Trust Without Verification? Using Legal Fictions to Justify Contingent Fees by Public Authorities in Public Nuisance Litigation

 

For the last twenty-five years every citizen of California has taken comfort in the fact that under California law all citizens are entitled to an iron-clad guarantee that attorneys wielding the state’s coercive powers in criminal, eminent domain, and public nuisance cases on behalf of various public entities and agencies could not tempted to abuse their ethical obligation of neutrality by the prospect of a personal financial gain (or loss) in those cases. California’s judiciary has kept the public’s trust and ensured this comfort by requiring all attorneys exercising the state’s police powers in these types of cases be held to heightened ethical requirement of neutrality. It has maintained trust by overseeing of the bar’s integrity and scrupulously enforcing the administration of justice.

 

California’s obligation of neutrality was not based on employment status, technicalities, narrow holdings or case law from other jurisdictions. Nor is it merely reflective of yesterday’s ethics instead of today’s realities. Instead, it was based on the broad ethical belief that all attorneys representing the government are de facto “government attorneys” who must be impartial when exercising the sovereign’s considerable coercive powers; that they must always seek justice and that they must be fair to all³. This obligation is based on the fundamental, but obvious, finding that the neutrality which is so essential to our system of justice is violated whenever an attorney representing the government in litigation in which the state, as sovereign, is affirmatively exercising its police powers to prosecute people or companies has a personal financial interest in the outcome of that litigation.⁴ The ideal that all people (including attorneys) officially representing the government should be free of inappropriate financial conflicts of interest is not new. It was embraced by the people, enacted into law, and is imbedded in the California Government Code.⁵   It was extended to civil cases by the California Supreme Court in Clancy⁶  and it is part of the ABA Model Code of Professional Responsibility that every attorney should strive to meet.⁷

 

Because of this protective framework, all attorneys who affirmatively wield the state’s coercive police powers on the public’s behalf have an ethical duty of inflexible neutrality. Attorneys who have personal financial interests in the outcome of the litigation cannot, as a matter of law, be deemed “neutral” in their actions, decisions, or in their advice and counsel to public authorities. It was based upon these beliefs and findings that California’s Supreme Court unequivocally held twenty-five years ago that contingent fee contracts are “antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action.”⁸  Simply stated, the Supreme Court held that human nature cannot be trusted to be “neutral” when the public’s lawyer has a financial stake in the outcome. When the pursuit of public justice is tainted by the pursuit of personal gain, or even the appearance or possibility of such a taint is presented, our nation’s most precious political asset – the confidence of its people – is compromised. When that occurs, every citizen’s liberty is imperiled.

 

Recently, however, in County of Santa Clara v. Atlantic Richfield Co. (Santa Clara II), a California appellate court decided otherwise.⁹   Faced with the choice of two conflicting policy choices – either allowing cities and counties the right to finance and prosecute public nuisance abatement cases using private contingent fee counsel or the necessity of protecting the public’s trust and faith by denying them that right – the Santa Clara II court chose the former. Without framing a reliable system of ethical verification or accountability, the appellate court artfully created a “mere assistants” loophole though which it distinguished, and effectively eviscerated forever, Clancy’s unabashed obligation of neutrality for all lawyers representing the government in public nuisance actions.¹⁰  In doing so, the Santa Clara appellate court indulged a number of “legal fictions” that masked major changes in the State’s substantive law.

 

In particular, rather than honoring stare decisis, the Santa Clara appellate court created an illusion of verification by creating a boundless “control” corollary in which a governmental “apex” attorney can control the contingent fee counsel’s activities by supposedly taking ultimate responsibility for all decisions and ensuring ethical compliance.¹¹   This supervisory layer relegates the contingent fee lawyers to an “assisting” role where, presumably, they can do no harm. It is unreasonable, however, to believe that the public entities retained their contingent fee counsel to be “mere assistants.” In reality, these contingent fee counsels are highly trained and influential lawyers who gather evidence, create strategy and prepare effective arguments to be used by their supervising attorney – all with the single goal of obtaining a favorable monetary outcome. Moreover, an “apex” attorney’s participation does not provide transparent verification, especially when all communications between the public entities, the supervising attorney and the assisting contingent fee counsel are shielded by the absolute bar of the attorney-client privilege, Under such an arrangement, it is impossible for anyone, other than perhaps the court itself, or its appointee, to monitor the public entities and their contingent fee counsel to ensure the litigation is being carried out in a fair, evenhanded and impartial manner that serves the public’s best interests. Even then, problems will not be prevented, but merely detected and, to some degree, redressed. Thus, this illusory corollary vitiates the absolute “neutrality” requirement in favor of, at best, ex post facto exposes’, questionable recompense to the parties, and disastrous loss of public confidence in the judicial system.

 

By crafting its corollary, the Santa Clara decision turns the Supreme Court’s honored precedent on its head. Instead of respecting the honored principle that absolute neutrality is essential, it concludes that the public entities’ right to hire contingent fee counsel is more important than ensuring the public’s trust in the judiciary – thereby undermining the cherished American rule that a government attorney’s paramount duty is not to win, but to seek justice. Plainly, the Santa Clara appellate court believes that, with “supervision,” this paramount goal can be fulfilled even when private contingent fee counsel provide their services in exchange for a significant percentage of the monetary recovery extracted from the defendants. But “control” by governmental “apex” attorneys does not solve the problem, especially when privileges preclude responsible oversight by the court and informed inquiries by opposing counsel. As the Clancy court so wisely noted, ethical requirements follow the job. They cannot be contracted away by hiring independent contractors and cannot be guaranteed by supervision and oversight. More than ever before, courts must not abandon traditional ethical guarantees and replace them with corollaries that merely promise justice in “extraordinary circumstances”—especially when those corollaries primarily arise from economic considerations, as opposed to historical jurisprudence.

 

Stare Decisis

One of the most important and well established¹²  legal principles governing our judiciary is the doctrine of stare decisis; sometimes referred to as the doctrine of precedent.¹³  In a decision explaining this doctrine, the California Supreme Court stated that:

[U]nder the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court.¹⁴

Stare decisis is the “fundamental jurisdictional policy” that provides predictability in the law despite the current personnel on a particular court. It provides this predictability by conferring respect upon prior opinions of courts and holds that applicable precedent usually must be followed -- even though a case, if considered by today’s justices, might be decided differently.¹⁵   It is grounded in the policy that “certainty, predictability and stability in the law are the major objectives of the legal system; i.e., that parties should be able to regulate their conduct and enter into relationships with reasonable assurance of the governing rules of law.”¹⁶

 

The doctrine also allows courts the flexibility to modify, change or overturn precedent which is why a prior opinion “usually must be followed” instead of “always must be followed.” But that flexibility also has rules to govern it. With respect to Supreme Court precedent, only it is permitted “to reconsider, and ultimately to depart form,” its own prior precedents and then only “when subsequent developments indicate an earlier decision was unsound, or has become ripe for reconsideration.”¹⁷   As a result of the doctrine and its importance to jurisprudence, the California Supreme Court held that it has “always required a departure from precedent to be supported by some ‘special justification.’”¹⁸   Precedent must be followed by lower courts because the issue being judged has already decided by a higher court.

