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In a tense court session Wednesday, Manhattan Supreme Court Justice Charles E. Ramos told lawyers for six law firms that were awarded $625 million for their work in the historic 1998 tobacco settlement in no uncertain terms that he will examine whether the fee award is unethical. The April 2001 decision of the arbitration panel that issued the award set off “a flashing light that got my attention” that the $625 million fee might violate the New York Code of Professional Responsibility’s proscription against illegal or excessive fees, Ramos told the throng of lawyers that filled his courtroom. Of specific concern, Ramos said, was the panel’s remarks that the large award could be justified by looking to the huge salaries paid to star athletes such as ballplayers Alex Rodriguez and Derek Jeter. But several ethics experts said in interviews Tuesday that it was highly unlikely that any disciplinary body would find the lawyers who worked on the tobacco case for New York State had violated Disciplinary Rule 2-106, which bars the collecting of “an illegal or excessive fee.” Ramos, who took the unusual action of ordering the New York’s tobacco lawyers on his own motion to justify their fee on June 17, also received a skeptical response from the tobacco industry and the state attorney general’s office. Three New York firms and three national firms were retained by New York state, under a contingency contract, to handle the state’s suit against the tobacco industry for the cost of treating smoking-related illness. The suit settled as a part of a $208 billion nationwide agreement in 1998. New York’s share was $25 billion to be paid over 25 years. As a part of the nationwide settlement, an arbitration panel was established to resolve fees claims between lawyers that the states had retained and the tobacco industry. To date the panel has awarded more than $6 billion in fees to lawyers for 17 states and the District of Columbia, according to a chart prepared by one of the state’s firms. Another $625 million has been paid out to lawyers for states and other government entities that negotiated their fee claims with the tobacco industry. The attorney fees are paid by the tobacco industry separately from the payments made to the states. The arbitration panel’s $625 million award to lawyers for New York state is 2.5 percent of the state’s $25 billion share of the settlement. The three New York firms received about 45 percent of $625 million award: $98.4 million each for Schneider, Kleinick, Weitz & Damashek and Sullivan Papain Block McGrath & Cannavo in Manhattan, and $84.3 million to Thuillez, Ford, Gold & Johnson in Albany. The remaining $343.8 million was split among the three national firms: Ness, Motley, Loadhoalt, Richardson & Poole in Charleston, S.C.; the Scruggs Firm from Pascagoula, Miss., and Hagens & Berman from Seattle. The $625 million was the seventh largest award in the nation. But, on a percentage basis, New York’s award was the fourth lowest of the 17 awards issued by the arbitrators. STATE’S POSITION Pointing to the fact that the six firms retained by New York received awards amounting to “a mere” 2.5 percent of the state’s total recovery, the state attorney general contended in a brief filed with Justice Ramos that the size of the award in this case does not “violate public policy.” Similarly, a brief filed by the tobacco industry questioned Ramos’ jurisdiction to hear the case, asserting that New York law “appears” to require a “timely vacature motion by a party.” The brief pointed out that none of the tobacco companies involved had filed such a motion. Ramos, however, said at the hearing that he had an ethical obligation to probe a situation where there were indications of unprofessional conduct. As for claims that he lacked jurisdiction, he explained to the lawyers before him that he was examining whether there was cause to believe the fee was excessive. If he were persuaded that a violation was likely, he suggested, the outcome could be a referral of the matter to state disciplinary authorities. Ramos adjourned the case until July 25, when oral argument will be held on whether he has jurisdiction and authority to proceed with his inquiry. Several ethics experts suggested that DR 2-106 is rarely invoked to upset a fee agreement. The experts pointed out that court rules explicitly authorize contingency fees in most personal injury cases of one-third of a recovery, net of expenses. While the Legislature has put in place a more stringent limit for medical malpractice recoveries, the cap is 10 percent for any amounts won in excess of $1.25 million, they added. Courts “seldom cut fees which have been freely negotiated,” said Professor Roy Simon, an ethics expert at Hofstra University School of Law. As long as there is no corruption in the arbitration and no fraud by the lawyers, then I don’t see why there would be an ethics violation,” he said. Stephen Gillers, an ethics professor at New York University School of Law, said, “There doesn’t seem to be any legal or ethical basis for this inquiry — it will cost people a lot of time and they will be back in the same place.” Cardozo Law School Professor Lester Brickman, a longtime critic of contingency fee awards, however, praised Justice Ramos for undertaking the inquiry because the state’s lawyers “bore virtually no risk.” By the time New York’s lawyers got involved, he suggested, the national settlement had progressed to the point that “all risk in the litigation has been eliminated.” But Brickman noted that the disciplinary authorities rarely pursue excessive compensation claims in personal injury cases. A lawyer’s chances of being accused of charging an unreasonable fee in a tort case are “less likely than being struck by lightning,” he said.

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