Once Again, Smoking Stunts Growth

New York-based Dewey Ballantine was so eager to sue U.S. tobacco companies in 1998, that, when Blue Cross insurers wanted to recover health care costs from cigarette makers, the firm agreed to cap its hourly bills sharply in exchange for a cut of any damage awards. Now, people familiar with the arrangement say revenues to date remain far below what the firm's usual rates would have delivered.

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Business law firms haven’t traditionally taken many plaintiffs’ long-haul cases on contingency, and the lawyers at New York’s Dewey Ballantine can tell you why. In March 1998 litigators at the 550-lawyer firm were so eager to sue U.S. tobacco companies that, when 21 Blue Cross insurers wanted to recover health care costs from the cigarette makers, the firm agreed to cap its hourly bills sharply in exchange for a cut of any damage awards. The revenues to date remain far below what the firm’s usual rates would have delivered, agree several people familiar with the arrangement. At the time, remember, smokers seemed pretty cool if you were looking for plaintiffs. Three weeks before Dewey filed racketeering and fraud claims, the tobacco companies had pulled out of the national tobacco settlement designed by U.S. Congress members, leaving nowhere else to go but court. Warehouses of documents damaging to Big Tobacco had come to light, and word was out that the companies were about to settle with the state of Minnesota and Blue Cross and Blue Shield of Minnesota for more than $6 billion. That deal happened the next month, and Minneapolis’ Robins, Kaplan, Miller & Ciresi was awarded $560 million. Blood was in the water. Dewey’s clients asked for $41 billion, which the federal racketeering statute would automatically triple to $123 billion. Even a 2 percent contingency cut would have overshadowed Robins Kaplan’s take. Four years later, after 600 or so depositions all across the country, and after the judge sent Empire Blue Cross Blue Shield to trial as a test case ahead of the other plaintiffs, a federal jury in Brooklyn, N.Y., returned with a verdict: The tobacco companies had indeed deceived Empire Blue Cross under New York State’s consumer protection law. For the first time ever, a nongovernmental insurer had beaten tobacco companies on a third-party claim. The jury, though, rejected their big-ticket fraud and racketeering claims, which carried punitive damage possibilities. Instead of the $454 million that the Blue plan requested as redress, the jury gave it $17.8 million. “We won,” said Dewey lead lawyer Vincent FitzPatrick, Jr. “We didn’t get as much as we wanted.” The sum was more than disappointing. Dewey’s share of the award, FitzPatrick concedes, doesn’t cover the firm’s expenses to date. The firm signed into court 23 lawyers over the three years, and all that work — the docket contains 1,130 entries — culminated in a ten-week trial run by two $500-an-hour litigators. At times, recall insiders, the firm pulled associates from other departments to work on the litigation. Now Dewey may be obliged to continue the money-losing litigation with the 16 remaining Blue plans. At the very least, the tobacco companies will appeal this verdict to the 2nd U.S. Circuit Court of Appeals. The Dewey lawyers will have to sweat to keep their victory: Around the country, including in the 2nd Circuit, third parties’ claims against Big Tobacco have been dismissed for lack of standing. (In June, the Manville Personal Injury Settlement Trust dropped its similar case, citing the unlikelihood of success measured against mounting costs.) For what it’s worth, Empire Blue Cross associate general counsel Jeffrey Chansler says, “the corporation had no illusions about how tough this case was,” and “is delighted with the result.” Dewey has one device to keep its financial bath from getting deeper. The New York statute under which it won allows the firm to ask for attorneys’ fees. Like any good plaintiffs lawyer, FitzPatrick sees a proverbial light ahead: “Keep in mind, if the 2nd Circuit affirms, this is only the beginning.” Even if the payday comes, nothing can change the reality that the firm’s lawyers are now no longer so young, nor so innocent, as when they started fooling around with cigarettes.

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