Philip Morris Inc. v. Glendening

⁶⁶³ BELL, Chief Judge. The sole issue before the Court is the legality of a contingency fee contract executed by the Attorney General of Maryland and a private law firm for the purpose of representing the State in a major tort litigation. We shall hold that the contract, which was authorized by the Governor and approved by the Board of Public Works, is valid. I. On March 27, 1996, the Attorney General, after receiving authorization from the Governor, entered into a contingency fee contract (hereinafter, the “Contract”) with a private law firm (hereinafter, “outside counsel”) to “provide legal counsel, representation, and litigation services to the Attorney General and the State of Maryland in connection with litigation against the tobacco industry.” ¶ 2.1.

The Contract states that the Attorney General contracted with outside counsel for the following three (3) reasons: “the State of Maryland (‘the State’) has incurred substantial costs over the years to pay for the health and other care of its citizens afflicted with tobacco-related illnesses; and “the State has determined to seek the recovery of such costs and other damages arising from the sale and/or distribution of tobacco products from the tobacco industry through litigation; and “the State lacks sufficient resources to pursue the recovery of such costs without entering into a contract with counsel pursuant to a contingency fee arrangement.” 1 ¶ Preamble. Pursuant to the Contract, the “Attorney General shall have the authority to control all aspects of [outside counsel’s] handling of the litigation ... [and][s]uch authority ⁶⁶⁴ shall be final, sole and unreviewable.” Id. 2 Outside counsel’s responsibilities are also enumerated in the Contract as follows: “A. Coordinate closely with the Attorney General regarding all aspects of this Contract and the legal remedies authorized thereby; “B. Represent the State in any lawsuits filed to: (a) recover federal and State medical assistance payments paid or to be paid under both the federal Medicaid Program and the now discontinued State-only Medical Assistance Program (collectively, ‘Medicaid Payments’), and in addition, any other types of expenditures made by or on behalf of the State for tobacco related illnesses, including health insurance coverage for State employees. The recovery sought under this Contract will be for medical services rendered or to be rendered to Medicaid recipients and other State employees with tobacco related illnesses. Recovery for additional ancillary expenditures may also be sought as part of the litigation; and (b) recover damages or other monies pursuant to consumer protection, common law fraud, or any other legal theories relating to tobacco-related damages.

This representation responsibility shall include acting on behalf of the State in all legal and administrative matters, including all levels of appeal, arising out of or in conjunction with the [tjobacco [ljitigation. “C. Initially bear and be solely responsible for all expenses (filing, legal, expert witness and otherwise) and all other costs of the [tjobacco [ljitigation, subject to reimburse ⁶⁶⁵ ment only in the event of a recovery, and to any limitations imposed by law or the rules of the Maryland Bar, which are the subject of this Contract, and for all employee salaries and all nature of office expenses incurred by or on behalf of [outside counsel]. “D. Provide copies to the Attorney General of all correspondence received or sent out, all legal pleadings filed or received, and shall in ail other appropriate ways keep the Attorney General aware of the status of any lawsuits brought pursuant to this Contract; “E. Shall, in the event of a successful recovery, prepare and provide a final accounting at the conclusion of all related legal proceedings, including all appeals, in the manner and form required by the Attorney General; “F. Perform all legal services necessary, as determined by the Attorney General, to successfully litigate on behalf of the State, its claims against the tobacco industry; “G. Use its best efforts to obtain all relevant discovery materials from existing and future tobacco litigation, and work with other law firms and attorneys cooperatively to achieve such goals; and “H. Subject to the overall direction and supervision of responsible State government officials, retain and supervise all manpower necessary to permit this litigation to proceed without significantly impairing the ability of the involved State agencies to meet their ongoing governmental obligations. In this regard, [outside counsel] will retain at its sole expense sufficient manpower (including, but not limited to, clerical, data management, paralegals, software and data processing consultant) to meet the overall needs of the [t]obacco Mitigation.” ¶ 2.1 A through H. The State, through the Department of Health and Mental Hygiene, is obligated to appoint one full-time administrative staff person to work with outside counsel as project coordinator. ¶ 2.11. According to the Contract, compensation of outside counsel is contingent upon the State’s recovery; outside counsel will ⁶⁶⁶ receive compensation if and only if a money judgment is obtained as a result of the tobacco litigation. With respect to the fee, the Contract provides that outside counsel “will be paid a fee of 25% of the recovered funds plus the reasonable expenses of litigation incurred.” ¶ 3.1.

