February 20, 2001
Review & Outlook

Smoke Screen

                   Somebody's heart is in the right place in the Bush White House.

                   Resurfacing last week was an idea from the campaign to seek legislation to tax away some of the outlandish fees awarded the lawyers in the state tobacco suits. This is the right problem; now the Bush team should keep swinging until it hits the right solution.

                   What we have here is a legal system rapidly being corrupted into a legal  extortion racket, one that mocks the constitutional separation of powers.

                   As a result of the tobacco lawsuits the country got a new, unlegislated tax  on smokers designed to enrich a small group of  lawyers as well as state budgets. The lawyers, who say they're filling in for legislatures that have failed us, openly brag about using their winnings as seed money for new  class-action lawsuits against HMOs, paint makers, drug companies and the like.

                   The Bush proposal would simply be a tax on a tax. It wouldn't redress the constitutional corruption that has cabals of lawyers and state attorneys general enacting excise taxes without legislative approval.

                   Here's a better idea: Use the Justice Department to challenge the very constitutionality of the tobacco settlement. An excellent case has already been filed in federal court by Star Scientific, a small Virginia company that  has developed a safer cigarette (with measurably reduced levels of known carcinogens). Star wasn't in existence when the alleged wrongs of the tobacco companies were committed. It wasn't sued, and didn't agree to any settlement. Yet under the settlement, states were obliged to enact laws  to force companies like Star to post a crippling share of their revenues in escrow for 25 years to cover future legal claims.

                   The settlement is quite clear about the real purpose for this: to protect the  market share of the existing Big Four tobacco companies while they raise prices to pay off the lawyers and the states. In other words, a cigarette  cartel has been fashioned, with a key beneficiary being private lawyers with a powerful incentive to recycle some of the money as campaign donations to protect their loot.

                   This deal certainly looks to be unconstitutional eight ways from Sunday,  involving an illegal state compact to restrain and tax interstate commerce.

                   The Bush Administration should move quickly to join the Star suit, sending  the message that nothing about this corrupt bargain authored in the Clinton era is written in stone.

                   One group of lawyers, led by the incredible Dickie Scruggs, has already  exploited Wall Street to shift some of its risk to bondholders. Earlier this  month the group sold bonds to institutional investors backed by $1 billion  in fee payments over the next 12 years, realizing $308 million in ready cash. Mr. Scruggs has been licking his chops over all the people he can use  this money to sue.

                   More will follow suit, getting their war chest out of the path of any Bush attempt to end their racket. Though disarming a powerful Democratic funding constituency is not the primary purpose, politics, policy and the rule of law are in harmonic alignment here. The Bush Administration can strike  a blow for itself, the Republic and the Republicans by putting the federal  government on the side of those seeking to overturn the tobacco deal.