Philip Morris Inc. v. Glendening

• Decision Date: 01 September 1997
• Docket Number: No. 10,10
• Citation: 349 Md. 660,709 A.2d 1230
• Parties: PHILIP MORRIS INCORPORATED et al. v. Parris N. GLENDENING et al. ,
• Court: Maryland Court of Appeals

Page 660

349 Md. 660

709 A.2d 1230

PHILIP MORRIS INCORPORATED et al. v. Parris N. GLENDENING et al.

No. 10, Sept. Term, 1997.

Court of Appeals of Maryland.

May 19, 1998.

John Henry Lewin, Jr. (Venable, Baetjer and Howard, L.L.P., on brief), Baltimore, for appellants.

Carmen M. Shepard, Deputy Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen.; John B. Howard, Jr., Asst. Atty. Gen., all on brief), Baltimore, for appellees.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW, RAKER and WILNER, JJ., and ROBERT L. KARWACKI, Judge (retired), Specially Assigned.

BELL, Chief Judge.

The sole issue before the Court is the legality of a contingency fee contract executed by the Attorney General of Maryland and a private law firm for the purpose of representing the State in a major tort litigation. We shall hold that the contract, which was authorized by the Governor and approved by the Board of Public Works, is valid.

I.

On March 27, 1996, the Attorney General, after receiving authorization from the Governor, entered into a contingency fee contract (hereinafter, the "Contract") with a private law firm (hereinafter, "outside counsel") to "provide legal counsel, representation, and litigation services to the Attorney General and the State of Maryland in connection with litigation against the tobacco industry." p 2.1. The Contract states that the Attorney General contracted with outside counsel for the following three (3) reasons:

"the State of Maryland ('the State') has incurred substantial costs over the years to pay for the health and other care of its citizens afflicted with tobacco-related illnesses; and

"the State has determined to seek the recovery of such costs and other damages arising from the sale and/or distribution of tobacco products from the tobacco industry through litigation; and

"the State lacks sufficient resources to pursue the recovery of such costs without entering into a contract with counsel pursuant to a contingency fee arrangement." ¹

p Preamble. Pursuant to the Contract, the "Attorney General shall have the authority to control all aspects of [outside counsel's] handling of the litigation ... [and][s]uch authority shall be final, sole and unreviewable." Id. ² Outside counsel's responsibilities are also enumerated in the Contract as follows:

"A. Coordinate closely with the Attorney General regarding all aspects of this Contract and the legal remedies authorized thereby;

"B. Represent the State in any lawsuits filed to: (a) recover federal and State medical assistance payments paid or to be paid under both the federal Medicaid Program and the now discontinued State-only Medical Assistance Program (collectively, 'Medicaid Payments'), and in addition, any other types of expenditures made by or on behalf of the State for tobacco related illnesses, including health insurance coverage for State employees. The recovery sought under this Contract will be for medical services rendered or to be rendered to Medicaid recipients and other State employees with tobacco related illnesses. Recovery for additional ancillary expenditures may also be sought as part of the litigation; and (b) recover damages or other monies pursuant to consumer protection, common law fraud, or any other legal theories relating to tobacco-related damages. This representation responsibility shall include acting on behalf of the State in all legal and administrative matters, including all levels of appeal, arising out of or in conjunction with the [t]obacco [l]itigation.

"C. Initially bear and be solely responsible for all expenses (filing, legal, expert witness and otherwise) and all other costs of the [t]obacco [l]itigation, subject to reimbursement only in the event of a recovery, and to any limitations imposed by law or the rules of the Maryland Bar, which are the subject of this Contract, and for all employee salaries and all nature of office expenses incurred by or on behalf of [outside counsel].

