Taxing plaintiff attorneys' successes.

Some members of Congress have taken their civil justice "reform" fervor in a new direction with legislation that is not so much tort "reform" as an outright attack on those they perceive to be the enemy: plaintiff attorneys.

Sens. Jon Kyl (R-Ariz.) and John Cornyn (R-Tex.) introduced a bill, S. 887, that would impose a special tax on plaintiff attorneys representing certain clients in certain cases. Although the Senate rejected the measure when Kyl sought to add it to the Omnibus Tax and Reconciliation Bill in May, its supporters have vowed to fight on, and Rep. J.D. Hayworth (R-Ariz.) has introduced a virtually identical bill, H.R. 1926, in the House.

Not since President Nixon tried to use U.S. tax laws to punish his political enemies has there been such brazen, politically motivated maneuvering of the tax code. Nixon was checked by an article of impeachment that charged him with misusing government agencies, including the Internal Revenue Service. The article specifically cited his attempt to apply the tax laws "in a discriminatory manner."

The Kyl-Cornyn bill in effect asks Congress to amend the tax code "in a discriminatory manner" by placing a 5 percent excise tax and a 200 percent penalty tax, in some cases retroactively, on certain fees of certain plaintiff attorneys. The bill includes a formula to be used to determine an attorney's "reasonable" fee. Any part of the fee exceeding the "reasonable" amount would be considered "excess" and subject to the excise tax. The bill would require the attorney to return the "excess" fee to the plaintiff. If the attorney failed to do so, he or she would be taxed an additional 200 percent.

Kyl and Cornyn single out for special criticism fees from settlement agreements involving Big Tobacco, including the toaster agreement of November 23, 1998, and other agreements involving Florida, Minnesota, Mississippi, and Texas. Kyl and Cornyn are attempting, perhaps for the first time in U.S. history, to tax attorneys both punitively and retroactively, even though these lawyers accepted fees under lawful settlements.

These attorneys received the fees because they were able to hold powerful corporations accountable for injuries their products inflicted on consumers. Because of their success, they have become targets of a discriminatory tax measure.

S. 887 also takes aim at attorneys who represent tax-exempt organizations or natural persons in certain tort actions for damages---including plaintiff lawyers in many toxic tort cases, such as those involving asbestos, chemicals, and defective pharmaceutical products. Attorneys who represent defendants would not be subject to the tax.

Opposition to 'wage controls'

During Senate debate on the issue, Sen. John Breaux (D-La.) said, "The IRS should not be involved in setting the fees for CEOs.... plumbers, or electricians. And they should not be involved in setting the fees for attorneys who have had voluntary agreements between defendants and the plaintiffs about what they should be paid, which have been approved by the courts."

Even Robert Levy of the libertarian Cato Institute was quoted in the National Law Journal, stating his opposition to the bill.

"I don't want the government setting wage controls for all these various professions," he said. "What the heck is this but using the tax code for social engineering?"

Kyl and Cornyn want to make absolutely certain that plaintiff attorneys would be unable to avoid the new tax. A "no waiver of fee" provision in the bill states that attorneys could not avoid the tax by transferring or refusing to accept any portion of their fee. Also noteworthy is a section that makes attorneys jointly and severally liable for paying the taxes. This provision is hypocritical, considering that lawmakers have consistently tried to abolish joint and several liability for defendants in tort "reform" legislation.

Kyl recently attempted to justify his position in an editorial posted on TruthNews, an Internet newsmagazine: "This is about money that is deliberately being taken away from you--the people of Arizona--and residents in other states that are currently suffering from severe financial shortfalls."

That claim, however, was not persuasive enough to rally senators and compel them to vote for S. 887 when it was offered as an amendment to the tax bill: 13 Republican senators joined 47 Democrats and 1 Independent to defeat it by a vote of 61-37.

Kristin Loiacono is associate director for media outreach and coalition development in ATLA's Media Relations department.