REFERRAL FEES ARE BIG BUSINESS FOR THE HIGHEST BIDDER, BUT WHAT ABOUT THE CLIENT? by NATHAN KOPPEL In 1997, Fred Baron, founder and leader of Dallas' Baron & Budd, one of the country's top toxic-tort shops, got a call from a New York lawyer. He wanted Baron to handle what sounded like a hot case. It concerned some kids with brain cancer, allegedly caused by something at a factory near their homes. The lawyer, however, would not dish out any specifics - not, that is, until Baron agreed to pay him half of any recovery. Sorry, Baron said, not interested. A few months later, Baron got a call from a second New York lawyer. He was shopping a case strikingly similar to the brain cancer case described by the first caller. And indeed, as Baron would later discover, it was the very same case. "[The lawyer] said he was in over his head and wanted me to get involved," Baron says. "Once we found out that it was a good case, we worked out a regular fee [33 percent], and we took it." Lawyers referring cases to one another is nothing new. But as Baron and other well-known plaintiffs lawyers will tell you, the practice is growing rougher around the edges. At times, the clients are like cattle being auctioned off to the highest bidder. That's not the way it's supposed to work. The idea behind a freewheeling, free-market referral system is to channel cases, usually complex plaintiffs cases, from the hands of lawyers too inexperienced or otherwise ill-equipped to handle them into the right hands. Like the hands of Richard Mithoff of Mithoff & Jacks, one of the best known and most widely respected plaintiffs lawyers in Houston. Mithoff says referrals work best when they follow the classic model: A family lawyer, with a client's best interests at heart, turns to a more experienced lawyer for help.

That still happens, of course. But lawyers in the middle of the increasingly rough-and-tumble referral market say a new model has arisen. Many lawyers now use mass advertising to dredge in and sign up clients just to refer them out en masse - even shopping them to the highest bidder. That worries Mithoff and many of his colleagues. "When you have lawyers whose only credentials are a law license and enough money to take out an advertisement, then you have a situation ripe for abuse," he says. "They don't even know the clients they sign up, much less have their best interest at heart." The situation is such that some lawyers and legal experts are calling for reforms. Both the American Bar Association and the American Law Institute are advocating controls, and some influential local bar leaders are unhappy with the set-up.

Oddly, despite their complaints about gougers and other abusers, Texas plaintiffs lawyers are wary of - even hostile to - any regulation. W. Frank Newton, dean of Texas Tech University School of Law, says Texas referral law should be changed to prohibit lawyers from profiting from referrals unless they assume joint liability for the mishandling of a referred case. "The fiduciary relationship is such that attorneys must accept responsibility, if they accept [referral] fees," says Newton. That is a requirement in most states, and the American Bar Association's Model Rules of Professional Conduct provide that lawyers can only share fees in a referred case in proportion to their work on the case, or if they assume joint liability for the case. An identical fee-splitting rule is included in the American Law Institute's new Restatement of the Law (Third): The Law Governing Lawyers. ALI assistant editor Todd Feldman says the new restatement is due out in the fall of 1999. But under Rule 1.04 of the Texas Disciplinary Rules of Professional Conduct, referring lawyers can collect fees without assuming joint liability. Hartley Hampton, president of the Texas Trial Lawyers Association, thinks it should stay that way.

The system works perfectly, Hampton says, because referral lawyers who are paid a share of a handling lawyer's take-home have the same incentive as their clients: seeking the best handling lawyer, who can secure the best possible recovery. A joint liability rule, he adds, would tinker with this incentive structure to the detriment of plaintiffs. "You'll get lawyers handling cases they have no business handling, and the resounding, clear winner will be defendants," says Hampton, a name partner in Houston's Gallagher Young Lewis Hampton & Downey. Priced Out The majority of referral fees are paid in cases that are handled on a contingent-fee basis. Tax or family lawyers, for example, often get referrals, but since they usually get paid by the hour, there is never a jackpot of money to share with a referral attorney.

Family lawyer Roy W. Moore of Houston's Gray & Moore estimates that 50 percent to 60 percent of his business is referred. In a rare big-fee case, he says, he has paid 10 percent to 15 percent of his hourly fees as a referral fee, but he does not recall a single instance that a referring lawyer asked for a fee. In plaintiffs personal-injury litigation, though, referral fees are the order of the day. Referrals are most common in complex litigation, which requires deep pockets and a high level of expertise.

