California Supreme Court in Reverse: The Contingency Fee Decision

On Monday the California Supreme Court reversed course on itself by deciding a governmental entity can retain contingency fee counsel to pursue civil claims provided the language of the contingency fee agreement contains certain provisions that purport to guarantee the government is in control of the litigation. In County of Santa Clara v. The Superior Court of Santa Clara County, the Court distinguished its prior decision in Clancy, finding that, to the extent Clancy “always invoke the same constitutional and institutional interests present in a criminal case, our analysis was unnecessarily broad and failed to take into account the wide spectrum of cases that that fall within the public-nuisance rubric. In the present case, both the types of remedies sought and the types of interests implicated differ significantly from those involved in Clancy and, accordingly, invocation of the strict rules requiring the automatic disqualification of criminal prosecutors is unwarranted.”

The court noted that Clancy involved a landowner engaged in a First Amendment commercial activity (an adult bookstore), whereas the Santa Clara defendants were being sued for past activities (manufacture of, marketing and selling lead pigment and lead-based paint) that had been banned since 1978. As a result, the court concluded this public nuisance action involves “interests that are not substantially similar to the fundamental rights at stake in a criminal prosecution.” This difference in the interests presented in the two cases was dispositive:

[N]eutrality is a critical concern in criminal prosecutions because of the important constitutional liberties at stake. On the other hand, in ordinary civil cases, we do not require neutrality when the government acts as an ordinary party to a controversy, simply enforcing its own contract and property rights against individuals and entities that allegedly have infringed upon those interests. . . . Thus, for example, public entities may employ private counsel on such a basis to litigate a tort action involving damage to government property, or to prosecute other actions in which the governmental entity’s interests in the litigation are those of an ordinary party rather than those of the public.

Oddly, the court acknowledged that in Santa Clara, the public entities’ attorneys are appearing “as representatives of the public and not as counsel for the government acting as an ordinary party in a civil controversy.” It then distinguished the current case by focusing on what the remedy in Santa Clara is not. The remedy will not result in an injunction that prevents current business operations; nor will the case prevent a prevent a defendant from exercising a First Amendment right or any other liberty interest. Incredibly, the court indicated that a remedy requiring corporate defendants to pay money into an abatement fund would not result in government overreaching or economic coercion: “Defendants are large corporations with access to abundant monetary and legal resources.”

I don’t even know where to start.

The problem here is that having the means or determination to defend yourself – even if you are a “large corporation”- does not mean the government, through its private attorneys who are seeking a contingency fee, will not overreach or engage in economic coercion. Exhibit 1: the multi-state tobacco litigation resulting in a staggering monetary settlement and a staggering contingency fee being paid to private counsel.

Moreover, the California Supreme Court missed the point by focusing on what the remedy is not. Instead, it should have focused on what the remedy is and why it is the same as a criminal case – in which case, by the way, even this court would agree, the government may not use contingency fee counsel.

The Santa Clara government entities are acting in their capacity as parens patriae. In this capacity, they are pursuing a claim only a sovereign can pursue and seeking a remedy only a sovereign can obtain. This is exactly what a criminal case is, since a private individual cannot obtain a conviction against another. Likewise, a private individual cannot bring a public nuisance cause of action.

At oral argument, the court, and especially the Chief Justice, repeatedly asked if this case was similar to a criminal case. The answer is Yes. When a sovereign acts as a sovereign and pursues an action only a sovereign can bring and seeks a remedy only a sovereign can seek, it is exactly like a criminal case and the attorneys pursuing that claim and seeking that remedy must not only appear to be neutral, but must, in fact, be neutral.

Stay tuned - others will surely add their thoughts on this matter...