The California Court of Appeal ruled June 26 against the City of Santa Monica on the City’s appeal which sought to compel arbitration in an action over tens of millions of dollars in fees claimed by the lawyers who represented the City in its earlier water pollution suit against various oil companies.
Last week’s ruling may now clear the way for the lawyers’ claims to proceed to trial in a case that has been stayed for approximately 18 months pending the outcome of the appeal. Typically, jurisdiction does not return to the trial court until the court of appeal issues a “remittitur” – which takes 60 to 90 days so as to allow the losing party on the appeal to seek further appellate review.
Assistant City Attorney Joseph Lawrence, who believes the June 26 appellate decision is “in error,” said that “the City is evaluating its further response” to the ruling, meaning “whether to seek review in the [California] Supreme Court.”
The specific issue involved in the appeal was whether the trial court (Judge David Minning in the downtown Los Angeles Superior Court) improperly denied the City’s October 2005 motion to compel arbitration of the attorneys fees dispute. The court of appeal affirmed the denial of the City’s motion, holding that the City had waived its right to arbitrate the dispute by “engaging in full-blown, costly [court] litigation for 17 months” before seeking arbitration.
The fee disputes at issue in the pending lawsuit arise out of earlier litigation which involved the contamination of the City’s drinking water in its Charnock Well Field by gasoline additives. In 1996, it was discovered that MtBE, an oxygenate designed to make gasoline burn cleaner and a suspected carcinogen, was present in the aquifer supplying the Charnock Well Field. Santa Monica drinking water was then imported from the Metropolitan Water District at the expense of certain oil companies under an interim agreement.
In June 2000, the City retained a group of California and Texas lawyers to sue the oil companies it believed to be responsible for the contamination and, in late 2003, settled that lawsuit for a cash payment to the City of approximately $121 million and the oil companies’ agreement to fund a water treatment facility to restore the Charnock Field.
The lawyers who brought that action for the City were never paid under their contingent fee agreement, and they now claim in the present lawsuit 25 percent of both the $121 million cash settlement and the value of the water treatment facility. Santa Monica disputes both the applicable percentage fee and the settlement value to which a contingent percentage would be applied.
In May 2004, the City sued the lawyers seeking a declaration that the fee agreement was unenforceable before the lawyers sued the City for legal fees; the lawyers cross-complained for their fees in that suit the City filed in Los Angeles Superior Court. Trial was first set for August 2005 and later continued to February 2006. Before that trial date, the City filed a motion to send the case to arbitration in October 2005. The denial of that motion has now been affirmed on the City’s appeal.
While that appeal was pending, a dispute developed between the City and the consortium of oil companies over the construction of the water treatment facility called for in the settlement agreement in the initial water pollution lawsuit. In December 2006, a further settlement was reached (Santa Monica Mirror, December 14-20, 2006) under which Shell, Chevron and ExxonMobil agreed to pay the City another $131 million, which the City said would allow it to fully fund the oil companies’ obligations and assume sole control of the design and construction of the water treatment plant. It is not known just what bearing these events will have on the legal fee disputes.
Roland Tellis, one of the counsel representing the lawyers suing for their fees, expressed his hope that the lawsuit could now be set for trial in view of the fact that the court of appeal decision was unanimous (a panel of three justices) and the fact that substantial pre-judgment interest is accruing on the claimed legal fees.
The lawyers suing for fees are represented by the Santa Monica firm of Alschuler Grossman Stein & Kahan, which in May 2007 combined with the international firm of Bingham McCutchen LLP under the latter name; joining them on the appeal was the Los Angeles firm of Greines, Martin, Stein & Richland. The City of Santa Monica is represented by the Los Angeles office of Morgan Lewis & Bockius and the Santa Monica City Attorney’s Office.