If no damages are recovered, the Attorney General and the State will owe nothing to outside counsel. ¶ 3.2. In the event of the récovery of damages, the Contract provides for the method of payment. That provision requires outside counsel to proceed as follows: “A. Hold any monies received as a result of any settlement, legal final judgment, or as a bond, in an interest bearing account in a financial institution acceptable to the State ... and in a joint account bearing the names of both [outside] counsel and the State as account-holders. It is further understood and agreed that contingency fee payments and percentages shall be computed solely on the basis of the total amount of monies actually recovered and transmitted together with all accrued interest; “B. Within thirty (30) days of the earliest legally permissible date, release and transmit any and all monies recovered to the State to the Attorney General, net of costs and fees allowed under this Contract as determined by the Attorney General, pursuant to his instructions, including interest accrued thereon; and “C. Shall prepare and submit to the Attorney General an itemized computation of the contingency fee and expenses, in a manner and form acceptable to the State auditors, in advance of the payment referred to in paragraph B above.” ¶ 3.3.

Hence, after outside counsel collects 25% of the gross judgment amount, in addition to reasonable attorneys’ expenses, the remaining amount, 75% of the gross recovery less attorneys’ expenses, is the State’s collection, 3 which is trans ⁶⁶⁷ mitted to the Attorney General, who, by law, must deposit the collected funds into the State Treasury. All terms and provisions of the Contract were negotiated and agreed to by the Attorney General and outside counsel. In addition, members of the Board of Public Works, namely, the Governor, Treasurer and Comptroller, also approved and signed the Contract.

II

On January 22,1996, in the Circuit Court for Talbot County, several tobacco manufacturers and tobacco-related companies, (hereinafter, the “appellants”), 4 filed an action for declaratory and injunctive relief against Governor Parris N. Glendening, Attorney General J. Joseph Curran, Jr. and Secretary of the Department of Health and Mental Hygiene, Martin P. Wasserman, (hereinafter, collectively, the “appellees”), challenging the legality of the Contract. 5 Soon thereafter, the parties filed ⁶⁶⁸ cross motions for summary judgment. The appellants contended that the Contract, which authorizes outside counsel to institute and prosecute an action on behalf of the State primarily against tobacco manufacturers for reimbursement of public funds expended to provide health care for tobacco-related illnesses, 6 is invalid because the Attorney General ⁶⁶⁹ lacks constitutional or statutory authority to compensate outside counsel on a contingent fee basis. Specifically, they argued that, because the underlying tobacco litigation sought reimbursement for the expenditure of “public funds,” any recovery would constitute “State funds,” in tato and, as such, expenditures thereof must be authorized by a specific legislative appropriation. There has not been any such appropriation enacted by the General Assembly in this case, they pointed out.

The appellants further argued that the Contract violates due process and public policy because it provides outside counsel with an improper financial stake in the outcome of the underlying litigation potentially, four billion dollars, 25% of the sixteen billion dollars recovery sought. The appellees countered, arguing that the Attorney General, with the Governor’s permission, has the constitutional and statutory authority to retain outside counsel on a contingent fee basis, in order to pursue a suit of significant public interest on behalf of the State. Furthermore, the appellees maintained, the contingency fee contract does not violate the appellants’ due process rights because the Attorney General, the state official with the “final, sole and unreviewable” authority to control all aspects of the litigation, has no personal or pecuniary interest in the outcome of the litigation. ⁶⁷⁰ Unpersuaded by the appellants’ arguments, the circuit court first found that, pursuant to Maryland Code (1984, 1995 RepLVol., 1997 Supp.) section 6-105(b) of the State Government Article, the underlying tobacco litigation was “extraordinary.” It explained: “Under the circumstances of the case at bar, the court is satisfied that the underlying lawsuit is ‘extraordinary’ within the meaning of the term in Section 6-105(b). The State seeks, inter alia, billions of dollars in compensation for its costs of providing medical assistance, including Medicaid benefits, to Maryland residents who are suffering from alleged tobacco-related illnesses.

