The California Supreme Court has agreed to hear a public nuisance case involving lead paint manufacturers that raises the important issue whether public entities can hire outside attorneys on a contingency fee basis in these kinds of cases. County of Santa Clara v. Superior Court (Atlantic Richfield), No. S163681 (Cal. S.Ct.).

In granting review last week, the Court stated: “This case presents the following issue: May a public entity retain private counsel to prosecute a public nuisance abatement action under a contingent fee agreement?”

Ten or so California cities and counties are plaintiffs in the case which accused several former lead paint manufacturers of fraud, strict liability, negligence, unfair business practices, and public nuisance. Eventually, the plaintiffs agreed to move forward with only the public nuisance question. In February, 2007, the defendants filed a motion to bar payment of contingency fees to private attorneys hired by the government plaintiffs. Under an agreement reached by the cities and counties, private counsel apparently were to receive only a small fee upfront, but then 17% of any net recovery.

The California superior court barred the public entities from compensating their private counsel through contingency fees. In April, 2008, the Sixth Appellate Court of Appeal overturned that decision, saying private counsel would only play a limited role in this particular litigation – so the arrangement was acceptable. The court of appeals’ opinion tried to draw a distinction between situations where private counsel are performing tasks on behalf of and in the name of the government in a public nuisance abatement action – where private counsel must be absolutely neutral and cannot be compensated by a contingent fee arrangement – and the situation where private counsel are “merely assisting” government attorneys in the litigation of a public nuisance abatement action and are explicitly serving in a subordinate role. In the latter case, private counsel are not themselves acting in the name of the government and have no role in the balancing of interests that triggers the absolute neutrality requirement, the court stated. The defendants filed a petition for review.

When an attorney wields the power of the state in court, there are ethical and prudential concerns. Not only is a government lawyer’s neutrality essential to a fair outcome for the litigants in the case in which he or she is involved, it is essential to the proper function of the judicial process as a whole. Our system relies for its validity on the confidence of society; without a belief by the people that the system is just and impartial, the concept of the rule of law cannot survive. When a government attorney has a personal interest in the litigation, the neutrality so essential to the system is violated. For this reason prosecutors and other government attorneys can be disqualified for having an interest in the case extraneous to their official function.

The justification for the prohibition against contingent fees seen in criminal actions has been extended to certain civil cases. In People ex rel. Clancy v. Superior Court, 39 Cal.3d 740, 218 Cal.Rptr. 24 (Cal. 1985), the Court did not adopt a per se ban on such contingency fees, but did note that there is a class of civil actions that demands the representative of the government be absolutely neutral. This requirement would preclude the use in that class of cases of a contingent fee arrangement.

The abatement of a public nuisance involves a balancing of interests. On the one hand is the interest of the people in ridding their community of the alleged obnoxious or dangerous condition; on the other hand is the interest of the landowner in using/selling his property or products. Thus, as with an eminent domain action, the abatement of a public nuisance involves a delicate weighing of values. Any financial arrangement that would tempt the government attorney to tip the scale cannot be tolerated, said Clancy. It will be interesting to see if the “merely assisting” distinction succeeds.

That type of distinction was adopted by the Rhode Island Supreme Court in State of Rhode Island v. Lead Industries Association, Inc., No. 2004-63-M.P. (R.I. July 1, 2008), found here. In that case, the fee agreement provided that, in return for their legal representation on behalf of the state in the lead paint litigation, counsel would be entitled to a fee reflecting 16 2/3 percent of any monies recovered. Although the Court ruled for the defendants on the merits, it addressed the fee issue as one of extreme public importance, and as capable of repetition but evading review. The Court noted that the propriety vel non of contingent fee agreements in the public sector is a much controverted and still developing area of the law. It concluded that the Attorney General is not precluded from engaging private counsel pursuant to a contingent fee agreement in order to assist in certain civil litigation, so long as the Office of Attorney General retains absolute and total control over all critical decision-making in any case in which such agreements have been entered into. Accordingly, in order to ensure that a contingent fee agreement is not adverse to the standards that an attorney representing the government must meet, it is vital that the Attorney General have absolute control over the course of any litigation originating in that office. The Attorney General’s discretionary decision-making must not be delegated to the control of outside counsel; rather, it is the outside counsel who must serve in a subordinate role.