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The two hundred or so lawyers who form the Castano group deserve credit for taking on the tobacco industry. But do they deserve a billion-dollar fee? In 1994 Wendell Gauthier, a New Orleans plaintiffs lawyer, launched Dianne Castano v. The American Tobacco Company by filing a nationwide federal class action against tobacco companies. It was a risky move. Years of litigation had failed to dent the tobacco industry, which looked invincible in court. Gauthier built a small army for this assault, recruiting such prominent plaintiffs lawyers as Stanley Chesley and John Coale. Some of the troops were foot soldiers, searching through documents and taking depositions. Others were investors. To paraphrase Napoleon, every class action coordinating committee marches on its wallet. For Gauthier, this suit wasn’t just business. His named plaintiff was the widow of his deceased friend Peter Castano, a New Orleans lawyer and heavy smoker who died from lung cancer in 1993 at age 47. Gauthier, who succumbed last December to liver cancer at age 58, claimed that cigarette companies had fraudulently concealed the addictive properties of tobacco. He was right, but he never got a chance to prove it. In May 1996 the Castano suit suffered a fatal setback. The tobacco industry, represented by Kirkland & Ellis’s Kenneth Starr, convinced the 5th U.S. Circuit Court of Appeals to decertify the class. Gauthier and his Castano team tried to salvage their crusade by filing 25 “Baby Castano” class actions in state courts around the country. One case, filed a month after the decertification, was a California action on behalf of James Ellis, a former smoker who had lost his larynx to cancer. The Ellis case was fashioned as a “private attorney general” suit, claiming that cigarette makers had violated the state’s unfair business practices act. It was the fourth private attorney general action filed in California against tobacco companies; the first was filed in 1992 by class action behemoth Milberg Weiss Bershad Hynes & Lerach. In January 1997 California’s politically ambitious then-lieutenant governor, Gray Davis, joined the Ellis case as another plaintiff. The suit became known as Davis/Ellis. Unfortunately for the Castano group, the Baby Castanos fizzled too. With the exception of a pending Louisiana suit, every one was dismissed or failed to get certified as a class. Davis/Ellis didn’t make much progress either. The plaintiffs’ lawyers never took a deposition that wasn’t part of another state’s discovery, and they didn’t win any significant motions. Meanwhile, a growing army of state attorneys general was having more success pursuing a separate track of litigation, winning key litigation victories against the industry and heading to trials. About a year after Ellis was filed, the Castano group came close to a settlement. In June 1997 the industry, the states, the Castano group, and other scattered litigants agreed to a $350 billion deal. But it required congressional approval, and Congress failed to act. More than a year later, in November 1998, the industry reached a different pact with the states. By that point, the Baby Castanos had suffered so many setbacks that they weren’t viewed as a threat. “We didn’t pay any attention to them at all,” says a former attorney general. “[The Castano lawyers] had no case with any leverage.” Of course, the Castano lawyers saw the situation differently. They believed that they had leverage in California, and according to participants in the cases, they used it. When the national settlement was being negotiated, Tracy Buck-Walsh, then a special assistant attorney general in California, says she was repeatedly called by San Diego lawyer Mark Robinson Jr., of Newport Beach’s Robinson, Calcagnie & Robinson. A member of the Castano group, Robinson asserted that the Castano group should be treated as counsel for California, Buck-Walsh recalls. She told Robinson that was “absurd.” Buck-Walsh was on solid ground. When California joined the tobacco battle in June 1997, the state’s then attorney general, Dan Lungren, refused to hire outside counsel, leaving the work to his staff. “We are simply not selling tickets to a lottery for law firms,” he told The Los Angeles Times. After the master settlement agreement (MSA) was signed on November 23, 1998, the Castano lawyers saw an opening. Lungren’s suit had earlier been coordinated with Davis/Ellis in San Diego superior court. Shortly before a December 1998 hearing to approve California’s participation in the settlement, some California members of Castano warned Buck-Walsh that they might use a peremptory challenge to get a new judge for the coordinated cases, according to the former state lawyer (who is now a solo practitioner). That would delay the settlement’s approval until the next calendar year, when California would have a new attorney general, Bill Lockyer. Lockyer had indicated that he might not sign off on the settlement so readily. If California didn’t get court approval quickly, the whole MSA could fall apart. A concerned Buck-Walsh contacted the MSA’s main negotiators, Joseph Rice of Ness Motley (representing the states) and Meyer Koplow of Wachtell, Lipton, Rosen & Katz (representing the industry). She told them the Davis/Ellis lawyers might delay the approval process, and asked if they would agree to let them into the fee arbitration process. Neither Rice nor Koplow responded to requests to confirm this discussion. Koplow drafted a document letting the Castano group in, but only to be compensated for work done “in connection with” Davis/Ellis. “There