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In a case with national significance, a local Santa Clara County Superior Court judge ruled in a nuisance suit brought against lead paint manufacturers that certain cities and counties are precluded from retaining private lawyers on a contingency basis.1 The April 4, 2007 order from Judge Jack Komar responded to a motion from the manufacturers for an order to bar payment of contingent fees to private attorneys retained by the cities and counties in the lawsuit. While the order is the subject of the cities’ and counties’ petition for a writ of mandate in the California Court of Appeal, no ruling has yet been issued on the matter to date.

The superior court relied on earlier California Supreme Court precedent that contingency fee arrangements are antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action. As the trial court noted, the California Supreme Court in People ex rel. Clancy v. Superior Court (“Clancy”),2 having “evaluate[d] the propriety of a contingent fee arrangement between a city government and a private attorney whom it hired to bring abatement actions under the city’s nuisance ordinance,”3 disqualified the private contingency-fee attorney.4 Without elaborating on the standard of neutrality, the trial court rejected the plaintiff cities’ and counties’ arguments attempting to distinguish Clancy.

In the case, the superior court first tackled the government plaintiffs argument that “government attorneys continue to retain and/or exercise decision-making authority and control over the litigation...”5 Judge Komar noted, however, that outside counsel are co-counsel, “performing work as attorneys for the plaintiff government entities, and consequently they are subject to the standard of neutrality articulated in Clancy—meaning the government’s attorneys may not have a personal interest in the case. Oversight by the government attorneys does not eliminate the need for or requirement that outside counsel adhere to the standard of neutrality.”6 Addressing the notion that neutrality problems were overcome because the government attorneys retained or exercised decision-making authority and control over the litigation, the judge stated:

Given the inherent difficulties of determining whether or to what extent the prosecution of this nuisance action might or will be influenced by the presence of outside counsel operating under a contingent fee arrangement, outside counsel must be precluded from operating under a contingent fee agreement, regardless of the government attorneys’ and outside attorneys’ well-meaning intentions to have all decisions in this litigation made by the government attorneys.7

The judge noted that, as a practical matter, it would be difficult to determine how much control the government attorneys must exercise for a contingent fee arrangement with outside counsel to be found permissible; what types of decisions the government attorneys must retain control over; and whether the government attorneys have been exercising such control throughout the litigation “or whether they have passively or blindly accepted recommendations, decisions, or actions by outside counsel.”8

Judge Komar also rejected the plaintiffs’ contention that “public policy” should preclude disqualification because government entities lack the resources and specific expertise necessary to prosecute such actions. The judge opined, however, that the standard of neutrality should apply “regardless of the wealth of either the government lawyer or the defendant.”9

It is important to note that the ruling, even if upheld on appeal, may only apply to affirmative litigation based on a public nuisance cause of action and not other types of litigation engaged in by government agencies. Given the active role of state attorneys general and local governments in pursuing causes of action against businesses for consumer fraud, misrepresentation and unfair trade practices, and their desire on occasion to retain contingency-fee counsel in these cases, it is likely that this ruling will resonate for some time to come.

* Tom Gede is a Principal of Bingham Consulting Group and of counsel to Bingham McCutchen LLP. A graduate of Stanford University and University of California - Hastings College of the Law, he teaches Federal Indian Law at Pacific-McGeorge School of Law in Sacramento.

 

Endnotes

1 Order filed April 4, 2007 (Super. Ct. Santa Clara County Case No. 1-00-CV-788657). The other defendants include American Cyanamid Company; ConAgra Grocery Products Company; E.I. du Pont de Nemours and Company; Millennium Inorganic Chemicals Inc.; NL Industries, Inc.; and The Sherwin-Williams Company.

2 39 Cal.3d 740 (1985) (stopping the Southern California city of Corona from using a private attorney on contingency to pursue a nuisance suit against an adult book store).

3 Id. at 743.

4 Id. at 750.

5 Order, supra note 1.

6 Id.

7 Id. at 3-4.

8 Id. at 3.

9 Id. at 4.

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