The California Supreme Court on Monday carved out an exception to a quarter-century-old ruling that banned cities and counties from hiring private counsel to handle public-nuisance suits on a contingency fee basis.
In a unanimous ruling, Chief Justice Ronald George held that such hirings are acceptable as long as the government lawyers retain complete control over all critical decision making.
"Such control of the litigation by neutral attorneys," George wrote , "provides a safeguard against the possibility that private attorneys unilaterally will engage in inappropriate prosecutorial strategy and tactics geared to maximize their monetary award."
Justice Kathryn Mickle Werdegar wrote separately, saying that while she supported the court's decision, she questioned "whether public attorneys under all foreseeable circumstances will be able to exercise the independent supervisory judgment the majority concludes is essential."
San Francisco City Attorney Dennis Herrera, whose city is one of 10 hoping to get several manufacturers to abate lead paint on public and private buildings, called the ruling "a major win for consumers because it gives public law offices like mine a fighting chance to take on powerful, well-funded wrongdoers like Big Tobacco and corporate polluters."
Philip Curtis, a partner in Arnold & Porter's New York office who represented Sherwin-Williams Co., expressed disappointment.
"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," he said in a prepared statement. "The scales of justice should not be tipped by a profit motive."
Santa Clara County initiated the suit 10 years ago when it sued Atlantic Richfield Co. and eight other manufacturers to cover the costs of removing lead paint from all buildings within its borders. Nine other counties and cities, including San Francisco and Oakland, joined in.
Burlingame's Cotchett, Pitre & McCarthy was hired as private counsel by the government entities, as were Boston-based Thornton & Naumes, Motley Rice of Mt. Pleasant, S.C., and San Francisco product liability lawyer Mary Alexander. If successful, they would be entitled to recover any unreimbursed costs from the recovery and a fee of 17 percent of the net recovery.
Santa Clara County Superior Court Judge Jack Komar tossed the suit based on his reading of People ex rel. Clancy v. Superior Court , 39 Cal.3d 740, which the California Supreme Court issued in 1985.
In 2008, however, San Jose's 6th District Court of Appeal reversed, finding that the fee agreements left total control of the litigation within the hands of the government lawyers.
The Supreme Court agreed on Monday, saying that its ruling in Clancy "was unnecessarily broad and failed to take into account the wide spectrum of cases that fall within the public-nuisance rubric."
"There is no indication," George wrote, "that the contingent-fee arrangements in the present case have created a danger of governmental overreaching or economic coercion."
Proper agreements, he added, must provide that the government lawyers "retain complete control over the course and conduct of the case," have 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."
Because the agreements in the current case don't meet all those standards, George remanded for further proceedings.
San Francisco lawyer William Stern, who heads Morrison & Foerster's consumer class action practice and was not involved in the suit, said in a prepared statement that the ruling is a "game changer" for many areas of class action litigation.
In its own way, the Washington, D.C.-based Institute for Legal Reform agreed, saying in a statement that the ruling will "further burden the state's ability to create jobs and emerge from its worst economic situation since the Great Depression."
"California needs more jobs, not more lawsuits," institute President Lisa Rickard said.
By Mike McKee