That is the metier of Jack E. McGehee, of Houston's McGehee & Pianelli, who specializes in medical malpractice cases on behalf of brain-damaged infants. He gets about 90 percent of his business from referrals. Most of his cases cost about $150,000 to $200,000 to advance, McGehee says, which prices a lot of lawyers out of the market. The same is true of mass tort cases, brought on behalf of a large class of plaintiffs purportedly injured by a certain product, such as the Norplant contraceptive device. These suits are cost prohibitive for most lawyers due to the difficulty of proving a causal link between a product and an injury while also having to face a well-financed corporation willing to fight tooth and nail to disprove a link.

A budding class of Texas lawyers, though, has carved a niche in mass tort litigation by advertising for clients, signing them up en masse and referring them to lawyers. This burgeoning business hit its stride in the early 1990s with breast implant litigation, and Diana Rivera was at ground zero. The 46-year-old McAllen lawyer graduated from law school in 1988 with little in the way of money or job prospects, but she soon hit it big advertising for breast implant cases. She signed up hundreds of clients, referred them to prominent firms like Houston's O'Quinn & Laminack, and has netted millions in referral fees. (See related story, page 36.) Hustlers and Handlers Houston lawyer Doron R. Levin, who got into the mass tort referral business in 1996, describes his firm's modus operandi: "[T]here is a specific problem or claim that someone wants to file. Then we go out there and broadcast a market for plaintiffs who fit the bill and then present it to the highest bidder who is the lawyer who you think will provide the best service for your clients. "We are active. We have a media buyer. We take it straight to the air and print media, and we get that message out, whether it be fen-phen or nursing home negligence," says Levin, who has referred over 1,000 clients allegedly injured by fen-phen diet pills. Yet, "[t]here is still a stigma attached to advertising. Someone like [John] O'Quinn may not want to be in voir dire and half the panel has seen him on television advertising his services," says Levin, of Houston's Middleman & Levin. A division of labor has thus arisen in mass torts - the case hustlers and the case handlers, if you will. Pull back the veil on any case and you'll likely find an intriguing behind-the-scenes story about how it wound its way to its handler. (See related story, page 38.)

As in most free-market set-ups, there are the players who respect the (usually unwritten) rules. And then ther there are the skunks. The most common abusers are referral lawyers whose top priority is not the best-qualified lawyer, but the one who will pay the highest fee. In Texas, a number of leading plaintiffs lawyers complain of being propositioned by referring lawyers who demand exorbitant percentages and say, "Take it or leave it." Often, these plaintiffs lawyers say, they leave it. One lawyer mentioned is a well-known advertiser, Jim S. Adler, who bills himself as the "Tough, Smart Lawyer." One plaintiffs lawyer, who asked not to be identified, says Adler offered his fen-phen clients for a 50 percent referral fee. The lawyer wouldn't pay, so Adler went elsewhere. The lawyer further says that none of the top Texas firms handling fen-phen will pay that amount.

"Adler tries to get everyone to pay 50 percent," says another lawyer, who also asked that his name not be used. "I used to take some of his cases, but I don't take his cases now. I like him. He is a decent man. But it isn't financially feasible." W. Mark Lanier, of Lanier, Parker & Sullivan, confirms Adler's rate. "[Adler] is at 50 percent, that is true. He will send a ton of cases, so he expects remuneration." Adler, the principal of Jim Adler & Associates, says, "We are associated as co-counsel with several firms in mass tort cases with varying fee arrangements."

Adler adds, "The business aspect of a referral cannot be ignored and we do seek the highest referral fee we can get, but never do we sacrifice a client's interest for a greater referral percentage. Many excellent trial lawyers accept referrals on a 50 percent basis." None of the lawyers who spoke about Adler's fees suggest he abuses the system. For example, nobody says his fees are so high that he has been forced to broker his clients to second-rate counsel. But plaintiffs lawyers say that may be the only option for some referring lawyers "We will not pay more than a third. If we assume all the risk, that is the most we'll go," says Jim Perdue Sr., a name partner with Houston's Perdue & Clore.

Others say they will offer 50 percent only in very rare instances.

