On Wednesday, May 5, 2010, the Supreme Court heard oral argument in County of Santa Clara v. Superior Court (Atlantic Richfield Co.), no. S163681.
Justices Baxter and Corrigan were both recused. Justice Maria P. Rivera of the First Appellate District, Division Four, and Justice James A. Richman of the First Appellate District, Division Two, sat in their stead.
Philip Curtis of Arnold & Porter (representing Atlantic Richfield Co.) and Elwood Lui of Jones Day (representing Sherwin-Williams Co.) divided the defense argument time. San Francisco Deputy City Attorney Owen Clements presented the public entities' position. [Note: Messrs. Curtis and Clements also argued this case in the Sixth District in 2008. See this blog post for my report on that argument.]
Mr. Curtis argued first. The Court, he began, should reverse the Court of Appeal's judgment and reinstate the trial court's order disapproving the public entities' contingency-fee agreement with outside counsel. He briefly summarized the basic background facts of these public nuisance actions, emphasizing that the actions sought a form of relief -- an order of abatement -- available only to government plaintiffs. He then gave three reasons why the public entities should not be permitted to retain outside contingency-fee counsel to handle the case: (1) the need for prosecutorial neutrality, even-handedness, and balance; (2) the destructive effect of a contingency-fee arrangement on that neutrality; and (3) the incurability of the problem and the inefficacy of contract provisions purporting to limit the outside lawyers' control.
Chief Justice George then interrupted: I assume you'll address the extent to which the government lawyers' control over the litigation is relevant and the extent to which the Clancy case applies. [People ex rel. Clancy v. Superior Court, 39 Cal.3d 740 (1985).] Mr. Curtis said he would address that now. The payment of contingency fees would destroy neutrality. Can some form of control by government lawyers restore neutrality? The answer is no for three reasons. First, control is not realistic. As the lower court said, the lawyer is not a potted plant. There are any number of acts that can affect the outcome of a case. This Court has repeatedly pointed out that the need for neutrality goes to so many decisions such as which witnesses to call, trial strategy, and more.
Chief Justice George: Aren't those akin to the tasks performed by a deputy city attorney? Curtis: It would be improper for a deputy city attorney to receive a contingency fee. Chief Justice George: But we're talking now about the ability to form independent judgments and the extent to which you have to be subject to control. The same decisions would be subject to the control of one's supervisor in a public office. Curtis: They would be subject to the supervision or control of the superior or the client. All attorneys are subject to the control of the client. It doesn't eliminate the lawyer exercising influence over the outcome. In part one of the Eubanks case, it said having an interest runs afoul of neutrality. [People v. Eubanks, 14 Cal.4th 580 (1996).]
Chief Justice George: But Eubanks was a criminal case. Are you equating these civil cases with that? Curtis: I am doing so and this court did in Clancy. Public nuisance cases should require neutrality in the same way as criminal cases.
Justice Moreno: Isn't the control here quite distinct from the lack of control in Clancy? Curtis: It was not. The facts are very much like the facts here. We asked the Court to take judicial notice of the contract in that case.
Justice Moreno: You're saying it's virtually impossible to get sufficient control. Curtis: Yes, it's unrealistic and therefore impossible. This is so for two other reasons. Circumstances can arise during the course of the prosecution. It's inherent in the contingency-fee agreement. It provides an opportunity to profit from a successful prosecution.
Chief Justice George: But your position is that not all civil prosecutions are subject to the Clancy rule. Curtis: Not all are subject to the neutrality requirement, that's correct.
Chief Justice George: I'm having trouble equating a criminal proceeding, where someone's freedom is at stake, with the proceeding here against a manufacturer of lead paint. Curtis: There are two sources for a neutrality requirement in civil matters. First, Clancy talks about the prosecutor's need for weighing competing interests. In a public nuisance case, the question is whether the conduct is a reasonable invasion of the public interest. Second, in the first section of Eubanks, where it says the neutrality rule arises from the fact that the lawyer is representing the public as a whole. That is especially so here. Those are the origins of the application of the neutrality rule in a civil case.
Justice Richman: The balance in a public nuisance case is between the public and the property owners who would be affected by the abatement order. Are the defendants property owners? Curtis: That was true in Clancy. The defendants aren't property owners but the question will be whether many members of the public who own property will be affected. Justice Richman: And your client has the right to assert those interests? Curtis: We have the right to assert a neutrality requirement.
Justice Chin: You have asked for discovery on the question of control and you ran into the attorney-client privilege. What problems does that raise? Curtis: This leads to my third point. It's not possible to cure lack of neutrality through control. It would have to get into the most sensitive strategy matters. When we tried to get to this we were stopped.
