Supreme Court of California Rules on Santa Clara Contingency Fee Issue - Backpedals on Clancy

On Monday the Supreme Court of California spoke for the first time in 25 years on the rule prohibiting contingency fee counsel from prosecuting public law enforcement claims. In People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985), the court prohibited this practice unequivocally because of the risk that the impartiality and neutrality of the public prosecutor would be compromised by contingency fee counsel’s financial interest in generating the largest possible dollar recovery in the litigation.

In what amounts to a serious case of backpedaling, the Court issued a ruling that will reinvigorate the once-dormant Lead Paint Litigation (with the venue set in Santa Clara County, this mega lawsuit seeks to require lead paint manufacturers to abate an alleged nuisance in about 5 million buildings), and embolden civil lawsuits by government entity plaintiffs seeking redress for everything from obesity to climate change. Instead of determining whether or not 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 high monetary awards.

As justification for backing away from its prior rule in Clancy the Court reasoned that the Lead Paint Litigation was not much more than a suit for money against big, wealthy corporations.

This case will result, at most, in defendants’ having to expend resources to abate the lead-paint nuisance they allegedly created, either by paying into a fund dedicated to that abatement purpose or by undertaking the abatement themselves. . . . Defendants are large corporations with access to abundant monetary and legal resources. Accordingly, the concern we expressed in Clancy about the misuse of governmental resources against an outmatched individual defendant is not implicated in the present case. . . . [B]ecause–in contrast to the situation in Clancy–neither a liberty interest nor the right of an existing business to continued operation is threatened by the present prosecution, this case is closer on the spectrum to an ordinary civil case than it is to a criminal prosecution. The role played in the current setting both by the government attorneys and by the private attorneys differs significantly from that played by the private attorney in Clancy. Accordingly, the absolute prohibition on contingent-fee arrangements imported in Clancy from the context of criminal proceedings is unwarranted in the circumstances of the present civil public-nuisance action." (Opinion at 19-20)

The Court apparently overlooks the fact that, whether the action threatens a liberty interest or the continued operation of a business is irrelevant. Whenever the government exercises its sovereign power to bring a public law enforcement action of any kind, the assurance that the prosecutor is acting without any outside financial influence, is essential to public confidence in the fair and impartial exercise of government power. Whenever the government exercises its sovereign power, the impartiality and neutrality of the prosecuting attorney must be preserved at all cost.

The Court goes on to specify certain provisions that the contingency fee agreement must include:

...retention agreements between public entities and private counsel must specifically provide that decisions regarding settlement of the case are reserved exclusively to the discretion of the public entity's own attorneys. . . any defendant that is the subject of such litigation may contact the lead government attorneys directly, without having to confer with contingent-fee counsel . . . public-entity attorneys will retain complete control over the course and conduct of the case [and] veto power over any decisions made by outside counsel . . . a government attorney with supervisory authority must be personally involved in overseeing the litigation"(Opinion at 29-30).

These requirements are largely window-dressing. No matter how much control the public prosecutor may exercise, the day-to-day decision-making, the strategy calls, the development and evaluation of facts, are all necessarily influenced by the inescapable fact that private counsel with tremendous responsibility for litigating a public law enforcement action will not be paid unless there is a substantial monetary recovery. That profit motive necessarily influences the course of litigation in the direction of monetary solutions rather than nonmonetary or governmental solutions that may be available. Regardless of the amount of control, the taint of contingent fee counsel’s profit motive diminishes the confidence of the public in the integrity of public law enforcement actions, thereby eroding the public trust essential to the consent of the governed in our society.

Even if the Court’s decision could help keep public law enforcement actions on track, all of the “safeguards” articulated by the Supreme Court will be shielded from scrutiny by the attorney-client privilege between the government entity and any contingent fee counsel it may hire. All we will have is the word of the government. But "Trust me, I'm in control" is a thin reed. After all, the government is hiring contingent fee counsel because they do not have the personnel or the resources to conduct the litigation themselves. So how can we be assured that they will have the resources and personnel needed to "control" contingent fee counsel in the conduct of massive, multi-party litigation?

In my opinion, the Supreme Court's opinion in Santa Clara effectively permits government entities to write their way out of Clancy by inserting a few cosmetic "control" provisions in their contingent fee agreements.

The bottom line is that Santa Clara lets the fox tell the farmer how to guard the hen house.