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Castano Case

The Castano Case was notable because it brought together a group of plaintiff lawyers who formed the Castano Group, and made a fortune collectively taking on the tobacco industry.


The Castano Group became powerful enough to challenge the tobacco industry at its own game because they had the resources to engage in the same tactics:

  • perpetural rounds of appeal
  • constant harrassment by litigation, delays, etc.,
  • mobilisation of massive legal resources.
Eventually they won very sizeable settlements for their own clients and for themselves. Naturally the tobacco industry challenged their payouts — and atypically, they lost.

1994: The Castano Group, taking on the role of a private attorney general under California law, sued the tobacco industry and helped to win $25 billion for the state. The group began suing tobacco companies in 1994 in Louisiana and has sued the industry in 25 states (reported in 2002).

1994 Jan 1: See Relevant portions of the Castano Group Agreement

1995 Early: Hugh Rodham, brother of Hillary is monitoring the tobacco settlement talks for a consortium of plaintiff's lawyers, called the Castano Group, who have filed class action suits in 15 states. He spends time at the White House and plays cards with the President.

1995 Mar 20: Philip Morris Corp Affairs Daily Topics Castano case involved four main litigants in THE FIRST class action bought against tobacco - on behalf of thousands. A New Orleands judge OK'd the class action, but the tobacco companies appealed. (Hemophiliacs had just been denied class action over AIDs from blood suppliers.)

    This was the largest class action in history. The plaintiffs had a consortium of 60 law firms, and the case could create successful damages claims for 40 million current smokers and 50 million ex-smokers. It had originally been filed by Peter Castano's widow Dianne + 3 others.

1996 May 28: John Coale, spokemen for the lawyers. Filed four class actions this week in Washington DC, Calif, New Mexico, Pennsylvania, and Colorado. Class actions had already been filed in Maryland and Louisiana, and a New Orleans case had been dismissed by Fifth Circuit court:

    In a 36-page ruling the New Orleans appeals court had said that a class-action suit was not appropriate because no individual had ever won damages from the tobacco industry in 40 years of litigation. "The collective wisdom of individual juries is necessary before this court commits the fate of an entire industry or the fate of a class of millions to a single jury," " said Circuit Judge Jerry E Smith a Ronald Reagan appointee in his decision. Judges John M Duhe, Jr., also a Reagan appointee, and Judge Harold R DeMoss, a George Bush appointee, joined in the ruling.

    Cigarette companies and their attorneys issued statements expressing delight. "We are pleased and gratified with the Court of Appeals' decision today," said Washington, DC, attorney Kenneth W. Starr , himself a former federal appeals court judge, who presented the oral argument for the defendants. Starr is also the independent counsel in the Whitewater case. The ruling "vindicates fully the industry's position that a class action is entirely inappropriate as a method for testing these novel claims," Starr added.

2002 Oct: A Manhattan appeals court Tuesday reinstated a $1.3 billion fee award for attorneys who helped to settle tobacco litigation in California, saying the arbitrators who awarded the fee did not exceed their authority and should not have been second-guessed by a state judge.

    Manhattan Supreme Justice Nicholas Figueroa said the fee award was improperly based on work the attorneys had done in nationwide tobacco litigation, rather than just the litigation to settle claims on behalf of the state of California. However, a unanimous panel of the Appellate Division, 1st Department, found that Justice Figueroa had "improperly interjected" himself into a dispute over the merits of the award. "It is beyond cavil that the scope of judicial review of an arbitration proceeding is extremely limited," the court wrote in an unsigned opinion, In re Application of Brown & Williamson, 1284N.

    Going a step further, the court said, "Although our finding that the arbitrators did not exceed their power is dispositive of the issue on appeal, we nevertheless observe that the award is neither irrational nor violative of public policy."

    The $1.3 billion fee award, given to a 56-firm consortium known as the Castano Group, was the largest under the 1998 nationwide tobacco settlement that required tobacco companies to pay $206 billion to 46 states. It was the only fee award challenged by the tobacco industry. The $1.3 billion fee was awarded by a panel of three arbitrators in New York, under a procedure established by the 1998 settlement. Because the fee was decided in New York, challenges to it have been heard by New York courts.

    Two of the arbitrators said that the award would compensate the firms for their work in the California action, "national work product" available for the California action, and "national effort contemporaneous" with the California action, which might have contributed to a resolution. One arbitrator objected, though, saying the fee "shocked the conscience" and amounted to a payout for "years of work done on other cases."

    The tobacco companies, led by Brown & Williamson, challenged the ruling, and Figueroa agreed that the arbitrators had exceeded their authority by granting the fee.

    Figueroa found that the arbitrators were bound by a narrow fee agreement that barred fees "in connection with any litigation other than the Action." The judge vacated the award as to all the tobacco companies, including Philip Morris, which did not join the other companies in challenging the award.

    In reversing Figueroa, the First Department said that "an arbitration award cannot be vacated if there exists any plausible basis for it." It also stressed that the arbitrators "took great pains" to evaluate the award and determined that the experience and expertise of the firms had to be considered.

    In the end, the court said, the tobacco companies' challenge turned on a single issue: whether the fee agreement Figueroa relied upon "defines the power of the arbitrators to act or whether that section defines the scope, limits or meaning of the Fee Agreement itself." Although there might have been conflicting evidence as to how the parties understood the phrase "in connection with," the appeals court wrote, "it was up to the arbitrators to evaluate and determine which of the conflicting interpretations to accept."

    The $1.3 billion award represented 5 percent of California's $25 billion share of the settlement, and, if it stands, will be paid in addition to the settlement. Another group of California attorneys won $637.5 million for their work. The six firms who represented New York in the settlement won $625 million in fees. New York, like California, received $25 billion of the nationwide settlement.