Lawyers Due $88.5 Million in Smog Case

Five law firms will split $88.5 million in state tax money for their role in successfully suing California over smog fees imposed on people who registered out-of-state vehicles in California in the 1990s.

An arbitration panel made the award, among the largest attorneys’ fees ever paid by the state. The money will come from $665 million allocated by Gov. Gray Davis and the Legislature to pay refunds to people who paid the $300 fee on as many as 1.7 million vehicles.

After the state lost in a trial court and a state court of appeal, Davis a year ago directed that it stop collecting the fees, and called for refunds to affected motorists.

“This money never belonged to the state,” Davis said when he signed legislation authorizing the refunds earlier this year. “It shouldn’t have been collected in the first place, and it should be returned.”

One of the law firms that will claim a share of the $88.5 million is Milberg, Weiss, Bershad, Specthrie & Lerach. Bill Lerach and his firm, with offices in New York and San Diego, have been among Davis’ major donors, giving him $221,000 during his 1998 election campaign, and $20,000 this year.

Davis distanced himself from the attorneys’ fees by appointing retired California Supreme Court Chief Justice Malcolm Lucas to the three-member panel that set them. Lucas, a Republican, is the conservative jurist who replaced Rose Bird as chief justice when voters ousted her in 1986.

The plaintiffs’ attorneys selected another member of the panel, and both sides agreed on a third.

“The Legislature decided that [using arbitrators] was the way to go, and they put it in the bill,” Davis spokeswoman Hilary McLean said Thursday. “The governor wanted the rebates paid to people.”

Representatives of the law firms declined to discuss the award, saying they were bound by a confidentiality clause in the arbitration agreement.

The $88.5 million may be the largest attorneys’ fee ever awarded against the state. Lawyers in the state attorney general’s office were aware of no larger award, said spokesman Nathan Barankin. State Controller Kathleen Connell said she believes it is the largest ever awarded by the state.

“I’m going to be exploring every option I have to freeze this payment,” Connell said. “No one can recall any settlement that even comes close.”

Connell raised the possibility of asking the panel to reconsider the amount or persuading the firms to take less.

“It is a stunning number, isn’t it,” said Connell, a candidate for mayor of Los Angeles, who must sign the check. “I’m deeply distressed. It is a huge windfall.”

Connell said she is attempting to determine whether there is any recourse. However, the panel’s decision says the money must be sent by late December.

“The tort system needs a complete overhaul,” said Assemblyman Tom McClintock (R-Northridge), who pushed for the refunds. But McClintock added that the $88.5-million award “is a cost the state willfully incurred when it broke the law and imposed a fee it knew it was illegal.”

If the state had settled the case earlier, the attorneys’ fees would have been far lower. The Superior Court judge who ruled against the state ordered it to pay $18 million to the attorneys. The state appealed, lost and dropped the case.

In settling on the $88.5-million figure, the arbitrators noted that the lawyers had worked for five years on what was a “difficult and risky” case. They noted that the result--legislation signed by Davis earlier this year that granted the smog fee refunds--”provided exceptional results, in that a potential 1.7 million claims for tax refunds would be paid 100% [of the $300 fee], plus interest.”

The $88.5 million represents 13.3% of the $665-million fund set aside by Davis and the Legislature. The attorneys had sought 17.5%, or more than $100 million in fees.

Republican Gov. George Deukmejian signed legislation at the start of the recession in 1990, imposing the $300 smog impact fee on people who registered out-of-state cars in California.

The case was not a class action. It was brought by four people who bridled at the fee in the mid-1990s. One was Barron Ramos, who in 1994 was a law student in San Diego. Ramos sued after his wife was forced to pay the fee when she brought her Mazda to California from Washington state.

In time, five law firms took the case. The courts held that the smog impact fee violated interstate commerce laws.

So far, the state has paid $331.1 million to the owners of 863,340 vehicles. Another 100,000 claims are pending. People who paid the fee have three years to claim their money.

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What $88 Million Could Buy

The $88.5 million in state money that five law firms will receive for their role in successfully suing California over smog fees is:

* Equal to what the New York Yankees will pay pitcher Mike Musina over six years.

* More than the $80 million California budgeted this year to buy park land in Topanga Canyon and along the Los Angeles River.

* More than the $76 million earmarked to operate the 40-member state Senate for a year.

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Sources: State budget and the Associated Press