Supreme Court Passes on Case Involving State Retention of Private Counsel

The U.S. Supreme Court declined last week to review a California Supreme Court ruling that permitted cities and counties to engage private attorneys for public nuisance litigation against lead paint defendants on a contingency fee basis.  See Atlantic Richfield Co. v. Santa Clara County, Calif., No. 10-546 (U.S. cert. denied 1/10/11).

Readers may recall our previous posts on the important issue of  the power of government agencies to retain private plaintiffs attorneys on a contingency fee basis to prosecute nuisance litigation.  One case we posted on was County of Santa Clara v. The Superior Court of Santa Clara County, Cal., No. S163681 (7/26/10), in which 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.

The state supreme court permitted the use of contingency fee counsel with restrictions. 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. Accordingly, when public entities have retained the requisite authority in appropriate civil actions to control the litigation and to make all critical discretionary decisions, the impartiality required of government attorneys prosecuting the case on behalf of the public has been maintained, said the court. 

We noted that the list of specific indicia of control identified by the court seem quite strained, and to elevate form over substance, written agreements over human nature. Defendants sought cert review. In amicus filings, various trade organizations including the American Chemistry Council, the American Coatings Association, and the National Association of Manufacturers, 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 argued 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 to impact the decisions in a public nuisance action brought in the government's sovereign capacity. The briefing also raised 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.

These kinds of contingency fee prosecutors threaten to diminish the public's faith in the fairness of civil government prosecutions. These arrangements frequently result in allegations that government officials are doling out contingency fee agreements to lawyers who make substantial campaign contributions.


 

Proposed Accounting Rule Makes No Sense For Mass Torts

At MassTortDefense we typically focus on litigation, with a touch of legislation thrown in. A newly proposed accounting rule – yes accounting – gets our attention today. The rule would modify the standard accounting provisions governing the disclosure of the costs and contingencies of ongoing litigation, and in so doing assist plaintiffs’ attorneys and threaten the attorney-client privilege.

The change (Exposure Draft, Proposed Statement of Financial Accounting Standards, Disclosure of Certain Loss Contingencies) was proposed by the Federal Accounting Standards Board earlier this year, and would expand the loss contingencies that are required to be disclosed, the disclosure of specific quantitative and qualitative information about the loss contingencies, and a tabular reconciliation of the loss contingencies. (FASB is a private organization that establishes standards used in preparing financial reports that are officially recognized by the SEC and the American Institute of Certified Public Accountants.)

Problems? It may require companies to disclose things that are very remote. The information is also going to have to be updated on a quarterly basis. That will require extensive effort by both outside and inside counsel, increasing costs significantly. More importantly, it will also impact litigation strategy. Mass tort litigation is driven by plaintiffs’ attorneys, more so than by law, science, or medicine. The new disclosure rules would undermine the attorney-client privilege and work product protection, especially to the extent they seem to expect the company to give its own assessment of what the results will likely be. They seem to require greater disclosure of the company’s litigation strategy and analysis of the strengths and weaknesses of its position to a far greater extent than ever seen before. The rules thus tilt the litigation balance in favor of disclosing info to companies’ litigation adversaries and, thus, work to the ultimate detriment of shareholders without providing meaningful disclosure to investors.

As anyone who has handled mass tort litigation can attest, budgeting for future contingencies is extremely difficult, with the number of cases, the jurisdictions involved, the courts’ case management techniques, and the number of trials, having huge impact on costs and all being outside defendants’ direct control. Estimating the costs of continuing litigation is highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information

The proposed change also stipulates that companies may avoid disclosing certain information if the disclosure would be prejudicial to the ongoing legal proceeding, but it is unclear how this provision would protect companies in practice.  Almost all the new disclosures seem to be potentially prejudicial in that way.

Pharmaceutical companies are among those most affected by this proposal, because of the mass tort litigation that they face. Six leading drug makers sent a letter last Friday objecting to the proposed rule. The companies are currently defending a wide range of lawsuits, including tens of thousands of product liability lawsuits, many of the lawsuits class actions.

Here's hoping that comments cause a re-thinking of a rule that seems ignorant of the world of mass torts.