinced Morales was soliciting some kind of bribe. At the time, the attorney says, he suspected that Morales had set up a "sting operation."

Although no one claims Morales was seeking cash to stuff his pockets, another lawyer alleges that Morales stressed the ominous threat the tobacco industry represented to him personally. "You've got to understand I don't have these kind of resources," the lawyers recalls Morales saying.

He also claims, "It was in that context that he said there is one condition that I must place on any one of you...that you are going to have to give $1 million to 'my campaign.'" The lawyer insists Morales used the words "my campaign," although he doesn't know to what campaign fund Morales was referring.

"I looked around and thought, What in the world is going on here?" the lawyer says.

The lawyer concedes, however, that he was on the alert for any unusual suggestions from Morales. Jamail, who had already spoken several times with the attorney general, warned him that Morales might make demands that weren't legal. The lawyer says Jamail warned him to "be cautious" before meeting with Morales.

For his part, Morales denies he ever said anything improper. He says he did make it clear that the lawyers would have to contribute to a kitty to fund the litigation themselves. Eventually, the five firms Morales hired chipped in $2 million apiece, creating a $10 million fund. Morales says he never used the words "defend myself."

"No meeting ever ended up abruptly," he adds. Morales' assistant attorney general, Henry Potter, attended the meeting Jamail claims he left abruptly, and concurs that no such thing happened.

Morales argues that if he had made comments that could somehow be construed as solicitation of a bribe, all the attorneys in the room had a responsibility to contact the authorities. "If there was a shred of truth to the insinuations that have been in the newspaper, every single lawyer in that room would have been obligated to immediately report unethical or improper activities to the bar," Morales says. "You don't have the option to just ignore unethical or improper activity as a lawyer. You have an affirmative duty to report it."

One of the lawyers who spoke to the Observer about the meetings, however, says he investigated the matter with two criminal lawyers and concluded he had no such obligation, especially since the conversations may have been protected by attorney-client privilege. It is, at best, a cloudy area of the law.

Morales acknowledges he talked a lot about the money the lawyers were going to have to spend to finance the case.

"There certainly was discussion, and I think a clear understanding about the fact that I was going to require that our lawyers basically provide a turnkey operation--that is, that every aspect and every component of the case was going to be covered by the attorneys, and that I did not want this office exposed to a dime's worth of expenses," Morales says.

He adds that he doesn't believe that the lawyers making the allegations against him simply misinterpreted his comments.

"I would give these individuals the benefit of the doubt but for the fact that within a matter of days after this meeting in my room, I began receiving phone calls from friends of mine saying, 'Hey, Jamail is spreading that the reason he didn't get the lawsuit is not because you turned him down but because he turned you down,'" Morales says. "And then I think he had to manufacture some plausible reason--just to save face. This is an individual who is used to getting his way. I think there is active mischaracterization, purposeful mischaracterization."

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