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California Gov. Gray Davis on Wednesday gave the go-ahead for a suit to block an $88.5 million fee award to attorneys who successfully sued the state over its illegal smog impact fees. The suit asks a Sacramento County Superior Court for a writ of mandate to strike or reduce the state’s payment to five firms, including Milberg Weiss Bershad Hynes & Lerach. The suit follows an unsuccessful attempt by the attorney general’s office to convince the arbitration panel to reconsider its award — the largest ever levied against the state. It also comes on the heels of a December decision by the State Board of Equalization to freeze payment to the firms until a court can decide just how much the lawyers are entitled to walk away with. At stake in the case is not just how much money the state will have to shell out for five years of litigation, but how the California Supreme Court’s 1992 decision in Moncharsch v. Heily & Blas�, 3 Cal. 4th 1, will be interpreted. That decision is widely held to limit review of an arbitration award unless there is misconduct, bias or fraud. In court papers, attorneys for the state and the California Department of Motor Vehicles argue that Moncharsch mandates that the fee be overturned because it exceeded the statutory authority of the arbitration panel. The lawyers contend that although $665 million was set aside to reimburse California motorists who paid the illegal $300 tax between 1990 and 1999, that money was allocated by the Legislature and not by a court order. Chief Deputy Attorney General Peter Siggins and Jones, Day, Reavis & Pogue partner Elwood Lui, a former state appellate court justice, also make the argument that any such award not only violates public policy, but might be an unconstitutional use of public funds. “This is not just a case where an arbitration award violates policies expressed in another statute or court order,” the attorneys write. “Instead, this is a case where the panel’s award also violates the policy underlying the very statute by which this panel was constituted — to settle a claim whose maximum value was $18 million, as established in a Superior Court judgment.” William Dato, the Milberg Weiss partner who led the plaintiff’s case in Jordan v. Department of Motor Vehicles, 75 Cal. App 4th 449, could not be reached for comment on the suit. Arbitration experts, though, say it’s likely he will also rely on Moncharsch to make the argument that an arbitrator’s decision is “not generally reviewable for errors of fact or law.” Both sides agreed to let the arbitration panel settle the attorneys’ fees portion of the case after the 3rd District Court of Appeal ruled the smog fees unconstitutional in 1999 and the Legislature agreed to reimburse close to 2 million Californians who were subjected to the tax. But when the panel handed the lawyers $88.5 million, roughly 13 percent of the reimbursement costs, Davis vowed to fight. Although the governor has received close to $500,000 in campaign contributions from Milberg Weiss since 1998, he responded to the panel’s decision by asking Controller Kathleen Connell to stop payment on the check to Milberg and the other firms. The others include: New York’s Weiss & Yourman; San Diego’s Sullivan Hill Lewin Rez & Engel; La Jolla’s Blumenthal Ostroff & Markham; and San Francisco sole practitioner Richard Pearl. And while many arbitration experts predict it’s merely a matter of time until the firms get their money, the state may still see a silver lining in its case. That’s because former California Chief Justice Malcolm Lucas, the author of Moncharsch and one of the arbitrators in the case, seemed to reject his own opinion when he was asked to reconsider the fee awarded to the five firms. In Moncharsch, Lucas wrote: “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.” But when asked to reconsider the $88.5 million award, Lucas did so, saying: “I’m inclined to believe that we did err and that plaintiffs’ counsel have been handed about $70 million for the political consequences of their $1,200 victory.” In a prepared statement Wednesday the governor said the JAMS arbitration panel went too far when it issued an award greater than either a court or the Legislature could have constitutionally granted. “The award is excessive and goes well beyond any notion of a reasonable fee for the attorney’s effort,” Davis said. “The arbitration panel’s decision constituted a windfall for the attorneys. At best they were entitled to $18 million. The court must now act to overturn this outrageous award.” Still, former 4th District Court of Appeal Justice John Trotter and retired judge Bonnie Lee Martin have refused to reverse their decisions and have let the award stand.

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