Furthermore, Defendants face unusually wealthy and powerful opponents. For these reasons, the underlying litigation qualifies as ‘extraordinary.’ ” The trial court then analyzed the language and context of section 6-105(b) and found that the plain language of subsection (b)(2)(ii) did not place any limitation on the source of the funds from which the Attorney General may compensate outside counsel. Consequently, the court “decline[d] to read . the provision to bar affirmatively the Attorney General from entering into a contingentrfee contract with private counsel. To so construe an unambiguous provision, would be to adopt an overly rigid interpretation that would limit unreasonably the scope of its operation.” Regarding the appellants’ due process argument, .the trial court simply was “not convinced ... that [outside] counsel’s financial incentive to prevail in the underlying [tobacco] litigation is incongruous with the obligation to do justice.” The court reasoned, “Although the Attorney General probably will not direct each aspect of the daily handling of the lawsuit and will ask contingent-fee counsel for advice concerning litigation strategy, counsel plainly will not enjoy boundless discretion in his pursuit of the litigation.” Accordingly, the trial court denied the appellants’ motion for summary judgment and entered judgment in favor of the appellees.

The appellants timely filed a Notice of Appeal to the Court of Specials Appeal. On our own motion, and before the ⁶⁷¹ intermediate appellate court considered the matter, we issued a writ of certiorari. In this Court, the appellants, asserting essentially the same points they argued below, make the following two contentions: “First, any money that the State might recover in the [tobacco] litigation would be State funds, which must by law be deposited in their entirety in the State Treasury. Once such funds are deposited in the State Treasury, they may only be withdrawn or disbursed by means of an appropriation by the General Assembly.

The Contingent Fee Contract flatly contradicts these basic constitutional and statutory requirements by committing the State to pay twenty-five percent of any funds recovered however large that amount may be directly to private counsel, without any appropriation by the General Assembly. Second, the Contingent Fee Contract violates due process and public policy by giving counsel for the State a massive personal stake in the Reimbursement Litigation, creating both the appearance and the reality of bias and corrupting the fair and impartial administration of justice by the State.” (emphasis in original).

III

(a) The appellants argue that the Contract is illegal because “[a]ny recovery in the [underlying tobacco] [litigation would constitute in its entirety State funds,” which must be deposited in the State Treasury and may only be withdrawn or disbursed by legislative appropriation, (emphasis in original). In support of that argument, the appellants first maintain, citing Baylin v. United States, 43 F.3d 1451 (Fed.Cir.1995), that the client, not the attorney, “retains ownership interest in the entire recovery, including the contingency fee portion.” 7 Hence, they posit, “it is the State and not its attorneys which owns and retains all rights to any recovery in the [tobacco] ⁶⁷² Mitigation.” (emphasis added). This is true, the appellants assert, “even though ... the State argues that it may never actually take possession of the contingent fee portion of the recovery, and even though ... the State has assigned a portion of its potential recovery to [outside counsel] prior to knowing if and how much it may recover.” The appellants further argue that the contingency fee arrangement provided in the Contract constitutes an unlawful appropriation of State funds, as both the constitutionally- and statutorily-based budgetary laws of Maryland require all monies collected on behalf of the State to be deposited in the Treasury. They point to Article VI, Section 3 of the Maryland Constitution, which states that “[t]he Treasurer shall receive the moneys of the State, and until otherwise prescribed by law, deposit them, as soon as received, to the credit of the State,” and to Maryland Code (1985,1995 Repl.Vol.) section 6-213(a) of the- State Finance & Procurement Article, which similarly states that, “[ejxcept as otherwise provided by law, each unit of the State government monthly shall: (1) pay into the State Treasury all collections, fees, income, and other revenues that are received by the unit; [and] (2) account to the Comptroller for those revenues.” In addition, the appellants argue that Maryland law prohibits State officials from disbursing or obligating State funds without an appropriation, a distinctly legislative act.