was a strong belief that because they had done virtually no work [on Davis/Ellis], it was virtually costless to include them in the fee arbitration process,” explains an industry representative who requested anonymity. Castano group member Donald Hildre of San Diego’s Dougherty, Hildre, Dudek & Haklar denies that they discussed holding up the settlement approval by requesting a new judge. “That’s an absolute lie,” he says. “We never made any threats [to get a new judge].” Instead, he insists, the tobacco companies asked the Davis/Ellis lawyers to drop their case. But another person involved in the tobacco litigation supports Buck-Walsh’s version. This person recalls Robinson saying that the settlement could be blown up with a peremptory challenge if the Davis/Ellis lawyers weren’t allowed into the fee arbitration. Robinson did not return calls requesting an interview. After securing the right to go to the fee arbitration, the Castano group voluntarily dismissed Davis/Ellis with prejudice, getting no relief for their clients, outside of what the MSA already provided. Over the next two years, the Castano group pressed Koplow to expand the fee agreement and let them get paid for all their work nationwide, not just for Davis/Ellis. Koplow refused, according to testimony he gave at the Castano arbitration. The Castano group also attempted to intervene in the fee arbitrations stemming from awards in both Florida and Texas. Their bids were rejected. Since July, The American Lawyer has sought interviews with members of the Castano group. The chairman of the group’s executive committee, New Orleans lawyer Robert Redfearn, did not return calls, and neither did ten of the group’s more prominent members. Chesley was willing to talk, but bristled when asked why his group wasn’t included in the MSA. “I won’t get into the details. That was a negotiating issue,” says the name partner at Cincinnati’s Waite, Schneider, Bayless & Chesley. He instead emphasizes his role in the failed June 1997 deal. “Look at the June 20 accord,” he orders. “Look at the signature page. That’s my signature!” In late February 2001 scores of law-yers filled a ballroom at the Essex House on Manhattan’s Central Park South. The Castano group was about to begin a four-day arbitration to determine how much they should be paid. Hearing the case was the special tobacco fee award panel: Harry Huge (the plaintiffs’ lawyers’ choice), former federal judge Charles Renfrew (the industry’s choice) and chairman John Calhoun Wells (the “neutral”). Stretched across one wall was a giant chart showing a detailed chronology of the Castano nationwide litigation, going back to 1993. Calling themselves a “unique group in the annals of American litigation,” the Castano lawyers asserted that they deserved to be compensated as pioneers in the war against Big Tobacco. Their work in the Davis/Ellis case was significant, they said. But they deserved to be paid for even more. “The tobacco landscape has changed radically in the last few years, and our efforts have helped bring that about,” Redfearn told the panel in his opening. “We do not take full credit for this dramatic change, but we will show you the part that we played and how we helped move the ball down the field from the beginning to the end.” Before the hearing the lawyers had given the three-person arbitration panel a slickly produced set of three videos, complete with a distinguished British voice-over. The tapes contained testimonials about the great work the Castano lawyers had done, beginning with footage of former president Bill Clinton praising the group. (Clinton’s brother-in-law Hugh Rodham is a Castano member.) For the tobacco merchants, Lazar Raynal, a partner at McDermott, Will & Emery, tried to steer the panel back to the language of the fee agreement, which limited the Castano lawyers’ compensation to the Davis/Ellis case. “We’re not coming in here to dispute whether or not the lawyers that are sitting before you did a lot of work,” he said. “The primary question that’s going to be before this panel is what work do they get paid for, and how much do they get paid for it.” The Castano lawyers’ witness list didn’t scrimp on legal and political celebrities, even though most had nothing to do with Davis/Ellis. Utah senator Orrin Hatch, for example, appeared by satellite feed to praise the Castano group. Hatch had been active in the June 1997 settlement discussions, but the Republican lawmaker played no role in the eventual master settlement, or the Davis/Ellis case. Still, Hatch testified that a settlement would not have been reached without the Castano lawyers. Since 1998 Hatch has received more than $50,000 in contributions from Castano members. The senator did not respond to requests for comment about his role in this fee hearing. Television personality Greta Van Susteren, the wife of Castano member John Coale, described how the media-savvy Castano lawyers generated favorable coverage that put pressure on the industry. “When you have a case of national importance, national prominence, it’s not enough to just have the manpower, it’s not enough to just have the resources. You’ve got to get the American people behind it,” she said. Former California federal district court judge John Davies, who was not involved in the tobacco litigation, took the stand to laud the Castano lawyers for their “superb” lawyering throughout Davis/Ellis. On cross-examination McDermott’s Raynal asked the ex-judge what precisely the Davis/Ellis plaintiffs lawyers had accomplished. Raynal: What legal battles before the judge in the Davis/Ellis case were significant