Fw: Class-Action Lawyer's Fee Under Scrutiny

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----- Original Message ----- From: ilena rose

Sent: Wednesday, March 12, 2003 7:53 AM

Subject: Class-Action Lawyer's Fee Under Scrutiny

March 12, 2003

http://www.nytimes.com/2003/03/12/business/12ASBE.html?pagewanted=print & position=top

Class-Action Lawyer's Fee Under ScrutinyBy ALEX BERENSON

oseph 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 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?"

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.

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.

"Why shouldn't he get paid for brokering a deal?" Mr. Bernick said.

Brett, general counsel for ABB in the United States, said ABB believed that most lawyers approved of the settlement, including the fee. For the deal to be passed, more than 75 percent of all claimants must vote in favor of it, and the bankruptcy judge overseeing the case must approve the agreement. "We believe that we have more than adequate votes for its approval," Mr. Brett said.

The case was filed in bankruptcy court in Delaware but will be heard by Judith Fitzgerald, a federal bankruptcy judge in Pittsburgh.

Combustion Engineering was forced into bankruptcy because of claims from people who say they were injured by asbestos-lined boilers made before 1972. Most of those people are not seriously hurt, and many have no injuries at all, aside from plaque in their lungs that does not affect their ability to breathe.

But both ABB and plaintiffs' lawyers agree that the combined cost of the claims is more than Combustion Engineering can afford to pay, making bankruptcy the only alternative. To keep the bankruptcy relatively short and inexpensive, ABB began negotiating with plaintiffs' lawyers about the structure of a trust that would be created from the filing, as well as the amount of money ABB would put into the trust.

Under the deal, ABB agreed to contribute all of Combustion Engineering's assets, valued at about $800 million, to the trust, which will be used to pay current and future claims of asbestos-related injury. ABB will also contribute $250 million in cash and $50 million in shares to the trust, and it may contribute $100 million more in the future.

Honeywell International and Halliburton are trying similar legal tactics to relieve themselves of asbestos liability by putting subsidiaries into bankruptcy, and lawyers for both plaintiffs and defendants say the process will probably become more common as big companies seek a way to put asbestos lawsuits behind them.

Halliburton said it would not pay a success fee like Mr. Rice's as part of its settlement, and Honeywell declined to comment.

The $20 million fee for Mr. Rice is equal to almost 7 percent of the cash and stock that ABB is initially contributing to the settlement, and nearly 2 percent of the overall value of the trust. That amount is too much, said Bill Connelly, a partner at , , a ton, S.C., firm formed by lawyers who left Mr. Rice's firm last year.

" Bernick at a meeting in Houston before 40 or 50 lawyers said that before he even started negotiating, he offered $20 million if Rice could put this package together," Mr. Connelly said.

Lawyers who generally represent lightly injured claimants say that Mr. Rice should not be paid by ABB. "It makes Joe Rice look bad," said Fred Baron, a Dallas lawyer whose firm represents about 8,000 people who have sued Combustion Engineering and other companies because of asbestos exposure.

Mr. Baron said the fee was particularly inappropriate because the total cost of settling all ABB claims at full face value would far outstrip the $1.1 billion to $1.3 billion that will be available for payment. As a result, many claimants will be paid a fraction of the face value of their claims. "Virtually everybody I've talked to has said that it would be unseemly for the $20 million to be paid if 100 cents on the dollar are not being paid," Mr. Baron said.

But Mr. Baron said he was not opposed in principle to allowing lawyers to be paid directly by companies they were suing. And some other class-action lawyers defended Mr. Rice's fee.

"You're being paid a facilitating fee," said Weitz, whose firm represents 35,000 asbestos claimants, including 20,000 that have sued Combustion Engineering. "The court's got to approve it."

Mr. Weitz said he planned to ask for similar fees in future bankruptcy settlements. "I would have no reservations," he said.

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