"D. Provide copies to the Attorney General of all correspondence received or sent out, all legal pleadings filed or received, and shall in all other appropriate ways keep the Attorney General aware of the status of any lawsuits brought pursuant to this Contract;

"E. Shall, in the event of a successful recovery, prepare and provide a final accounting at the conclusion of all related legal proceedings, including all appeals, in the manner and form required by the Attorney General;

"F. Perform all legal services necessary, as determined by the Attorney General, to successfully litigate on behalf of the State, its claims against the tobacco industry;

"G. Use its best efforts to obtain all relevant discovery materials from existing and future tobacco litigation, and work with other law firms and attorneys cooperatively to achieve such goals; and

"H. Subject to the overall direction and supervision of responsible State government officials, retain and supervise all manpower necessary to permit this litigation to proceed without significantly impairing the ability of the involved State agencies to meet their ongoing governmental obligations. In this regard, [outside counsel] will retain at its sole expense sufficient manpower (including, but not limited to, clerical, data management, paralegals, software and data processing consultant) to meet the overall needs of the [t]obacco [l]itigation."

p 2.1 A through H. The State, through the Department of Health and Mental Hygiene, is obligated to appoint one full-time administrative staff person to work with outside counsel as project coordinator. p 2.1 I.

According to the Contract, compensation of outside counsel is contingent upon the State's recovery; outside counsel will receive compensation if and only if a money judgment is obtained as a result of the tobacco litigation. With respect to the fee, the Contract provides that outside counsel "will be paid a fee of 25% of the recovered funds plus the reasonable expenses of litigation incurred." p 3.1. If no damages are recovered, the Attorney General and the State will owe nothing to outside counsel. p 3.2. In the event of the recovery of damages, the Contract provides for the method of payment. That provision requires outside counsel to proceed as follows:

"A. Hold any monies received as a result of any settlement, legal final judgment, or as a bond, in an interest bearing account in a financial institution acceptable to the State ... and in a joint account bearing the names of both [outside] counsel and the State as account-holders. It is further understood and agreed that contingency fee payments and percentages shall be computed solely on the basis of the total amount of monies actually recovered and transmitted together with all accrued interest;

"B. Within thirty (30) days of the earliest legally permissible date, release and transmit any and all monies recovered to the State to the Attorney General, net of costs and fees allowed under this Contract as determined by the Attorney General, pursuant to his instructions, including interest accrued thereon; and

"C. Shall prepare and submit to the Attorney General an itemized computation of the contingency fee and expenses, in a manner and form acceptable to the State auditors, in advance of the payment referred to in paragraph B above."

p 3.3. Hence, after outside counsel collects 25% of the gross judgment amount, in addition to reasonable attorneys' expenses, the remaining amount, 75% of the gross recovery less attorneys' expenses, is the State's collection, ³ which is transmitted to the Attorney General, who, by law, must deposit the collected funds into the State Treasury.

All terms and provisions of the Contract were negotiated and agreed to by the Attorney General and outside counsel. In addition, members of the Board of Public Works, namely, the Governor, Treasurer and Comptroller, also approved and signed the Contract.

II.

On January 22, 1996, in the Circuit Court for Talbot County, several tobacco manufacturers and tobacco-related companies, (hereinafter, the "appellants"), ⁴ filed an action for declaratory and injunctive relief against Governor Parris N. Glendening, Attorney General J. Joseph Curran, Jr. and Secretary of the Department of Health and Mental Hygiene, Martin P. Wasserman, (hereinafter, collectively, the "appellees"), challenging the legality of the Contract. ⁵ Soon thereafter, the parties filed cross motions for summary judgment. The appellants contended that the Contract, which authorizes outside counsel to institute and prosecute an action on behalf of the State primarily against tobacco manufacturers for reimbursement of public funds expended to provide health care for tobacco-related illnesses, ⁶ is invalid because the Attorney General lacks constitutional or statutory authority to compensate outside counsel on a contingent fee basis. Specifically, they argued that, because the underlying tobacco litigation sought reimbursement for the expenditure of "public funds," any recovery would constitute "State funds," in toto and, as such, expenditures thereof must be authorized by a specific legislative appropriation. There has not been any such appropriation enacted by the General Assembly in this case, they pointed out. The appellants further argued that the Contract violates due process and public policy because it provides outside counsel with an improper financial stake in the outcome of the underlying litigation potentially, four billion dollars, 25% of the sixteen billion dollars recovery sought.

The appellees countered, arguing that the Attorney General, with the Governor's permission, has the constitutional and statutory authority to retain outside counsel on a contingent fee basis, in order to pursue a suit of significant public interest on behalf of the State. Furthermore, the appellees maintained, the contingency fee contract does not violate the appellants' due process rights because the Attorney General, the state official with...