Legal Fees in Tobacco Case Upheld

A New York appeals court Tuesday reinstated $1.25 billion in legal fees for attorneys who sued the tobacco industry on behalf of California in a case that led to a landmark $206-billion settlement with 46 states.

The ruling by a five-judge appeals court is a setback for R.J. Reynolds Tobacco Holdings Inc. and other cigarette makers that challenged the award, which was thrown out by a lower court in September 2002. The fees are to be paid over 25 years.

The award, by an arbitration panel that set the payments to lawyers in the case, was challenged by R.J. Reynolds, Brown & Williamson Tobacco Corp. and Lorillard Inc. Tobacco firms called the fees excessive, based on the amount of work performed by the attorneys for California.

Altria Group Inc.’s Philip Morris USA did not object to the fees, even though it is also responsible for paying them.

The three-member panel that awarded the $1.25 billion in July 2002 “took great pains to evaluate and calculate counsel’s award based on many factors in accordance with the terms of the fee agreement,” the appeals court said, calling the amount “neither irrational nor violative of public policy.”

A spokesman for Brown & Williamson, Mark Smith, could not immediately be reached for comment. A spokeswoman for R.J. Reynolds did not immediately comment on the ruling.

The fee panel in the case had credited the California attorneys for filing their lawsuit with their own funds at a time when the tobacco industry had never made any payments in hundreds of legal actions.

The attorneys also found whistle-blowers to aid the states’ cases and obtained a protective order barring the tobacco industry from destroying or altering documents, the fee panel found.

The five-judge appeals court that upheld the award cited similar factors, adding that the grounds for overturning fees set through arbitration were “narrowly circumscribed by statute.”

The court said New York State Supreme Court Justice Nicholas Figueroa, who tossed out the award, “improperly interjected” himself into the merits of the fee dispute.

Figueroa called the size of the award “irrational” and said the fee panel had exceeded its authority.

The panel included veteran labor mediator John Calhoun Wells, who was selected by agreement between the tobacco industry and counsel for the states; Charles Renfrew, a former federal judge selected by the companies; and attorney Harry Huge, who was appointed by the California lawyers.

The tobacco companies filed their challenge to the legal fees in the same New York court that oversaw the 1998 settlement between the industry and 46 states.