 

This obligation for courts to follow precedent begins with necessity. It is based on the premise that “no judicial system could do society’s work if it eyed each issue afresh in every case that raised it.”¹⁹   To put the importance of stare decisis in perspective, the United States Supreme Court described the judiciary’s respect for this doctrine of precedent as being, “by definition, indispensable” for the very concept of the rule of law.²⁰  But it also recognized that “common wisdom dictates that the rule of stare decisis is not an ‘inexorable command’ ” and in “rare cases” a prior judicial ruling should be overruled.²¹  In deciding whether to overturn a prior holding, courts are to ask themselves whether:

1. the prior ruling "has proved to be intolerable simply in defying practical workability;"
2. the prior ruling "is subject to a kind of reliance that would lend a special hardship to the consequences of overruling and add inequity to the cost of repudiation;"
3. "related principles of law have so far developed as to have left the old rule no more than a remnant of abandoned doctrine;" or
4. "facts have so changed or come to be seen so differently, as to have robbed the old rule of significant application or justification."²²

In summary, the doctrine of stare decisis, counsels that similar cases be decided the same way when their material facts are the same. To ensure this uniformity, stare decisis requires that lower courts within a given provincial jurisdiction yield to and follow as binding authority the decisions of higher courts within the same jurisdiction.

Although lower courts are bound in theory by precedent, they are sometimes uncomfortable with the decisions that precedents demand.²³   When this situation arises, a judge might feel compelled to do more than simply apply the precedent’s law to the facts of the case – thereby forcing the aggrieved party to an appeal. In some cases, for example, the lower court judge may feel compelled to opine about the unfairness or injustice that will occur because she followed precedent. Alternatively, the judge may attempt to argue that an exception to the precedent should be made under the circumstances presented by the facts of the case. The judge may even ask the higher court to accept appellate review to consider her arguments.

 

Occasionally, however, when judges dislike or disagree with the decision demanded by precedent, they may creatively seek ways to circumvent it. To accomplish this feat, judges must somehow find a way to narrow the precedent’s breadth and scope. One technique is to simply claim that the precedent is limited to the specific facts of the underlying case. In this manner, if there are any factual differences between the two cases – and in the flux of life there are always differences in fact patterns – the judge can claim that the precedent is not applicable as direct authority but only as an analogy which can then be molded to obtain the desired outcome. For example, the judge may recite what she considers to be the material facts upon which the precedent is based, and then identify at least one missing or different material fact in the case under consideration. Alternatively, she may identify a unique, important and new material fact in the pending case that was not considered when the precedent was established. By incorporating new facts in the analysis and stressing dissimilarities, the judge may declare herself free from precedent. Although the California Supreme Court has admonished the state’s lower courts to abide by its precedents and to avoid modifying them, sometimes judges overstep their authority and improperly circumvent precedent. Such an excursion may have occurred recently in the case of County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292.²⁴

 

The Precedent: People Ex. Rel. Clancy v. Superior Court

Twenty-five years ago in People ex rel. Clancy v. Superior Court²⁵ the California Supreme Court declared that attorneys who prosecute public nuisance cases on behalf of public authorities must be neutral and free from financial interests in the recovery. The Clancy court stated that the duty of neutrality is born of two fundamental aspects of the attorney’s 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.”²⁶  Moreover, for purposes of creating precedent, the Clancy court held that this requisite neutrality cannot be assured when public authorities engage private counsel under contingent fee agreements.²⁷

 

According to Clancy, contingent fee contracts are "antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action."²⁸  Such agreements compromise neutrality by impermissibly invading the unconditional duty of loyalty owed by a counsel who advocates the public's interest.  The duty of loyalty requires the lawyer to have but one master, and when any attorney represents the government on behalf of the People, that singular master must be the People's goal of justice.  As the Clancy court so wisely noted: "Our system relies for its validity on confidence of society; without a belief by the people that the system is just and impartial, the concept of the rule of law cannot survive."²⁹  For this reason Clancy is the insulation that protects the general public from the corrosive personal financial interests inherent in contingent fee contracts. 

 

1. Clancy's Breadth and Scope

While the duty of neutrality was already well established and understood in criminal cases, Clancy extended the duty to government attorneys prosecuting certain types of cases in civil actions and administrative proceedings.³⁰   In barring the use of contingent fee agreements by public entities hiring outside counsel to bring public nuisance cases the Clancy court stated:

Public nuisance abatement actions share the public interest aspect of eminent domain and criminal cases, and often coincide with criminal prosecutions. These actions are brought in the name of the People by the district attorney or city attorney. (Code Civ. Proc., § 731.) A person who maintains or commits a public nuisance is guilty of a misdemeanor. (Pen. Code, § 372.) “A public or common nuisance ... is a species of catch-all criminal offense, consisting of an interference with the rights of the community at large .... As in the case of other crimes, the normal remedy is in the hands of the state.” (PROSSER & KEETON, THE LAW OF TORTS (5th ed. 1984) p. 618; see also Board of Supervisors v. Simpson, 36 Cal.2d 671, 672-675 (1951)). A suit to abate a public nuisance can trigger a criminal prosecution of the owner of the property. This connection between the civil and criminal aspects of public nuisance law further supports the need for a neutral prosecuting attorney.³¹

When the Clancy court wrote this opinion, it did not raise any doubts or ambiguities regarding the breadth or scope of its holding, nor did it provide for any flexible or “discretionary” exceptions or corollaries. It did not rule that the duty applies only in “special cases” or restrict its holding to the “unique facts” of the case.

 

When Clancy extended the obligation of neutrality to contingent fee attorneys, it did so broadly, simply stating that the obligation of neutrality “follows the job.”³²  The court did not dissect Mr. Clancy’s job responsibilities, and it did not discuss whether Mr. Clancy was “subordinate” to anyone. It did not discuss the degree of oversight (or lack thereof) exercised by government officials (Mr. Clancy’s client), and it did not elaborate on the amount of authority vested in Mr. Clancy or retained by the government. The court also left no room for a “corollary” alternative when it reiterated that “[w]hen a government attorney has a personal interest in the litigation, the neutrality so essential to the [judicial] system is violated.”³³

 

Likewise, the court did not differentiate between a government attorney who is an officer of a public entity and an independent contractor working for government attorneys and paid by a contingent fee agreement. In fact, the opposite is true. The Clancy court specifically stated that “a lawyer cannot escape the heightened ethical requirement of one who performs governmental functions merely by declaring he is not a government official.”³⁴  The court plainly and succinctly held that all attorneys prosecuting a public nuisance case must adhere to strict neutrality if they are “performing tasks on behalf of and in the name of the government.”³⁵  Thus, Clancy court took a job task or function-based approach to deciding which attorneys had to be absolutely neutral.

 

2. Clancy's Ethical Underpinnings

The foundations of Clancy’s requirement of conspicuous and antiseptic neutrality are not found in specific acts of unethical behavior by Mr. Clancy or other attorneys. They are found in the healthy mistrust of concentrated power that underlies the “checks and balances” and other safeguards citizens have enshrined in our democratic institutions. For guidance, the Clancy court looked to the ABA Code of Professional Responsibility.³⁶  According to the Model Code, the proper perspective by which to judge the breadth and depth of Clancy’s duty of neutrality is not whether parties deeply involved in the system, such as public officials, public advocates, or even judges have concerns. The focus must be whether the arrangement “might lead” the layman to conclude that the appearance of impropriety exists.³⁷  The emphasis is on perception of citizens, not that of litigants, their counsel or elected officials, because it is the citizen’s confidence that is at stake and it is the citizen’s resources which are at risk. From a lay person’s perspective, the Santa Clara appellate court control corollary creates an appearance of impropriety because it is based on employment status – a factor that can be easily manipulated. It also allows public authorities to prejudicially vary the obligation it owes to the public simply by choosing to retain private counsel whose personal financial interests are inherently in conflict with the goal of justice. The public’s trust in the integrity of our judicial system needs and deserves assurances that all attorneys representing the government are required to treat all members of the public equally.

