Chunk of New Jersey’s Money From Exxon Settlement Is to Go to Legal Fees

A state official said on Monday that the Kanner firm would receive roughly 20 percent of any recovery, if the settlement and legal fees were approved by a judge. The official spoke on the condition of anonymity because the settlement papers have not yet been made public.

In a decade or so of litigation in the Exxon case, the state, working with the Kanner firm, won key rulings on liability. Last year, a trial commenced to establish what damages Exxon should pay for contamination at two refinery sites in northern New Jersey.

In November, after the trial ended, the state argued that the “scope of the environmental damage resulting from the discharges is as obvious as it is staggering and unprecedented in New Jersey.” Exxon said it should not pay any damages.

The judge, Michael J. Hogan, was believed to be ready to rule in January when the attorney general’s office asked him to hold back and then informed him that a settlement had been reached.

The acting attorney general, John J. Hoffman, and the state’s environmental commissioner, Bob Martin, said in a statement last week that the “historic” deal came about “because this administration aggressively pushed the case to trial” and engaged in “long-fought settlement negotiations.”

The statement said that Mr. Hoffman’s office negotiated the deal, “working in coordination” with Mr. Martin’s agency and the office of Gov. Chris Christie, a Republican. A spokesman for the Christie administration on Monday declined to comment on the legal fees issue.

The state retained the Kanner firm more than a decade ago to help develop an initiative that would include suing for compensation for damages to natural resources and the loss of their use to the public. A 2004 news release from the attorney general’s office that announced the first wave of cases said the state would be assisted by “a group of experienced outside counsel.”

Jeffrey Jacobson, a top adviser to Mr. Hoffman, said in an interview last April with Law360, “In these big-stakes cases like the $9 billion Exxon trial, New Jersey should and will be happy that we had those outside partners working with us.”

During the damages trial, John Sacco, an official with the Department of Environment Protection, testified about the rationale for using outside firms. The environmental agency, as well as the attorney general’s office, he said, did not “have the expertise in-house to litigate a case of this complexity.”

Exxon, meanwhile, was represented by a legal team led by Theodore V. Wells Jr., a partner and co-chairman of the litigation department at Paul, Weiss, Rifkind, Wharton & Garrison, a prominent Manhattan law firm.

The Kanner firm, which declined to comment for this article, helped the state assess potential lawsuits under the initiative and try cases that could not be settled, according to a biography of the firm filed in court. The firm was also assigned to handle the Exxon suits, which sought damages for contamination by refineries in Bayonne and Linden, also known as Bayway.

The firm was to be paid on a contingency basis, with a sliding scale that included a fee of 20 percent of recoveries over $25 million after a trial begins, according to the retainer agreement, signed by the attorney general at the time, Peter C. Harvey, and the lawyer Allan Kanner.

A judge later invalidated that fee scale, saying the rates had to comply with New Jersey’s court rules, which do not specify a percentage for recoveries over $3 million except to say the fees must be “reasonable.” The fees also had to be approved by a judge.

Since that ruling, the attorney general’s office has endorsed the original fee scale, including the 20 percent figure, as “presumptively reasonable,” according to a 2010 filing by the office in a $3 million settlement handled by the Kanner firm. Under the state’s retainer agreement, litigation costs are born by the outside firm if there is no recovery by the state.

In deciding whether to approve the legal fees in the Exxon case, Judge Hogan would quite likely consider issues like the risk the law firm undertook, the number of hours its lawyers worked and their standard billing rates, said John Leubsdorf, a law professor at Rutgers University who has written extensively about legal fees.

The fact that the attorney general’s office settled for significantly less than the state had been seeking, however, would probably not be a consideration, he said.

“The client always has the right to settle the case,” Professor Leubsdorf added, noting that a state may have “many motives” to settle, in addition to seeking “as much money through the courts as it can.”

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