For example, they will pay half for a single personal-injury suit with massive damages and slam-dunk liability, or for a referral from a lawyer who will stay actively involved as local counsel. "A lay-down case will merit 50 percent, but that is about it," says Houston plaintiffs lawyer Kenneth T. "Tommy" Fibich, noting that he hasn't seen a case like that in three or four years.

There are exceptions, such as Hurst plaintiffs lawyer Charles Noteboom, who uses a graduated scale, awarding referral lawyers one-half of every dollar he makes over $500,000. (See box, page 39.) But in mass tort cases, such as fen-phen, 50 percent is a pipe dream. Fibich says there were referring lawyers with big bundles of fen-phen clients who demanded high fees or else they would take their business elsewhere. The Houston lawyers handling the cases agreed, he says, they were not going to give in, even at the risk of losing business. Fibich, whose firm Fibich & Garth is handling fen-phen cases, says he doesn't know of anyone paying more than 33 percent. Richard Laminack says the norm in fen-phen is 25 percent and that is where the fees ended up in the breast implant litigation. Echoing others, he says handling lawyers came of age in the implant cases, at first offering higher fees and then realizing they could not be justified in light of the staggering cost of litigating mass torts. Cause for Concern While the Laminacks of the world may not bend to high fee demands, others, hungry for business, will. A Texas plaintiffs lawyer, who recently started his own firm and asked not to be identified, says, "We have to pay 50 percent. If you have a choice between us and Walter Umphrey [at a lower rate], who are you going to choose?" Fibich believes the practice of shopping for high referral fees has diluted the overall quality of the plaintiffs bar. "There are less cases out there, so there is more competition to get good ones," he says. "That has led to more advertising, which leads to shopping for fees, which causes lawyers to bend to the fees because they want to get the cases."

When lawyers overbid for fees, he says, they are induced to settle quickly - perhaps for less than a case's full value - rather than run up costs. And there is yet another bad apple out there. Plaintiffs lawyer John Howie, of Dallas' Howie & Sweeney, says he was approached and has heard of others who have been approached by lawyers who offer a case in exchange for an upfront flat fee. "It's very unfortunate," says Howie, adding that he shows such lawyers the door. University of Houston Law Center ethics professor Robert Paul Schuwerk says he has heard about flat-fee offers, and it concerns him. The problem, he explains, is that referral lawyers who get paid upfront have no incentive to ensure that their clients are properly represented. A requirement that referring lawyers assume joint liability for the mishandling of a referred case would be a deterrent to upfront fees, he says.

Schuwerk notes he is also troubled by firms with "one lawyer and 20 nonprofessionals" that do nothing but man phone banks and refer cases. "Is that person really acting like a lawyer? Are they doing anything that requires the judgment of a lawyer? The answer is no," he says. As the standing chairman of the State Bar of Texas' Committee on the Texas Disciplinary Rules of Professional Conduct, Schuwerk has a central role in debates over whether Texas should tighten Disciplinary Rule 1.04. In the mid-to-late 1980s, he says, his committee proposed including a joint liability provision in Rule 1.04, which governs referral fees. The plaintiffs bar, he says, successfully lobbied against it. In 1997, at the behest of Attorney General John Cornyn, then a justice on the Texas Supreme Court, the committee once again looked into reforming Rule 1.04. In May 1998, Schuwerk sent a report to the justices, noting initially that outright abolition of forwarding fees would be futile, because it would merely drive the practice underground. He stated, however, that the economic incentives surrounding referral fees in Texas are flawed in that "they encourage forwarding lawyers to refer cases to the handling lawyer paying the most generous referral fee rather than to the handling lawyer best qualified."

In the report, Schuwerk proposed potential amendments to Rule 1.04, such as a requirement that referral fees meet the statutory test for what constitutes a reasonable contingent fee. Justice Craig Enoch, the Supreme Court's current liaison to the State Bar, says the court has not yet had a chance to digest Schuwerk's report. He adds that referral fee reform is not a front-burner issue. The Bar itself took a stab at reform when it included an amendment to Rule 1.04 in the referendum lawyers voted on last December. The amendment passed, but it was very tame, providing merely that a lawyer may not pay a referral fee on a case that was solicited in violation of existing disciplinary rules. Ratification of the referendum has been held up, though, pending an investigation into the Bar's vote counting methods. In the plaintiffs bar there is some impetus for reform. Houston's Michael A. Caddell, for example, says he would be willing to let the Bar tighten the reins by imposing a joint liability rule.