See Md. Const. Art. Ill, § 32 (“No money shall be drawn from the Treasury of the State, by any order or resolution, nor except in accordance with an appropriation by Law.”); Md.Code (1985, 1995 Repl.Vol., 1997 Supp.) § 7-205 of the State Fin. & . Proc. Article (“Money may be disbursed from the State Treasury only in accordance with the current appropriation for a program----”).

The appellants also argue that the Contract violates section 7-234 of the State Finance and Procurement Article, which provides that “[a]n officer or unit of the State government may not spend money: (1) in excess of the total appropriation to the officer or unit; or (2) in excess of the amounts set forth in the current schedule for apportionment and disbursement of the appropriation.” The appellants reason that section 7- ⁶⁷³ 234 has been violated because “[u]nder the terms of the Contingent Fee Contract, as soon as the State began receiving services from [outside counsel], it became obligated to pay that firm twenty-five percent of any amount ultimately recovered in the [tobacco litigation].” The Contract, they postulate, effectively ties the hands of the General Assembly and the Governor, by committing the State to spend money before there has been an appropriation. Quoting an Opinion of the Attorney General, the appellants assert that “ § 7-234 is intended to prevent such a diminution of the Governor’s discretion about resource allocation.” Md. Op. Att’y Gen. No. 91-049, 1991 WL 626536 at 4 (Nov. 12,1991). 8 In response to the appellants’ arguments, the appellees contend, as the trial court found below, that a proper analysis of this case begins with the authority of the Office of the Attorney General, not with the constitutional and statutory laws governing fiscal policies.

They argue that the Attorney General has clear constitutional and statutory authority to employ outside counsel in the capacity of an “assistant counsel” in extraordinary cases such as the underlying tobacco litigation. They assert that “[t]he Attorney General, acting at the Governor’s direction, plainly has the constitutional power under Article V, Section 3, of the Maryland Constitution, to initiate a civil suit in the interest of the State.” Further, section 6-105 of the State Government Article “provides the Attorney General with substantial flexibility in determining how ... special assistant counsel may be compensated, and conditions the Attorney General’s exercise of his authority only on the approval of the Governor.” They add, “Nothing in section 6-105(b) suggests or implies that a contingent fee arrangement could not constitute ‘proper compensation’ within the meaning of the statute.” Next, the appellees contend that there is no requirement that the gross recovery from the ⁶⁷⁴ tobacco litigation must be first deposited in the State Treasury and then, pursuant to specific appropriation, withdrawn to compensate outside counsel. Such a requirement, they argue, “would thus call into question the State’s ability to engage outside bond counsel, as well as other situations where the State retains and pays outside counsel.” Finally, the appellees argue, “assuming that ... the State already ‘owns’ the funds that would ultimately be used to pay [outside counsel], there is no question that the Board of Public Works can approve an agreement disposing of that ‘property of the State’ as long as the State receives adequate consideration.” (b) In Maryland, contingency fee agreements are commonplace in the practice of law, and, generally, are not illegal or viewed with a jaundiced eye. See Md. Rule of Prof.

Conduct 1.5(c) and (d) (contingent fees are permissible, except in domestic and criminal defense cases). 9 Therefore, in determining whether the subject contingency fee arrangement between the Attorney General and outside counsel is valid, we, as the court below observed, “first must examine the sources of the Attorney General’s powers” to enter into such an arrangement. In 1984, in State v. Burning Tree Club, 301 Md. 9 , 481 A.2d 785 (1984), we chronicled the constitutional provisions relative to the Attorney General and concluded that the Attorney General “possesses no common law powers.” Id. at 33 , 481 A.2d at 797 ; see also Murphy v. Yates, 276 Md. 475, 480-84 , 348 A.2d 837, 840-42 (1975). Rather, “the Attorney General of Maryland has only such powers as are vested in him by the Constitution of Maryland and the various enactments of the General Assembly of Maryland.” Burning Tree Club , 301 Md. ⁶⁷⁵ at 32, 481 A.2d at 797 . Article V, Section 3 of the Maryland Constitution, for example, provides, in pertinent part, that the Attorney General shall: “(2) Investigate, commence, and prosecute or defend any civil or criminal suit or action or category of such suits or actions in any of the Federal Courts or in any Court of the State, or before administrative agencies and quasi legislative bodies, on the part of the State or in which the State may be interested, which the General Assembly by law or joint resolution, or the Governor shall have directed or shall direct to be investigated, commenced, and prosecuted or defended.” Md.Code (1912, 1981 Repl.Vol., 1997 Supp.) Const.