 

The combination of a huge fee (or nothing at all) undeniably creates a powerful incentive for contingent fee attorneys “wielding the power of government” to make decisions based on their best interest, instead of what is in the best interest of “justice.” The tensions, temptations and risks foreseen in Clancy are magnified exponentially in the Santa Clara case because of the number of large California communities involved.³⁸  Therefore, the necessity of guaranteed neutrality is even more critical to secure the public interest. The “appearance of impropriety,” especially from the public’s perspective is inevitable.³⁹  One need not be a legal professional to see the potential for abuse – and citizens, the all-important “laymen” protected by Clancy, are entitled to nothing less than absolute assurance that their trust will not be violated.

To ensure that the public trust is not compromised, Clancy emphasized the responsibility of government lawyers “to seek justice and to develop a full and fair record,” and stated that they “should not use [their] position or the economic power of the government to harass parties or to bring about unjust settlements or results.”⁴⁰  The Clancy court felt so strongly that attorneys representing the public have to be neutral that it stated:

Not only is a government lawyer’s neutrality essential to a fair outcome for the litigants in the case in which he is involved, it is essential to the proper function of the judicial process as a whole. Our system relies for its validity on the confidence of society; without a belief by the people that the system is just and impartial, the concept of the rule of law cannot survive.⁴¹

The court wisely recognized that personal financial interests distort the “neutral” attitude essential to advocating and preserving the public interest. There are times when justice may be served by decisions that reduce or eliminate monetary compensation, and such occasions create inescapable conundrums. As Professor David Dana explains, “[s]ometimes public interest considerations dictate dropping litigation altogether or focusing on non-monetary relief. But contingency fee lawyers, perhaps unlike most government lawyers or even most outside hourly fee lawyers, arguably can be expected to pursue the maximum monetary relief for the state without adequately considering whether that relief advances the public interest and/or whether the public interest would be better served by foregoing monetary claims or some fraction of them, in return for non-monetary concessions.”⁴²

 

As the Clancy decision recognizes, the neutrality requirement is not unique to California. The idea is so basic that it was embraced by the ABA which incorporated it into its 1983 Model Code of Professional Responsibility. The Clancy court approvingly cited the ABA’s Code when it stated that: “[a] lawyer who is a public officer, whether full or part-time, should not engage in activities in which his personal or professional interests are or foreseeably may be in conflict with his official duties.”⁴³  As a result, “an attorney holding public office should avoid all conduct which might lead the layman to conclude that the attorney is utilizing his public position to further his professional success or personal interests.”⁴⁴

 

County of Santa Clara v. Atlantic Richfield Co.

In the Santa Clara case,⁴⁵  a group of public entities brought a lawsuit against companies that lawfully made and sold lead pigments long ago claiming that these companies knew that their product was toxic while telling the public it was safe. Although lead paint has not been sold since it was banned in 1978,⁴⁶  it still remains in older homes and buildings. The governmental public entity plaintiffs (ten California cities and counties⁴⁷) claim that they have been injured because they have to pay to educate the public and abate lead from these homes and buildings when the lead has been found to harm someone.⁴⁸  In their lawsuit, they alleged causes of action for public nuisance, strict products liability, negligence, and unfair business practices and asked the court for both money damages and an injunction to require the defendants to abate lead from all the homes and building in their communities.⁴⁹  From the beginning, the public entities hired private attorneys to prosecute the case for them pursuant to written agreements that makes payment of any fees and costs contingent on plaintiffs’ monetary recovery in the action because they claimed “to lack the resources and specific expertise necessary to prosecute this action” themselves.⁵⁰

 

After the defendants filed a series of motions to dismiss, the trial court dismissed all of the public entities’ claims holding that the statute of limitations barred the causes of action as a matter of law because it began to run when the paint was applied.⁵¹  The Santa Clara appellate court disagreed and ordered the reinstatement or the public nuisance, negligence, strict liability and fraud causes of action.⁵² Shortly thereafter, the plaintiffs informed the trial court of their decision to limit this action to a single public nuisance cause of action and “sought only abatement.”⁵³  This decision prompted the defendants to file a motion to bar the plaintiffs from retaining outside counsel on a contingent fee basis based on the principles articulated in People ex rel. Clancy v. Superior Court.⁵⁴

 

1. The Trial Court Grants Defendant's Motion to Bar Contingent Fees

After noting that the case had become solely a public nuisance case and citing language from Clancy that “the contingent fee arrangement between the City and Clancy is antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action,” the trial court held that Clancy was applicable to the Santa Clara case.⁵⁵  The trial court was not persuaded by the public entities argument that they were free to enter into contingent fee agreement as long as “the government attorneys continue to retain and/or exercise decision-making authority and control over the litigation in this case.”⁵⁶  It noted that the contingent fee lawyers were co-counsel who were “performing work as attorneys for the plaintiff government entities” and that

as a practical matter as a practical matter, it would be difficult to determine (a) how much control the government attorneys must exercise in order for a contingent fee arrangement with outside counsel be permissible, (b) what types of decisions the government attorneys must retain control over, e.g., settlement or major strategy decisions, or also day-to-day decisions involving discovery and so forth, and (c) 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.⁵⁷

Moreover, the trial court held that “[o]versight by the government attorneys does not eliminate the need for or requirement that outside counsel adhere to the standard of neutrality.”⁵⁸  The trial court noted that that ethics cannot be selectively imposed. They must apply to everyone – or else they are meaningless.⁵⁹  Accordingly, the trial court ruled that the public entities could not retain “outside counsel under any agreement in which the payment of fees and costs is contingent on the outcome of the litigation.”⁶⁰

 

2. The Appellate Court Vacates the Order by limiting Clancy and Creating a Control Corollary

Following the trial court's ruling, the public entities successfully sought a writ of mandate from the Santa Clara appellate court to compel the trial court to vacate its order.⁶¹  The Santa Clara appellate court began its decision by reviewing the Clancy decision and it applicability to public nuisance lawsuits brought by public entities.⁶²   Although it court acknowledged that it was bound to follow the precedent the Supreme Court set in Clancy,⁶³ that allegiance had a very short reach as is seen in its very next sentence where it declared that it was not bound by what it decided to label as “dicta” and two paragraphs later when it held that Clancy was limited to the facts of the case.⁶⁴   Moreover, the appellate court held that although “Clancy contains language suggesting that it is establishing a broad rule banning contingent fee agreements with private counsel in public nuisance abatement actions, we are bound by only the holding in Clancy, not all of its language.”⁶⁵

 

The appellate court then liberated itself from Clancy by creating two important findings of fact about the old case: “James Clancy was serving as Corona’s sole representative in its public nuisance abatement action and had complete control over the litigation.”⁶⁶   Neither of these facts is found in the Supreme Court’s opinion and neither was pertinent to its decision. The facts that the Supreme Court does recite in Clancy include the following:

