AGREEMENT TO PAY STATE OF MINNESOTA
ATTORNEYS' FEES AND COSTS
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
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
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
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Minnesota, and in partial 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
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clients of RKM&C to determine whether the hours listed in such accounting
were reasonably 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
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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
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).
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14. The lodestar component equals Three Hundred Eighty-five Million
Dollars ($385,000,000).
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 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
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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 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
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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 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
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.
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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.
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 _____ day of May,
1998.
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ROBINS, KAPLAN, MILLER & CIRESI L.L.P.
By:
------------------------------------
Michael V. Ciresi
PHILIP MORRIS INCORPORATED
By:
------------------------------------
Meyer G. Koplow
Counsel
By:
------------------------------------
Martin J. Barrington
General Counsel
R.J. REYNOLDS TOBACCO COMPANY
By:
------------------------------------
D. Scott Wise
Counsel
By:
------------------------------------
Charles A. Blixt
General Counsel
BROWN & WILLIAMSON TOBACCO CORPORATION
By:
------------------------------------
Stephen R. Patton
Counsel
By:
------------------------------------
F. Anthony Burke
Vice President and General Counsel
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LORILLARD TOBACCO COMPANY
By:
------------------------------------
Arthur J. Stevens
Senior Vice President & General Counsel
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