Opinion ID: 2977119
Heading Depth: 2
Heading Rank: 1

Heading: The Fee Payment Agreements

Text: In the 1990s, a number of states filed lawsuits against tobacco companies, seeking damages for the states’ treatment of smoking-related illnesses. In 1997 and 1998, Plaintiffs entered settlement agreements with the states, many of which were represented by private counsel. Mississippi, Texas and Florida were the first states to initiate the suits and the first states to settle, and as part of these first three settlements, Plaintiffs entered fee payment agreements with the private counsel representing the three states (“MTF Counsel”). In September 1998, Florida’s outside counsel entered a Florida Fee Payment Agreement (“Florida FPA”) with Plaintiffs. Like the fee payment agreements entered by counsel for Mississippi and Texas, the Florida FPA called for a panel of arbitrators to determine the fee award for Florida’s outside attorneys. Pursuant to the three fee payment agreements, in December 1998, a panel of arbitrators awarded a total of approximately $8.17 billion to MTF Counsel, including a fee award for Florida’s outside counsel of approximately $3.43 billion. The three fee payment agreements anticipated that private counsel from other states would have to be paid once those states settled; the agreements therefore required Plaintiffs to make quarterly payments of $125 million until the fees of all states’ private counsel were paid, including the $8.17 billion owed to MTF Counsel. Each counsel would receive a pro rata share of each quarterly payment, based on the outstanding balance owed to the counsel as a percentage of the total outstanding balance of fees owed to all private counsel. In November 1998, Plaintiffs entered a Master Settlement Agreement (“MSA”) with fortysix states and territories to settle the remaining tobacco lawsuits. Pursuant to the MSA, Plaintiffs entered a Model Fee Payment Agreement (“Model FPA”) with the states to structure the payment of attorneys’ fees to outside counsel for the forty-six jurisdictions. Under the terms of the Model FPA, each jurisdiction’s private counsel could either receive a negotiated payment from Plaintiffs up front (a “liquidated fee”), or elect to arbitrate and be paid an arbitration award by receiving a pro rata share of the $125 million quarterly payments which Plaintiffs had already committed to paying. The Model FPA required Plaintiffs to set aside $1.25 billion for the private counsel who negotiated liquidated fees, and to pay in full all liquidated fees by the end of 2003. Plaintiffs negotiated liquidated fees with counsel from approximately twenty-one jurisdictions, while counsel from the remaining jurisdictions opted for arbitration and a pro rata share of the quarterly payments. Counsel from the states and territories that opted for arbitration received a total award of approximately $6.08 billion; including the fee awards to MTF Counsel, Plaintiffs’ total arbitration fee payments totaled approximately $14.25 billion. Plaintiffs’ liquidated fees to the twenty-one jurisdictions that negotiated such fees totaled approximately $625 million. 1 The five Defendants appealing the district court’s order include Terrell Hogan Ellis Yegelwel, P.A.; Fonvielle Hinkle & Lewis, P.A.; Law Office of W.C. Gentry, P.A.; Maher, Guiley & Maher, P.A.; and Nance, Cacciatore, Hamilton, Barger, Nance & Cacciatore. Although there were a total of eleven outside counsel representing Florida, the other six outside counsel are not relevant to this appeal. The five Florida counsel appealing the district court’s order are collectively referred to as “Florida Counsel.” No. 07-3589 Lorillard Tobacco Co., et al. v. Page 3 Chester, Willcox, and Saxbe, et al. Pursuant to the Model FPA, Plaintiffs were required to use the remaining $625 million of the $1.25 billion that it had earmarked for liquidated fees as “supplemental payments” to the arbitration fee award recipients, in addition to the $125 million quarterly payments. Plaintiffs were to make the supplemental payments in five annual installments of $125 million in the fourth quarter of every calendar year beginning in 2004. All of Plaintiffs’ payments were to be made without interest and were unsecured. In 2001, rather than accept periodic, unsecured, non-interest bearing payments, Florida Counsel sold their interest in the fee award for a lump sum at a discounted price. As part of this transaction, each Florida Counsel formed a limited liability company (“LLC”) and assigned its interest in the fee award to the LLC. The LLCs then issued and sold secured notes to public investors, with the proceeds going to Florida Counsel in exchange for their interest in the attorneys’ fees. Additionally, the LLCs pledged their interest in the fee payments to Deutsche Bank, the indenture trustee, as collateral to secure payment of the principal and interest on the notes. Upon forming the LLCs, each Florida Counsel sold its interest in its LLC to an outside investor.