"Frankly, the people that refer cases to [my firm] aren't afraid to stand behind that," says Caddell, of Caddell & Chapman, which is handling a number of fen-phen cases. "Anyone that referred a case to us would be willing to accept joint liability." But Caddell is in the minority. Though many plaintiffs lawyers recognize that referrals have gotten sloppier - with the high-fee cart driving the high-quality horse - few want to tinker with the rules lest the baby be thrown out with the bath water. Fred Baron, for example, is opposed to a rule that would require referral lawyers to be jointly liable for a handling lawyer's misdeeds. "If someone on the other side misses the limitations date, why should I be on the hook for that?" asks Baron, who serves on the ALI rules committee. "That doesn't make sense to me." Texas Lawyer reporter John Council contributed to this article.

by NATHAN KOPPEL

A former migrant farm worker, Diana Rivera graduated from the now-defunct Reynaldo G. Garza School of Law in Edinburg in 1988 with about $100 to her name. She moved to Houston to study for the bar exam, she says, and after passing, she hung out a shingle, advertising in Spanish in a throwaway supermarket magazine. Slowly, business trickled in, but it was strictly nickel-and-dime stuff. Around this time, Rivera says, she started to develop serious complications from silicone breast implants she had received in 1988, shortly after recovering from a mastectomy. After numerous surgeries to fix her implants, a friend in 1990 suggested Rivera pay a visit to Houston tort king John O'Quinn, a name partner in O'Quinn & Laminack. There she met his partner Richard Laminack, who signed her up as a client. Shortly thereafter, in 1992, Rivera started running an advertisement in dailies across the state. In the ads she noted her troubles with implants and invited women who suffered from implant-related symptoms to consult with her about the possibility of filing a personal-injury claim. The ad hit pay dirt. Rivera says she netted about 300 clients and that a second run of the ad, in the Rio Grande Valley in 1993, brought her another 200. Conceding she never intended to handle the cases start-to-finish, Rivera spread the wealth: 15 cases to O'Quinn & Laminack, she says, several hundred to Houston plaintiffs attorney William D. Bonham of Bonham & Carrington and another 150 to McAllen's Casso Romero & Petit. Bonham confirms that Rivera referred him cases. David Casso of Casso Romero did not return two phone messages.

She says she remained involved in all the cases in a limited capacity, acting as a liaison between the clients and handling attorneys. Some of the cases are still pending, but Rivera says her share of the fees from the cases that have been resolved is in the millions. She now lives in a huge house in a tony McAllen neighborhood. Rivera portrays her foray into case referrals as an endorsement of the system, unlike one-lawyer, referral-only firms she has seen in the Rio Grande Valley, "which do nothing but process cases." As she tells it, she was simply too sick from implants and lacking in resources to represent her clients by herself.

"I always told my [clients] if you look at my ad, it says I am a victim, and if you think I can help you, call me. It was never a misrepresentation that I was going to do all the work."

by NATHAN KOPPEL

W. Mark Lanier hit a huge lick in Johnny B. Aaron, et al. v. Abex Corp., et al., brought on behalf of 21 steelworkers allegedly injured from asbestos exposure. In February 1998, a jury returned a $115.6 million verdict - $15 million in actual damages, $100 million in punitives - in favor of his clients. He was approached in 1994, he says, by some Mississippi lawyers who had signed up a bundle of asbestos cases. The lawyers had run advertisements offering free asbestos testing to "anybody in an age and occupation category where it is likely they'll have the disease," says Lanier. These lawyers would then drive mobile testing clinics to union halls and empty parking lots across from industrial plants and test workers by the thousands. The workers who tested positive for exposure, Lanier says, were given a list of attorneys to choose from, but "99 percent" of the time they would select the

attorneys who did the testing. Lanier, a name partner in Houston's Lanier, Parker & Sullivan, was concerned about how the cases were procured and passed on them. But shortly thereafter another Mississippi lawyer approached him with an offer to handle 500 asbestos cases. These cases were OK, Lanier says, because the workers had been tested by an independent screening service and had approached the lawyer as "one of many they knew about." Lanier says he agreed to a 50-50 cut with the lawyer, whom he will not identify, provided they each did 50 percent of the work and paid 50 percent of the trial expenses.

