In County of Santa Clara v. The Superior Court of Santa Clara County, (— Cal.Rptr.3d —-, Cal., July 26, 2010), the California Supreme Court considered whether a group of counties and cities who were prosecuting a public nuisance action against lead paint manufacturers could enter into contingent-fee agreements with outside private counsel to assist them in the litigation. The Supreme Court held that the counties and cities and private counsel may enter into contingent-fee agreements if certain conditions are met.
Facts
Approximately ten California counties and cities brought a lawsuit against numerous businesses who manufactured lead paint. Although the public entities initially alleged several causes of action against the manufacturers, they eventually amended their complaint to allege only a cause of action for public nuisance. The public entities sought abatement as the only remedy for the nuisance. The public entities are represented by their own government attorneys but they also entered into agreements with private counsel to represent them. The agreements with private counsel were “on a contingent-fee basis.”
The manufacturing companies asked the trial court to bar the public entities from compensating their private outside counsel through the use of contingent fees. The trial court granted the companies’ motion finding that the Supreme Court’s decision in People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, ”precluded any arrangement in which private counsel has a financial stake in the outcome of a case brought on behalf of the public.” A court of appeal disagreed with the trial court finding that “Clancy does not bar all contingent-fee agreements with private counsel in public-nuisance abatement actions, but only those in which private attorneys appear in place of, rather than with and under the supervision of, government attorneys.”
Decision
In Clancy, the Supreme Court examined a contingent-fee arrangement between a city and a private attorney pursuant to which the private attorney would bring a nuisance abatement action against an adult bookstore. The Court found that “public nuisance abatement actions belong to the class of civil cases in which counsel representing the government must be absolutely neutral.” The Supreme Court held the contingent-fee arrangement was inappropriate under the circumstances.
Here, the Supreme Court reexamined its opinion in Clancy and narrowed its holding “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 without compromising either the integrity of the prosecution or the public’s faith in the judicial process.” The Court noted that the situation in Clancy “implicated interests akin to those inherent in a criminal prosecution” and also the defendants’ free speech rights. In contrast, the public-nuisance action here is “not substantially similar to the fundamental rights at stake in a criminal prosecution.” Whatever the outcome of the lead paint litigation, “no ongoing business activity will be enjoined” and no defendant will be prevented from exercising his or her First Amendment rights.
The Court found that “to ensure that an attorney representing the government acts evenhandedly and does not abuse the unique power entrusted in him or her in that capacity — and that public confidence in the integrity of the judicial system is not thereby undermined — a heightened standard of neutrality is required for attorneys prosecuting public-nuisance cases on behalf of the government.” Although the Court recognized that where a private attorney has a direct pecuniary interest in the outcome of the litigation there is a conflict of interest, it concluded “[t]his conflict, however, does not necessarily mandate disqualification.” A public entity may retain private counsel “if neutral, conflict-free government attorneys retain the power to control and supervise the litigation.” If the private counsel is under the control and supervision of the government attorneys and “the discretionary decisions vital to an impartial prosecution are made by neutral attorneys . . . the prosecution may proceed with the assistance of private counsel, even though the latter have a pecuniary interest in the case.” The Court stated the following provisions must be made a part of any contingent-fee agreement between a public-entity and private counsel: “(1) that the public-entity attorneys will retain complete control over the course and conduct of the case; (2) that government attorneys retain a veto power over any decisions made by outside counsel; and (3) that a government attorney with supervisory authority must be personally involved in overseeing the litigation.”
The Court noted that some of the contingent-fee agreements at issue specifically provide that the government counsel retains final authority over all aspects of the litigation. Two of the fee agreements, however, purport to grant to private counsel “absolute discretion in the decision of who to sue and who not to sue, if anyone, and what theories to plead and what evidence to present.” Three of the agreements were not contained in the appellate record. The Court reversed the judgment of the court of appeal and remanded the matter for a determination of whether the agreements meet the requirements set out by the Court in its opinion. The Court stated, “Assuming the public entities contemplate pursuing this litigation assisted by private counsel on a contingent-fee basis, we conclude they may do so after revising the respective retention agreements to conform with the requirements set forth in this opinion.”
Questions
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