Exhibit 10.4
AGREEMENT TO PAY STATE OF MINNESOTA
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ATTORNEYS' FEES AND COSTS
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Philip Morris Incorporated (hereinafter "PM"), R.J. Reynolds
Tobacco Company (hereinafter "RJR"), Brown & Williamson Tobacco Corporation
(hereinafter "B&W"), and Lorillard Tobacco Company (hereinafter "Lorillard")
(collectively referred to as "The Settling Defendants"), hereby enter into this
Agreement To Pay Attorneys' Fees And Costs (hereinafter the "Agreement") with
Robins, Kaplan, Miller & Ciresi L.L.P. (hereinafter "RKM&C") providing for the
payment of all attorneys' fees and costs incurred in the prosecution of the
lawsuit captioned The State of Minnesota and Blue Cross and Blue Shield of
Minnesota vs. Philip Morris Incorporated, et al., Court File C1-94-8565
(hereinafter "The Case"), by The State of Minnesota.
BACKGROUND
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1. On August 17, 1994, The State of Minnesota, together with
Blue Cross and Blue Shield of Minnesota (hereinafter "BCBS"), commenced The Case
in Ramsey County District Court in St. Paul, Minnesota.
2. From August 1994 until January 1998, RKM&C engaged in
extensive and unprecedented pretrial and discovery proceedings, which led to the
establishment of a document depository in Minneapolis, Minnesota, into which was
placed in excess of 28 million pages of documents. A second document depository
was established in Guildford, England, into which was placed in excess of six
million pages of documents. The majority of the documents in the U.S. and
Guildford depositories were never previously produced by defendants in any
lawsuit. Also included among the documents in the Minneapolis depository are in
excess of 40,000 documents obtained by
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RKM&C over which defendants had continuously maintained the claim of
attorney-client privilege. The production of the attorney-client privilege
documents was the subject of numerous appeals, including an appeal to the U.S.
Supreme Court.
3. RKM&C painstakingly reviewed the 34 million pages of
documents and selected those it deemed the most probative and relevant, which
set of documents became nationally known as the "Minnesota select" documents.
The Minnesota select documents have been provided to other litigants (including
state attorneys general and private parties), Congress and Governmental
authorities.
4. RKM&C took or defended the depositions of more than 300
fact and expert witnesses.
5. Throughout the pretrial proceedings, more than 190 motions
were prosecuted and defended by Defendants and RKM&C, resulting in 200 orders
being issued by the trial court.
6. Interlocutory appeals were taken by Defendants of numerous
trial court orders resulting in 12 appeals to the Minnesota Court of Appeals;
four appeals to the Minnesota Supreme Court; and two appeals to the U.S. Supreme
Court.
7. On January 20, 1998, trial of The Case began before the
Honorable Kenneth J. Fitzpatrick. The trial proceeded for 74 trial days until
May 4, 1998. Forty-one witnesses testified, and the transcript of the trial is
more than 15,000 pages in length.
8. On May 8, 1998, after all parties to the trial had rested,
but before submission of The Case to the jury, The Case was settled. After
settlement of the State's claims, RKM&C relinquished its right to receive
attorneys' fees and costs pursuant to the retainer agreement entered
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into between RKM&C and the State of Minnesota based upon the undertaking by The
Settling Defendants to negotiate directly with RKM&C for payment of attorneys'
fees and costs. This Agreement between The Settling Defendants and RKM&C is the
result of those negotiations and represents The Settling Defendants' undertaking
to pay attorneys' fees and costs to RKM&C.
AGREEMENT
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Now, therefore, the undersigned parties agree as follows:
9. For and in consideration of the payment of attorneys' fees
and costs as set forth herein, RKM&C relinquishes its right to receive
attorneys' fees and costs pursuant to the retainer agreement entered into
between RKM&C and The State of Minnesota as part of the Special Attorney
Appointment dated May 23, 1994.
10. For and in consideration of the facts set forth above; and
(a) in consideration of RKM&C foregoing the offer of a comprehensive,
non-severable set of terms in connection with the payment of attorneys' fees
relating to this action, which terms included, without limitation, the
following: the determination of attorneys' fees by an arbitration panel of three
(3) members with no cap on the amount of fees to be awarded by such panel; a
Five Hundred Million Dollar ($500,000,000) annual cap on the payment in any one
year of fees awarded by all such arbitration panels nationwide in tobacco and
health litigation; provision that RKM&C's contractual rights, if any, for
payment of attorneys' fees by The State of Minnesota or any other plaintiff
would be unaffected by RKM&C's participation in such arbitration process; and a
"most-favored nation" clause applicable to the payment of attorneys' fees; and
(b) in consideration of RKM&C agreeing to relinquish its right to claim any fees
and costs under its retainer agreement with The State of Minnesota, and in
partial
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consideration for the settlement of The Case, The Settling Defendants agree to
pay to RKM&C attorneys' fees in connection with its representation of The State
of Minnesota in this action, over and above payments owed to The State of
Minnesota by virtue of the Settlement Agreement and Release, the sum of the
lodestar component described in paragraph 11.b., and the contingency component
described in paragraph 12, according to the schedule set forth in paragraph 15.
