Use of Contingency Fee Private Counsel Appealed

A variety of business groups have weighed in as amici, asking the Supreme Court to recognize how contingency fee arrangements by California counties and cities pursuing lead paint litigation violated the due process rights of the defendants. Atlantic Richfield Co. v. County of Santa Clara, No. 10-546 (U.S., amicus curiae brief submitted 11/24/10).

Readers may recall our previous posts about how the California supreme court had taken a major step backward by modifying a 1985 decision that had limited the power of government agencies to retain private plaintiffs attorneys on a contingency fee basis to prosecute nuisance litigation. County of Santa Clara v. The Superior Court of Santa Clara County, No. S163681 (Cal. 7/26/10).

A group of public entities composed of various California counties and cities were prosecuting a public-nuisance action against numerous businesses that manufactured lead paint. Defendants moved to bar the public entities from compensating their privately retained counsel by means of contingent fees. The lower court, relying upon People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985), ordered that the public entities were barred from compensating their private counsel by means of any contingent-fee agreement, reasoning that under Clancy, all attorneys prosecuting public-nuisance actions must be “absolutely neutral.”

The state supreme court acknowledged that Clancy arguably supported defendants' position favoring a bright-line rule barring any attorney with a financial interest in the outcome of a case from representing the interests of the public in a public nuisance abatement action. The court proceeded to engage in a reexamination of the rule in Clancy, however, finding it should be "narrowed," in recognition of both (1) the wide array of public-nuisance actions (and the corresponding diversity in the types of interests implicated by various prosecutions), and (2) the different means by which prosecutorial duties may be delegated to private attorneys supposedly without compromising either the integrity of the prosecution or the public's faith in the judicial process.

The state court had previously concluded that for purposes of evaluating the propriety of a contingent-fee agreement between a public entity and a private attorney, the neutrality rules applicable to criminal prosecutors were equally applicable to government attorneys prosecuting certain civil cases. The court had noted that a prosecutor's duty of neutrality stems from two fundamental aspects of his or her employment. As a representative of the government, a prosecutor must act with the impartiality required of those who govern. Second, because a prosecutor has as a resource the vast power of the government, he or she must refrain from abusing that power by failing to act evenhandedly.

But then, the court concluded that to the extent Clancy suggested that public-nuisance prosecutions always invoke the same constitutional and institutional interests present in a criminal case, that analysis was "unnecessarily broad" and failed to take into account the wide spectrum of cases a state may bring. The court described a range of cases; criminal cases require complete neutrality. In some ordinary civil cases, neutrality is not a concern when the government acts as an ordinary party to a controversy, simply enforcing its own contract and property rights against individuals and entities that allegedly have infringed upon those interests. The nuisance cases fall between these two extremes on the spectrum of neutrality required of a government attorney. The case was not an “ordinary” civil case in that the public entities' attorneys were appearing as representatives of the public and not as counsel for the government acting as an ordinary party in a civil controversy. The case was being prosecuted on behalf of the public, and, accordingly, the concerns identified in Clancy as being inherent in a public prosecution were, indeed, implicated.

But, despite that, state supreme court found that the interests affected in this case were not similar in character to those invoked by a criminal prosecution or the nuisance action in Clancy. The case would not have resulted in an injunction that prevents the defendants from continuing their current business operations. The challenged conduct (the production and distribution of lead paint) has been illegal in the state since 1978. Accordingly, whatever the outcome of the litigation, no ongoing business activity would be enjoined. Nor would the case prevent defendants from exercising any First Amendment right. Although liability may be based in part on prior commercial speech, the remedy would not involve enjoining current or future speech, said the court.

While a heightened standard of neutrality was required for attorneys prosecuting public-nuisance cases on behalf of the government, that heightened standard of neutrality is not always compromised by the hiring of contingent-fee counsel to assist government attorneys in the prosecution of a public-nuisance abatement action. Use of private counsel on a contingent-fee basis is permissible in such cases if neutral, conflict-free government attorneys retain the power to control and supervise the litigation.

In so finding, the court downplayed the reality that the public attorneys' decision-making conceivably could be influenced by their professional reliance upon the private attorneys' expertise and a concomitant sense of obligation to those attorneys to ensure that they receive payment for their many hours of work on the case.To pass muster, neutral government attorneys must retain and exercise the requisite control and supervision over both the conduct of private attorneys and the overall prosecution of the case. Such control of the litigation by neutral attorneys supposedly will provide a safeguard against the possibility that private attorneys unilaterally will engage in inappropriate prosecutorial strategy and tactics geared to maximize their monetary reward. .

The list of specific indicia of control identified by the state supreme court seem quite strained, however, and to elevate form over substance, and written agreements over human nature. The authority to settle the case involves a paramount discretionary decision and is an important factor in ensuring that defendants' constitutional right to a fair trial is not compromised by overzealous actions of an attorney with a pecuniary stake in the outcome.  In reality, even if the control of private counsel by government attorneys is viable in theory, it fails in application because private counsel in such cases are hired based upon their expertise and experience, and therefore always will assume a primary and controlling role in guiding the course of the litigation, rendering illusory the notion of government “control”.

Defendants are seeking cert review. In amicus filings, various trade organizations including the American Chemistry Council, the American Coatings Association, and the National Association of Manufacturers, have argued that the financial incentives inherent in contingency-fee agreements simply distort the decision-making of both the government lawyers and the private attorneys they retain. Inadequately grounded contingency fee arrangements distort the state's duty of even-handedness not only to defendants, but also to the public.  The amici argue that public nuisance cases are not typical tort lawsuits because they claim to be pursued in the public interest. It violates due process for the type of personal financial assessment made by contingency fee private lawyers impacts the decisions in a public nuisance action brought in the government's sovereign capacity. The briefing also raises another important practical issue: the attorney-client privilege and work-product doctrines will block any meaningful inquiry into whether the government is actually exercising the appropriate control that he state court said would solve these issues.

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