Tuesday, May 21, 2013
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C.A. Upholds $3 Million Fee Award in Tobacco Settlement Violation
By KENNETH OFGANG, Staff Writer
The Fourth District Court of Appeal has upheld an attorney fee award of nearly $3 million against R.J. Reynolds Tobacco Company in an action for violation of the 1998 national tobacco settlement.
Div. One held that San Diego Superior Court Judge Ronald S. Prager did not abuse his discretion in ruling that the attorney general was the prevailing party in the enforcement litigation, despite the denial of injunctive relief. The court also held that the amount of the award was not excessive under the circumstances.
The opinion by Presiding Justice Judith McConnell was filed April 26 and certified yesterday for publication.
Then-Attorney General Jerry Brown, along with other states’ attorneys general, filed suit over an advertising campaign that began in 2006. The campaign, known as “Camel Farm” or “Farm Rocks,” was designed to sell cigarettes to fans of rock musicians on independent record labels.
As part of the campaign, an advertisement depicting flying radios with helicopter rotors, jet-propelled tractors and televisions growing from the ground on plant stalks appeared in Rolling Stone magazine’s 40th anniversary edition in 2007.
Settlement Agreement
Reynolds and the nation’s other largest tobacco companies entered into the settlement agreement with 46 states and the District of Columbia to resolve claims against the companies relating to public health and the marketing of tobacco products to minors.
The settlement prohibited the use of “cartoons” in the advertising, promoting, packaging or labeling of tobacco products. Brown claimed that both the ads themselves, and the fact that the Rolling Stone ad specifically was placed adjacent to editorial content containing cartoons, violated that part of the settlement.
Prager ruled in 2009 that the images violated the settlement’s ban on depicting “objects” with “unnatural” abilities. However, he declined to order injunctive or declaratory relief, noting that the company terminated the campaign shortly after the ad ran and took subsequent steps to prevent future ads from appearing near cartoons.
The Court of Appeal affirmed, and the judge subsequently awarded the state more than $700,000 in attorney fees.
Both sides appealed, with Reynolds arguing that because the settlement agreement was a contract, Prager should have applied Sec. 1717 and denied fees because the state did not win “the greater relief.” The state argued that the judge should have based the award on the rates normally charged by private counsel, rather than on how much the state paid its lawyers, who were deputy attorneys general.
Private Lawyers’ Rates
The Court of Appeal agreed with Reynolds that Sec. 1717 applied, and sent the case back to the trial judge to determine whether the state was still the prevailing party. But it agreed with the state that if it was the prevailing party, the fee award should be recalculated to reflect the rates charged by private lawyers of similar skill and experience.
On remand, Prager found that the state obtained the greater relief, because it achieved its central litigation objective of having Reynolds found in violation of the settlement. The judge further found that hourly rates of between $500 and $625 per hour were appropriate, based on fees customarily charged in the San Francisco Bay Area, because the litigation was primarily handled out of the attorney general’s Oakland office.
McConnell, writing for the Court of Appeal, said both of those determinations were within the trial judge’s discretion.
The conclusion that the state had prevailed, within the meaning of Sec. 1717, was one that Prager—having presided over the case from the beginning as coordination trial judge—was uniquely qualified to make, the presiding justice wrote. And the fact that the case was litigated in San Diego did not necessarily mean that the fee award had to be based on San Diego-area rates, which are generally lower than the Bay Area’s.
She cited evidence that the Tobacco Litigation Section had only two lawyers in San Diego, that they were among the section’s least experienced lawyers and were busy with other cases, that the attorneys in Oakland were among the section’s most experienced, and that most of the attorney general’s work involving the tobacco settlement had been done out of Oakland or Sacramento.
‘Intransigent and Unrelenting’
The presiding justice noted that Reynolds spent more on attorney fees than what the state was awarded, and credited the testimony of the state’s expert, who described Reynolds as “one of the wealthiest, most intransigent and unrelenting defendants that any litigant can face,” and said its “attorneys fought this case tooth and nail, contesting almost every issue.”
The state, she said, “could not reasonably be expected to use the Tobacco Section’s least experienced attorneys” in the face of such opposition.
McConnell also concluded that Prager was reasonable in accepting the state’s proposal that the lodestar amount be discounted by 15 percent in recognition that the state had not prevailed on all issues. The same factors that were relied on in determining that the state was the prevailing party overall were properly considered in rejecting Reynolds’ suggestion that a larger discount be applied, she said.
The presiding justice derided as “ludicrous” the company’s suggestion that “the case obviously would have been resolved quickly and cheaply” if the state had limited its complaint to the issue of whether the Farm Rocks campaign involved cartoons.
The case is In re Tobacco Cases I, 13 S.O.S. 2512.
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