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A California state appeal court on Monday upheld a ruling vacating $88.5 million in attorney fees in a huge case over smog-impact fees, saying the award was an unconstitutional gift of public funds. The ruling by Sacramento’s 3rd District Court of Appeal orders a new arbitration at which the award, if any, cannot exceed about $18.2 million, plus 10 percent interest over the last four years. “An award of a gift of public funds is not authorized by law,” Justice Fred Morrison wrote for the court. “The state could not agree to it, the Legislature could not authorize it, and neither this nor any court could confirm it.” Morrison also held that the state’s common fund doctrine limits the state’s exposure to $18 million in fees. In a separate concurrence signed by all three justices on the panel, Justice Richard Sims III showed disdain for both sides in the case — the attorneys for living in an “unreal world of greed” and the state for readily breaching an arbitration agreement as soon as “the political stuff hit the fan.” The dispute in Jordan v. California Department of Motor Vehicles, C038339, originates from a suit in which New York’s Milberg Weiss Bershad Hynes & Lerach and four other law firms succeeded in getting the state’s motor vehicle smog-impact fee declared unconstitutional. The $300 registration fee, which was imposed on the owner of any out-of-state vehicle being relocated to California, had been authorized by the Legislature in 1990. After the smog-impact fee was struck down, legislators set up a fund of more than $500 million to reimburse Californians. The $88.5 million in fees, which had been authorized by a three-person arbitration panel, represented about 13 percent of that fund. When the fees were announced, California Gov. Gray Davis and other politicos went through the roof, demanding that the pay-out, which would have come from public coffers, be reconsidered and reduced. Last year, Sacramento County Superior Court Judge Joe Gray sided with the state, vacating the award and saying that the refund account was the work of lobbyists and not lawyers. The appeal court agreed. “The decision to create the refund account and provide refunds for all who paid the smog-impact fee was the independent policy decision of the governor and the Legislature, in their conjoined political wisdom,” Justice Morrison wrote Monday. “As the Jordan decision makes clear, no court could order the refunds.” Attorneys at the Milberg Weiss firm could not be reached for comment, but in a prepared statement, Davis — who has received hefty campaign contributions from Milberg Weiss –called the original award “shocking,” and said he was gratified that the appeal court agreed. “An award of $88 million in attorneys fees was not only unconscionable, but unconstitutional,” he said. “This is a great victory for the taxpayers of California.” Justices Sims and George Nicholson concurred in Morrison’s ruling, but all three lashed out at both sides of the dispute in a separate concurrence. “It is all to the good that the state will not have to pay an $88 million fee award that was — at more than $8,000 per hour — completely in outer space, totally over the top,” Sims wrote. “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.” As for the state, Sims noted, its lawyers readily agreed to binding arbitration only to renege later and never made “a peep” about there being a cap on fee awards until the massive hit came down. “This case illustrates that the state will breach an arbitration agreement with impunity when it is in the state’s interest to do so,” he wrote. “This case will therefore result in fewer private citizens agreeing to arbitrate disputes — and particularly major disputes — with the state. “Lest I be misunderstood,” he added sternly, “I leave it to the attorneys of this state to advise their clients when the clients ask whether they should agree to binding arbitration with the state. “But I know what I would say.” The other law firms affected by Monday’s ruling are New York’s Weiss & Yourman; San Diego’s Sullivan, Hill, Lewin, Rez & Engel; La Jolla, Calif.’s Blumenthal & Markham, and Berkeley, Calif., solo practitioner Richard Pearl.

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