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Texas Attorney General John Cornyn, who is conducting an ethics investigation into how five prominent plaintiffs’ lawyers handled the state’s tobacco litigation, may get the opportunity to depose them after all. A panel of the 5th U.S. Circuit Court of Appeals on July 23 issued an opinion reversing a ruling by U.S. District Judge David Folsom of Texarkana that prevents Cornyn from conducting discovery in state court. The federal appeals judges say Folsom acted prematurely by using the All Writs Act to prevent the unusual Rule 202 suit filed by Cornyn from going forward. The 5th Circuit found Folsom erred and remanded the suit to state court. “The federal courts cannot preclude the State of Texas from investigating potential claims in the milieu of the Texas courts — pursuant to Texas law — unless and until such investigation poses an actual threat to the settlement agreement,” Circuit Judge E. Grady Jolly wrote. The appeals court, however, held that if the AG’s office attempts to upset provisions of the state’s $17.3 billion settlement with the tobacco industry, the proceeding could move back to federal court. “Indeed, we will not decide today whether, under ‘extraordinary circumstances,’ the case may be ‘removed’ to federal court under the All Writs Act,” Jolly wrote. The opinion comes more than a year after Cornyn filed an unusual suit in state court in Houston under Rule 202 of the Texas Rules of Civil Procedure. The Rule 202 suit would allow Cornyn to seek depositions to investigate whether there is a basis to bring an ethics suit against the lawyers. Cornyn, a Republican, has been investigating the conduct of the five private lawyers since shortly after he took office in January 1999. Former AG Dan Morales, a Democrat, hired the five lawyers in 1996 in a deal that gives them a 15 percent contingent fee. The five plaintiffs’ lawyers negotiated the state’s $17.3 billion settlement with the tobacco industry; that settlement became final in June 1998. The lawyers are Walter Umphrey, Wayne Reaud, John Eddie Williams, John O’Quinn and Harold Nix. But with their fee at risk, the lawyers opted to settle for a $3.3 billion fee awarded by an arbitration panel in December 1998. A breach-of-fiduciary-duty suit is a threat, however, because of the Texas Supreme Court’s 1999 decision upholding Arce v. Burrow, which calls for lawyers to forfeit some or all of their fees for a breach of fiduciary duty. The Rule 202 suit, filed in April 2000, set the stage for more legal jockeying in the politically tinged dispute. Lawyers for the five plaintiffs’ lawyers removed the suit to federal court. The state filed a motion to remand it. In August 2000, Folsom denied that motion, finding his court is the proper forum to address the alleged misconduct of the private counsel. In that ruling, Folsom said Texas waived its sovereign immunity by filing the tobacco litigation in federal court. He also found he can exercise jurisdiction over the state-court proceeding under the All Writs Act, which a judge can use to prevent frustration of his orders. The AG’s office asked the 5th Circuit to reverse that order. Cornyn issued a statement on July 23 saying, “I have consistently maintained that the federal courts have no authority to supervise the state’s investigation into the ethical conduct of the state’s outside tobacco lawyers. I am pleased that the 5th Circuit Court of Appeals reversed Judge Folsom’s ruling and ordered him to remand the case to the state court in Harris County where it belongs.” Mark Heckmann, a spokesman for Cornyn, says the attorney general would not be available for additional comment on the ruling, but he confirms that the investigation into the conduct of the private lawyers is continuing. Patrick Woodson, a spokesman for the private tobacco lawyers, says their counsel, Michael Tigar, of the Tigar Law Firm in Washington, D.C., is studying the ruling. He says Tigar declines to comment further. But one of the tobacco five, O’Quinn, a partner in O’Quinn & Laminack, says he expects the plaintiffs’ team to ask the 5th Circuit panel to reconsider its decision or ask the entire court to hear the appeal. “Its logic seems to be, in part at least, that Cornyn’s Rule 202 action is to investigate … so what harm can fishing around have?” O’Quinn says. “Judge Folsom’s point was if there was any fishing around to be done, it needs to be done before his jurisdiction.” UNANSWERED QUESTIONS The 5th Circuit panel of Jolly and Judges Will Garwood and Harold R. DeMoss issued a speedy ruling; Tigar and Texas Solicitor General Gregory Coleman argued the issues on June 4 at a hearing in New Orleans. At those arguments, Tigar told the three-judge panel that Texas gave up its 11th Amendment right to litigate tobacco-related matters in state court when it filed the suit against Big Tobacco in federal court. But after reversing on the basis of the All Writs Act, the 5th Circuit panel didn’t address the other issues raised in the appeal — 11th Amendment immunity and whether the Rule 202 suit is a civil action for removal purposes. Jolly wrote that although the U.S. Supreme Court found judges may use the All Writs Act to prevent frustration of its orders, nearly 200 years of precedent establishes it cannot be used as an independent basis of jurisdiction. He wrote that the U.S. Supreme Court’s 1998 decision in Rivet v. Regions Bank of Louisiana (Rivet I), stands as a “sentry” and re-emphasizes the limited circumstances under which an action in state court can be properly removed to federal court. The panel found the Rule 202 proceeding filed by Cornyn is only an investigatory tool and it may or may not pose a threat to the tobacco settlement. “Both the State and Private counsel can only speculate as to the eventual outcome of the probe,” Jolly wrote. Lonny Hoffman, an assistant professor at the University of Houston Law Center who wrote a law review article on the All Writs Act in 1999, suggests the 5th Circuit decision isn’t broad. First, Hoffman says, a Rule 202 suit is an investigatory procedure rather than a typical suit. Second, he says, the panel didn’t outline the circumstances under which a breach-of-fiduciary-duty suit brought by the AG’s office against the private lawyers would threaten the settlement. “It’s sort of this ticket is good for this train on this day,” says Hoffman. “We are left to still not know the substantive question of what the All Writs Act does or doesn’t allow.”

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