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People v. Philip Morris

October 18, 2001

THE PEOPLE OF THE STATE OF ILLINOIS, APPELLANT,
v.
PHILIP MORRIS, INC. (HAGEN & BERMAN ET AL., APPELLEES).



The opinion of the court was delivered by: Justice Freeman

UNPUBLISHED

Docket Nos. 90185, 90186-Agenda 38-May 2001.

The questions presented for review are: (1) does a circuit court have jurisdiction to adjudicate an attorney's lien against the proceeds of a settlement where the State of Illinois was the plaintiff in the underlying action and where the settlement funds have never come into the possession or control of the state; and (2) did the circuit court of Cook County abuse its discretion in this case by establishing an escrow account to hold disputed attorney fees pending adjudication of an attorney's lien? We answer the first question in the affirmative. We do not answer the second question because it is premature.

BACKGROUND

This cause is before us following a motion to dismiss pursuant to sections 2-619(a)(1) and (a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(1), (a)(9) (West 1998)). In ruling on a section 2-619 motion to dismiss, the trial court may consider pleadings, affidavits, and other proof presented by the parties. Torcasso v. Standard Outdoor Sales, Inc., 157 Ill. 2d 484, 486 (1993); Bloomingdale State Bank v. Woodland Sales Co., 186 Ill. App. 3d 227, 232 (1989); see generally 4 R. Michael, Illinois Practice §41.8 (1989). The record contains the following facts.

In April 1996, the Attorney General of Illinois began to consider filing a civil lawsuit on behalf of the state against tobacco companies. Throughout the summer and fall of 1996, the Attorney General interviewed a number of law firms to represent Illinois in its suit against the tobacco industry.

The Attorney General chose the following law firms for the position of "national counsel," who would supervise tobacco lawsuits in multiple states: Hagens & Berman, the law offices of Steven C. Mitchell, Barrett Law Offices, and Lieff Cabraser Heimann & Bernstein. The Attorney General also chose the firm of Freeborn & Peters for the position of "local counsel" in Illinois' suit against the tobacco industry (firms hereafter referred to collectively as "Illinois Special Counsel" or "ISC"). The ISC were hired based on their expertise, professional reputations, and their willingness to represent the state for a contingent fee.

On September 17, 1996, the Attorney General announced that Illinois would join other states in suing tobacco companies. The lawsuit sought to recover Illinois' share of billions of dollars spent to treat smoking-related illnesses. The Attorney General predicted a long fight in Illinois courts and conceded that the suit was "not a dead-bang winner." He wanted to ensure that Illinois would be included in any possible settlements with tobacco companies. He explained that his office would attempt to cover the expenses of the costly suit by, inter alia, "asking private law firms to work on the case free."

On September 27, 1996, the Attorney General declared that Illinois taxpayers would not pay the legal bill for his decision to sue tobacco companies. He said that the state was looking for private law firms wiling to "absorb the cost of the suit and eat the cost if they don't prevail. The taxpayers aren't going to pay for it." He explained that the other states suing the tobacco industry "used outside counsel because it's an enormous undertaking. We don't have the resources within the office to do this alone."

On October 9, 1996, the Attorney General entered into a "Contract Agreement for Legal Services" with national counsel and, on November 12, entered into a similar contract with local counsel (both contracts hereafter collectively referred to as "contract"). Under the contract, which the Attorney General drafted, Illinois Special Counsel were charged with the responsibility of representing the state in litigation against the tobacco industry. The Attorney General retained "final authority over all aspects of the litigation" that affected the state's claims. Illinois Special Counsel were obligated to "consult and obtain the prior approval" of a member of the Attorney General's staff "concerning all policy and other major, substantive issues affecting the litigation."

Regarding compensation, the contract provided in pertinent part that neither the state nor the office of the Attorney General was "liable for payment of compensation otherwise than from amounts collected for the State of Illinois" and that compensation would be contingent upon recovery of monies, whether by settlement or agreement, from those liable for damages. The contingent fee would be: "Ten percent (10%) of the total recovery to the State of Illinois." Also, Illinois Special Counsel would absorb the costs of the litigation; ISC would be reimbursed only in the event of a recovery.

According to Richard Stock, the Attorney General's chief of staff: "This fee arrangement allowed the State of Illinois to pursue the tobacco industry without having to risk any taxpayer dollars on attorneys' fees or costs." At the time of the contract, the 10% contingent fee "was the lowest agreement of its kind amongst the states which had brought actions against the industry." Stock averred: "At the time it was negotiated, I and all who worked on this issue in my office believed that the ten percent was fair and reasonable based upon the risk involved."

On November 12, 1996, Illinois Special Counsel filed a complaint in the circuit court of Cook County against members of the tobacco industry. In announcing the suit, the Attorney General repeated his explanation for employing private law firms based on a contingent fee. He added: "If they lose they're paid nothing."

On November 13, 1998, the proposed settlement of the tobacco litigation was announced. On November 20, the Attorney General announced that Illinois would join in the settlement. On November 23, 1998, Illinois entered into the "Master Settlement Agreement" (MSA). Under the MSA, Illinois is to receive from the tobacco defendants approximately $9 billion to $360 million annually for 25 years. Thereafter, the tobacco industry will continue to make payments in perpetuity based on factors such as the volume of tobacco products sold and the fiscal health of the settling private tobacco companies.

Section 17 of the MSA, with its implementing document ("Illinois Fee Payment Agreement"), provided that the tobacco defendants pay a liquidated or arbitrated fee to Illinois Special Counsel to reduce the amount of fees owed. An arbitration panel awarded ISC $121 million, which would be paid over approximately 25 years and deducted from their contingent fee.

On December 8, 1998, the circuit court approved the MSA and entered a "Consent Decree and Final Judgment" incorporating the MSA. Under the consent decree, the circuit court retained jurisdiction over the case, including the settlement funds to be distributed by the tobacco company defendants. With limited exceptions not applicable here, section VII of the consent decree recognized that the circuit court had exclusive jurisdiction to implement and enforce the decree.

On September 28, 1999, Illinois Special Counsel served notice of their attorney's lien pursuant to the Attorneys Lien Act (770 ILCS 5/1 (West 1998)). Based on their contingent fee agreement with the Attorney General, they claimed a lien of 10% of any amount recovered from the tobacco defendants.

On December 22, 1999, Illinois Special Counsel petitioned the circuit court to adjudicate its attorney's lien. The State moved to dismiss the petition; the court denied the motion. Illinois Special Counsel moved to establish an escrow account. The court ordered the State and the tobacco defendants to direct that 10% of all settlement payments be deposited into the account pending a decision on the merits of the lien petition. In opposing the attorney's lien petition and the ...


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