Tobacco Lawsuit Fee: $1.25 Billion

Nearly 60 law firms that helped California garner $25.4 billion as part of a national cigarette litigation settlement will split $1.25 billion in fees, according to a national arbitration panel decision obtained by The Times.

The award, expected to be released today, was characterized as “a full, reasonable fee” by the arbitration panel majority.

Arbitrators John Calhoun Wells and Harry Huge, who formed the majority, said that in reaching their decision, they had considered the risks the lawyers assumed, the complexity of the case, the amount of work performed and the attorneys’ achievements.

In sum, the majority said, the lawyers’ efforts on a major lawsuit were “an important contributor to a resolution of the tobacco war in the most populous state in the nation.”

The suit was known as the “Davis/Ellis” case because the plaintiffs were then Lt. Gov. Gray Davis and James Ellis, an Orange County resident who contracted cancer after years of smoking.

Many of the lawyers involved started working on tobacco litigation in 1994, two years before the Davis/Ellis case was filed.

A majority of the panel said that if not for the efforts of these lawyers, the $206-billion national tobacco settlement in November 1998 would never have been reached. The majority quoted a tobacco-industry lawyer who likened industry worries about the Davis/Ellis case and others set to go to trial in 1999 as a looming “D-Day” and a key factor in the cigarette companies’ decision to settle.

Charles Renfrew, a former federal judge whom the tobacco industry nominated for the panel, issued a harsh dissent, saying the fee “truly shocks the conscience.” Renfrew also has issued dissents in several other fee cases heard by the panel.

Renfrew said that the lawyers were improperly awarded for work they had done before the Davis/Ellis case. But the majority said that the bulk of the work the attorneys had done was, in reality, “in connection with” the Davis/Ellis case and that the award was certainly reasonable “under the totality of the circumstances.”

The $1.25 billion amounts to about 10% of the state’s $12.7 billion share from the national settlement.

Cities and counties representing about 85% of California residents received the other half of the $25.4 billion stemming from suits they filed against the cigarette companies.

Those suits, the Davis/Ellis case, and one filed later by then-California Atty. Gen. Dan Lungren were jointly settled in December 1998 in San Diego, where the cases had been consolidated for trial.

In addition to making the huge monetary award, the settlement restricted tobacco marketing through a ban on billboards. The cigarette companies also agreed to give up the use of cartoon characters, such as Joe Camel, in advertising campaigns.

The latest fee award, though large, is considerably smaller on a percentage basis than the fees awarded to lawyers who represented Mississippi, Florida and Texas, three of the first states to sue the industry.

Those attorneys garnered fees ranging from 19% to 34% of the settlements won by those states.

On the other hand, it is twice as large as the $637 million awarded by the same panel to nine law firms that represented the cities and counties in California.

“The award is well-deserved,” said San Diego attorney Don Hildre, who said he had done nothing but tobacco work from 1994 to 2001. He said that the attorneys had collectively put in 400,000 hours.

The decision was the 19th ruling by the arbitration panel, which was created as part of the national cigarette settlement. The fees are to be paid out by the tobacco companies over the next 25 years.

The panel has now awarded more than $13 billion in fees. Last year, the U.S. Chamber of Commerce lambasted the size of the fee awards, and the latest settlement appears likely to spur further controversy over how much money some lawyers have made from tobacco litigation.

“This is an abomination,” declared Mark Smith, a spokesman for Brown & Williamson Tobacco Corp., the nation’s third-largest cigarette company. “These lawyers should be embarrassed,” Smith said.

New York University law professor Stephen Gillers said the award, though huge, was “a whole lot less” than the 33% that plaintiffs’ lawyers generally obtain in contingency-fee lawsuits.

The Davis/Ellis award comes nearly a year after a lengthy New York arbitration hearing in which the plaintiffs’ lawyers mounted a sophisticated campaign with broad, bipartisan support on why they were entitled to a lot of money.

Among those who weighed in on behalf of the plaintiffs’ lawyers were Gov. Davis; his onetime gubernatorial rival Lungren; Sen. Orrin Hatch (R-Utah); former President Clinton; former Surgeon General C. Everett Koop; UC San Diego tobacco expert David Burns; Mississippi Atty. Gen. Mike Moore, who filed the first case by a state against the cigarette industry; and Harvard law professor Arthur Miller.

Four California law firms will share the award--Casey, Gerry, Reed & Schenk of San Diego; Daughert, Hildre, Dudek & Haklard of San Diego; Howarth & Smith of Los Angeles; and Robinson, Calcagnie & Robinson of Newport Beach.

Robinson’s firm contributed $143,000 to help Davis’ successful gubernatorial campaign in 1998 and has donated $260,000 to the governor’s reelection coffers since 1999.

The Casey firm has contributed $30,000 to Davis since 1999 and the Hildre firm $12,000 in the same period, according to state records.

The other lawyers sharing in the award are from firms throughout the country--including Arizona, Alabama, Louisiana, New York, New Jersey, Ohio, Pennsylvania and Texas.

Among the attorneys who will share in the award are high-powered trial lawyers Russ Herman of New Orleans, former president of the Assn. of Trial Lawyers of America, and Scott Baldwin of Marshall, Texas, along with Hugh Rodham of Fort Lauderdale, Fla., the brother of Sen. Hillary Rodham Clinton (D-N.Y.).

Rodham has little trial experience but was considered a useful political ally by the attorneys who formed the litigation team.

Full details on how the fees will be divided were not available, but John P. Coale, a spokesman for the attorneys, said that no firm would get more than 10% of the total--meaning $125 million would be the top share.

The Davis/Ellis case grew out of a coordinated assault against the tobacco industry launched by a group of plaintiffs’ lawyers when they filed the largest class-action suit in U.S. history in New Orleans in 1994.

The suit alleged that the major cigarette companies fraudulently failed to inform consumers that nicotine is addictive and that they manipulated the level of nicotine in cigarettes to sustain their addictive nature.

The litigation team came to be known as the Castano group because the lung cancer death of lawyer Peter Castano precipitated the suit.

The group agreed to pay $100,000 apiece to set up a central office with support staff, something that had never been done against the tobacco industry.

At that point, the industry had never paid a dime in damages in 40 years of defending lawsuits.

The national class-action suit was dismissed by a federal appeals court in New Orleans in 1996. Then, the Castano group started filing state cases throughout the country, including the Davis/Ellis case.

Ellis sued just months after the Castano suit was thrown out in 1996. Davis joined the suit the following year.

The arbitration panel majority said the plaintiffs’ lawyers obtained millions of documents, conducted more than 100 depositions and found key whistle-blowers. In his dissent, Renfrew suggested that a court should review the arbitration award. But the majority countered that it had acted well within the bounds of its authority.

The leading California Supreme Court case on the issue, however, is deferential to arbitration panels.

The ruling, cited by the majority, said that before a court could overturn a decision, it would have to find the panel’s ruling to be irregular or irrational.

Professor Gillers, an expert on attorney fee issues, said he doubted that a court would overturn the award if it were challenged. “Both sides chose this route, and this presumptively is the right result. There is no reason to suspect a sweetheart deal.”

*

Times staff writer Dan Morain contributed to this report.