After working up the cases for four years, Lanier went to trial with 21 workers out of the batch of 500. After the settlement of the case, it came time to divvy up the winnings, which presented a problem. Lanier says that in his opinion the Mississippi referral lawyer "put in 5 cents for every dollar I put in and put in maybe one hour for every hundred hours I put in." Lanier thus took the portion of the fees the lawyer thought he deserved and put it in the registry of the court. Eventually the two sides went to mediation, Lanier says, and in December 1998, they worked out a more "bearable agreement." The Mississippi lawyer would receive 40 percent of the fees in the Aaron case; in the other cases he referred Lanier, the lawyer is entitled to a 40 percent fee cut in cases that end in a settlement, but only 25 percent if Lanier has to take a case to trial. After disposing of the remaining cases from the Mississippi referral source, Lanier says he will terminate the relationship."You can't rely on a lawyer you don't know," says Lanier.

by NATHAN KOPPEL

Charles Noteboom doesn't recall the impetus behind his forwarding fee schedule, which he devised in 1991 and now uses in ads, including some in Texas Lawyer, but he says the message is, "If you have a smaller case, you might do better to refer it to someone else." Noteboom, though, will pay a premium to land big-ticket personal-injury cases. He says he can afford to offer more than the normal one-third referral fee for much of his recovery because he eschews more-expensive mass torts and keeps a close eye on litigation costs. "I have seen attorneys who run up enormous expenses. I try to keep them very low," says Noteboom, of Noteboom and Gray in Hurst. "The key is what you net for clients, not gross."

For the Fee From:---Your Share:

$0 to $24,999---27 percent

$25,000 to $49,999---31 percent

$50,000 to $99,999---36 percent

$100,000 to $499,999---40 percent

$500,000 and up---50 percent

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From the Evidentiary Files of Breast Implant Litigation Thank you Rogene for converting image files to text for e-mail transmission.

HOUSE OF DELEGATES

ANNAPOLIS. MARYLAND 21401-1991

JOAN B. PITKIN

TESTIMONY

FDA SPECIAL. PANEL

FEBRUARY 19, 1992

My name is Delegate Joan Pitkin. I have represented the 23rd legislative district of Prince George's County in the Maryland General Assembly, for fourteen years.

I wish to commend FDA Commissioner Kessler for re-convening this panel to review new information concerning silicone ge1-filled breast implants which has come to light since the November meeting in Gaithersburg. There are several issues which you must address, but the safety and welfare of possibly two million women who have received these devices must be paramount in your deliberations Clearly informed consent in these cases did not take place when the FDA, physicians and consumers did not have the full information.

As an elected official, I have been fighting for informed Consent on this issue since 1981 when I introduced legis1ation that mandated brochures for those choosing breast reconstruction or augmentation. Some of the same forces that obstructed that effort until the bill's passage in 1987 are still at work. A number of other states attempted similar initiatives, only to fail because of manufacturer and physician opposition who knew that full disclosure of risks and complications had a chilling effect on consumers' choice.

While I am pleased that the FDA chose to model its national brochures - now being focus-tested - after Maryland's, if this panel and the FDA choose to keep these devices on the open market, it is clear that both brochures will need a good deal of revision to reflect critical information.

It is incredible to me that the manufacturer knowingly rushed unproven implants to the market to bypass stringent scientific requirements of the 1967 Federal Medical Devices Act. Hiding damaging data and ignoring the need for adequate safety testing and follow-up, showed total disregard for this, implanted women, Former FDA advisory panels share blame for two decades of foot dragging, refusing to reclassify and force prior safety tests and a registry in 1978 and 1982. Finally, they were reclassified in 1988 and manufacturers were required to provide safety data within 30 months. Although the safety data was "junk" in the words of one scientific observer, it wasn't until January 6, 1992 that Commissioner Kessler saw the need for thorough evaluation of this new information while he called for a moratorium on the device use.

