Lorillard Tobacco Co. v. Chester, Willcox & Saxbe

• Decision Date: 23 December 2009
• Docket Number: No. 08-4383.,08-4383.
• Parties: LORILLARD TOBACCO COMPANY et al., Plaintiffs, v. CHESTER, WILLCOX & SAXBE et al., Defendants. W.C. Gentry, P.A., f.k.a. Gentry, Phillips & Hodak, P.A.; Gentry and Phillips, P.A.; and GP (FL) Funding, III, LLC, Defendants-Appellants, v. Lester G. Fant, III; GP (FL) Funding II, LLC; Galway II, Inc.; Galway T-1, LLC; and Galway Partners, LLC, Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

589 F.3d 835

LORILLARD TOBACCO COMPANY et al., Plaintiffs, v. CHESTER, WILLCOX & SAXBE et al., Defendants.

W.C. Gentry, P.A., f.k.a. Gentry, Phillips & Hodak, P.A.; Gentry and Phillips, P.A.; and GP (FL) Funding, III, LLC, Defendants-Appellants, v. Lester G. Fant, III; GP (FL) Funding II, LLC; Galway II, Inc.; Galway T-1, LLC; and Galway Partners, LLC, Appellees.

No. 08-4383.

United States Court of Appeals, Sixth Circuit.

Argued: December 1, 2009.

Decided and Filed: December 23, 2009.

ARGUED: John A. DeVault, III, Bedell, Dittmar, Devault, Pillans & Coxe,

P.A., Jacksonville, Florida, for Appellants. Thomas W. Hill, Kegler, Brown, Hill & Ritter, Columbus, Ohio, for Appellees. ON BRIEF: John A. DeVault, III, Patrick P. Coll, Bedell, Dittmar, Devault, Pillans & Coxe, P.A., Jacksonville, Florida, for Appellants. Thomas W. Hill, Christopher J. Weber, Kegler, Brown, Hill & Ritter, Columbus, Ohio, for Appellees.

Before: GILMAN and KETHLEDGE, Circuit Judges; BERTELSMAN, District Judge.^*

OPINION

RONALD LEE GILMAN, Circuit Judge.

This case arises from a statutory interpleader class action brought to determine the rights of various private counsel to certain attorney fees awarded in the nationwide tobacco litigation of the late 1990s. Several major tobacco companies and a class of private counsel involved in the litigation entered into a Settlement Agreement that was approved in a final judgment entered by the United States District Court for the Southern District of Ohio. In that judgment, the court enjoined the parties and class members from bringing any further claims relating to the subject matter of the Settlement Agreement. One of the class members, who had participated in the tobacco litigation in Florida, later filed a complaint in a Florida state court that raised matters relating to its entitlement to the funds at issue in the interpleader action.

The district court enjoined the parties to the state-court litigation from proceeding with that action, concluding that they were prohibited from doing so by the permanent injunction entered in the interpleader case. Florida counsel appeals, claiming that the new injunction exceeds the scope of the Settlement Agreement and violates the Anti-Injunction Act. For the reasons set forth below, we AFFIRM the order of the district court enjoining the parties from proceeding in the state-court litigation.

I. BACKGROUND

A. Prior appeal

This case is on appeal to the Sixth Circuit for the second time. The relevant factual and procedural background was set forth in the prior decision, Lorillard Tobacco Co. v. Chester, Willcox & Saxbe, LLP, 546 F.3d 752 (6th Cir.2008), and is reproduced below.

[1]. The Fee Payment Agreements

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 [Lorillard Tobacco Company, Philip Morris USA Inc., and R.J. Reynolds Company] 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 forty-six 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. 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 [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] 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 [—Lester G. Fant, III and his LLCs].

[2]. The Interpleader Action

In 2004, a dispute arose concerning the supplemental payments that Plaintiffs were required to make to arbitration fee award recipients in the fourth quarters of 2004 through 2008. To resolve the dispute, Plaintiffs filed a class action suit for interpleader relief on August 5, 2004. The complaint alleged that MTF Counsel claimed a right to the supplemental payments, even though the fee payment agreements with Mississippi, Texas and Florida did not mention the supplemental payments. The complaint further alleged that the non-MTF Counsel who had entered the Model FPA and received fee awards in arbitration claimed that MTF Counsel were not entitled to the supplemental payments. The complaint named, as the two classes of defendants, MTF Counsel and the non-MTF Counsel who were entitled to arbitration fee awards. Upon filing their complaint, Plaintiffs deposited approximately $66.34 million—the amount of the 2004 supplemental payment claimed by MTF Counsel as their pro rata share—into the district court's registry.

On September 10, 2004, Florida Counsel filed an answer in which they argued that

[f]or the protection of the Plaintiffs and for the benefit of all "Private Counsel" retained by states and territories in connection with any "Tobacco Case" (defined as any tobacco and health case), the Mississippi, Texas and Florida Fee Payment Agreements set forth a national single payment schedule with quarterly aggregate national caps and the allocation of such proportionally between all Private Counsel having unpaid fees. In essence, the combination of provisions treats all Private Counsel equally and, therefore, operates as a "Most Favored Nations" clause for the benefit of all Private Counsel.

Citing the Model FPA, Florida Counsel noted that "any portion of the $1.25 billion that was not used to `liquidate fees' was expressly designated to be paid into the arbitrated fee fund for payment of fees of `each Private Counsel' who elected for arbitration." Florida Counsel contended that because "Private Counsel" is defined in the Model FPA as "all private counsel for all plaintiffs in a Tobacco Case (including State outside counsel)," Florida Counsel were entitled to a share of the supplemental payments, based on the combined structure of the Florida FPA, the MSA and the Model FPA.

In the alternative, Florida Counsel asserted a counterclaim against Plaintiffs, alleging that if the district court found that Florida Counsel were not entitled to share in the supplemental payments, "then Plaintiffs have breached their express agreement as well as their implied covenant of good faith and...