A California appeals court has upheld an attorney fee award of nearly $3 million against RJ Reynolds Tobacco Company in an action for the historic 1998 multi-state tobacco settlement.  The court held that San Diego Superior Court Judge Ronald 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 fee award was not excessive under the circumstances.

In November 1998, RJ Reynolds and the nation’s other largest tobacco companies entered into the master settlement agreement (MSA) 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.  In California, the State and RJ Reynolds signed the Consent Decree, under which the San Diego County Superior Court approved the MSA and retained exclusive jurisdiction over its implementation and enforcement.  The MSA prohibited the use of “cartoons” in the advertising.

In 2006, RJ Reynolds launched an advertising campaign called “Farm Rocks,” designed to sell cigarettes to fans of rock music.  Then-Attorney General Jerry Brown filed suit seeking injunctive relief, declaring RJ Reynolds violated the cartoon ban “thousands of times in 2006 and 2007…” In 2009 Prager declined to order injunctive relief, noting the company terminated the campaign shortly after the ad ran.  The Court of Appeals affirmed, and the judge subsequently awarded the state $700,000 in attorney fees.

Both sides appealed, with RJ Reynolds arguing that because the MSA was a contact, Prager should have applied California Civil Code Sec. 1717 and denied fees because the state did not win “the greater relief.”  The state argued that the judge should have based the fee award on the rates normally charged by private counsel, rather than on how much the state paid its lawyers.

The Court of Appeals agreed with RJ Reynolds that Sec. 1717 applied, and sent the case back to the trial judge to determine whether the state was still the prevailing party and 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 the state obtained the greater relief.  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.

In the now published decision, In re Tobacco Cases I (pdf), Presiding Justice Judith McConnell ruled that both of these determinations were within the trail judge’s discretion.  She noted that RJ Reynolds spent more on attorney fees than what the state was awarded, and credited the testimony of the state’s expert, who described RJ 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.”

McConnell also concluded that Prager was reasonable in accepting the state’s proposal that the lodestar 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.