Fee dispute bubbles up after groundwater suits settled.

ARE high legal fees worth a whole new lawsuit?

The City of Santa Monica thinks so. City attorneys, in a lawsuit filed May 6 in L.A. Superior Court, are disputing $66 million in legal bills from firms that handled settlements in a groundwater pollution case.

"I'm discouraged we have a dispute here and hopeful it will get resolved," said one of the attorneys, Fred Baron, a partner at Baron &Budd PC in Dallas. "This whole case is quite honestly a shocker because at the conclusion of the lawsuit they told us we did a magnificent job. They told us that publicly."

The city hired outside counsel in 2000 to sue companies whose automotive service stations had contaminated L.A.'s Charnock Wellfield. The firms signed a legal services agreement with the city for contingency fees that rose with the duration of the litigation: 10 percent of a recovery received in the first six months, 20 percent in the next year and 25 percent if the case exceeded 18 months. Fees would rise if a settlement exceeded $250 million. If the case went to trial, the firms were to receive a fee equal to 27 percent of an award.

The defendants, which include Shell Oil Co., ChevronTexaco Corp., ExxonMobil Chemical Co., Atlantic Richfield Co. and Unocal Corp., settled separately between July 2002 and December 2003 but agreed to collectively pay the city $110 million in cash and construct a treatment facility valued at between $100 million and $300 million, said Assistant City Attorney Joseph Lawrence.

The city now claims the legal services agreement is void because the firms, which billed Santa Monica based on a 25 percent contingency fee, violated their fiduciary duty by placing their financial interests ahead of the interests of their client, the suit says. It also says 25 percent is too high because the case was transferred three times in its first year and involved no discovery or depositions.

"There were a whole lot of stops and stays and different things that kept the lawsuit from going forward," Lawrence said. He declined to give the city's calculation of legal fees but said it is "very, very far apart" from the $66 million derived by the firms.

Duane Miller, a partner at Miller Axline & Sawyer PC, would not confirm the $66 million figure but said that under the legal services agreement, the firm is also entitled to fees based on settlements of more than $250 million, including the as-yet unappraised treatment facility.

Overtime Rules

The California Supreme Court will begin hearing arguments June 1 in a case that employers hope may stem the flood of class action lawsuits seeking compensation for unpaid overtime.

The case before the court, involving 1,400 current and former assistant managers and operations managers at Sav-On Drug Stores Inc.'s California stores, may reduce the number of wage-and-hour cases that get certified as class actions. Sav-On is a unit of Albertson's Inc.

"There are dozens and dozens, if not hundreds, of these overtime class actions pending in California courts, and they want to decide when class actions in those cases are appropriate," said Rex Heinke, a partner at Akin Gump Strauss Hauer & Feld LLP representing Sav-On. "The practical effect of not certifying a class in these cases is that there is very little at stake economically."

Wage-and-hour class actions have cost California businesses tens of millions of dollars in settlements since the Eight-Hour Day Restoration and Workplace Flexibility Act of 1999, which defined an employer's duty to pay overtime to employees considered non-exempt--those whose jobs have little or no managerial responsibilities.

Employers have been increasingly willing to settle such class actions since Farmer's Insurance Exchange lost a $90 million judgment favoring 2,400 claims adjusters in summer 2001.

Matthew Righetti, a partner at Righetti Wynne PC who represents the Sav-On store managers, appealed to the Supreme Court after a 2002 decision in the 2nd Appellate District found store managers' duties varied too widely to be certified as a class.

Righetti said class actions should be appropriate in cases in which employers classify the same individuals in a uniform corporate policy.

Legal Shuffles

The former chairman of the labor and employment group at Weston Benshoof Rochefort Rubalcava MacCuish LLP in L.A. has joined Reed Smith LLP.

John Zaimes, who has tried major cases involving the alternative workweek schedule provision of the state's labor code, will head the firm's labor and employment practice in Southern California ...

Edward Zaelke, former head of Arnold & Porter LLP's West Coast real estate and national wind energy practices has joined Morgan Lewis & Bockius LLP's L.A. office.

Zaelke will be a partner in the firm's energy and business and finance practices. A specialist in the wind-energy industry, he joins Tom Dupuis, also a wind-power attorney from Arnold & Porter, who will be of counsel at Morgan Lewis ...

A leading authority on Calitbmia's Proposition 65 law has joined as a partner in Fulbright & Jaworski LLP's L.A. environmental practice group.

Jeffrey Margulies writes extensively on state's Safe Drinking Water & Toxic Enforcement Act of 1986 and represents retail and manufacturing firms in compliance issues and lawsuits. He is a former partner at Parker Milliken Clark O'Hara & Samuelian PC.

Staff reporter Amanda Bronstad can be reached at [phone] ext. 225, or at [e-mail].