Judge Freezes $625 Million in Tobacco Case Legal Fees
New York, Oct. 23 (Bloomberg) -- A New York judge froze $625 million in fees to lawyers who helped the state win billions in a settlement with U.S. tobacco companies. At an estimated $13,000 an hour for their work, the windfall to the attorneys ``probes t
State Supreme Court Judge Charles E. Ramos, who earlier said the fees are ``offensive,'' said he wants time to review whether the award is reasonable.
Under the settlement, Philip Morris Cos. and other cigarette makers agreed to funnel money to the states indefinitely. They agreed to pay about $206 billion to 46 states over 25 years, with New York's share about $25 billion. The legal fees, paid by the tobacco companies, are in addition to what the states receive.
``A fee of this magnitude probes the limits of propriety and requires the courts to rule whether the practice of law'' will ``permit counsel to enjoy such a windfall,'' Ramos said in a 51- page opinion.
He ordered the money placed in an escrow amount to be managed by the New York attorney general's office.
Philip Morris, R.J. Reynolds Tobacco Holdings Inc. and other U.S. tobacco companies settled with the states in 1998, agreeing to curb advertising and pay for anti-smoking ads. The states had sued to recoup money spent on treating smoking-related illnesses.
Four states had previously settled for about $40 billion over 25 years. All the states gave up their rights to sue the industry over its past behavior as part of the settlement.
The money was apportioned based on the number of Medicaid recipients in each state and the amount spent treating them. Ramos said the lawyers submitted bills for 41,000 hours of work, or about $13,000 an hour.
The compensation was authorized last October by a three- member arbitration panel. The $625 million award to New York's lawyers was supported by state Attorney General Eliot Spitzer's office.
In September 1997, New York's attorney general hired several law firms, including South Carolina-based Ness, Motley, Loadholt, Richardson & Poole; Washington-based Hagens & Berman; Mississippi- based Scruggs, Millette, Bozeman & Dent; and New York-based firms Schneider, Kleinick, Weitz, Damashek & Shoot; Thuillez, Ford, Fold & Johnson; and Sullivan, Papain, Block, McGrath & Cannavo.
The arbitration panel consists of one tobacco industry appointee, one chosen by the state lawyers, and the chairman, agreed upon by both sides.
If Ramos orders the legal fees reduced, the tobacco companies would benefit. The cigarette makers objected to the lawyers' fees during arbitration. The industry's payments for legal fees are capped at $500 million a year.
Shares of New York-based Philip Morris fell 20 cents to close at $42.88, while Winston-Salem, North Carolina-based R.J. Reynolds rose 6 cents to close at $42.96 on the New York Stock Exchange.