Veteran plaintiff lawyer Mikal Watts is beginning to learn the meaning of taking it easy.

After 28 years of grinding away on multi-billion dollar mass personal-injury suits, most recently from an office in San Antonio, Texas, Watts decided to make a change. He's still trying cases, but now he gets a big tax break while working from the back deck of his new home looking out onto the Atlantic Ocean near sunny San Juan, Puerto Rico.

The tax incentive is a controversial policy, one that has created bitter resentment among many on the crisis-ravaged island. But Watts isn't thinking much about that right now. He's soaking up the sun and staring out at the blue waters as he sips a vodka tonic at a ritzy outdoor restaurant.

“If I can practice law from anywhere, why not do it from a beautiful beach?” says Watts. “Living here is like a working vacation.”

Watts—who recently helped negotiate Texas’s $1.6 billion share of a $26 billion nationwide opioid settlement—reckoned that with the pandemic putting jury trials on hold and pushing court hearings to Zoom, he didn’t need to stay anchored in Texas. So last year, he picked up stakes and joined the steady stream of U.S. lawyers who’ve moved their firms to the U.S. territory over the last decade to cash in on the Caribbean vibe and a 4% federal tax rate, versus 21% on the mainland.

The tax break was launched in 2012 to help lure jobs and investment to the impoverished island, which has grappled with economic fallout from hurricanes and earthquakes. The territory also struggled for five years to restructure more than $70 billion in debt after filing the largest municipal bankruptcy in U.S history.

Public policy analysts are torn over whether the tax incentives are a benefit or a burden to the island. The package has attracted ultra-wealthy hedge fund and private equity managers, and more recently a burgeoning community involved in crypto.

Yet, Puerto Rico’s median income in 2020 was $21,058 and 43% of its residents live below the poverty line, according to U.S. Census Bureau figures.

To qualify for the tax breaks, lawyers and other business owners must buy real estate on the island, live there for at least half the year and make at least $10,000 in charitable donations. Once they’re Puerto Rico residents, they also pay zero tax on capital gains, dividends and interest.

Through word of mouth, several attorneys involved in the opioid litigation each decided to take the Puerto Rico plunge. Their elite firms are now in line to get a portion of more than $2 billion—one of the biggest legal fee payouts in U.S. history—for resolving litigation by more than 3,000 state and local governments against opioid makers, distributors and pharmacy chains.

One in that group is Paul Farrell, who moved to the island in January 2021 from West Virginia. He said the tax breaks only apply to legal work physically done on Puerto Rico, such as document reviews, legal research and brief writing.

“So unless the work on the opioid cases was done here, the fees from that work won’t get the 4%,” Farrell said.

Other prominent opioid lawyers—including Hunter Shkolnik and Paul Napoli—also have set up shop on the island. Both men declined to comment on whether the move will provide tax breaks for their opioid fees.

Marc Grossman, a New York-based product liability lawyer who made hundreds of millions of dollars suing Merck & Co. over its withdrawn Vioxx painkiller, counts himself as the first U.S. attorney to leave the mainland for Puerto Rico, back in 2014. He says his firm now has about 1,000 employees in his office on the island.

He estimates that more than 70 law firms followed him over the years and opened offices in San Juan—the territory’s largest city—and in its suburbs.

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