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Five firms that successfully sued the state of California over its $300 smog impact fee will not get their $88.5 million fee award by Christmas. But odds are they will get it someday, says at least one arbitration expert. At the urging Thursday of California state Controller Kathleen Connell, the State Board of Equalization unanimously voted to join Connell and Gov. Gray Davis in asking an arbitration panel to reconsider the attorneys’ fees award it handed down in November — the largest ever in a suit against the state. The board, which voted 3-2 in May to allow an arbitration panel to set the fees, reversed itself Thursday after an hour of closed-session talks. The board’s about-face means New York-based Milberg Weiss Bershad Hynes & Lerach and the four other firms that successfully sued the state will not be paid by the Dec. 28 deadline set by a panel of arbitrators from Irvine, Calif.-based JAMS. The panel, headed by former California Chief Justice Malcolm Lucas, awarded the firms 13.3 percent of the $665 million the state agreed to reimburse California motorists who had paid the illegal tax between 1990 and 1999. Attorney General Bill Lockyer has estimated that if the lawyers and paralegals involved had worked on the case for 10,000 hours, their hourly billing rate would have been $8,847 with a lodestar multiplier of at least 17. “I don’t think anyone could have imagined” an award this large, said Connell, one of the two board members who originally voted not to send the matter to arbitration. “This sum of money is outrageous.” Connell, who praised the board Thursday for its support, added that she is ready to take the matter to court if the arbitration panel refuses to reconsider its award. But Connell will have an uphill battle, says one arbitration expert who has watched the situation unfold. And the state may end up spending more tax money in a vain effort to lessen the amount of the award. Cliff Palefsky, a partner in the San Francisco firm of McGuinn Hillsman & Palefsky, said the state has almost no chance of getting the award reduced thanks to a 1992 California Supreme Court opinion, which says an arbitrator’s decision is “not generally reviewable for errors of fact or law.” The author of the opinion was none other than Malcolm Lucas. Palefsky said under Moncharsh v. Heily & Blas, 3 Cal. 4th 1, grounds for review is limited to misconduct, bias or fraud. “None of which happened here,” the attorney said. “Even if [the award] is wrong on its face, they have to let [the firms] have it,” he added. In fact, Lucas writes in his opinion: “Even had there been no such expression of intent, it is the general rule that parties to a private arbitration impliedly agree that the arbitrator’s decision will be both binding and final.” Of the firms involved, Milberg Weiss stands to reap the biggest chunk of money — likely close to $40 million — for its five years of work. William Dato, the Milberg Weiss partner who led the case, said he had no knowledge of the board’s vote Thursday, and refused to comment on the state’s efforts to get his fee reduced, citing a confidentiality agreement. The other firms slated to receive a cut of the final award are: New York’s Weiss & Yourman; San Diego’s Sullivan Hill Lewin Rez & Engel; La Jolla, Calif.’s Blumenthal Ostroff & Markham; and San Francisco solo practitioner Richard Pearl. The vote by the Board of Equalization comes two days after Lockyer sent a letter to the panel arguing that the fee award was unreasonable and exceeded the arbitrators’ power. In his letter to Lucas, Lockyer argues that the fee is unprecedented and not supported by case law. “This is simply unreasonable and certainly not appropriate,” Lockyer wrote. Gov. Davis, whose office helped select the arbitration panel, has been criticized for his ties to Milberg Weiss, which has contributed $440,000 to the governor since 1998. While Davis didn’t issue a statement regarding the board’s decision, he has urged both Connell and Lockyer to do everything they can to reduce the award. “We hope the panel of arbitrators will see the reason and wisdom of the Attorney General’s argument,” Davis spokeswoman Hillary McLean said Thursday. Palefsky, an outspoken opponent of mandatory employment arbitration, suggested there might just be a lesson in all this for Davis. “Perhaps it will educate the governor on the arbitrariness of arbitration,” he said.

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