that were won by counsel here? Davies: Well, I think that one would have to say few if none. Raynal also questioned Judge Davies about a fee award he made in the Rodney King civil rights case, in which he denied fees for work done on failed claims. When the judge commented that losers in civil rights cases are not entitled to be paid, Wells seemed surprised and asked the judge to “illuminate” that. The most surprising witness was former California attorney general Lungren. Notwithstanding Lungren’s disdain for hiring outside counsel, here he was in the Essex House ballroom, lauding the Castano group. “The reality was that Dan Lungren knew little about the settlement,” says one former Lungren staffer, who notes that during the MSA negotiations Lungren was in the midst of an unsuccessful run for governor. McDermott partner Jeffrey Stone asked the ex-attorney general how much he was being paid by the plaintiffs lawyers. More than $200,000, he answered. Lungren, now a partner at the Venable law firm in Washington, D.C., did not comment for this article. The two sides sparred over the plaintiffs’ accomplishments in Davis/Ellis. The McDermott lawyers called it a duplicative lawsuit that didn’t influence the outcome. The Castano group insisted they had put substantial pressure on the industry because Davis/Ellis was headed for an imminent trial. David Casey, Jr., a Castano member from San Diego’s Casey, Gerry, Reed & Schenk, showed the panel a document purportedly setting the trial for February 1999. “This is Judge Prager’s order right here,” he told the panel. “We had a firm trial date of February 5. … There’s no question about it.” On cross-examination McDermott’s Raynal forced Casey to admit this document was a form spit out by a computer when the case was coordinated with Lungren’s suit and other tobacco cases. San Diego superior court judge Ronald Prager had never set a trial date. According to several participants, an embarrassed Casey broke down and sobbed, and Chesley rushed to comfort him. Repeatedly during the arbitration, the industry lawyers tried to focus on the language of the contract that limited the Castano group’s fee to its Davis/Ellis work. The Castano lawyers countered that they should get paid for their wide-ranging efforts nationwide, extending far beyond that single case. To address the troublesome contract language, they enlisted Harvard Law School professor Arthur Miller, who told Wells he could apply equitable principles and “do the right thing.” Throughout the arbitration, chairman Wells strived to keep the hearings cordial. At times he admonished McDermott’s Stone, a former federal prosecutor, for questioning witnesses too sharply. To lighten the proceedings, he relied on his casual, homespun sensibility. “There’s an old saying that comes from Breathitt, Kentucky: When something is unclear, it is called murky as a clay hole,” he commented at one point. “And I must tell you, on more than one occasion I have found these issues and our decision making as murky as a clay hole.” That murkiness didn’t stop Wells and Huge from giving the Castano group $1.25 billion. Three months later, in September 2001, three tobacco companies — Brown & Williamson Tobacco Corp., Lorillard Tobacco Co. and R.J. Reynolds Tobacco Co. — sued to have the award vacated. “The majority so clearly violated their jurisdiction,” explains Stone. “This was such a clear case where they ignored the fee payment agreement.” Philip Morris Inc. (Koplow’s client) did not join this suit, even though it’s paying the largest chunk of the award. (Tobacco companies’ payments are determined by their market share.) The company declined to explain its absence from this litigation. Even though the industry has been outraged by other awards, the Castano fee is the only one it has contested. Until Castano, industry lawyers didn’t believe they could clear the high hurdles to overturning an arbitration decision. It took the Castano panel more than a year to release a written decision, which it issued this past July 15. The rambling 67-page single-spaced document focuses on the group’s nationwide efforts going back to 1993. The majority said it considered compensable all national work that was either “available and to be used” in the Davis/Ellis trial or national work “contemporaneous with the Davis/Ellis action, which may reasonably have contributed to the disposition of the case.” Using this framework, the majority shoehorned in the bulk of the Castano group’s overall work. “This award truly shocks the conscience,” wrote Renfrew, who in his dissent chastised the majority for ignoring the fee agreement’s language. In his Sept. 25 decision throwing out the award, Judge Nicholas Figueroa echoed Renfrew’s criticism: “The plain meaning of [the contract] has been ignored by the arbitrators.” Reached after Judge Figueroa issued his decision, an angry Coale complained that the judge improperly invalidated Philip Morris’s portion of the fee, even though the company hadn’t contested it. He also lambasted the decision as unfair, arguing that the Castano group should get credit for California’s entire $25 billion recovery. Coale has asked for a rehearing.” One lawyer involved in the MSA says he had mixed feelings about the Castano fee. “Had the Castano lawyers not had the courage to step forward and file the first class action, it’s not clear any of this would have happened,” he says. “On the other side, their cases were probably worthless. When push came to shove, they didn’t have anything.” And that’s the risk that plaintiffs’ lawyers take.

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