A Baltimore judge yesterday ordered that 25 percent of the payments Maryland is to receive as part of its share of the national tobacco settlement be held in escrow until the state resolves its fee dispute with Orioles baseball team owner and lawyer Peter G. Angelos.
The decision was a setback for Maryland Attorney General J. Joseph Curran (D), who had asked the judge to compel Angelos to seek his fees from a national arbitration panel established as part of the settlement. Instead, Circuit Court Judge Clifton J. Gordy ruled that Curran's position "totally ignores the contract" Angelos signed with the state to earn 25 percent of whatever the state received from the tobacco industry. Maryland is slated to collect $4.4 billion over 20 years.
Gordy ordered that 25 percent of the first three payments from cigarette makers -- about $47.5 million -- be put in escrow. He said the remainder of the money -- about $144 million -- could go directly to the state treasury and was more than adequate to pay for Gov. Parris N. Glendening's proposals for the tobacco funds.
In his ruling, Gordy said, "There is no real imminent or immediately foreseeable harm to the state or its citizens should [the initial payments] be disbursed under the terms of the contract as originally contemplated . . . 75 percent/25 percent."
Curran had hoped to have Angelos seek his fee from the arbitration panel as lawyers for all the other states have done. He argued that setting aside any money for Angelos now would mean less money for health programs and other needs as the legislature considers a new state budget when the General Assembly convenes Jan. 13.
The attorney general's office appealed Gordy's ruling yesterday to the Court of Special Appeals, the state's second-highest court, and sought an expedited hearing. Curran said he would argue that Angelos has a fiduciary duty to represent the state's best interests by trying to get his fee paid by the tobacco industry rather than from Maryland's share of the money.
"Mr. Angelos has an obligation to the state to maximize our recovery," Curran said. If he gets money from the arbitration panel, Angelos still can turn to the state for more, Curran said, but "it's that much less we have to pay out of our share.
"We know we have a contract. We know we owe him a fee. The firm was a big help to us," he said. "But a way to help us is to get his fee from the tobacco companies. He still can can come back at us under the contract."
Angelos maintains he has a valid and binding contract for 25 percent and is not required to seek any money from the industry. He has said the state should pay him and seek reimbursement from the tobacco industry itself. He said he would represent Maryland for free as it seeks to recoup his fees.
Yesterday's decision is far from the end of the legal wrangling over Angelos's fee. Although for now Angelos will not be forced to go to the arbitration panel, the judge said he was not ruling on whether, after a trial scheduled for September, the lawyer might be required to go that route or whether he would ultimately receive 25 percent -- more than $1 billion -- in fees.
"It was a fair and equitable decision," said H. Thomas Howell, an attorney for Angelos. "A state that can repudiate its own contractual obligations can default on its bonds. . . . Once you go down this slippery slope, there's no stopping it."
Glendening (D) has said he expects the fee dispute with Angelos, a nationally known plaintiff's attorney who is also a major contributor to the state and national Democratic Party, to be resolved by summer. Yesterday, the governor's communications director, Michael Morrill, said, "We're pleased the state can move forward with the 75 percent of the funds to begin helping the health of Marylanders."
House Minority Whip Robert L. Flanagan (R-Howard), a longtime critic of Angelos and the contract negotiated with the state for a 25 percent fee, said: "I don't think Peter ought to be taking money out of programs for children, for the poor, for roads. This is a very wealthy man who is not showing the grace and ethical sensitivity that he should."
Angelos won the right to represent Maryland three years ago after taking part in a competitive bid process. The state was seeking help in suing cigarette makers to recoup the costs of treating Medicaid patients for smoking-related illnesses.
Angelos agreed to front all of the expenses -- which he now estimates at $6 million to $10 million. In exchange, he would be reimbursed for those expenses and receive 25 percent of whatever the state received from the industry.
That contingency fee arrangement withstood a court challenge from cigarette makers. But as Maryland's chances at success in the litigation improved and a national settlement appeared possible, some lawmakers had second thoughts and voted to reduce the fee to 12.5 percent.
Angelos disputed the move, saying the legislature didn't have the authority to change a contract.