Art. V, § 3(a)(2); see also In re Special Investigation No. 244, 296 Md. 80, 87 , 459 A.2d 1111 (1983). That section also provides that “[t]he Attorney General shall have and perform any other duties and possess any other powers, and appoint the number of deputies or assistants, as the General Assembly from time to time may prescribe by law.” Id. at § 3(b). One such law, which the appellees contend the Attorney General relied upon in the instant case, is section 6-105(b) of the State Government Article. That section explicitly sets forth the terms and conditions under which the Attorney General may retain a private attorney as an “assistant counsel.” Section 6-105 (b) provides: “(b) Special employment.

(1) In addition to any other staff appointed under this section, the Attorney General, with the written approval of the Governor, may employ any assistant counsel that the Attorney General considers necessary to carry out any duty of the Office in an extraordinary or unforeseen case or in special county work. “(2) The Attorney General shall submit to the Governor a written request that: “(i) states the necessity of and each reason for the special employment; and ⁶⁷⁶ “(ii) states the proposed compensation and its source or certifies that the Attorney General cannot ascertain in advance the proper compensation. “(3) Compensation that cannot be ascertained in advance may be agreed on or adjusted later.” Md.Code (1984, 1995 Repl.Vol., 1997 Supp.) § 6-105 of the State Gov. Article. This statutory provision has been neither significantly changed by the Legislature nor interpreted by this Court since its enactment in 1916. See Md.Code (1957 Vol.), Article 32A, § 11; 1916 Maryland Laws, ch. 560, § 9. 10 Needless to say, however, section 6-105(b) clearly authorizes the Attorney General to retain outside counsel, and, more important, establishes requirements (1) the Attorney General’s determination that the case is an extraordinary, unforeseen or a special county work case, (2) the Attorney General’s written request, and (3) the Governor’s approval that must be satisfied before the Attorney General may enter into a “special employment” agreement.

In the instant case, the Attorney General determined, and the Governor, along with other members of the Board of Public Works, agreed that the tobacco litigation was “extraordinary,” as it was “prohibitively expensive” for the State to finance a lawsuit seeking billions of dollars from “unusually wealthy and powerful opponents.” Furthermore, the Attorney General determined that handling the tobacco litigation would ⁶⁷⁷ undoubtedly require a significant commitment of State personnel and financial resources from the Office of the Attorney General and other departments of State government. The enormity of the tobacco litigation is evident from the thirteen-count complaint the State filed against fourteen tobacco manufacturer and tobacco-related companies, alleging various violations of the Maryland Consumer Protection and Antitrust Acts and numerous tort claims. 11 ⁶⁷⁸ In this case, we will not review and, therefore, not disturb the Attorney General’s and the Governor’s determination of extraordinariness, which, pursuant to section 6-105(b), was a decision within their discretionary authority. See United States v. George S. Bush & Co., Inc., 310 U.S. 371, 380 , 60 S.Ct. 944, 946 , 84 L.Ed. 1259 (1940) (“It has long been held that where [the Legislature] has authorized a public officer to take some specified legislative action when in his judgment that action is necessary or appropriate to carry out the policy of [the Legislature], the judgment of the officer as to the existence of facts calling for that action is not subject to review.”); Judy v. Schaefer, 331 Md. 239, 265-266 , 627 A.2d 1039, 1052-53 (1993) (Governor’s determination that certain budgetary expenditures were “unnecessary” is not subject to judicial review because a statute provided him with such discretionary authority); Hamilton v. Verdow, 287 Md. 544, 556 , 414 A.2d 914, 921 (1980) (“[P]rinciples behind the constitutional separation of powers ... place limits on a court’s power to review or interfere with the conclusions, acts or decisions of a coordinate branch of government made within its own sphere of authority.”) (citing Dep’t of Nat. Res. v. Linchester, 274 Md. 211, 218, 223-225 , 334 A.2d 514 (1975) (footnote omitted).) As Justice Story of the United States Supreme Court stated long ago in Martin v. Mott, 12 Wheat. 19, 31-32 , 6 L.Ed. 537 (1827): ‘Whenever a statute gives a discretionary power to any person, to be exercised by him upon his own opinion of certain facts, it is sound rule of construction that, the statute constitutes him sole and exclusive judge of the existence of those facts.” See Adams v. Nagle, 303 U.S. 532, 542 , 58 S.Ct. 687, 693 , 82 L.Ed. 999 (1938); Culp v. Com’rs of Chestertown, 154 Md. 620, 623 , 141 A. 410 (1928); Norris v. Baltimore, 172 Md. 667, 686 , 192 A. 531 (1937); Gebhart v. Hill, 189 Md. 135, 139 , 54 A.2d ⁶⁷⁹ 315 (1947); First Continental v. Director, 229 Md. 293, 302 , 183 A.2d 347 (1962).

