Judge Rejects $88.5-Million Fee for Lawyers

A judge issued a tentative ruling Tuesday that would toss out a record $88.5 million in legal fees granted to lawyers in the controversial smog fee refund case.

Sacramento County Superior Court Judge Joe S. Gray said a three-member panel of retired judges exceeded its authority in granting legal fees equivalent to $8,800 an hour to lawyers who argued for a massive smog fee refund.

But in his preliminary ruling, expected to be made final today at a hearing in his court, Gray said money was not the heart of the matter.

The real issue, Gray said, is that the arbitration panel, which included retired state Supreme Court Chief Justice Malcolm Lucas, based its award on a decision by the California Legislature to repay $665 million to all car owners who paid the fee when they registered their out-of-state vehicles between 1992 and 1999.

“This is and was a political decision, based on political considerations,” Gray said.

The tentative ruling, which is almost certain to be appealed, was immediately celebrated by Gov. Gray Davis, for whom the $88.5-million award had become a political embarrassment.

“We are clearly pleased with the judge’s tentative ruling, but we will be in court fully prepared to answer any further questions he might have,” Davis said in a statement Tuesday.

In 1999, Gray ruled that the $300 “smog impact fee” was unconstitutional and awarded $321 million in refunds to motorists who paid the charge in the previous three years.

Lawyers in the case, led by the San Diego firm Milberg, Weiss, Berhad, Hynes & Lerach, appealed the ruling, arguing that the fees should be refunded to all motorists, going back to 1992.

Davis agreed. The governor, who received $221,000 in contributions from the Milberg firm and attorney Bill Lerach during his 1998 campaign, urged the Legislature to set aside $665 million in rebates, plus interest, to all those who paid the fee. The question of legal fees was to be decided secretly by a three-judge panel headed by Lucas.

However, when the record amount of the legal fees was determined by the panel, it was leaked to the press by state Controller Kathleen Connell and State Board of Equalization member Dean Andal. Connell described the award as “obscene” and refused to write a check to Lerach when he presented his bill.

Saying he was shocked by the award’s size, Davis asked the arbitration panel to reconsider. But the panel voted 2 to 1 to stick with the award, Lucas dissenting.

In his dissent, Lucas came up with an argument that was embraced by Gray in his tentative ruling Tuesday. Because politicians, not lawyers, were responsible for the bulk of the rebates, Lucas said that the extra legal fees “might be an unconstitutional gift of public funds.”

“The importance,” said Assistant Atty. Gen. Michael Cornez, who represented the state, “is that the court has recognized that attorneys fees should be based on the work they did to make the statute unconstitutional and not on the work of the Legislature in providing everyone a refund.”