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Lawyers sparred in New York’s Appellate Division, 1st Department, Tuesday over whether Justice Charles E. Ramos has the power to sua sponte examine the propriety of an arbitration award of $625 million to the six law firms that worked on New York state’s case against the tobacco industry. Samuel Issacharoff, a law professor who represents the three out-of-state firms that worked for New York, told the panel that in searching the arbitrator’s award, Ramos is taking an unprecedented action that is causing great mischief. Ramos’ assertion that he has the sua sponte power to scrutinize the fee award is “rendering uncertain what should have been concluded,” said Issacharoff, who teaches complex litigation and constitutional law at Columbia University School of Law. Jack S. Hoffinger, who was appointed independent counsel by Justice Ramos to defend his order, retorted that whatever procedural limitations may hem in a court’s power to review an arbitration award, judges retain the inherent power to supervise awards of attorney fees. Hoffinger, of Hoffinger, Stern & Ross, told the panel that judges cannot give up their inherent power because “like gravity, it’s there.” Three other lawyers lined up behind Issacharoff in opposing Justice Ramos’ review of the fees: Derek Meyer of McDermott, Will & Emery representing the tobacco industry; Brian Shoot of Sullivan Papain Block McGrath & Cannavo, representing the three in-state firms that worked for the state; and Assistant Solicitor General Sachin S. Pandya, who represented the state. The six law firms were awarded $625 million for their work on New York’s litigation against the tobacco industry, which resulted in a $208 billion nationwide settlement in 1998. New York’s share of the settlement was $25 billion. The settlement provided the states with compensation for payments under the Medicaid program or to state employees for the medical treatment of smoking-related illnesses. 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 of Charleston, S.C.; the Scruggs Firm in Pascagoula, Miss.; and Hagens & Berman, a Seattle firm. FEW QUESTIONS There were few questions from the bench during the argument, which lasted nearly an hour. The panel consisted of Justices Eugene Nardelli, Peter Tom, Alfred D. Lerner and Richard T. Andrias. Justice Richard W. Wallach was originally scheduled to be a part of the panel but was ill and could not participate. Issacharoff warned the panel that Justice Ramos was asserting the power to intervene in a settlement that had produced the “greatest fiscal recovery ever obtained by the state” and had resulted in safety measures that by some estimates will save 90,000 lives. Meanwhile, Hoffinger, representing Justice Ramos, struggled to engage the panel. “When everyone is content with an outcome that looks offensive, doesn’t that raise a question?” he asked. At another point, he suggested that his opponents were urging that somehow the courts had lost “to the lawyers” their inherent power to review fees. No one on the panel responded to either point. In an odd twist, after the argument appeared to be over, all the parties were summoned back into the courtroom. Apparently, the court’s timekeeper had accidentally cut Hoffinger’s time in half. He argued for at least six or seven minutes more without getting a question from the bench. ANTITRUST CLAIM KEY In the ruling under appeal, Justice Ramos had determined in State of New York v. Philip Morris that he has the authority to determine whether the $625 million fee is reasonable because one of the 16 claims brought by New York against the tobacco industry had been certified as a class action. The claim was for an antitrust violation of the state’s General Business Law brought on the state’s own behalf, like the other 15 causes of action, and a class consisting of the state’s 62 counties. In his ruling issued in October, Ramos ordered that the tobacco industry make payments of fees as they become due into an escrow fund managed by the attorney general’s office, but the Appellate Division has lifted the stay. In January, Justice Ramos also ordered that Hoffinger and Harvey Fishbein of Gould Fishbein Reimer & Gottfried be appointed as independent counsel to defend his ruling. The attorney general’s office has challenged the appointment of independent counsel, and that dispute was argued Tuesday as well. In their briefs, the independent counsels justified their appointment and Justice Ramos’ assertion of authority to review the fee award upon the fact that both the attorney general and the other interested parties are “hopelessly conflicted.” They contend that the conflict stems from the fact that New York Attorney General Eliot Spitzer and other officials from the office had testified at the arbitration proceeding in favor of the fee request. They also stress that the tobacco industry did not call any witnesses familiar with the legal work performed by the six firms to rebut their fee claims. That was a point, they noted, that the majority of the arbitration panel had emphasized in its opinion. The $625 million award was approved by a 2-1 vote with the industry’s representative dissenting. The attorney general’s office disputed the existence of any conflict contending it represented no party in the arbitration proceeding in which lawyers from its office testified in support of the lawyers’ fee request. The disciplinary rules, particularly D.R. � 5-102(A), only require disqualification when an attorney acts as an advocate and witness in the same proceeding, the attorney general’s brief pointed out. Moreover, the attorney general’s office asserted that the independent counsel had their own conflict, since none of the class members, either the counties or the state itself, have objected to the fee award. Since the fees are paid separately by the tobacco industry, not from the $25 billion recovery, the attorney general’s brief points out, none of the class members have a financial stake in the fee award. The counties as well as the state have the added concern, the brief states, that Justice Ramos’ asserted power to change the terms of the settlement, several years after judgment has been entered, creates uncertainty that could impact upon their ability to issue bonds backed by funds from the settlement. In fact, the New York Association of Counties of New York has asked independent counsel not to pursue the appeal on behalf of its members, the state’s brief points out. CLASS ACTION ISSUE The tobacco industry, the six firms and the attorney general’s office all oppose Ramos’ invocation of the class action provision to support his sua sponte review of the arbitration award. Justice Stephen G. Crane’s approval of the settlement of the tobacco case on Dec. 23, 1998, precludes any claim for further court review, they contend. The approval of the settlement necessarily encompassed approval of all its terms, including the provision providing for arbitration of the fee award, they contend. Justice Crane presided over the tobacco litigation until his appointment to the Appellate Division, 2nd Department, in 2001. Independent counsel counters that Justice Ramos’ authority to review the reasonableness of a class action fee award remains intact. The settlement is “silent,” they contend, on the critical question of whether the court retains the power to review the reasonableness of the fee award after the arbitration is completed.

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