1. the City of Corona ("City") adopted ordinances regulating adult bookstores and the city manager informed the owner she would have to move her business;
2. the owner challenged the constitutionality of the City's ordinances and obtained a federal court injunction against their enforcement;
3. frustrated by the federal courts, the City retained Mr. Clancy on the same day it proposed a new ordinance declaring the sale of obscene publications to be a public nuisance;
4. after the new public nuisance ordinance was passed, the City's police department investigated the adult bookstore
5. the City then adopted a resolution declaring the bookstore a public nuisance;
6. after Mr. Clancy filed a lawsuit on behalf of the city. "[p]olice officers were sent to the Book Store to photograph the magazines on sale and the movies available for showing;" and
7. the City then served a subpoena demanding the production of documents "that the police had photographed."⁶⁷

While Mr. Clancy may have been the only attorney listed on the pleadings, given the active involvement of the City’s officials and Police Department in developing the case, he clearly was not the City’s sole representative in the litigation. Given the pervasive role the police and City officials had in declaring the book store to be a public nuisance and gathering evidence against the book store, it is also just as plausible that Mr. Clancy did not have “complete control” over the litigation, but was engaged only to play a limited and subordinate role in the case. Nonetheless, the Santa Clara appellate court concluded that Mr. Clancy was the City’s sole representative and had complete control over the public nuisance abatement action. It is upon these two facts that the appellate court distinguished the facts in Clancy from the facts in the Santa Clara case.

 

After liberating its creativity from the constraining orbit of judicial precedent⁶⁸  the Santa Clara appellate court wove a web of legal fictions⁶⁹  to create its control corollary based on the belief and/or assumption that the highly skilled, talented and influential contingent fee lawyers hired because the public entities admittedly have neither the financial resources nor legal expertise to prosecute this case themselves⁷⁰ are merely assisting the public entities.⁷¹  It held that Clancy’s requirement applies only to the governmental “apex” attorney responsible for prosecuting the case.⁷²  But, Clancy was not about the responsibilities and duties of a single attorney. Instead, the Clancy court set policies and priorities about how the judiciary viewed and interpreted the responsibility of all attorneys representing the government; not only in public nuisance cases, but in cases in which the sovereign affirmatively exercises its police powers.⁷³

 

3. The Questions the Appellate Court Should Have Asked - And What the California Supreme Court Should be Asking

Once the Santa Clara appellate court found that Clancy was applicable,⁷⁴ it should have applied Clancy, as written, to the facts of the case. It is worth repeating that if the appellate court disliked or disagreed with the decision following the precedent demanded, it still should have affirmed the trial court’s order even if it did so grudgingly. Afterwards, it could have opined about the unfairness or injustice following precedent does to the public entities and suggested that a corollary to the precedent should be made under the circumstances presented by the facts of the case. The Santa Clara appellate court could also have opined that the Supreme Court should modify the precedent by creating the control corollary and laid out the facts and legal rationale for its creation. Finally, the appellate court could have asked the Supreme Court to accept appellate review to consider its arguments.⁷⁵

 

Instead, the appellate court systematically deconstructed the Clancy decision, inferred new “findings of fact” to the Clancy decision, and declared guiding legal principles to be non-binding “dicta.” It then reconstructed Clancy in manner that allowed it to avoid stare decisis by creating a “control” corollary – a corollary that limits Clancy’s reach and exempts all attorneys representing the government from Clancy’s neutrality requirement except the governmental “apex” attorney.⁷⁶

 

The Santa Clara appellate court’s decision is especially troubling in view of the many years that Clancy has reigned over relationships between public authorities and contingent fee counsel. It should be remembered that if the public entities (or anyone else) disagreed with Clancy’s holding, they had over twenty years in which to have it legislatively overturned or to legislatively create a control corollary for public entities.⁷⁷   The silence of the public and from the legislature belies the need for any judicially-created “control” corollary. The compromising problems associated with governmental use of contingent fee agreement arrangements have been amply demonstrated and documented in many other states over the past decade.⁷⁸

 

Despite this evidence, the California legislature, presumably relying on Clancy’s absolute prohibitions, did not pass laws authorizing “supervised” or “controlled” contingency arrangements. Indeed, at the time the fee agreements in Santa Clara were signed, no California statute, regulation or judicial decision authorized them. Instead, they stood flatly condemned by Clancy’s explicit language. To argue that the “control” corollary has always existed – indeed that it was implicit in Clancy’s unguided prohibitions – is surprising when nothing in the case itself or any development since its rendition explicitly supports such a contention. It therefore appears that the desire to use contingent fee counsel and the fiscal convenience of the relationship were the primary motivations for the agreement – nonjudicial factors that are decidedly irrelevant to Clancy’s uncompromising duty of neutrality.

 

Rather than indulging these policy interests, the Santa Clara appellate court should have pursued the reasoning mandated when a lower court is confronted with a precedent. The court should have asked – and indeed the California Supreme Court should ask on review – whether Clancy’s plain requirement of neutrality in public nuisance cases “has proved to be intolerable simply in defying practical workability;” whether its “limitation on state power [can] be removed without serious inequity to those who have relied upon it or significant damage to the stability of the society governed by the rule;” “whether the law’s growth in the intervening years has left [Clancy’s neutrality requirement] a doctrinal anachronism discounted by society;” and “whether [Clancy’s] premises of fact have so far changed in the ensuing decades as to render its central holding somehow irrelevant or unjustifiable in dealing with the issue it addressed.”⁷⁹

 

As distinguished from “policy” considerations, these inquiries can be framed and determined by an objective record, as opposed to more subjective policies based upon conveniences and preferences. When these objective inquiries are pursued, it becomes clear that Clancy’s rule is neither unworkable nor an anachronism. Significantly, in the precedent’s twenty-plus years of existence, not one instance of abuse by contingent fee counsel and public authorities has been reported in California, a record unmatched by many states where such arrangements have been permitted. Indeed, to the extent the law has “grown” in this area, it has resulted in laws that severely restrict to use of contingency counsel by public authorities, clearly converging towards Clancy’s path.⁸⁰  Finally, there is a great deal of evidence that, without Clancy’s clarity, both the public confidence and its purse will be vulnerable to abuse – a vulnerability that will not exist if Clancy is retained. Hence, the objective record, which always informs the common law, supports a conclusion that altering Clancy is neither necessary nor wise.

 

To the extent that the democratic voice of the people, residing in its legislature, disagrees, that change must be made by elected representatives in those houses, which are suitable places for considerations of policy and convenience. Courts, on the other hand, should depart from precedents only if they prove unsound through objective experience. Nothing in any judicial record created to date supports a departure from Clancy’s salutary rule. Only by indulging in “legal fictions” could such a result be obtained.