Chief Justice George: The language of the declaration of the public officer says we have complete control of the litigation. Isn't that pretty comprehensive or are you saying unless you're a fly on the wall you would not have the assurance you need? Curtis: We would not and the public and the court would not. This is not about the integrity of the public officials. This is about letting an outside actor in.
Mr. Curtis then yielded the floor to Mr. Lui.
First, Mr. Lui referenced Chief Justice George's initial question, and distinguished the control of a district attorney over his deputy. That relationship is unaffected by any contingency-fee arrangement, he said. One failing of the Sixth District's opinion was they accepted blindly that these statements in the contract and declarations mean what they say and that there can be this type of supervision. What Clancy stands for -- and we think it's good law -- is ensuring the integrity of the judicial process. So whether you strip aside the attorney-client privilege you still have a contingency. There is an absolute bar to the court's reviewing the conversations about strategy and control. The harm that can result is not worth the risk.
He went on. Clancy lays down a bright line, a prophylactic rule. The government lawyer said you must trust us, have the trial court judge supervise. But the trial court judge can't ask the questions that would be necessary. Then he discussed a number of cases including Vasquez. [People v. Vasquez, 39 Cal.4th 47 (2006).]
Justice Moreno: But aren't those criminal cases? Lui: Because the case involves the state's soveriegn powers it's the same as the criminal cases. He then quoted language from Eubanks and other cases, and also mentioned the Rhode Island Supreme Court case. [Rhode Island v. Lead Industries Ass'n, 951 A.2d 428 (R.I. 2008).] Justice Moreno: But these are all criminal cases. You're saying that in this civil case we should import those principles. Lui: Yes.
Chief Justice George: The Rhode Island case seems in every respect the same as this one. The Rhode Island case involved the control exception and said Clancy was not a bright-line rule, didn't it? Lui: Yes and that takes us back to the origins of Clancy. This court is the best court to decide what Clancy means.
Justice Moreno: It's evidence that public counsel does not have enough resources because they are asking private lawyers to come in. Chief Justice George: If we're comparing resources I have a hard time seeing this as a David and Goliath situation when you have Atlantic Richfield and Sherwin-Williams on one side and a cash-strapped government agency on the other. It's not like you're facing a huge government power. Lui: But the government agencies choose which cases to prioritize.
Justice Rivera: In Clancy, the issues of concern to the court were the delicate balance of harms. The interest of the public vs. the landowner. In this case where would that misalignment occur? Where could there be a misalignment between the plaintiffs' lawyers' interests and the public? What outcome could create that?
Lui: Knowing what's happened in other states, these cases have not been successful. Contingency lawyers are not going to want to dismiss because they want to protect their investment. For six years the contingency lawyers have been litigating this case. Justice Rivera: What are the realistic potential outcomes? Lui: An abatement order directed to the defendants for injunctive relief, not monetary. There could be a difference of opinion with the public prosecutors.
Chief Justice George: Should we not presume such an agreement is valid and consider that these are attorneys, they are officers of the court, with ethical duties? You seem to assume they're not telling the truth. Lui: The risk of harm is too high even if they are telling the truth. And in Clancy you didn't accept the same types of clauses re control. They should not be accepted now because of the risk.
[Note: I have to say that's a very good answer to that difficult question and a strong note on which to end his argument.]
Mr. Clements then argued for the public entities. Defendants, he said, are arguing for an absolute rule where all public agencies would be precluded from hiring outside lawyers. This would negatively impact our ability to bring such cases.
Justice Chin: Don't you have to rely heavily on private counsel's judgment and recommendations? And aren't you going to private counsel because of their expertise in those areas? Clements: That's one of the reasons. Also, the amount of work was not sustainable by a public office. Also these particular counsel had past experience and knowledge of these issues. So yes we do. Just as we would with hourly lawyers. But that's not financially viable.
Chief Justice George: You yourself are a deputy and your boss directs how you handle this prosecution. Clements: Absolutely. The public lawyers have appeared, taken a very active role, and they have veto power.
Justice Werdegar: Contingency fee means monetarily something has to be awarded, doesn't it? Clements: Typically, yes. Justice Werdegar: So, so far there's no basis for fees? Clements: Yes. Justice Werdegar: You are now seeking an order of abatement. Clements: Yes. Justice Werdegar: What are the other remedies? Clements: That's not clear yet. Justice Werdegar: Would the attorneys be influenced in deciding what relief to argue for? Clements: Yes, and that's where we would exercise control.
