$1.3 Billion Tobacco Attorney Fee Overturned
A nearly $1.3 billion attorney fee award -- the largest issued out of the 1998 nationwide settlement of state litigation against the tobacco industry -- was overturned Wednesday by Manhattan Supreme Court Justice Nicholas Figueroa.
Figueroa set aside a 2-1 arbitration decision awarding about $1.3 billion to the lawyers who handled a private attorney general's action in California. In his ruling, Figueroa found the arbitrators had exceeded the scope of their authority in compensating the 56-firm consortium for work it performed nationwide, instead of restricting its award to work "in connection with" the California litigation.
The procedure for the arbitration of fee awards was set up as part of the 1998 master settlement agreement, which provided for the tobacco industry to pay $208 billion to 46 states and a number of territories to resolve claims for Medicaid payments and related state payments for the treatment of smoking-related illnesses.
David N. Ellenhorn of New York-based Solomon, Zauderer, Ellenhorn, Frischer & Sharp, who represented the law firm consortium, said Figueroa's ruling in Brown & Williamson v. Chesley, 117050/01, will be appealed. Ellenhorn said the consortium, known as the Castano group, which brought claims on behalf of California, had played an "integral" part in producing that state's $25 billion share of the national settlement.
Without the work the group did in bringing a national class action and private attorney general actions in 25 states, Ellenhorn said, there would not have been a national settlement, or one in California, of such a large dimension.
Jeffrey E. Stone of McDermott, Will & Emery's Chicago office, who brought the challenge to the fee award on behalf of the tobacco industry, sharply disputed that description of the Castano group's contribution. The attorney general's office in California pursued its own separate action with its own staff, financed by a special $14 million appropriation to fund an in-house tobacco litigation unit, he said.
Lawyers from the Castano group did not even participate in the negotiations that led up to the global settlement in November 1998, Stone said. But Ellenhorn countered that Castano group lawyers had been deeply involved in settlement discussions in June 1997, which formed the basis for the final accord 18 months later.
The dispute over the fees in the underlying California case, Ellis v. R.J. Reynolds Tobacco Co., came before Justice Figueroa because the fee arbitration was held in New York City for five days in the winter of 2001.
Of the 19 arbitration awards issued pursuant to the 1998 national settlement, the only one challenged by the tobacco industry was the award to the Castano group.
The nearly $1.3 billion award, representing 5 percent of California's $25 billion share of the nationwide settlement, was the largest issued to date under the 1998 settlement. Another group of California attorneys who also pursued several cases on a private attorney general theory was separately awarded $637.5 million for its work.
NEW YORK FEE AWARD
The six firms that represented New York state in the 1998 national settlement were awarded $625 million, or 2.5 percent of New York's $25 billion share of the settlement, in April 2001. The arbitration of New York's attorney fee claims was held in Houston in December 2000.
The New York fee award has been questioned by Justice Charles E. Ramos as potentially excessive and in violation of the Rules of Professional Responsibility. Ramos is weighing the question of whether he has jurisdiction to proceed with an inquiry into the fee award.
The question of whether Figueroa's ruling would have any bearing on Justice Ramos' inquiry, if he decides he has jurisdiction, was greeted skeptically by Brian Shoot, a lawyer with one of the six New York firms, Sullivan Papain Block McGrath & Cannavo.
"The only thing different [between the appeal of the Castano group's award and Justice Ramos' inquiry] is everything," Shoot said, noting that the tobacco industry had left the award undisturbed, and the 90 days it had to appeal has long since passed.
"The proof is in the pudding," Shoot said. "The tobacco industry has a good number of smart lawyers working for it, and if they felt there was a legal basis for bringing a challenge, they would have brought one."
Three New York firms worked on New York's tobacco litigation: $98.4 million was awarded each to Schneider, Kleinick, Weitz & Damashek and Sullivan Papain, both New York City firms, and $84.3 million to Thuillez, Ford, Gold & Johnson in Albany. Three national firms who worked on New York's case were awarded a total of $343.8 million: Ness, Motley, Loadhoalt, Richardson & Poole in Charleston, S.C., the Scruggs Firm from Pascagoula, Miss., and Hagens & Berman from Seattle.
In overturning the award to the Castano group, Justice Figueroa looked to a restriction on the fees that could be awarded to lawyers involved in the tobacco litigation that was common to all the arbitrations. Under the 1998 master settlement, compensation for legal work was restricted to work performed "in connection with" the state litigation a firm had been retained to handle. The agreement specifically excludes the payment of "any Fee Award in connection with any litigation" other than the lawsuit a firm had been hired to litigate.
The "plain meaning" of that limitation, Figueroa wrote, was "ignored by the arbitrators' adjudication of an unsubmitted issue: respondents' nationwide compensation."
The tobacco industry, he added, had agreed to have the arbitration panel "evaluate the California portion of the Ellis [the Castano group's case] iceberg," but, instead, was "subjected to an award for the unforeseen mass of a claimed 400,000 billable hours of national litigation."