 

The Use of Legal Fictions

A legal fiction is a “device which attempts to conceal the fact that a judicial decision is not in harmony with existing law. The only purpose and use, upon last analysis, of any legal fiction is to nominally conceal this fact that the law has undergone a change at the hands of the judges.”⁸¹ It encompasses any judicial “assumption that conceals, or effects to conceal, the fact that a rule of law has undergone alteration, its letter remaining unchanged, its operation being modified.” It is “a rule of law which assumes as true, and will not allow to be disproved, something that is false, but not impossible.”⁸² It is a device used to attain a desired legal consequence or to avoid an undesired consequence.⁸³

 

In the end, the fact is that the law is wholly changed, while the fiction is that the law has remained the same.⁸⁴ Legal fictions carry with them a heavy price. Their use impairs reverence for truth and diminishes the public’s respect for the court. Even when judges create legal fictions to promote their view of justice, innovation-by-stealth proves nothing more than a willingness to sacrifice truth for form.⁸⁵ “If the fiction is not based on truth, its use is unjustifiable” and “its continued use can result only in evil.” “If it is founded on truth, its use is foolish.”⁸⁶

 

1. The Legal Fiction that Clancy is About Control

a. The Clancy Court was Concerned About the Nature of the Litigation

It is not surprising that attorneys seeking to evade Clancy’s prohibitions argue that the essence of the Supreme Court’s concern was not the contingent fee agreement but the “complete control” Mr. Clancy allegedly possessed over the case.⁸⁷ This argument has many advantages for governmental officials who want to use contingent fee counsel. First and foremost, it presumes (as a general principle of law) that the governmental use of contingent fee agreements is ethical – except where the California Supreme court has said otherwise – and that any problems with its use are purely structural.⁸⁸ If this argument is accepted, parties opposing the use of contingent fee contracts by public authorities face an insurmountable obstacle. In such circumstances, the government has unlimited opportunities to contractually reserve “control,” but the defendants are barred from verifying its efficacy by the attorney-client and attorney work-product privileges.

 

The underlying “fiction” of the “control” corollary is revealed, however, by an analysis of what the Clancy court said about the degree of “control” Mr. Clancy exerted over the litigation. In fact, it said absolutely nothing. Indeed, the court does not even mention the word “control” — not even once.⁸⁹ The Clancy court does not focus on the presumed fact that Mr. Clancy exercised “sole discretion” over the litigation, and it never uses the phase “sole discretion.” Indeed, the court only discusses Mr. Clancy’s discretion in a footnote where it observes that while he “may have had little discretion in the decision whether to bring an action under the public nuisance ordinance” he may have had opportunities to impermissibly use discretion after the case was filed.⁹⁰

 

Instead of “control,” the Clancy court focused on the nature of the litigation and held that government-sponsored public nuisance abatement cases were one of a class of cases in which the attorney(s) representing the government had to be neutral.⁹¹ By concentrating on the type of case in which contingent fee counsel is used, Clancy broadly declared that any arrangement that fell short of unconditional neutrality was absolutely forbidden in public nuisance cases. In such cases, the public’s confidence can only be protected by precluding contingent fee agreements – merely policing them does not adequately ensure public trust. If “control” is truly sufficient to protect the public interest in public nuisance cases, the Clancy’s court would surely have recognized and explicitly provided the corollary on its own – and the California courts would not have waited for twenty years to somehow “detect” it from Clancy’s plain language.

 

Government entities file a wide spectrum of cases, and Clancy plainly does not bar contingent fee agreements in all of them. Different classes of cases allow government attorneys to exercise differing amounts of police powers and place differing requirements on attorneys to “delicately” weigh and balance public and private values.⁹² Accordingly, based on the amount of police powers being exercised and the delicacy associated with weighing and balancing public and private values, some classes of cases require the government attorneys to “act impartially,” to refrain from abusing the government’s powers, to “act evenhandedly,” to “seek justice” and “to build a full and fair record.”⁹³ Conversely, other classes of cases do not do not require the attorney representing the government to exercise the state’s police powers and do not require “the delicate weighing of values” described in Clancy.⁹⁴ Depending on where a specific case lies on this spectrum, it may – or may not – invoke Clancy’s neutrality requirement.

 

In Clancy, the California Supreme Court listed three classes of cases that require absolute prosecutorial neutrality – criminal cases, eminent domain cases, and public nuisance abatement cases.⁹⁵ In these cases contingent fee agreements give attorneys representing the government an “interest in the case extraneous to their official function” that creates an intolerable and incurable bias that is the antithesis of the neutrality required of those attorneys.⁹⁶ The Clancy’s court’s admonition of neutrality in these classes of cases was total and unyielding. As the court stated:

Nothing we say herein should be construed as preventing the government, under appropriate circumstances, from engaging private counsel. Certainly there are cases in which a government may hire an attorney on a contingent fee to try a civil case. (See, e.g., Denio v. City of Huntington Beach, 22 Cal.2d 580 (1943) [contingent fee arrangement whereby the city hired a law firm to represent it in all matters relating to the protection of its oil rights].) But just as certainly there is a class of civil actions that demands the representative of the government to be absolutely neutral. This requirement precludes the use in such cases of a contingent fee arrangement.⁹⁷

Indeed, the court specifically allows attorneys representing the government to be hired using contingent fee agreements in one class of cases – royalty collection cases. Such cases do not involve the exercise of the state’s police powers and there is little to no “delicate weighing” of values.⁹⁸ Plainly, the public interest is not significantly impacted when pubic authorities use contingency counsel to pursue debt collection cases. At the other extreme, however, public confidence is plainly endangered when contingent fee attorneys are retained as criminal prosecutors. Public nuisance cases, which have been considered “quasi-criminal” throughout their centuries of history,⁹⁹ are only slightly removed from criminal prosecutions, and are naturally subject to Clancy’s absolute restrictions. Thus, given the nature and history of the tort of public nuisance, it was entirely reasonable for the Clancy court to focus solely on the degree of prosecutorial discretion involved in “balancing public and private values” in such cases. The primacy of this reasoning, which elevated public confidence risks to the highest level, required an absolute prohibition. No lesser rule, such as a “control” corollary would suffice.

 

Although Clancy does not bar the use of contingency agreements in all civil cases, neither does it justify the creation of a corollary that permits the hiring of contingent fee “co-counsel” in classes of cases where Clancy otherwise applies. Another recent decision involving debt collection – Priceline.com Inc. v. City of Anaheim¹⁰⁰ – seeks to do just that by also improperly focuses on an attorney’s designated role, as opposed to the cause of action. Its reasoning creates an artificial “wall” between civil and criminal cases and ignores Clancy’s comparisons of public nuisance and eminent domain cases to criminal cases.¹⁰¹ The court justified the wall (and thus “distinguished” Clancy on the facts) by an assumption that “[t]he government lawyers [will] check the contingency fee lawyer’s financial interests.”¹⁰² It tries to ground its legal fiction in precedent by claiming that a Clancy footnote supports its “control” corollary. In that footnote the Clancy court dismissed Mr. Clancy’s reliance on an Indiana criminal obscenity case in which the court allowed an outside lawyer to aid the prosecutor by noting that the lawyer was hired not as a special prosecutor but as co-counsel.¹⁰³ Seizing on this distinction, the Priceline court argues that the Clancy court could have easily distinguished the Indiana decision based upon the lack of a contingency arrangement – but did not.¹⁰⁴

 

The court’s reliance on this footnote as a basis to create new law is misplaced. At best the Indiana case merely addresses the general propriety of using private counsel to “assist” government prosecutors. If, however, the Priceline court is correct that government lawyers are an adequate “check” on contingency fee lawyer’s financial interests and that the Clancy court’s only objection to governmental use of contingent fee attorneys was “control,” then logically one also has to also believe that with adequate “control” the California Supreme Court would be amenable to allowing criminal prosecutors to use contingent fee agreements to hire co-counsel in criminal cases – a position that Clancy plainly states is unethical and forbidden.¹⁰⁶

