Litigation

California High Court: Contingency Fee Agreements In Lead Paint Action Deficient

SAN FRANCISCO - (Mealey's) The California Supreme Court on July 26 found that contingency fee agreements between numerous California municipalities and their counsel as part of a public nuisance suit against the lead paint industry are deficient under California law (County of Santa Clara, et al. v. Superior Court of Santa Clara County, et al., No. S163681, Calif. Sup.).

The high court reversed an order by the Sixth District Court of Appeal, which found that public entities were permitted to pay their counsel via a contingency fee agreement.  The Supreme Court found that its opinion upon which the trial court found that public entities were barred from compensating private counsel via contingency fee agreements (People ex rel. Clancy v. Superior Court, [1985] 39 Cal. 3d 740) should be narrowed in recognition of the "wide-array of public nuisance actions" and the different means by which prosecutorial duties may be delegated to private attorneys without compromising the integrity of the prosecution.

The court held that the compensation of public prosecutors pursuant to a contingency fee arrangement is almost always barred.  It found that retention of private counsel on a contingency fee basis is permissible in the prosecution of public-nuisance abatement actions provided that neutral conflict-free government attorneys retain the power to control and supervise the litigation.

The Supreme Court issued specific guidelines whereby contingency fee arrangements between public entities and private counsel are permitted.  The court held that contingency fee agreements between public entities and private counsel must provide that the public-entity attorneys will retain complete control over the course and conduct of the case, that government attorneys retain a veto power over any decisions made by outside counsel and that a government attorney with supervisory authority must be personally involved in overseeing the litigation.

The court found that the seven contingency fee arrangements between public entitles and private counsel in the record are deficient under the standard.  The court ruled that the public entities may continue to pursue the litigation assisted by private counsel on a contingent-fee basis provided that the public entities revise the retention agreements to conform to the aforementioned requirements.

"[B]ecause public counsel are themselves neutral, and because these neutral attorneys retain control over critical discretionary decisions involved in the litigation, the heightened standard of neutrality is maintained and the integrity of the government's position is safeguarded," the court wrote.

The court held that to ensure that public attorneys exercise real rather than illusory control over contingent-fee counsel, retainer agreements providing for contingent-fee retention should encompass more than boilerplate language regarding "control" or "supervision" by identifying certain critical matters regarding the litigation that contingent-fee counsel must present to government attorneys for decision.  In addition, the court found that retention agreements between public entities and private counsel must specifically provide that decisions regarding the settlement of the case are reserved exclusively to the discretion of the public entity's own attorneys.

[Editor's Note:  Full coverage will be in the August issue of Mealey's Litigation Report: Lead.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #14-100811-004Z.  For all of your legal news needs, please visit .]www.lexisnexis.com/mealeys

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For more information, call editor James Cordrey at 610-205-1125, or e-mail him at james.cordrey@lexisnexis.com.