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contingent fee agreement on July 22, 1991 (Fee Agreement II). It
provided for various scenarios under which legal fees would be
payable. Generally, Fee Agreement II provided that the fees would
be computed as a percentage of petitioner’s recovery.
Petitioner and Merten also entered into an agreement
entitled “Letter Interpretation” (Letter) which was intended to
govern the interpretation of Fee Agreement II. It provided that
Merten’s fee would be paid out of petitioner’s punitive damages
recovery. Again, it was clear that petitioner could fire his
attorneys at any time, thereby entitling them to a prescribed
amount of compensation.
On August 3, 1994, the Oregon Court of Appeals reinstated
the jury verdict. Consequently, MBL and BCal filed an appeal
with the Supreme Court of the State of Oregon. Before the appeal
was completed, the parties reached a settlement.
On October 26, 1995, petitioner entered into a confidential
settlement and a mutual release agreement with MBL and BCal. The
total amount of the settlement was $8,728,559. Pursuant to the
wording of the settlement agreement, MBL issued a cashier’s check
to petitioner for $4,864,547 and BCal issued a cashier’s check to
“[petitioner’s] attorney, Charles J. Merten,” for $3,864,012.
Under Oregon State law , Or. Rev. Stat. sec. 18.540 (1991),
petitioner was required to pay a portion of his punitive damages
award to the State. Petitioner initially disputed the
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