11. The lodestar component shall be calculated as follows:
a. RKM&C represents to The Settling Defendants that the
total amount of fees incurred as documented in its billing
records for all time spent prosecuting The Case on behalf of The
State of Minnesota is $27,500,000 for purposes of the initial
calculation in paragraph 11(b). This amount takes into account
continuing work on The Case up to and through Final Approval of
Settlement. Within ten (10) days of the execution of this
Agreement, The Settling Defendants may elect to require RKM&C to
submit to a mutually agreeable third party selected by The
Settling Defendants an accounting of hours reasonably worked in
connection with the RKM&C representation of The State of
Minnesota in this action, broken out by name of attorney and
including a description of the type of work done and the normal
hourly billing rate of each attorney in question and costs
reasonably expended and customarily charged to clients of the
firm. Such accounting shall also set forth the aggregate billable
amount by multiplying all hours reasonably worked in connection
with RKM&C's representation of The State of Minnesota in this
action times the normal hourly billing rate of the attorneys in
question, which hourly rates are actually charged to other
clients of RKM&C to determine whether the hours listed in such
accounting were reasonably
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worked and charged in connection with RKM&C's representation of The
State of Minnesota in this action. Determinations by such third party
shall be binding on the parties. If the third party determines that any
hours listed in such an accounting were not reasonably worked in
connection with RKM&C's representation of The State of Minnesota in
this action, or that hourly rates were overstated, the aggregate
billable amount shall be recalculated so as to exclude such hours or
recalculate the rates. If the third party determines that any costs
listed in such an accounting were not reasonably expended or not
customarily charged to clients of the firm, such costs will be
excluded. Nothing in this section which gives The Settling Defendants
the right to request a third-party review of RKM&C's time and costs
records entitles The Defendants to see a copy of the time and costs
records. Furthermore, the parties agree that in making the time and
costs records available for review by a third party for purposes of
paying attorneys' fees and costs in partial consideration for The
Settling Defendants' agreement to settle with The State of Minnesota,
neither RKM&C nor The State of Minnesota is waiving any right to claim
attorney-client or other privilege with regard to any RKM&C time and
costs records or any other document or matter pertaining to this
litigation.
b. The lodestar component shall be calculated by multiplying
the aggregate billable amount (as adjusted pursuant to subsection a.),
insofar as it does not exceed Thirty Million Dollars ($30,000,000)
times a multiplier derived as follows:
i. 6; plus
ii. 2, in that this action was filed prior to January 1,
1995, in the name of The State to recover health-care
costs allegedly associated with tobacco; plus
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iii. 2, in that this action was not predicated, in any
part, upon a state statute specifically directed at
tobacco companies or at a recovery of costs allegedly
associated with tobacco; plus
iv. 4, in that this action was tried to the conclusion.
12. The contingency component shall be composed of the sum of
the following:
a. One percent (1%) of the first Five Billion Dollars
($5,000,000,000) or less of nominal recovery to be paid to The State
over the first twenty-five (25) years (The "Nominal Recovery");
b. .5% times the amount by which the Nominal Recovery
exceeds Five Billion Dollars ($5,000,000,000) and is less than or
equal to Ten Billion Dollars ($10,000,000,000);
c. .2% times the amount by which the Nominal Recovery exceeds
Ten Billion Dollars ($10,000,000,000) and is less than or equal to
Fifteen Billion Dollars ($15,000,000,000); and
d. .1% times the amount by which the Nominal Recovery exceeds
Fifteen Billion Dollars ($15,000,000,000).
13. The Nominal Recovery for The State herein is Six Billion
One Hundred Sixty-five Million Dollars ($6,165,000,000). Accordingly, the
contingency component equals Fifty-five Million Eight Hundred Twenty-five
Thousand Dollars ($55,825,000).
14. The lodestar component equals Three Hundred Eighty-five
Million Dollars ($385,000,000).
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15. The sum of the lodestar and contingency components equals
Four Hundred Forty Million Eight Hundred Twenty-five Thousand Dollars
($440,825,000). The Defendants agree to pay this amount to RKM&C as and for
attorneys' fees pursuant to the following schedule:
a. Seventy-four Million Seven Hundred Fifty Thousand Dollars
($74,750,000) on or before September 5, 1998;
b. One Hundred Million Dollars ($100,000,000) on or before
January 31, 1999;
c. One Hundred Million Dollars ($100,000,000) on or before
April 15, 1999;
d. One Hundred Million Dollars ($100,000,000) on or before
January 31, 2000.
e. Sixty-six Million Seventy-five Thousand Dollars
($66,075,000) on or before July 1, 2000.
16. Defendants also agree to pay Four Million Dollars
($4,000,000) as and for costs due and owing by The State of Minnesota to RKM&C
on or before May 18, 1998.
17. The amount of fees and costs due and owing pursuant to
paragraphs 15 and 16 shall be paid by Settling Defendants pro rata in proportion
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to their Market Share. No Settling Defendant shall be obligated to make any
payment due from any other Settling Defendant. All obligations of The Settling
Defendants pursuant to this Agreement are intended to be and shall remain
several, and not joint.