 

As the Clancy court so aptly stated: “Any financial arrangement that would tempt the government attorney to tip the scale cannot be tolerated” in those classes of cases that require absolute neutrality.¹⁰⁷ Clearly, no California court would entertain the idea of letting governmental entities contractually hire contingent fee counsel to prosecute or even help prosecute criminal cases – felonies or misdemeanors. In criminal cases, it does not matter how much “control” the government contractually retains or how well the contingent fee attorney is “supervised.” Under such circumstances, arguments that government lawyers will “check” the contingency fee lawyer’s financial interests are plainly unacceptable. But this is precisely the argument that must be accepted if Clancy’s neutrality requirement is about the role of the attorney and not the nature of the case. Clancy, however, counsels the judiciary to consider the nature of the case using a “sliding scale” or “continuum” to determine the need for neutrality and whether the use of contingency fee agreements will imperil public confidence. The “control” and “co-counsel” corollaries require a completely different analysis focusing on contractual language. If accepted, the “control” and “co-counsel” corollaries necessarily preclude the continued efficacy of the Clancy analysis in all cases. Given this perspective, these corollaries actually vitiate Clancy’s prohibitions and replace them with newer, permissive standards.

 

2. Legal Fictions of the "Apex" Attorney

a. Clancy's Neutrality Obligation Applies to All Attorneys Representing the Government

It is axiomatic that lawyers, by the very nature of their work, influence litigation. The work product and efforts of effective lawyers are anything but minor, insignificant, unimportant, trifling, small or unworthy of concern.¹⁰⁸  The Clancy court recognized this basic reality when it held that personal financial incentives and risks inherent in contingent fee contacts create “an interest extraneous to his official function” that violates the attorney’s obligation of neutrality.¹⁰⁹ Given these truths, Clancy held that the obligation of neutrality extended beyond in-house government attorneys to any attorney representing the government in public nuisance cases.¹¹⁰

 

With this holding, Clancy embraced another axiom, namely, that ethics cannot be selectively imposed. They must apply to everyone – or else they are meaningless. Following the precedent set forth in Clancy, the trial court in Santa Clara ruled that that governmental oversight “does not eliminate the need for or requirement that outside counsel adhere to a standard of neutrality” because as a practical matter it is impossible to determine the extent that the non-neutral attorneys influence the prosecution of the case.¹¹¹ Thus, as long as an attorney represents the government in a public nuisance case and is “performing tasks on behalf of and in the name of the government” then that attorney has an obligation to be neutral.¹¹²

 

When the court of appeals in Santa Clara limited Clancy’s neutrality obligation to governmental “apex” attorneys, the court did not critically examine the contingent fee attorneys’ actual role in the litigation. Instead, it relied upon – and did not look beyond – the language in the contingent fee agreements and affidavits swearing that the governmental attorney would control the litigation. With nothing more than this contractual and promissory evidence, the Santa Clara appellate court held that it was “undisputed” that the public entities’ contingent fee counsels “play a limited subordinate role in this litigation.”¹¹³ The court reached further to state that when contingent fee attorneys are supervised by governmental “apex” attorneys, they are not in a position to influence the balancing of interests of the case or to influence any other important litigation decisions.¹¹⁴

 

b. The Legal Fiction of the "Apex" Attorney

The Clancy court unequivocally prohibited the use of contingent fee agreements in government sponsored public nuisance abatement litigation because it was concerned about the extraneous interest caused by the agreement.¹¹⁵ If these concerns could have been contractually solved through oversight and control, surely the court would have said so – or at least discussed Mr. Clancy’s contract and its failure to provide adequate supervision.¹¹⁶ But that is not what the Clancy court did. Instead, it broadly stated that attorneys representing the government are subject “to the heightened ethical requirements of one who performs governmental functions” when they are helping the state exercise its police powers.¹¹⁷ It is a legal fiction to claim that the “extraneous interests” caused by the contingent fee agreements, which as a matter of law violate Clancy’s obligation of neutrality,¹¹⁸ can be cured and rendered harmless simply by contractually declaring or otherwise attesting that a government “apex” attorney retains final authority and approval, and that contingent fee counsel are merely assisting the client.

 

The Clancy court’s paramount concern in this public nuisance was ensuring prosecutorial neutrality.¹¹⁹  Prosecutorial neutrality means many things, but legal commentators, scholars and the Clancy court agree that it necessarily includes fairness, independence, objectivity and the absence of an extraneous interest in the case.¹²⁰  Because prosecutorial discretion, and hence the need for prosecutorial neutrality, pervades every aspect of the litigation, including the investigation and case development, neutrality can only be ensured and maintained if every attorney representing the government is neutral.¹²¹ As a result, prosecutorial neutrality cannot be confined to, or within, the discretion of a single “apex” attorney and the consequence of her decisions. Instead, the neutrality of the entire prosecutorial team must be guaranteed. Promises, no matter how solemnly made, do not provide that assurance, and accountability for breaching them comes too late to avoid serious harm.

The main reason the judiciary prohibited prosecuting attorneys, including those prosecuting public nuisance cases, from having personal interests – including financial interests – is the likelihood that bias may deflect the prosecutor's focus from the public interest.¹²²   Based on this very concern, in People v. Eubanks, the California Supreme court ordered the recusal of a prosecutor because the crime victim paid significant expenses already incurred by the prosecutor in connection with the criminal investigation.¹²³ The court found the victim’s financial assistance was potentially “of [such] a nature and magnitude” that it was “likely to put the prosecutor's discretionary decision-making within the influence or control of an interested party,” such that it should be deemed to be a “disabling conflict” requiring the prosecutor’s recusal.¹²⁴  While the Eubanks court clearly states that a “district attorney is not disqualified [from a case] simply because, in an effort to overcome budgetary restraints, he or she has accepted assistance from the public in investigating or prosecuting a crime,”¹²⁵ it should be obvious to all that governmental receipt of private financial assistance is far less corrosive of the public trust than the government contractually giving attorneys a personal financial stake in the litigation’s outcome. This reality is not lost the California Supreme Court which observed that if a Eubanks’-type of private financial assistance creates a “disabling conflict” then “[a] direct financial benefit as a result of the outcome of a proceeding is even more offensive.”¹²⁶

 

This legal fiction of the “apex attorney” can be particularly dangerous because it allows authorities unbridled discretion to vary the ethical duties owed by lawyers to the public. Merely having the choice whether to handle the case using in-house counsel or by hiring private contingent fee counsel to assist in prosecuting the case on its behalf inserts prejudicial bias. In cases where the government chooses to handle the case entirely with government lawyers, the public is prophylactically protected because neutrality is guaranteed. But when the government chooses to use an “apex” government lawyer, supplemented by private contingent fee counsel, the public must rely on promises, assurances, and ex post facto accountability.¹²⁷  There is no rational basis for “lowering the bar” for private contingent fee counsel, especially when the exercise merely makes otherwise applicable ethical responsibilities easier to hurdle – at the public’s potential expense. The “appearance of impropriety” created by the appellate court’s control corollary – even if actual misconduct by private contingent fee counsel does not occur – is the lynchpin of the analysis. The public is entitled to know that the agreements that secure their representation will not even tempt their counsel to stray and the public entities choice of counsel must yield to the public trust in the integrity of the judicial system.¹²⁸

 

3. The Legal Fiction of the Contingent Fee Attorney Who "Merely Assists" A Supervising Public Counsel

a. Can Contingent Fee Attorneys Who Finance Major Litigation and Who Participate as Litigation Experts Be Fairly Characterized as Marginal Assistants?