Because of the remaining unanswered questions and the final proof that Dow Corning had a twenty year history of hiding its own managing test resu1ts, it is my belief that you still cannot assure the safety of this product. Because that company has demonstrated total disregard for the safety and welfare of the thousands of consumers of its product, you must fulfill your mission as watchdog over the national health of women by removing these devices from the open market. As has been reported in the media - there is a clear line pointing to Dow Corning's scientific and corporate fraud. The fact that Dow has said it won't produce the product if its availability is limited to IDE studies, shows it is clearly putting profit over safety. It is a shame that several multi-million dollar lawsuit awards had to force government to take the necessary steps. A crime has been perpetrated on these women. Now their cynical lack of concern for the victims is something we must all address. -

For my part, I am introducing four bills in the Maryland general assemb1y to address these issues:

The first is a moratorium, which, of course, will only be needed it you decide to lift the current temporary ban.

The second relates to reports that women are having trouble finding physicians willing to remove their implants and are suffering insurance discrimination in reimbursement for explanation. In Maryland we earlier recognized the victims of DES exposure and enacted legislation to protect them and their offspring from insurance discrimination and lack of information and treatment. We must also protect the victims of silicone gel breast implant complications. The syndrome of ill effects Which these implants are causing must be recognized as a disease, just as with DES. Victims of such failures must be protected with an option to remove as well as full and complete third party reimbursement for such effects.

The third bill is a joint effort with the plastic surgeon community in my state to create a retrospective and prospective registry to follow women who have had silicone gel-filled breast implants. The health of every woman previously implanted is a moral obligation for us all: there must be an explant registry for every device that is removed which must be sent to an FDA approved laboratory to assesses device failure and subsequent health effects.

Finally, through this whole sad scenario, we are realizing that physicians not board certified in these specialties are performing these surgeries. The field is essentially non-regulated; with less than fully qualified individuals doing implants while passing them off as totally approved by the FDA. We need to assure patients that a physician with board certification in his/her field of specialty is adequately informing women of the risks and disclosing their qualifications to perform breast implantation. My fourth bill will address this situation.

In conclusion, two reputable studies in national medical and sociological journals, dispel this panel's previous misconception that there is an overwhelming public need served by the availability of these implants: that this cosmetic appeal is the carrot which leads women to seek life-saving mammography screening. These two well documented studies describe the barriers to preventive mammography are cost above all else, and, to a lesser degree, fear of cancer diagnosis and fear of radiation exposure. The fact that only 10%-30% of mastectomy patients opt for reconstruction ought to prove this premiss. Don't let your sympathy for the cosmetic needs of the few jeopardize the health of the potential many. The right decision is to make the temporary moratorium a permanent one. If you choose to decide for continued testing of this product, it must only be done under the most strictly controlled parameters of an IDE study, so that ultimately future generations of women will truly have informed consent should these devices remain in the marketplace. This restriction and following all those who have had implants should be your highest priority. The essence of the issue before you is scientific and corporate fraud - studies that did not even meet the most minimum of scientific guidelines - tests that avoided all known requirements. The bottom line is - are you going to reward an industry that perpetrated such a travesty on women? The potential for injury to future consumers is enormous.

FDA 000052830

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OTHER SILICONE RELATED RESOURCES ARE AVAILABLE THROUGH THE SILICONE WEBRING

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WHERE THERE'S SMOKE THERE'S FIRE ~ On The Net

The following websites have the "Where There's Smoke There's Fire" documents:

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ACCOMMODATING THE FORMAT OF THESE NEWSLETTERS, YOU MAY ACCESS THEM FROM THE CANADIAN CONNECTION WEBSITE AT THE HYPERLINK BELOW. TONY & MICHELINE LAMBERT HAVE GRACIOUSLY ARCHIVED THEM FOR US.

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A minister was asked to dinner by one of his parishioners, who he knew was an unkempt housekeeper. When he sat down at the table, he

noticed that the dishes were the dirtiest that he had ever seen in his life.

"Were these dishes ever washed?" he asked his hostess, running his fingers over the grit and grime.

She replied, "They're as clean as soap and water could get them."

He felt a bit apprehensive, but blessed the food anyway and started eating.

It was really delicious and he said so, despite the dirty dishes.

When dinner was over, the hostess took the dishes outside and yelled, "Here Soap! Here Water!"