Cut in $88.5-Million Lawyers’ Fee Unlikely

Gov. Gray Davis faces long odds in trying to reduce a record $88.5-million payment to attorneys, in part because of a 1992 decision by the retired judge whom Davis handpicked to help set the fee.

Acting on the governor’s behalf Tuesday, state Atty. Gen. Bill Lockyer formally sought to reduce the payment awarded by a panel of three retired judges two weeks ago to lawyers who successfully sued the state over a smog fee imposed on people who registered out-of-state cars in California.

In a letter to the panel, Lockyer estimated that the lawyers put 10,000 hours into the case, resulting in an hourly wage of $8,847. “This is simply unreasonable and certainly not appropriate,” Lockyer wrote.

Last week, Davis joined the chorus of critics of the fee, reached by private arbitrators in closed-door proceedings. He urged that Lockyer seek the reconsideration and asked that state Controller Kathleen Connell freeze the payment.

The private panel has the power to reconsider its decision. However, any effort to persuade a court to lower the award faces several obstacles. One hurdle is a decision written by Davis’ appointee to the arbitration panel, retired California Supreme Court Justice Malcolm Lucas. Since leaving the court, Lucas has worked as a private arbitrator.

As chief justice in 1992, he wrote a landmark decision affirming the power of binding arbitration agreements, even when arbitrators make errors of fact or law.

With narrow exceptions, “The arbitrator’s decision should be the end, not the beginning, of the dispute,” Lucas wrote in a 5-2 decision in Philip I. Moncharsh vs. Heily & Blase. His opinion said parties who enter into binding arbitration contracts bear the risk of a wrong decision, “in return for a quick, inexpensive and conclusive resolution to their dispute.”

The 1992 decision says courts can overturn such an award only if there was “bias, misconduct or fraud,” said San Francisco attorney Cliff Palevsky, an expert on employment law and a critic of some types of binding arbitration.

“On a simple issue like this, it is absolutely bulletproof,” Palevsky said.

Although courts’ authority to overturn a private panel’s decision is limited, Davis hopes to convince the panel to reconsider the decision, or perhaps persuade the attorneys on their own to accept a lower fee.

Attorneys who stand to receive the award--officials believe it is the largest attorneys’ fee ever in a case against the state--declined to discuss the matter, citing a confidentiality clause in the arbitration agreement they signed with the state.

However, they extolled their legal work in confidential written arguments they filed with the panel earlier this year.

“We will attempt to restrain ourselves, yet it would be difficult to imagine a greater success than the result achieved in this case,” the brief, obtained by The Times, says.

Davis signed legislation in June earmarking $665 million to give full refunds plus interest to everyone who paid the $300 smog impact fee dating back to 1990. The legislation also says the lawyers fees, to be paid out of the $665 million, would be determined through private binding arbitration, rather than through the traditional method of allowing courts to set the fees.

The governor dropped appeals and supported the refund after a state Court of Appeal ruled in October that the fee was unconstitutional.

Davis, who has received $240,000 in campaign donations from one of the five law firms that stand to benefit from the award, pushed to turn the attorneys’ fee question over to arbitrators. In a letter to Lockyer released Tuesday, Davis said he signed the legislation granting refunds to everyone who paid the fee out of a desire to “treat everyone fairly.”

“The decision was made independently of the attorneys’ efforts, and they should not reap a windfall for the decision the Legislature and I made, based on sound public policy,” Davis told Lockyer.

The governor also said he believed that the panel would award the attorneys less than the $18 million that a superior court judge granted them in 1998 when he struck down the smog fee.

The state Court of Appeal never decided the question of attorneys’ fees. However, justices were openly skeptical of the $18-million award when they questioned the lawyers about it last year.

In addition to the donations to Davis, the firm of Milberg, Weiss, Bershad, Haynes & Lerach and individual lawyers in the firm contributed a combined $50,000 to Davis Chief of Staff Lynn Schenk when she ran for California attorney general in 1998. Schenk, a lawyer and former member of Congress from San Diego, lost the Democratic primary to Lockyer.

Milberg, Weiss stands to collect about 40% of the $88.5 million.

Schenk disclosed in her conflict-of-interest statements filed in 1999 and earlier this year that her husband, University of San Diego law professor C. Hugh Friedman, has had a business relationship with the Milberg, Weiss firm, receiving more than $10,000 from it in both years. Friedman has testified as an expert witness in Milberg, Weiss cases.

Like Schenk, Friedman declined to comment on the matter. But Davis spokeswoman Hilary McLean said Friedman told her that he offered no counsel to the attorneys on the case that resulted in the $88.5-million award. Friedman is an expert on securities law, which was not a factor in the smog-fee case.

McLean said Schenk had no involvement in Davis’ unusual decision to turn the attorneys’ fees question over to a private arbitration panel. McLean said Davis’ advice came primarily from his legal affairs staff.

“On this particular instance, she did not advise the governor,” McLean said. “It was something that she did not work on. She certainly knew about it after the fact. But she did advise the governor on this at all.”