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Manhattan Supreme Court Justice Charles E. Ramos on Tuesday froze further payments on a $625 million arbitration award to the six law firms that represented New York state in its litigation against the tobacco industry until he finishes reviewing the reasonableness of the sum. In determining that he has the power to review the fee award, Ramos expressed much skepticism about whether the amount was warranted. Noting that the dissenting arbitrator in a three-judge panel had said the award compensated the lawyers at $13,000 an hour, Ramos wrote that such a sum “on its face can only be considered as potentially excessive and therefore unethical as a violation of the Code of Professional Responsibility.” He also observed that “a fee of this magnitude probes the limits of propriety” and requires the courts to determine whether the code’s proscription of “exorbitant or excessive fees” permits “counsel to enjoy such a windfall.” Steven L. Levitt, who represents two of the firms that worked on the tobacco litigation, said Tuesday that he could not comment on the decision, which he had not read yet, but that it would most likely be appealed if it proved to be adverse to his clients. The six firms were awarded $625 million for their work on New York state’s litigation against the tobacco industry, which resulted in a $208 billion nationwide settlement in 1998. New York state’s share of the settlement was $25 billion. The settlement provided the states with compensation for payments they had made for treating smoking-related ailments under the Medicaid program and for their own employees. The fee award was determined by an arbitration panel under procedures determined as part of the nationwide settlement. The panel issued its $625 million award in April 2001, an amount that came to 2.5 percent of New York state’s share of the settlement. The three New York state-based firms that represented the state received a total of $281.1 million, with Schneider, Kleinick, Weitz & Damashek, and Sullivan Papain Block McGrath & Cannavo, both with offices in Manhattan, receiving $98.4 million each. The third New York firm, Albany-based Thuillez, Ford, Gold & Johnson, was awarded $84.3 million. The three national firms that were part of the New York team were awarded a total of $343.8 million. They were Ness, Motley, Loadhoalt, Richardson & Poole from Charleston, S.C.; the Scruggs Firm in Pascagoula, Miss.; and Hagens & Berman, a Seattle firm. Justice Ramos determined in State of New York v. Philip Morris, 400361/97, that because the underlying lawsuit in New York had been certified as a class action, he is required to determine whether the fee award is reasonable. He based that determination upon the decision of Justice Stephen G. Crane, who presided over the case until his appointment to New York’s Appellate Division, 2nd Department, to certify the case as a class action, and to approve the national settlement’s allocation of $25 billion to New York state. Ramos noted that Crane’s approval of the underlying settlement meant that the only issue before him under New York’s class action statute, Article Nine of the Civil Practice Law and Rules, is the reasonableness of the fee award. That observation was undoubtedly welcomed by the tobacco industry, which had expressed concern that Ramos’ sua sponte inquiry might lead to a ruling upsetting New York’s award, or even the entire national settlement. But as to the fee award, Ramos stated it was not sufficient that Crane approved the arbitration process as a part of his ruling in December 1998 that the overall settlement was reasonable. “The court cannot shift its responsibility for supervising legal fees in class actions to an arbitrator,” he wrote. In issuing a preliminary injunction barring continued fee payments, Ramos directed that the payments be paid into an escrow account controlled by the New York Attorney General’s office. Brian Shoot of Sullivan Papain represented his firm. Columbia University Law School Professor Samuel Issacharoff represented the three national firms, and Levitt represented Schneider Kleinick and Thuillez Ford.

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