The Supreme Court of California rules on Santa Clara contingency fee issue - backpedals on Clancy.

Author:Axelrad, David M.

IMAGINE that a City Attorney comes before the court and makes the following argument:

"Your Honor, we face a crisis. We believe certain substances present in the homes and public buildings of our fair City must be removed. Not only can we not afford to pay for that removal, we cannot afford to litigate the public nuisance action that we think must be brought to protect our city. Were we to undertake such litigation on our own, the limited resources of our office would quickly be overwhelmed by the law firm firepower that the defendants would bring to bear. The only way we can address this problem in a fiscally responsible way is if we get help by hiring outside counsel who will level the playing field and enable us to serve the people by pursuing a public nuisance action. And the only way we can afford the skilled outside counsel that this lawsuit demands is to hire counsel on a contingent fee basis, so that our cash-strapped City does not have to incur the enormous out-of-pocket expense of hourly attorney fees, and our contingent fee counsel can instead be compensated out of the monetary recovery in the public nuisance action.

Now, I understand your concerns about hiring contingent fee counsel and I want to assure you that I will be in control of the entire litigation, fully supervising every aspect of contingent fee counsel' s involvement. Contingent fee counsel are hired only to assist me. I'm in charge here. We need to solve a problem that urgently impacts the welfare of our citizens. But in these tough economic times, we just need a little help. Thank you." Superficially, this may sound like a reasonable approach to solving a major problem. But on closer examination, the proposed cure--outsourcing the prosecution of public law enforcement claims to private counsel under a contingent fee agreement--is worse than the disease.

The practice of government entities hiring private contingent fee counsel to prosecute sovereign, public law enforcement actions undermines impartial law enforcement by entrusting these actions to lawyers with a financial interest in the outcome. Nonetheless, in County of Santa Clara v. Superior Court, (1) the Supreme Court of California issued a ruling that will skew the filing and handling of civil lawsuits by contingent fee counsel acting on behalf of government entity plaintiffs seeking redress for everything from obesity to climate change. As a result, instead of determining whether and how to pursue litigation based on the overall public interest, government plaintiffs will be guided by the advice of private outside counsel who have a personal stake in obtaining the largest amount of money.

Contingent fee arrangements, when used appropriately, are recognized as an important tool of American justice, "facilitat[ing] access to the judicial system for individuals who lack the means to pre-pay legal expenses." (2) Nonetheless, contingent fee agreements continue to generate skepticism. As one commentator noted:

One of the most serious dangers is that contingent fees tend to erode an attorney's judgment.... When the lawyer in effect invests in a cause of action by taking his fee as a percentage of the recovery, it is easy for him to lose his detachment from the client's interests. He often becomes more of a businessman concerned with his own financial well-being than a proper advisor to the client.... "[T]he contingent fee is now viewed as giving a lawyer an interest in the actual accident, disaster, or transaction that precipitated the lawsuit and a stake in its outcome." This ... undermines public faith in the judicial system by seeming to encourage the filing of lawsuits that lack merit. (3) Recently, however, states and other governmental entities have either sought or been persuaded to retain private contingency counsel to pursue public nuisance claims. This trend began in the 1980s, "when Massachusetts decided to hire private lawyers to pursue claims over asbestos removal." (4) Even after the California Supreme Court limited the use of contingent fee attorneys in public nuisance cases, (5) the use of these contingency fee schemes spread, leading to the "creation of a new model for state-sponsored litigation that combines the prosecutorial power of the government with private lawyers aggressively pursuing litigation that could generate hundreds of millions in contingent fees." (6) The increasing use of contingent fee counsel by public prosecutors has prompted extensive criticism. "Editorials and op-eds ... have been highly critical of the practice of paying private attorneys to prosecute civil enforcement claims on behalf of the State based on their success in bringing in the greatest monetary award." (7)

Contingent fee arrangements have been employed without objection in litigation where the government acts in the traditional role of a plaintiff seeking damages to compensate for an injury) However, when the government is seeking the enforcement of public rights, a contingent fee arrangement gives the attorney representing the government a financial stake in the outcome of litigation that creates an appearance of impropriety affecting the integrity and neutrality of the government's prosecution.

  1. Problems Associated with Hiring Contingency Fee Counsel

    The need for both impartiality and the appearance of impartiality stems from the type of action for which the government hires contingent fee counsel. When the government brings an action for public nuisance, eminent domain, or other similar claims, the government acts in its sovereign capacity as parens patriae for "the health and well-being--both physical and economic--of its residents in general." (9) When acting in this sovereign role to protect the general welfare of the citizenry, as distinct from the government's proprietary role (10) ("like other associations and private parties, a State ... may ... own land or participate in a business venture ... [and] may at times need to pursue those interests in court ..."), the government must be free of any outside influence that risks impairing the neutrality and impartiality essential to the government's ability to act in the best interest of all citizens.

    In a criminal action, there would be no debate, for our society would never allow the prosecutor to employ contingent fee counsel who are paid for each criminal conviction they are able to secure. (11) And, if the prosecutor himself were to pursue an action for public nuisance on a contingent fee basis, the response would be swift and certain; no one would tolerate a prosecutor having a financial interest in the outcome of the litigation.

    The rules should be no different when the prosecutor hires a private attorney as his or her agent to pursue a public law enforcement on the prosecutor's behalf. The California Supreme Court stated this principle emphatically in Clancy:

    [A] lawyer cannot escape the heightened ethical requirements of one who performs governmental functions merely by declaring he is not a public official. The responsibility follows the job: if [the private attorney] 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. (12) The same potential for erosion of the government's neutrality and impartiality occurs whether a contingent fee is payable to the government or the government's agent. Either way, day-to-day litigation decisions--strategy calls, development and evaluation of facts, trial tactics, whether to proceed, whether to settle, whether even to end the litigation--are all necessarily colored by the inescapable fact that counsel hired to litigate the case will not be paid unless there is a substantial monetary recovery. That profit motive necessarily influences the course of the litigation. Where a contingent fee is involved, therefore, there is no longer a guarantee that a public law enforcement action will be guided solely by what is best for the general welfare. (13) There will always be a risk that decisions concerning government parens patriae litigation will be made in whole or in part for the sake of attorney profit rather than for the public's benefit.

    The issue is not whether an advocate can be perfectly disinterested. All advocates have an interest in winning their cases. (14) The neutrality demanded of an attorney enforcing...

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