Current decisions.

• Author: Sanders, Carol McHugh
• Position: Decisions

ATTORNEY'S FEES

$88 Million Fee Cut to $18 Million Maximum

Reviewing an attorney's fee award arising from a constitutional challenge to a state statute, a California Court of Appeal has slashed an arbitration panel's award of $88.5 million in fees to a maximum of $18.19 million. Writing separately, a concurring justice noted that the original fee award amounted to approximately $8,000 per hour for the attorneys involved in Jordan v. California Department of Motor Vehicles, 123 Cal.Rptr.2d 122 (Cal. App. 2002).

In the underlying litigation, the court had held that the statute imposing a smog impact fee of $300 per California-registered vehicle was unconstitutional under both the federal and California constitutions. 89 Cal.Rptr.2d 333 (Cal. App. 1999). That decision also reversed the trial court's determination that all the persons who had paid the fee were entitled to refunds from a common fund of $363 million and held that only the four original plaintiffs, who had moved from out-of-state to California, registered their vehicles, paid the fee and demanded refunds, could receive refunds. In a separate appeal, the state sought to reverse the trial court's award of $18.19 million in fees for the attorneys representing the Jordan plaintiffs, led by the firm of Milberg, Weiss, Bershad, Hynes & Lerach.

California's governor later announced that the state would not appeal the Jordan decision but instead would refund the smog impact fee, plus interest, to all residents who had paid it. The California legislature then enacted a statute that repealed the smog impact fee and declared that all 1.7 million vehicle owners who had paid the fee were entitled to refunds with interest. The legislative measure also added Section 6909 to the California Revenue and Taxation Code to create a $665 million refund account. Section 6909(b) provided for binding arbitration on the questions of court costs, fees and expenses.

Lawyers for the Jordan plaintiffs and the state agreed to arbitrate the fee question before three retired judges. The arbitration agreement allowed the attorneys to argue that they were entitled to any amount of fees on any theory they believed was supported by the facts and circumstances of the case. With the arbitration agreement in place, the state dropped its appeal of the $18.19 million attorney's fee award.

The arbitration panel determined that the dispute was a common fund case and set attorneys' fees at 13.3 percent of the total refund account, thus awarding $88.48 million in fees. On the state's petition to vacate the award as beyond the panel's powers and as violating public policy, the trial court ruled that the award was based on an erroneous conclusion of law. It determined that the arbitrators had erred in applying the common fund doctrine to the case because the gigantic refund account was the result of lobbying, not lawyering.

Affirming, the Court of Appeal held that Section 6909(b) and public policy limited the fee award to $18.19 million. In an opinion by Justice Morrison, the court held that the legislatively created refund account was not a "common fund." When a plaintiff's efforts produce a fund from which many persons may benefit, the court stated, then an equitable rule permits the plaintiff's attorneys to be awarded fees and expenses incurred in establishing the recovery. But the $665 million refund account here did not conform to the equitable underpinnings for a common fund, the court concluded.

The account was established as the legislature's response to the Jordan lawsuit, the court added, but was not required by a ruling in that litigation. It pointed out that the court in the initial Jordan appeal held that only the four plaintiffs in that case were entitled to refunds of the smog impact fee. Reacting to that decision, the legislature enacted a new statute providing that each person with a registered vehicle who paid the smog impact fee would be entitled to a refunded. This conclusion, the court said, was buttressed by the fact that the new statute provided that any unclaimed balance in the refund account after June 30, 2004, would revert to the state's general fund. Thus, the state, not the beneficiaries of the fund, would be paying the attorney's fees, the court determined.

The court also accepted the state's contention that without a cap of $18.19 million being read into Section 6909(b), the statute would allow awards amounting to gifts of public funds prohibited by the California Constitution. The primary question in determining whether an appropriation of public funds is a gift, the court noted, is whether the funds are destined for a public or private purpose. The state's settlement of a good faith dispute with a private party, who relinquishes a colorable legal claim in return for public funds, establishes good consideration and shows the funds are expended for a valid public purpose. Any amount over the state's maximum exposure of $18.19 million in the original appeal would be a gift of public funds. "We see no benefit to the public, only benefit to the attorneys," the court wrote.

Following both the plain language of the statute and the presumption that the legislature intended to enact a constitutional statute, the court ruled that Section 6909(b) set the range of between zero and $18.19 million.

Concurring, Justice Sims harshly criticized the attorneys for asserting they were entitled to an $88 million fee award. That hefty award works out to $8,000 per hour, a rate that is "completely in outer space, totally over the top," he stated. "The fact that attorneys even requested a fee award of that absurd magnitude from the taxpayers is a testament to the unreal world of greed in which some attorneys practice law in this day and age."

Justice Sims, however, also said he wrote separately to point out that the state had breached the arbitration agreement in two respects. First, the state's appeal was beyond the agreement's terms that the arbitrators' award would be binding on all parties, with no right to appeal, collateral attack or other review. The agreement also allowed the attorneys to assert any argument to entitlement of fees at any level they believe valid under the circumstances of the case. While that provision might be said to contemplate any fee award from the arbitrators, he added, there was nothing the attorneys could do about the state's breaches because the state cannot, by contract, authorize an unconstitutional gift of public funds.

AVIATION LAW

Emotional Injuries Limited under Warsaw Convention

A woman injured in an American Airlines plane crash in 1999 will have to accept a significant reduction in her $6.5 million jury verdict or go back to trial, the Eighth Circuit has ruled in a case governed by the Warsaw Convention. Determining that the woman was entitled only to emotional injury damages that flowing from her personal injuries,

the court offered her the option of either accepting a remittitur of $1.5 million or a new trial on damages. In re Air Crash at Little Rock, Arkansas, on June 1, 1999 (Lloyd v. American Airlines Inc.), 291 F.3d 503 (8th Cir. 2002).

In an unusual aspect of the case, the United States filed an amicus curiae brief supporting American Airlines' assertion that it could join the government as a third-party tortfeasor for contribution. While participating as an amicus favoring a position against its own interest, the U.S. argued that it believed it would ultimately prevail on the contribution claim and that it had a greater, interest in the correct interpretation of the Warsaw Convention.

Anna Lloyd was injured when an American Airlines flight crashed on the runway at the Little Rock Airport, with the deaths of the pilot and 10 passengers. The Judicial Panel on Multidistrict Litigation consolidated the cases resulting from the crash and transferred them to the U.S. District Court for the Eastern District of Arkansas. Lloyd was enroute from Austria as an international passenger at the time of the accident, so her action was governed by the Warsaw Convention. She was treated at a hospital for smoke inhalation and minor injuries to her legs and knees, and she was released the same night as the crash.

Prior to trial, the federal district court granted American leave to file a third-party complaint against the United States for contribution in domestic cases arising from the crash, but not in international cases. The trial judge...