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In July 2008, the California Supreme Court agreed to review a Court of Appeal case holding that California public entities are permitted to agree to compensate private counsel on a contingency basis to prosecute a public nuisance action against lead paint manufacturers. The underlying case began in March 2000, when Santa Clara County filed a complaint in Superior Court against lead paint manufacturers alleging causes of action for strict liability, negligence, fraud and concealment, unjust enrichment, indemnity, and unfair business practices. Nine other California counties and cities ultimately joined Santa Clara County as plaintiffs. The defendants include, among others, American Cyanamid Company, Atlantic Richfield Company, and Sherwin-Williams Company. In January 2007, the plaintiffs moved for leave to file a fourth amended complaint alleging a single representative cause of action, for public nuisance. It was in this context that, in April 2008, the Sixth District Court of Appeal ruled that the government plaintiffs were permitted to compensate their private counsel by means of contingent fees.1

In holding the contingency arrangements permissible, Atlantic Richfield distinguished the circumstances of the lead paint contingency fee representation from the circumstances presented in the California Supreme Court’s earlier decision in People ex. rel Clancy v. Super. Court of Riverside County (Ebel).2 In Clancy, a California city had contracted with a private attorney, Clancy, to litigate a public nuisance action for abatement on the city’s behalf against the owner of a bookstore selling allegedly obscene materials.3 The contract provided that Clancy’s hourly rate would double for any suit he handled that was resolved in the city’s favor.4 In assessing the defendant’s motion to disqualify Clancy based on the fee arrangement, the court began by explaining the reasons for requiring prosecutorial neutrality:  

Thus a prosecutor’s duty of neutrality is born of two fundamental aspects of his employment. First, he is a representative of the sovereign; he must act with the impartiality required of those who govern. Second, he has the vast power of the government available to him; he must refrain from abusing that power by failing to act evenhandedly.5

Neutrality duties are not limited to criminal prosecutors.6 Further, personal interests in the litigation on the part of the prosecutors can vitiate the required neutrality: “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.”7

The Clancy court held that such standards are not limited to public officials. Rather, “[t]he responsibility follows the job: if Clancy is performing tasks on behalf of and in the name of the government to which greater standards of neutrality apply, he must adhere to those standards.”8 Applying this neutrality principle to Clancy’s arrangement with the city, the court found that Clancy’s financial interest in the outcome of the case “gives him an interest extraneous to his official function in the actions he prosecutes on behalf of the City,”9 and hence ruled that he was properly disqualified from representing the city.10

In reaching this result, the court emphasized that there are certain kinds of civil cases litigated by public entities where contingent fees might be permissible.11 But Clancy also found that there also is a separate class of cases where the government attorneys must be “unaffected by personal interests.”12 This class of cases includes public nuisance, which can involve “a delicate weighing of values.”13 In Clancy itself, the defendant bookseller and the public had First Amendment interests in, respectively, selling and having available the allegedly obscene material at issue.14 Hence, “[a]ny financial arrangement that would tempt the government attorney to tip the scale cannot be tolerated.”15

Since Clancy and Atlantic Richfield both involved governmental public nuisance claims being litigated by private counsel on a contingency basis, Atlantic Richfield distinguished Clancy on another ground—the degree of control over the litigation exercised by private counsel. Unlike the private attorney in Clancy, who apparently was himself solely responsible for the nuisance action against the bookseller, the court of appeals held that the private attorneys in Atlantic Richfield “serve in a subordinate role in which private counsel merely assist in-house counsel and lack any authority to control the litigation.”16 Thus, the court identified the “only remaining question” as whether “the limited role of private counsel renders inapplicable Clancy’s absolute neutrality requirement.”17 Noting that “the binding authority of Clancy is limited to the facts upon which the California Supreme Court rested its holding,” the court emphasized that Clancy had “complete control over the litigation.”18 By contrast, where private attorneys such as those litigating the lead paint case “are merely assisting government attorneys in the litigation of a public nuisance abatement action and are explicitly serving in a subordinate role,” and “lack any decision-making authority or control, 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.”19 The court thus concluded that the contingency fee arrangements were not prohibited under Clancy.20

The Atlantic Richfield court then found that federal and non-California authorities did not suggest that the contingent fee arrangement in the lead paint case would always be impermissible.21 Not surprisingly, the court focused on perhaps the most prominent recent class of cases where public entities have hired private counsel on a contingency basis—tobacco litigation. As with its treatment of Clancy, the court stressed that contingency arrangements were more likely to be found permissible where the in-house government lawyers retained ultimate control over the litigation. In Philip Morris Inc. v. Glendening, one of the cases to which Atlantic Richfield cited, Maryland’s highest court found that the state attorney general’s retention of private counsel on a contingency basis to litigate a tort action against the tobacco industry seeking recovery of state’s tobacco-related health care costs did not violate due process or public policy.22 Distinguishing Clancy, the Glendening court emphasized the presence of an elected state official—the attorney general—with authority to control outside counsel’s handling of the tobacco litigation.23 Glendening also noted that unlike in Clancy, the case did not implicate constitutional or criminal issues and hence did not raise a possible conflict of interest.24

