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 denies he made Shipley's hire a condition of the deal. "I certainly suggested [Shipley] would be good at it," he says. "I suggested that George was one of the public-relations specialists that I felt had the record to fairly match up with an industry like tobacco."

Ironically, Shipley had ties to the cigarette makers. In 1991, Shipley--nicknamed "Dr. Dirt" for the negative stories he's leaked about political opponents--says he signed on with Philip Morris to help them "evaluate legislation." He stopped working for the tobacco company after a year, and later aligned himself with many of the industry's opponents.

"I knew George [Shipley] was fully committed to the cause, and that he would be the best guy that these individuals could retain," Morales insists.

How much Shipley profited from the deal may never be known, since Morales' office didn't bother to require the outside lawyers to keep full records of their expenses. In fact, the lawyers have documented only $1.6 million of the $40 million in expenses they claim to have incurred in the litigation. Of that $1.6 million, Shipley received $120,000 for nine months of work. His final payoff may be much higher.

When contacted by the Observer, Shipley declined to answer questions about how much he made from the deal.

Mystery Lawyer
Nine months after Morales reached his fee agreement with the lawyers, in January 1997, he formally added another advisor to the mix--his old law-firm buddy, Marc Murr. "Marc's involvement was every bit as critical and substantial to our success as any of the other five firms," Morales says today.

Murr's role, however, isn't at all clear. His name doesn't appear on any of the pleadings, and he must submit a proposal for his fees to the arbitration panel. The panel will consist of three members: Someone selected by Umphrey, an individual chosen by a national committee of plaintiffs' lawyers, and someone picked by the tobacco industry.

Some critics of the deal say Murr, a relatively unknown Houston plaintiffs' lawyer, did little on the case. "As far as anybody knows, Murr did not do anything," says Pete Schenkkan, a partner at Graves, Dougherty, Hearon & Moody, which represented the Republican legislators who tried to intervene in the case.

Murr, for his part, will not discuss his role in detail until the arbitration panel rules. He knows that people are talking about what he didn't do. "I do not concern myself with what is said. My only interest is to protect the state," Murr says.

Morales takes great pains to defend Murr, saying he acted as Morales' personal advisor even before he contracted with the state. "Mark's involvement predates the other five lawyers'," Morales says. "I asked him to be the lawyer to essentially help me put a team together."

Morales says he initially wanted Murr to head up the legal team, but his old friend was preoccupied with another case. Instead, Morales says he relied on Murr to serve as his eyes and ears--basically acting as a watchdog over the state's team of plaintiffs' lawyers. "Although in my judgment, every action that [the five law firms] ever took was in the best interests of the state...I also knew the involvement of the out-of-state lawyers, the involvement of a potential national settlement, the existence of the Florida litigation, and the fact that the Texas team had financial interests in that. I felt mindful of all that. [Murr] was sort of my fail-safe, focused on Texas and nothing other than Texas. I thought it was really important to have one lawyer who was uninvolved in other cases."

For the year after Texas filed the tobacco case in 1996, Morales characterizes the litigation as an uphill battle. At that point, no other states had reached a settlement. "It was fighting tooth and nail for the first 12 months," Morales says. "We put on a full-court press."

The attorney general says he got "initial feelers" from tobacco-industry representatives about a possible deal in the spring of 1997. By summer, the nation began to learn that tobacco was willing to pay rather than fight. A national task force of state attorney generals and tobacco-industry representatives proposed in June a national settlement, which put a cap on the industry's future liability. While that deal eventually fell apart, it set the tone for agreements with the states.

Later that summer, Florida and Mississippi, both represented by Ness Motley, settled their cases with the tobacco industry. Florida got $3.3 billion, and Mississippi got $11.4 billion.

At roughly the same time, the Ness Motley firm--which had led the national, Florida, and Mississippi negotiations, and had consulted with the Texas lawyers--took on a direct role here. "When we resolved the Florida case, we realized it was going to be many of the same witnesses. They [Umphrey and the rest of the Texas team] asked us to get more involved," Joe Rice says.

Out of the Loop
Six months later, on January 16, 1998, Morales reached a deal with the tobacco industry--and stood up the governor's aides. His assistants failed to show up at a meeting to discuss the agreement before it was announced publicly.

The governor's office was in a tizzy that day for other reasons. Alberto Gonzales says Bush was preoccupied with the scheduled execution of Karla Faye Tucker. Her case had attracted worldwide attention, and even some of Bush's fellow Republicans were calling on the governor to pardon her.

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