Litigation
Jul. 19, 2002
Firms in Smog Fee Case Fight to Keep Revoked Award
SACRAMENTO - A state appeal court gave no clear sign Wednesday whether it will restore an award of $88.5 million in legal fees to five firms that claim to have won repeal of the state's smog fees charged to out-of-state drivers.
A trial judge rescinded the award last year, saying the attorneys were being paid for "lobbying, not lawyering," and that arbitrators had exceeded their authority in awarding the fees.
But during a lively round of oral arguments, it became absolutely clear that the three justices on the 3rd District Court of Appeal panel were disgusted with the behavior of both the state and the plaintiffs attorneys in the case.
Just a few minutes into the plaintiffs lawyers' argument, Justice Richard Sims jumped on attorney William Dato, a member of San Diego's powerhouse Milberg Weiss firm.
Sims began by citing a Gallup Poll finding that attorneys are among the least trusted of all professionals and then noted that the huge award of attorney fees would be paid by the state with tax dollars drawn from a legislative fund.
"What do you think the effect is on the legal profession when taxpayers learn that lawyers are getting fees of $88.5 million at a rate of over $8,800 an hour?" he asked Dato.
Justice Fred Morrison, another member of the panel, suggested that the attorney fees should have been based on the original litigation award of just $1,200 in their test case.
But Dato responded that the lawyers were entitled to be paid well for litigation that resulted in a change to state law.
Justice George Nicholson observed that even an earlier court award of $18 million in legal fees worked out to $4.5 million for each of four clients refunded a $300 smog fee in the original litigation, which took place in Sacramento. That, apparently, wasn't enough, Nicholson observed dryly.
"You took this case from the courtroom," Nicholson said. "Then the lawyers went across the street [to the state Capitol] and, some would argue, ceased being lawyers and became lobbyists," he said.
Dato denied ever having lobbied the Legislature or the governor.
The $88.5 million award was granted last year by a panel of three private arbitrators led by former Chief Justice Malcolm Lucas after the Legislature and Gov. Gray Davis decided to set up a $665 million fund to provide refunds to all 1.7 million drivers assessed the smog impact fee. After a public outcry over the amount of the fee award, Lucas switched his vote, but the other two arbitrators stood their ground.
Davis, who has received thousands of dollars in donations from Milberg Weiss partners, chose to appoint the arbitrators to decide the issue of attorney fees.
While the justices were skeptical of the plaintiffs lawyers' arguments, they also aimed cutting remarks at the state's lawyers, led by Elwood Lui, a former appeal court justice and now a partner at Jones Day Reavis & Pogue in Los Angeles.
Lui argued that the arbitrators had exceeded their authority by treating the $665 million appropriated by the Legislature as a common fund and making their award a percentage of that fund, based on awards in other common-fund cases.
"This is a serious mistake," Lui said. "This is not a mistake of law. It is an error of jurisdiction."
Under California case law, arbitration awards are reviewable only under extremely limited circumstances, including when arbitrators exceed their authority.
Responding to Lui, Sims read him the arbitration agreement, saying there was no ceiling on the arbitrators' award and nothing preventing them from treating it as a common-fund case.
Moreover, the agreement forbade collateral attacks on the arbitration decision, Sims said.
The state, Sims argued, was trying to change the rules in the middle of the game.
"Every month, we file opinions saying arbitration agreements are not reviewable," Sims said. "The state is a big boy with lots of lawyers. Why shouldn't we treat you like all the mechanics and housewives out there?"
The controversy that continued Wednesday began in 1990, when the state enacted a statute requiring out-of-state drivers to pay special "smog impact" fees. Needing to raise revenues, the Legislature approved the law despite warnings from the state Legislative Counsel that the fee would be unconstitutional.
Beginning in 1995, four plaintiffs, represented by five law firms, challenged the $300 smog fees. The firms were Milberg Weiss Bershad Hynes & Lerach of San Diego; Weiss & Yourman of New York; Blumenthal Ostroff & Markham of La Jolla; Sullivan Hill Lewin Rez & Engel of San Diego; and the law offices of Richard M. Pearl of San Francisco.
In 1998 and 1999, both a Sacramento Superior Court judge and then the 3rd District ruled that the fees violated the U.S. Constitution's Commerce Clause. Jordan v. Department of Motor Vehicles, 75 Cal.App.4th 449 (1999). The governor then decided to settle the matter by refunding the smog fees.
The appeal court has 90 days to issue its opinion on the attorney fees.
Hudson Sangree
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