Along similar lines, Atlantic Richfield also cited to City and County of San Francisco v. Philip Morris, Inc.25 In that case, the court denied defendants’ motion to disqualify counsel who had been hired on a contingency basis because “plaintiffs’ public counsel are actually directing this litigation,” and hence Clancy’s concerns about overzealous, for-profit advocates had been addressed.26 But the court also found the arrangement permissible in part because the tobacco case did not raise the public policy concerns requiring strict neutrality that are present in public nuisance actions:

This lawsuit, which is basically a fraud action, does not raise concerns analogous to those in the public nuisance or eminent domain contexts discussed in Clancy. Plaintiffs’ role in this suit is that of a tort victim, rather than a sovereign seeking to vindicate the rights of its residents or exercising governmental powers.

Finally, the case as it stands now will not require the private attorneys to argue about the policy choices or value judgments suggested by defendants regarding the regulation of tobacco. Rather, plaintiffs’ attorneys simply will be arguing, as they likely have in many other cases for private sector clients, that a tort has been committed against their clients.27

Outside the tobacco context, Atlantic Richfield cited to Sedelbauer v. State, in support of its view of the importance of private counsel’s degree of control over litigation on behalf of the government.28 Sedelbauer was an obscenity prosecution in which the court found that a private attorney from “Citizens for Decency through Law,” presumably an anti-pornography group, was permitted to appear as the regular prosecutor’s co-counsel based on Indiana courts’ “power and duty to appoint attorneys to assist in the trial of criminal cases.”29 Although Sedelbauer supports the distinction between private counsel that have sole control over litigation for public entities and private counsel that are controlled and supervised by public officials, Sedelbauer did not discuss what if any, financial arrangement (such as a contingency fee) existed between the private counsel and the state.30

It is clear from California Supreme Court precedent the importance the court places on maintaining strict neutrality on the part of the attorneys—public employees or private counsel—who litigate public nuisance and other cases involving significant public policy issues on behalf of the government. Thus, there is good reason to believe that the issue likely to occupy the bulk of the court’s attention in reviewing Atlantic Richfield will be whether the degree of control maintained by government attorneys over private counsel’s litigation of contingency fee cases is as outcome-determinative as the court of appeal’s opinion suggests.

* Brian Anderson is a partner and Christopher Catalano is a counsel in the Washington, D.C. office of O’Melveny & Myers LLP. Both are members of the firm’s Class Actions, Mass Torts, and Aggregated Litigation practice group.

 

Endnotes

1 County of Santa Clara v. Super. Court of Santa Clara County (Atlantic Richfield Co.), 74 Cal. Rptr. 3d 842 (Cal. Ct. App.), rev. granted, 188 P.3d 579 (Cal. 2008).

2 705 P.2d 347 (Cal. 1986).

3 Id. at 348-49.

4 Id. at 350.

5 Id.

6 Id.

7 Id. at 351.

8 Id.

9 Id.

10 Id. at 353. See also People v. Super. Court of Contra Costa County (Greer), 561 P.2d 1164 (Cal. 1977) (disqualifying district attorney from litigating homicide case where victim’s mother was employed in the prosecutor’s office, was a material witness in the case, and stood to gain from related custody proceedings if the defendant were convicted), superseded by statute as stated in People v. Conner, 666 P.2d 5, 8 (Cal. 1983)).

11 Id. at 352 (citing Denio v. City of Huntington Beach, 140 P.2d 392 (Cal. 1943) (enforcing agreement between private law firm and city in which firm’s compensation was percentage of oil and gas royalties received by city resulting from firm’s representation, but not specifically discussing propriety of contingency aspect of agreement)).

12 Id. at 352 (citing City of Los Angeles v. Decker, 558 P.2d 545 (Cal. 1977) (because eminent domain actions must strike a balance between public and private interests, government attorneys in such actions would be held to especially high neutrality standards; government attorneys had engaged in misconduct requiring a new trial where they had improperly argued to the jury that there was no need for airport parking when in fact that was exactly what the airport board had planned).

13 705 P.2d at 352.

14 Id.

15 Id.

16 County of Santa Clara v. Super. Court of Santa Clara County (Atlantic Richfield Co.), 74 Cal. Rptr. 3d 842, 849 (Cal. Ct. App.), rev. granted, 188 P.3d 579 (Cal. 2008).

17 Id.  

18 Id. at 850 (emphasis in original).

19 Id. at 850 (emphasis in original).

20 Id.

21 Id. at 851-53.

22 709 A.2d 1230 (Md. 1998).

23 Id. at 1243.

24 Id. at 1242-43.

25 957 F. Supp. 1130 (N.D. Cal. 1997).

26 Id. at 1135.

27 Id. at 1135.

28 455 N.E.2d 1159 (Ind. Ct. App. 1983).

29 455 N.E.2d at 1164 (emphasis in original).

30 See id.

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