Contingency fees OK for public suits, Calif. SC decides

John O'Brien Jul. 26, 2010, 12:30pm


SAN FRANCISCO (Legal Newsline) - The California Supreme Court has decided its stance on contingency fee agreements between public entities and private attorneys should be loosened.

An opinion released Monday in a group of paint companies' challenge to a public nuisance lawsuit filed by several California counties and cities says the case differs from a previous one banning such agreements because it is a civil case.

Chief Justice Ronald George wrote that a "heightened" standard of neutrality is not compromised by the agreement.

"Because private counsel who are remunerated on a contingent-fee basis have a direct pecuniary interest in the outcome of the case, they have a conflict of interest that potentially places their personal interests at odds with the interests of the public and of defendants in ensuring that a public prosecution is pursued in a manner that serves the public, rather than serving a private interest," George wrote.

"This conflict, however, does not necessarily mandate disqualification in public-nuisance cases when fundamental constitutional rights and the right to continue operation of an existing business are not implicated.

"Instead, retention of private counsel on a contingent-fee basis is permissible in such cases if neutral, conflict-free government attorneys retain the power to control and supervise the litigation."

It's a ruling similar to one handed down in 2008 by the Rhode Island Supreme Court when it rejected state Attorney General Patrick Lynch's public nuisance lawsuit against the former makers of lead-based paint.

Lynch had hired plaintiffs firm Motley Rice for the suit. The Rhode Island justices wrote that they would have affirmed Lynch's right to hire outside counsel on a contingency fee, provided Lynch was the one in control of the decision-making.

Philip Curtis, counsel for the Atlantic Richfield Company, was not happy with the California Supreme Court ruling.

"We respectfully but strongly disagree with the Court's decision. Today's ruling upends the fundamental legal principle that no attorney wielding the government's police power should have a financial interest in the outcome," Curtis said.

"The scales of justice should not be tipped by a profit motive. The delegation of state police power to financially self-interested counsel is troubling and violates due process."

Seven California counties and four cities (San Francisco, Los Angeles, San Diego and Oakland) sued eight paint companies, including Sherwin-Williams and Atlantic Richfield in 2000, claiming the companies created a public nuisance when they made lead-based paint before it was outlawed in 1978.

The California Supreme Court accepted the case in July 2008. The suit has been put on hold while the two sides argue if the plaintiffs' 17-percent contingent fee agreement with private counsel should be allowed to stand.

The companies argued attorneys representing a government agency should be motivated by justice, not money.

The companies, which also include DuPont and NL Industries, said that the neutrality issue had already been decided in California by a 1985 decision.

The case involved the City of Corona hiring a private attorney to bring public nuisance cases against alleged violators of a city ordinance. The attorney was paid more for successful than actions than unsuccessful ones.

Initially, the companies' argument was successful, but an appellate court reversed the lower court decision and encouraged the Supreme Court to take a look at the issue.

Monday's opinion draws a difference between the paint suit and the Corona suit. The Corona suit was more of a criminal prosecution, George wrote. Private attorneys in civil cases need not be held to the "more stringent disqualification rules applicable to criminal prosecutors."

"It is true that the public attorneys 'decisionmaking conceivably could be influenced by their professional reliance upon the private attorneys' expertise and a concomitant sense of obligation to those attorneys to ensure that they receive payment for their many hours of work on the case," he added.

"This circumstance may fairly be viewed as being somewhat akin to having a personal interest in the case. Nevertheless, this is not the type of personal conflict of interest that requires disqualification of the public attorneys."

The agreements must be revised to clarify the public entities have decision-making authority before the case can continue.

The challenge of the contingency fee contract between Pennsylvania Gov. Ed Rendell and Houston plaintiffs firm Bailey Perrin Bailey is before that state's Supreme Court. Janssen Pharmaceutica is the company challenging the agreement.

From Legal Newsline: Reach John O'Brien by e-mail at

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