Network Firm News

Wednesday, March 12, 2003

Class-Action Lawyer's Fee Under Scrutiny
Alex Berenson -- New York Times -- 3/12/03

Joseph F. Rice, a leading class-action lawyer, has agreed to accept a $20 million fee from the parent of a company that he is suing in addition to the fees that he will collect from his clients for settling their claims against that very company.

Legal ethicists said the payment raised serious ethical concerns because he was in effect being paid by both sides in the dispute, and several class-action lawyers criticized the payment.

Mr. Rice said he did not believe that the fee was a conflict of interest, and a lawyer for ABB, the Swiss company that will pay the fee, said it was justified and fair.The fee is part of a proposed settlement for the bankruptcy of Combustion Engineering, a United States company owned by ABB that faces 220,000 claims from people who say they were injured by asbestos in its boilers. Mr. Rice is being paid for helping to broker a settlement with other lawyers handling asbestos claims against the company.

Under the settlement, people who develop asbestos-related disease because of their exposure to the boilers will receive a fixed payout from a trust being created by the companies. They will not be allowed to sue ABB or Combustion Engineering.

If the trust is overwhelmed with claims, as expected, people badly injured by asbestos — representing a small fraction of the claimants — may receive less money than if they could pursue their cases in court, lawyers for those plaintiffs say. But the trust will pay lightly injured plaintiffs quickly, producing a windfall for a handful of lawyers who represent thousands of those claimants.

Some lawyers who represent seriously injured plaintiffs are protesting the creation of the trust, and similar structures that other companies, including Honeywell and Halliburton, are trying to create.

The disclosure of Mr. Rice's fee in a letter discussing the bankruptcy has further provoked those lawyers, as well as legal ethicists, who say Mr. Rice should not be paid by the company he is suing. The fee creates a conflict of interest for Mr. Rice and his firm, said Susan P. Koniak, a Boston University law professor and expert on legal ethics.

"They're representing people who were ostensibly allegedly injured by products produced by these companies," she said. "And they're taking money from the other side to get a deal through that the other side wants too? What does one need to say?"

George Kuhlman, ethics counsel for the American Bar Association, said the group did not have absolute rules that bar lawyers from being paid by both sides in a case. "We have very complex rules on lawyers and conflicts of interest," Mr. Kuhlman said. "There are things that you are supposed to avoid, but it does not boil down to that you are supposed to avoid a fee from someone you are otherwise suing."

He said he would have to do much more research to determine whether this case passed muster.

Mr. Rice, whose South Carolina firm, Ness Motley, rose to prominence because of his work suing tobacco companies, said the arrangement had been favorable for his clients.
He does not see a conflict because his $20 million fee, a portion of which he said he had already received, was coming from ABB, which owns all of Combustion Engineering, rather than Combustion Engineering itself.

"I'm not taking the fee from anybody that I'm suing," he said in a phone interview yesterday. "I did a business transaction." In addition, Mr. Rice said he and his firm did not advise any clients on whether to vote in favor of the agreement, which was approved by outside experts including lawyers representing future claimants against Combustion Engineering.
"The agreement was good for both sides," Mr. Rice said. ABB "had its independent problems that needed to get solved, and in solving their problems my asbestos clients came out ahead of the game."

Lawyers representing the states in the global tobacco settlement were paid by the tobacco companies rather than by the states. Those fees, however, were negotiated before any settlement and took the place of fees from the states.

Claimants typically pay a contingency fee to lawyers like Mr. Rice, a fee that generally ranges from 25 to 40 percent of the total. In addition, Mr. Rice has consulting arrangements with other law firms under which he receives a portion of the fees that they bill their clients in exchange for his work on their cases.

David Bernick, outside counsel for ABB, said he considered Mr. Rice's fee for brokering the settlement reasonable. Mr. Rice worked hard to negotiate the deal, which was completed in a matter of months last fall, with ABB and Combustion Engineering on the verge of bankruptcy.Mr. Rice played a crucial role in explaining the agreement to other plaintiffs' lawyers and winning them over, Mr. Bernick said.

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