Attorney Peter G. Angelos will receive $150 million over five years for his work on Maryland's tobacco lawsuit under a deal with Gov. Parris N. Glendening that will end an unseemly three-year fight between the state's top Democrats and their party's biggest financial contributor.
While some elements were still being negotiated, the governor said he had reached an "agreement in principle" with Angelos to settle a dispute that could have cost the state much more.
Angelos has long claimed he was owed at least $1 billion in the case. In 1996, he signed a contingency fee contract that said his firm would receive 25 percent of Maryland's proceeds if litigation to recover health-related costs caused by smoking was successful.
Maryland is scheduled to receive about $4 billion over the next two decades from a national settlement with tobacco companies.
William F. Gately, an attorney for Angelos, confirmed that the two sides had reached agreement on "the heart" of the deal.
He said they were still working on other issues, which he declined to identify.
A final agreement will release a $123 million escrow account that has been holding some of the state's tobacco money pending resolution of the dispute.
Glendening said he was motivated to settle because lawmakers are planning deep cuts to education and environmental programs.
Some of that money could be restored as the General Assembly completes a $22 billion budget for the next fiscal year.
"Was that part of my thinking that brought this to fruition? Yes," Glendening said.
The governor said he told Angelos during a telephone conversation Thursday evening, when the bulk of the agreement was reached, that "it would be far better now than two weeks from now."
House Speaker Casper R. Taylor Jr. said he would work with Glendening to restore about $20 million to anti-cancer and smoking-cessation programs backed with tobacco funds and would try to help the governor reach the rest of his goals.
"I can't help but focus on the fact that the timing of this is terrific," Taylor said.
Other lawmakers said they were relieved that the dispute was over and thought both sides were getting a good deal.
"That's about where I thought it would end up," said Sen. Barbara A. Hoffman of Baltimore, chairwoman of the Budget and Taxation Committee.
"It's better than paying 25 percent of the whole thing. I think if he went to court, he'd win on the basis of 'a contract is a contract.'"
Award will reduce cost
The $150 million will be partially offset by $132 million awarded by an arbitration panel, to be paid by the tobacco industry toward Angelos' fee.
But the $132 million will be paid to the state much more slowly - probably over about 20 years - and could be jeopardized if tobacco companies ever declare bankruptcy.
Sources familiar with the negotiations said that sticking points late yesterday included when the payments would start.
Outside experts pronounced the proposed deal a reasonable compromise for both the state and Angelos, the Orioles owner and a tenacious litigator who made his fortune suing asbestos makers.
"This really does seem to be a pretty good solution for both sides," said Mark Gottlieb, an attorney with the Tobacco Products Liability Project at Northeastern University in Boston.
"Peter Angelos gets more than he would get from the arbitration panel, while most attorneys nationally accepted what they got from the arbitration panel," Gottlieb said. "And Maryland gets access to the escrow money, which it really needs right now."
Others were more skeptical.
"The amount is still high," said Jeff Hooke, co-founder of Project $1.1 Billion Recovery, a citizens group advocating a lower fee.
"The settlement should be reviewed and approved by one of Maryland's courts before it goes ahead," he said, to make sure it complies with a state professional ethics rule prohibiting unreasonable or excessive fees.
Six years ago, when Maryland decided to sue cigarette makers for Medicaid money spent on ailing smokers, Attorney General J. Joseph Curran Jr. invited law firms to bid for the job.
Accepted as best bid
The Angelos firm submitted the most favorable of a half-dozen bids, agreeing to handle the case for 25 percent of any money recovered and to cover all expenses.
When a national tobacco settlement was reached in November 1998, negotiators arranged for the states' private attorneys to be paid separately by the tobacco industry.
The lawyers were to apply to an arbitration panel, documenting the work they had done, and the tobacco industry was to pay whatever the panel awarded.
Angelos initially agreed to seek his fee from the industry, but changed his mind. Of hundreds of lawyers representing the states, only he refused to apply to the arbitration panel, instead insisting that Maryland pay the 25 percent in his contract, or about $1 billion over 25 years.
In late 1999, Curran sued Angelos, saying he had violated the contract by refusing to seek an industry-paid fee and was demanding ridiculous remuneration - about $30,000 an hour of attorney time. Angelos replied that it was Curran and Glendening who were violating the contract.
The dispute meandered from Baltimore Circuit Court to the state Board of Contract Appeals, but a final resolution looked likely to require years of litigation.
Meanwhile, 25 percent of all the money coming to the state from the tobacco deal has gone into an escrow account. By April 15, that total will reach $123 million - a tempting sum to the governor and legislators in a tough budget year.
But Angelos was under pressure, too. Despite his refusal to participate, Curran filed for Angelos' fee with the arbitration panel. The panel decided in January that a fair fee would be $132 million.
Fearful that a court could accept the panel's logic, Angelos offered to settle for far less than $1 billion - $250 million over six years. That offer led to serious negotiations.
When payouts over varying time periods are compared, economists often convert all the numbers to "present value," the equivalent of a stream of payments in cash paid today. According to a calculation by the attorney general's office, the deal would require the state to pay roughly $26 million in current dollars beyond the money the tobacco industry has agreed to pay toward Angelos' fee.
Even assuming the deal holds, it won't be the end of the legal fallout from the state's lawsuit.
Angelos is still being sued by two experts on tobacco litigation, Marc Z. Edell and Richard A. Daynard, who say they deserve a percentage of the fee for advising him.