When the Clancy court extended the neutrality obligation to all lawyers “performing tasks on behalf of and in the name of the government,” it did not analyze the level of Mr. Clancy’s control or authority. By its silence on those issues, and by focusing its attention solely on the nature of the case, the Court created, at least in public nuisance cases, an absolute obligation of neutrality, leaving nothing open to interpretation, distinction or discussion. According to the appellate court in Santa Clara, however, Clancy’s obligation of neutrality does not extend to “private counsel, who are merely assisting in-house counsel and lack any control over the ligation” for two reasons.¹²⁹ First and foremost, because “[i]t is undisputed that private counsel have been engaged to play a limited, subordinate role in this litigation. Second, because the public entities are represented by in-house counsel.¹³⁰

 

While this holding is derived from multiple legal fictions¹³¹ it is based primarily on the untenable premise that the contingent fee attorneys hired by the public entities are merely “assisting” a public lawyer who is firmly directing, controlling and participating in the litigation – they are like potted plants that will not impact the course of this litigation. It was obvious to the Clancy court¹³² -- and should be obvious to anyone familiar with the egos and capabilities of effective trial lawyers of the stature involved in Santa Clara – that these lawyers are not mere “assistants” or “consultants.” Some have an extensive prior experience in government-sponsored public nuisance litigation, most notably with the State of Rhode Island and counties in New Jersey, where they were the public’s principal voice in the court in all phases of the litigation, including arguments to the highest tribunals.¹³³ The history of the Santa Clara litigation has followed a similar course.¹³⁴

 

Significantly, the Santa Clara trial court found and the public entities subsequently admitted that they hired these contingent fee counsel, not because they were seeking “mere assistance” in the pursuit of this public nuisance litigation, but rather because they wanted or needed their financial resources and the “specialized skills [and expertise] needed for [public nuisance] litigation” that they believed they lacked.¹³⁵ Contingent fee counsel were therefore hired to provide leadership and expertise, not mere consultation and support. Once engaged, such qualities are not lightly ignored or sidelined, especially when the public authorities admittedly lack the expertise to challenge and reasonably question the counsel they have hired. Plainly, no rational person agrees to pay “mere assistants” a 17% contingent fee potentially worth hundreds of millions of dollars.¹³⁶

 

Unfortunately, instead of analyzing the contingent fee counsel’s actual role to independently determine whether it violates Clancy, the Santa Clara court held that it was “inappropriate” to look behind the contractual language to ascertain the precise nature of the relationship because the parties did not factually dispute the nature of the contractual relationship.¹³⁷   This judicial “two-step,” which allowed the court to avoid reality, is a hallmark of legal fictions.¹³⁸   Here, the legal fiction suggests that the contractual language, standing alone, can “legally” transform highly qualified contingent fee lawyers who are personally financing the litigation from active participants with an impermissible extraneous financial interest into “marginal assistants” incapable of affecting the neutrality of the case’s prosecution.

 

b. Are Contingent Fee Counsel Truly "Representing" the Government if Public Authorities Retain Final Authority Over the Litigation

The Clancy court stated that the duty of neutrality is born of two fundamental aspects of the attorney’s 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.”¹³⁹ Clancy further emphasized the responsibility of government lawyers “to seek justice and to develop a full and fair record,” and that they “should not use [their] position or the economic power of the government to harass parties or to bring about unjust settlements or results.”¹⁴⁰  The Clancy court felt so strongly that attorneys representing the government have to be neutral that it stated that the concept of the rule of law cannot survive” without the people’s belief that our system of justice is just and impartial.¹⁴¹ It states that the duty of neutrality “follows the job: if [an 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.”¹⁴²

 

The Santa Clara appellate court however, distinguished away Clancy’s “task-based” approach in favor of an attorneys “employment status.” Without relying on any supporting principles stated in Clancy, the court created a “corollary” – based on a legal fiction – that Clancy’s obligation of absolute neutrality only extends beyond in-house government counsel if the contingency fee counsel “supplants” in-house counsel by having complete control over all aspects of the litigation and is responsible for “balancing the interests” of society.¹⁴³

 

As discussed above, the Clancy court was concerned about much more than just “balancing the interest.” It was also concerned that government attorneys act evenhandedly in litigation, that they develop a full and fair record and that a fair outcome is achieved for the litigants.¹⁴⁴  Viewed in this context, impartiality does not mean “indifference” – but rather requires an interest that transcends the outcome of a particular controversy. While prosecuting attorneys do “not share in the neutrality expected of the judge and jury” they are “expected to exercise [their] discretionary functions in the interests of the People at large,” and must not be “under the influence or control of an interested individual.”¹⁴⁵

 

While it may be possible (but not plausible) that the government “apex” attorneys will not be impermissibly “influenced” as they balance the public’s interest, the same cannot be true for private contingent fee counsel. Every attorney working on litigation, by the nature of their work, choices, demeanor, findings, advice and counsel, has an influence and effect on the development of the record, the fairness of the litigation and the balancing of interests required in public nuisance litigation. The intensity of the effort and the temptations to advocate issues that serve personal interests, as opposed to the public welfare, are magnified exponentially when the controversy involves not only gigantic recoveries, but also extraordinary fees. Most importantly, concerns regarding the potential for self-serving behavior are significantly raised when the participating counsel’s complete compensation depends upon victory, as opposed to altruistic public service. Clearly, no one person – not even the most trusted “apex” counsel – can eliminate these concerns,¹⁴⁶  and if they cannot be eliminated, their risk should not be tolerated.

 

Clancy is Not the Only Precedent Being Modified

Clancy is not the only casualty of the Santa Clara appellate court’s decision. Indeed, the ruling undermines basic principles underlying the priorities of California courts in other ethical situations, such as conflicts of interest. California courts consider a number of factors when determining whether a conflict of interest requires disqualification of attorneys, and many of those factors parallel the concerns enshrined by Clancy. For example, courts are to consider (1) a client’s right to choose counsel; (2) an attorney’s interest in representing a client; (3) the financial burden on a client to replace disqualified counsel, and (4) the possibility that tactical abuse underlies the disqualification motion.¹⁴⁷

 

Although the Santa Clara appellate court raised the possibility that defendant’s motion for disqualification was intended “as a tactical device to delay litigation” and that it threatened to deprive the public entities of their choice of counsel,”¹⁴⁸  it failed to weigh and consider the countervailing interest of “public trust” mandated by Supreme Court precedent. In particular, the California Supreme Court has recognized that “determining whether a conflict of interest requires disqualification involves more than just the interests of the parties.”¹⁴⁹ In both Comden v. Superior Court of Los Angeles County, and People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc., the court stated that disqualification ultimately involves balancing “the clients’ right to counsel of his choice and the need to maintain ethical standards of professional responsibility.”¹⁵⁰ Moreover, between these two choices, the Court’s consistent policy has been that “[t]he paramount concern must be to preserve public trust in the scrupulous administration of Justice and the integrity of the bar.”¹⁵¹ As a result of this policy, the SpeeDee Oil court stated that when courts have to choose between these two competing interests, “[t]he important right to counsel of one’s choice must yield to ethical considerations that affect the fundamental principles of our judicial process.”¹⁵²

