South-Western Legal Studies in Business

Attorney Fee Overturned As Irrational
Description Court overturned a $1.25 billion attorney fee approved by an arbitrator in the national class action suit against the tobacco companies by the states. Courts may overturn the decisions of arbitrators when they are irrational or violate public policy. This award had no justification.
Topic Alternate Dispute Resolution
Key Words Arbitration; Legal Fees; Tobacco; Reversal
C A S E   S U M M A R Y
Facts Law firms from around the nation were involved in a class action suit against tobacco companies that resulted in a $240 billion settlement distributed to the states, including $25 billion to California. The tobacco companies also agreed to pay reasonable attorneys' fees to the law firms that represented the states. Arbitrators awarded one California law firm that played a minor role in the matter $1.25 billion in fees. The tobacco companies moved to vacate the award as excessive.
Decision

Motion granted. The arbitration took place in New York and so is governed by New York law. There is "a strong public policy favoring arbitration, consequently an award is not subject to vacatur 'unless the court concludes that it is totally irrational or violative of a strong public policy' and thus in excess of the arbitrator's powers." "An arbitrator exceeds her power only if her construction of the contract is completely irrational, tantamount to making a new contract." The award is irrational as it bears no relationship to the work performed by the law firm and is not justified by the arbitrator. There will be another hearing to determine the amount of fees that should be paid for the work done.

Citation Brown & Williamson Tobacco Corp. v. Chesley, 2002 WL 31470401 (Sup. Ct., N.Y., 2002)

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