18. The payment of fees pursuant to paragraph 15 shall
constitute the entire obligation of The Settling Defendants with respect to
attorneys' fees in connection with the representation by RKM&C of The State of
Minnesota in connection with this action, and the exclusive means by which RKM&C
may seek payment of fees from defendants, or otherwise, in
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connection with its representation of The State of Minnesota in this action.
RKM&C represents that it has served as sole outside counsel to The State of
Minnesota in this action.
19. The Settling Defendants' obligation to pay attorneys' fees
pursuant to paragraph 15 is contingent upon approval of the Settlement Agreement
and Release between The Settling Defendants and The State of Minnesota and the
State Escrow Agreement. If the Court declines to approve the Settlement
Agreement between The Settling Defendants and The State of Minnesota or the
State Escrow Agreement, or, pursuant to paragraph VI.B. (Court Approval) of the
Settlement Agreement, either party withdraws from the Agreement before Court
approval, this Agreement shall become null and void and of no effect. Once the
Court has approved the Settlement Agreement between The State of Minnesota and
The Settling Defendants, The Settling Defendants are obligated to make the
payments set forth herein, unless there is a challenge to the Settlement
Agreement between The Settling Defendants and The State of Minnesota which
results in a payment required to be paid by Settling Defendants pursuant to the
Settlement Agreement with The State of Minnesota being paid into escrow.
20. In the event any payments due to The State of Minnesota
are required to be paid into escrow, then any unpaid attorneys' fees due under
this Agreement shall also be paid into a special escrow account (the "RKM&C
Escrow Account"). Any funds held in the RKM&C Escrow Account shall be
immediately released to RKM&C at the same time that funds are released from The
State of Minnesota Escrow Account to the State of Minnesota. Provided, however,
that in the event a court should determine that the Settlement Agreement between
The State of Minnesota and The Defendants is cancelled or terminated such that
no further payment obligations are due under The
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State Settlement Agreement, then any outstanding funds held in the RKM&C Escrow
Account shall be returned to The Defendants, and Defendants' obligations under
this Agreement shall become null and void and of no effect.
MISCELLANEOUS PROVISIONS
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21. In the event either party to this Agreement is required to
seek enforcement of the terms of this Agreement in court, all attorneys' fees
and costs incurred in enforcing the Agreement shall be paid by the party against
whom enforcement is obtained.
22. Each Settling Defendant has all requisite corporate power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated herein. This Agreement has been duly and validly
executed and delivered by each Settling Defendant and constitutes its legal,
valid and binding obligation.
23. This Agreement constitutes the entire agreement among the
parties with regard to the subject matter of the Agreement and supersedes any
previous agreements and understandings between the parties with respect to the
subject matter. This Agreement may not be modified or amended except in writing
and signed by all parties.
24. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
25. Except as otherwise specifically provided for in this
Agreement, no party shall be liable for any costs or expenses incurred by or on
behalf of any other party in connection with this Agreement and the actions
contemplated hereby.
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26. This Agreement shall be construed in accordance with and
governed by the laws of The State of Minnesota applicable to agreements made and
to be performed in Minnesota.
27. Any disputes regarding the interpretation of this
Agreement and any actions to enforce its terms shall be venued in Ramsey County
District Court in the State of Minnesota.
28. The parties agree that the payment of attorneys' fees and
costs provided for in this Agreement shall be made strictly according to its
terms. The Settling Defendants agree not to support, directly or indirectly, in
Congress or any forum, legislation, rules or other policies which would preempt,
override, abrogate or diminish their obligations under this Agreement.
29. This Agreement is not intended to, and does not, vest
standing in any third party with respect to the terms hereof, or create for any
person other than the parties hereto a right to enforce the terms hereof.
30. For and in consideration for the payment of fees as
provided herein, RKM&C hereby releases Settling Defendants from any and all
claims (other than a claim to enforce this Agreement) arising out of or in any
way related to the litigation or settlement of The Case.
31. Unless otherwise specified, the terms used in this
Agreement are subject to the definitions contained in the Settlement Agreement.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized
representatives, have agreed to this Agreement as of this 8th day of May,
1998.
ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
By: /s/ Michael V. Ciresi
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Michael V. Ciresi
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PHILIP MORRIS INCORPORATED
By: /s/ Meyer G. Koplow
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Meyer G. Koplow
Counsel
By: /s/ Martin J. Barrington
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Martin J. Barrington
General Counsel
R.J. REYNOLDS TOBACCO COMPANY
By: /s/ D. Scott Wise
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D. Scott Wise
Counsel
By: /s/ Charles A. Blixt
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Charles A. Blixt
General Counsel
BROWN & WILLIAMSON TOBACCO CORPORATION
By: /s/ Stephen R. Patton
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Stephen R. Patton
Counsel
By: /s/ F. Anthony Burke
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F. Anthony Burke
Vice President and General Counsel
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LORILLARD TOBACCO COMPANY
By: /s/ Arthur J. Stevens
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Arthur J. Stevens
Senior Vice President & General
Counsel
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