Angelos fee offer is called less generous than appears

Plan's shorter term to lawyer's advantage

January 12, 2002|By Scott Shane | Scott Shane,SUN STAFF

A key state legislator and independent economists said yesterday that the latest settlement proposal of attorney Peter G. Angelos in the dispute over his fee for handling Maryland's tobacco lawsuit is not so generous as first appears when the timing of payments is taken into account.

Angelos, who had been fighting the state in court to collect $1 billion over 25 years, said this week that he would accept $250 million over six years.

After a briefing in Annapolis by Angelos' lobbyists yesterday, state Sen. Barbara A. Hoffman said she welcomes the progress toward a settlement of the bitter fee fight. But she said the shorter term of Angelos' proposed deal makes it worth far more in real terms than a quarter of his original $1 billion demand.

"Think about the time value of money," said Hoffman, a Baltimore Democrat and chairwoman of the Senate Budget and Taxation Committee. A fee paid over six years is worth more in real terms than one paid over 25 years, she said.

A likely factor driving Angelos to negotiate is a recent decision by a national arbitration board that his firm's work on the tobacco case is worth a much smaller fee - $132 million, to be paid over an undetermined period, possibly about 20 years. The arbitrators' award, still not officially announced, will be paid separately by the tobacco industry.

"You could say Angelos has read the writing on the wall," said Mark Gottlieb, an attorney at the Tobacco Products Liability Project at Northeastern University in Boston. "The arbitrators' award being so much smaller than the contract amount makes his demand for the whole $1 billion seem unreasonable."

In their presentation to Hoffman's committee yesterday in Annapolis, Angelos' representatives insisted that the $250 million settlement proposal is fair. "This proposal by Mr. Angelos is sincere and quite generous," said former Sen. John A. Pica Jr., a lobbyist for Angelos. "Make no mistake, if this case goes to trial, we are quite certain that we will be awarded more than the current offer."

`Present value'

Economists who analyzed the situation at the request of The Sun said the only way to compare the different payment streams is to convert all of them to "present value" - their equivalent in cash paid today.

"A dollar is worth more if paid up front or in the near future than if it's received in the distant future," said John Shea, an associate professor of economics at the University of Maryland, College Park. Shea and Alex Triantis, associate professor of finance at the university's Robert H. Smith School of Business, calculated the relative value of the different options to Angelos.

Assuming a long-term interest rate of 6 percent, their analysis found:

The present value of $1 billion paid over 25 years is $542 million.

The present value of Angelos' current proposal - $250 million over six years - is $217 million. If a four-year delay in the start of payments since the 1998 national tobacco deal is taken into the calculation, the value falls to $172 million, Shea said.

The present value of the arbitration board's award - $132 million paid over 20 years - is $80 million. That represents the board's assessment of "full, reasonable compensation" after many factors are considered, including the actual work performed and the terms of Angelos' contract.

Those present values are the numbers, the economists say, that should be used by state officials as they weigh the Angelos offer.

In real terms, they say, the offer is considerably less than half what Angelos had been demanding - and what he might receive if the courts ruled in his favor. But again, in real terms, the offer is far more than double what the arbitrators have judged he deserves.

Rationale for arbitration

The arbitration system was set up to preserve the states' money and protect the national tobacco deal from attack as a windfall for lawyers, Gottlieb said.

Gottlieb said nearly all of the hundreds of law firms involved in the national tobacco litigation have accepted fees awarded by the arbitration panel or offered by the tobacco industry, though they, like Angelos, had contracts for larger amounts. Only in Utah has the state dipped into its settlement funds, agreeing to pay $10 million to its lawyers on top of their $65 million arbitration award.

Veteran anti-smoking advocate John F. Banzhaf III, a George Washington University law professor and director of Action on Smoking and Health, said Angelos, 72, might have reasons beyond the arbitrators' ruling to be seeking a six-year settlement.

"If I were his age, I wouldn't be dickering much over money I might get 25 years from now," he said. Moreover, Banzhaf said, continuing litigation against the tobacco industry could bankrupt the leading cigarette-makers and put long-term payments to the states or their lawyers in doubt.

At the same time, settlement with Angelos is an attractive prospect for Gov. Parris N. Glendening, who is overseeing negotiations, in a tough budget year.

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