A New York appeals court on Tuesday reinstated $1.25 billion in legal fees for attorneys who sued the tobacco industry on behalf of California in a case that led to the landmark $206 billion settlement with 46 states.
The five-judge appeals court rejected a challenge to the award by R.J. Reynolds Tobacco Holdings Inc. and other cigarette makers. The award was thrown out by a lower court in September 2002. The fees are to be paid over 25 years.
R.J. Reynolds, Brown & Williamson Tobacco Corp. and Lorillard Inc. called the fees excessive, based on the amount of work performed by the attorneys for California. Altria Group Inc.'s Philip Morris USA did not object to the fees, though it is also responsible for paying a portion of them.
The three-member arbitration panel that awarded the $1.25 billion in July 2002 "took great pains to evaluate and calculate counsel's award based on many factors in accordance with the terms of the fee agreement," the appeals court said, calling the amount "neither irrational nor violative of public policy."
R.J. Reynolds said in a statement that the company hadn't seen the opinion. "We continue to believe that the amount of fees awarded was excessive and not supported by the level of effort expended by the attorneys who are the beneficiaries of this decision and was beyond the jurisdiction of the panel to award," the statement said.
A spokesman for Brown & Williamson could not immediately be reached for comment.
David N. Ellenhorn, an attorney with Proskauer Rose LLP, who is co-counsel for the tobacco lawyers, said he was gratified by the decision. The appeals court ruling "merely applies well-established law that arbitration awards will be upheld unless they are totally irrational or beyond the scope of the law," Ellenhorn said.
The fee panel in the case had credited the California attorneys with filing their lawsuit with their own funds at a time when the tobacco industry had made no payments in hundreds of legal actions.
The attorneys also found whistle-blowers to aid the states' cases and obtained a protective order barring the tobacco industry from destroying or altering documents, the fee panel found.
The five-judge appeals court that upheld the award cited some of the same factors, adding that the grounds for overturning legal fees set through arbitration are "narrowly circumscribed by statute."
The court said New York Supreme Court Justice Nicholas Figueroa, who tossed out the award, "improperly interjected" himself into the merits of the fee dispute. Figueroa had called the size of the award "irrational" and said the fee panel had exceeded its authority.
The lawyers for California included Stanley M. Chesley, a partner with Waite, Schneider, Bayless & Chesley in Cincinnati, and Arnold Levin, the senior partner at Philadelphia-based Levin, Fishbein, Sedran & Berman.
The fee panel included veteran labor mediator John Calhoun Wells, who was selected by agreement between the tobacco industry and counsel for the states; Charles Renfrew, a former federal judge selected by the companies; and attorney Harry Huge, who was appointed by the California lawyers.
The tobacco companies filed their challenge to the legal fees in the same New York court that oversaw the 1998 settlement between the industry and 46 states.