 

This policy choice plainly parallels the reasoning of Clancy. In Clancy, the Court also stressed the importance of public confidence and insisted that all persons “performing tasks on behalf of and in the name of the government” must adhere to the neutrality standard.¹⁵³   The Santa Clara appellate court, however, did not consider these concerns when it created its “control” corollary.¹⁵⁴ There was no discussion about balancing the public entities’ right to select counsel and the public’s need to maintain its “trust in the scrupulous administration of Justice and the integrity of the bar.”¹⁵⁵ Instead, the appellate court concentrated its legal reasoning on the deployment of legal fictions.¹⁵⁶

 

By basing their arguments on case-specific facts, by creating their own Clancy-related facts,¹⁵⁷ and by failing to address the ethical underpinnings for Clancy’s holding, the Santa Clara appellate court divined an arguable difference between the two cases. To be fair, in her concurring opinion, Justice Bramattre-Manoukian recognized the need for prosecutorial neutrality in public nuisance actions, but she failed to heed Clancy’s admonition that the neutrality obligation follows the job performed by the attorneys,¹⁵⁸ not the rights and obligations as set forth in the contingent fee agreement.¹⁵⁹ Although she acknowledged the legitimacy of the trial court’s concerns about verifying neutrality, she assumed – without discussing the complications discussed here – that the trial court could evaluate whether the contingent fee attorneys overreach and are unfair at anytime during the litigation.¹⁶⁰ Finally, although she noted that prosecutorial neutrality is a consequence of discretionary decisions, and that neutrality is adversely impacted when it “has been placed within the influence or control of an interested party,” she dismissed those concerns in favor of giving the public entities their choice of counsel.¹⁶¹ Similarly to the majority, therefore, the concurring justice in Santa Clara failed to heed the California Supreme Court’s mandate to yield to ethical considerations that affect the fundamental principles of our judicial process.”¹⁶² As a result, an entire line of California authority designed to protect public confidence over the narrow interests of litigants is imperiled.

 

Conclusion

If the appellate court’s decision and judicial reasoning in the Santa Clara and Priceline cases are left to stand, California’s citizens will be left with a mere “promise” of professionalism, as opposed to a prudent guarantee. In short, they will be forced to “trust” that contingent fee counsel will be adequately “controlled” without any opportunity to “verify” that their confidence is respected. Accountability for abuse is a poor substitute for prevention – yet hindsight remediation is the only remaining option if the primacy of prophylactic neutrality is eliminated.¹⁶³ Gone will be the ethical principles that Clancy put on a pedestal for all to see, admire and to which all attorneys representing the government in public nuisance cases were required to adhere. Those principles, instead of applying to all, will only apply to in-house government counsel once the requisite boiler-plate contractual language is inserted in all future contingent fee agreements. In Clancy’s place will sit a “control” corollary that places form over substance, that is easily manipulated, and is almost impossible to verify.

 

The appellate court’s “control” corollary will not work to sustain and enhance the public’s trust and confidence. It will, however, give public entities a powerful sword to wield – and an absolute shield against preclude preventive oversight by the judiciary. The sword is the powerful and resourceful contingent attorney. The shield is the absolute protection of the attorney-client and work product privileges. Guarded by these privileges, public authorities can merely claim that they are supervising contingent fee counsel adequately and then preclude their claims from being verified.

 

It is inevitable that such an opaque system will be abused. Perhaps not by every public authority and perhaps not by every contingent fee counsel, but an unpoliced system will eventually be compromised – especially if the potential gains are large. When that happens, the public’s confidence in our judicial system will be the victim. Even with “supervising” government counsel, contingent fees present tremendous incentives for victory – incentives that compromise the neutrality essential to protecting the public interest. As the tobacco litigation has sadly shown, even the highest legal officers of a State, such as Texas, can be compromised in these situations,¹⁶⁴ Given this glaring example, it is impossible for an unsupervised “controlling” government attorney to guarantee that contingent fee attorneys will be neutral. The importance of protecting the public’s trust in the judicial system, so eloquently voiced in Clancy, cannot be protected by an irrefutable presumption of ethical behavior – especially when prior abuses demonstrate that human nature, including that of public officials, cannot be uniformly trusted. Indeed, forcing the public to accept a supervisor’s “word” about compliance is the antithesis of the transparency required by the democratic process. Nothing less than a guarantee of integrity is required when the public’s essential confidence is at risk, and no guarantees are possible when public authorities have the right to resist verification. Indeed, assuring public confidence is so vital that the existence of any potential lapses compromises the proceedings.¹⁶⁵ As the United States Supreme Court correctly noted:

A concern for actual prejudice in such circumstances misses the point, for what is at stake is the public perception of the integrity of our criminal justice system. “[J]ustice must satisfy the appearance of justice” [Offutt v. United States (1954), 348 U.S. 11, 14, 75 S.Ct. 11, 13, 99 L.Ed. 11], and a prosecutor with conflicting loyalties presents the appearance of precisely the opposite. Society’s interest in disinterested prosecution therefore would not be adequately protected by harmless-error analysis, for such analysis would not be sensitive to the fundamental nature of the error committed.¹⁶⁶

While these sentiments were stated in the context of a criminal prosecution, their importance is no less real in public nuisance litigation where the state is actively exercising its police powers.¹⁶⁷

 

Accordingly, since the influence of monetary incentives places the public’s confidence at risk, simply allowing government “apex” attorneys to serve as “neutral” watchdogs solves nothing. Indeed, it creates greater opportunities for abuse by opening doors for potential ethical compromises between the highly compensated contingency counsel and comparatively poorer public officials. The California Supreme Court has consistently recognized that the goal is not to manage or control the risk of losing the public’s trust in our judicial system. The goal is to preclude actions that place the public’s trust at risk.¹⁶⁸ Once the public’s confidence is compromised, there is no clear remedy to restore it, nor are there any metrics to measure the injury or when, if ever, it is restored. Mere political accountability, or even potential criminal responsibility, is a poor substitute for the spotless record guaranteed by Clancy’s rule. Moreover, no compensatory remedy exists for adverse parties whose interests have been compromised by private counsel’s excessive zeal. Nothing, not even fee forfeiture, diminishes the burden of unjust recoveries improperly enhanced by visions of personal gain.

 

The purpose of Clancy was to guarantee neutrality by absolutely forbidding relationships that, from a layman’s perspective, have the potential to violate neutrality. Transforming that prohibition into an obligation owed only by governmental “apex” attorneys undermines that purpose. There is a vast gap between “prohibition,” which Clancy mandated as a public necessity, and the control corollary created by the appellate court. Plainly, permitting a previously prohibited relationship to exist by entrusting it to human “control” guarantees nothing – rather, it relies upon a mere “promise” that fallible humans will “do the best they can.”¹⁶⁹ Such a promise rings hollow when compared to predictable principles that rule out any possibility of harm. Public confidence is precious and indispensable to our democratic society, and no court, much less the California Supreme Court, should provide any opportunities – whether real or potential – for that trust to be compromised.

 

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