A New York judge has thrown out $1.25 billion in legal fees awarded to a group of anti-tobacco law firms, ruling that arbitrators exceeded their authority in granting the fees for work in a single California case.
The decision by state court Judge Nicholas Figueroa was a victory for R.J. Reynolds Tobacco Co. and other cigarette makers, who had challenged the July award as grossly excessive. The ruling was "a huge victory for common sense," said Mark Smith, a spokesman for Brown & Williamson Tobacco Corp., which had joined RJR and Lorillard Inc. in challenging the arbitration award.
It was a setback for the Castano group, a nationwide consortium of 60 law firms that has battled the industry for years but gone unpaid, while other plaintiffs' firms reaped a windfall. Castano lawyer David Ellenhorn said that the ruling will be appealed, and that Figueroa had erroneously substituted his judgment for that of the arbitrators, who carefully considered the "contributions that our clients made" to the litigation settlement between the industry and the states.
Although the dispute involved a tobacco case in California, the challenge was filed in New York, where arbitrators heard the case and rendered their 2-1 decision.
Figueroa's ruling was unusual because courts generally are loath to second-guess decisions made through binding arbitration.
In his ruling, Figueroa said the panel majority improperly sought to compensate the Castano group for its strenuous work in the tobacco wars, when the issue before it was how much the group deserved for its modest effort in a single matter--a California class action called the Ellis case.
Figueroa said the arbitration contract called for paying the Castano group only for work done "in connection with" Ellis, which was settled along with suits by California's attorney general and its largest cities and counties.
Instead, the judge said, the panel considered the Castano group's broader contributions to the tobacco litigation, culminating in the industry's agreement to pay $246 billion to the states, including $25 billion to California.
"This overstepping was the result of the majority panels' inclination towards an irrelevant appreciation of [the Castano group's] ... worthy ... but unremunerative litigation during the better part of a decade," according to Figueroa's 16-page ruling. "Whatever the merits of [the Castano group's] laudable efforts during the tobacco wars, the rationale chosen by this panel to reward those efforts exceeded their power under the arbitration clause."
As part of their 1998 settlement with state attorneys general, cigarette makers agreed to pay legal fees of the private lawyers the states had hired to pursue the litigation. Fee disputes were to be resolved through binding arbitration before a three-judge panel. At least $13 billion in fees has been awarded through this process without challenge. That includes $637 million paid to nine law firms that represented the cities and counties of California.
But the Castano group--named for a lung cancer victim who was a named plaintiff in the first case it filed in 1994--has been shut out of the party.
Unlike the lawyers hired by the states, the Castano firms, including several in California, filed private, class-action lawsuits on behalf of addicted smokers in about two dozen states. Most of the class actions have been dismissed, and only two of them survive--the Brown case in California and a Louisiana case that is scheduled for trial next week.
However, a number of state attorneys general have said the Castano group's work was invaluable in getting their cases off the ground. Ellenhorn said the group's efforts in Ellis and the other cases were "all one ball of wax, and ... directly contributed to" the nationwide settlement, including California's $25 billion.