The procedural requirements set forth in section 6-105(b) were also followed by the Attorney General. On March 20, 1996, the Attorney General submitted a written request to the Governor, seeking authorization “to retain outside counsel to assist the State in seeking the recovery of significant State costs from the tobacco industry.” In compliance with the statute, the Attorney General explained that the tobacco litigation “will be prolonged and expensive, and the most-effective means of advancing the State’s interest is by hiring outside counsel on a contingency basis.” He further explained that “[fjunding for the payment of tobacco counsel services will be obtained from the proceeds of any recovery to the State.” The Governor subsequently approved the request, and thus, pursuant to the dictates of section 6-105(b), the Attorney General certainly was authorized to retain outside “assistant counsel” in connection with the tobacco litigation. See In re Special Investigation No. 244, 296 Md. at 87-88 , 459 A.2d at 1114-15 (Attorney General was fully vested with the power to pursue investigation of medicaid fraud pursuant to authorization in series of letters from Governor); Bomhardt v. State, 71 Md.App. 609, 612-14 , 526 A.2d 983, 984-86 , cert. denied, 311 Md. 144 , 532 A.2d 1371 , appeal dismissed, 485 U.S. 950 , 108 S.Ct. 1208 , 99 L.Ed.2d 410 (1987) (Governor could grant Attorney General authority to investigate and prosecute offense of failing to file state income tax returns.). Whether section 6-105(b) permits the Attorney General and outside counsel to enter into a contingent fee arrangement with outside counsel, which, the appellants contend, amounts to an unauthorized expenditure of unappropriated State funds, is not as clear, however. 12 By its terms, section ⁶⁸⁰ 6-105 clearly does not prohibit contingency fee contracts.

In fact, section 6-105(b) is a rather procedurally rigid statute, and the only matter covered by it which is subject to the Attorney General’s discretion is the proper compensation of assistant counsel. The appellants, however, argue that any interpretation of section 6-105(b) which authorizes the Attorney General to compensate outside counsel on a contingency basis conflicts with both Article III, Section 32 of the Maryland Constitution, which “expressly prohibits the Attorney General, and other State officials and agencies, from spending ⁶⁸¹ any State funds here any moneys recovered in the [tobacco] litigation without an appropriation,” and section 6-213 of the Finance and Procurement Article which establishes that “[t]he Attorney General has a clear statutory obligation to deposit the entire recovery within a month of its receipt with the Treasury.” We find that the language of section 6-105(b) permits the Attorney General to enter into a contingency fee contract. 13 Section 6-105(b) does not conflict with Article III, Section 32 of the Constitution, which pertains to “an appropriation” and to money “drawn from the Treasury,” not money that has yet to be deposited into the State Treasury. As the trial court observed, citing Bayne v. Secretary of State, 283 Md. 560, 570 , 392 A.2d 67, 72 (1978), “an ‘appropriation’ constitutes an authorization to withdraw from the Treasury.” As we explained in Dorsey