Justice Werdegar: If the outside lawyers invested money, would not the city be influenced by loyalty to them? Clements: No, we understand our responsibility. Werdegar: But wouldn't it impact the remedies you decide to seek? Clements: There could be many available remedies and the government attorneys would decide. Werdegar: Wouldn't you be influenced and like to see those attorneys compensated? Clements: Yes, there are always incentives even with hourly lawyers and we would monitor those as well. In Clancy, a private attorney appeared instead of the public one. That's improper under any fee arrangement. It's an excessive delegation of public authority.
Justice Werdegar: Your opponent argues for a bright-line rule. What rule would you advance? Clements: One bright-line rule is the one in the Rhode Island case. Contingency-fee contracts are allowed in civil cases and not criminal cases. We've advocated a case-by-case analysis. The court should look at the fee contract. And it's not true that we gave no discovery. We produced the agreements and the correspondence surrounding their formation.
Justice Chin: But discovery regarding strategy was withheld. Clements: In part. Justice Chin: So how do we monitor control? Clements: First, look at the contingency agreement and make sure there's no improper delegation. Next, look at the declarations from the private and public attorneys on foundational facts regarding who exercises control. For example, as in the Anaheim case involving Priceline. [Priceline.com v. City of Anaheim, 180 Cal.App.4th 1130 (2010).] [See this blog post for a discussion of that case.]
Justice Rivera: Are those the only things? Clements: You'd require the public attorney to appear in the case as counsel of record. If defendants come forward with evidence of improper delegation then you go into case-by-case analysis. Justice Rivera: Under Clancy there's no element other than control? Clements: The contract and control. Justice Rivera: Anything else? Clements: Actual likelihood of a miscarriage of justice. Overlap with criminal case ramifications.
Justice Rivera: Regarding remedies, wouldn't use of the common fund or substantial benefit doctrine be an end-run around the cases saying that public entities aren't entitled to fees in a public nuisance case. Clements: No. That's cost spreading vs. cost shifting. Justice Rivera: Where do you get a fund? Clements: There could be a fund created when property owners apply for a share of money to make repairs. Justice Rivera: Can you cite a case where such a fund was created? Clements: Not off the top of my head.
Justice Chin: Why should this case be treated differently from Clancy? Clements: The main reason is the public attorneys appear as counsel of record. Justice Chin: How do we ensure that the public attorneys are appropriately monitoring the case? What do we write in the opinion? Clements: You can do what the Court of Appeal did in the Priceline case. The parties' declarations. The public attorneys affirm they have maintained control and there's not an excess delegation of authority. Justice Chin: How does the other side show excess delegation of authority? Clements: From their observations during the course of the case as in any other case of prosecutorial misconduct.
Chief Justice George: Would it help if there were guidelines as in the Rhode Island case, such as control, veto power by the public attorneys, public attorneys involved in all stages? Perhaps adding public attorneys must be involved in all decisions to settle or dismiss? This could be included in the opinion.
[Note: So here, the Chief Justice simply answered Justice Chin's question himself.]
Clements: Absolutely. It would give private attorneys every incentive not to overstep the bounds or risk disqualification. Justice Chin: Do you have any other factors? Clements: Those are sufficient. You're relying on the professional judgment and good faith of the public attorneys and the ethics of the outside lawyers not to let their interests trump those of the clients. This is precisely what courts presume. Absent a prima facie showing that the public attorneys are not exercising control, then the arrangement should be allowed. That is how courts handle all cases of prosecutorial misconduct. This is strictly a civil case and the attorneys have no power to seek warrants etc.
He went on. Authorities following Clancy have been unanimous in allowing these arrangements except in one nonpublished superior court order issued by Judge Ikola who later authored the Priceline decision as Justice Ikola.
Justice Rivera: But the facts were different. Clements: In the twenty years since Clancy you have an absence of authority for the rule defendants advance. We are talking about a balancing vs. a per se test. A per se test would assume the conduct in question is necessarily bad. The Rhode Island case recognized that there are some cases that can only be brought with this arrangement. A rule prohibiting it is unwarranted.
And Mr. Clements ended his argument there, although his time was not up.
Before Mr. Curtis began his rebuttal, Justice Chin made a request: Please address whether the protections adopted in the Rhode Island case are adequate. Curtis: They are not adequate. They are window-dressing. They are explicit but they are not specific. They don't come to grips with the reality that there are myriad instances in the prosecution of a case where an attorney with an interest can influence the case.
Justice Werdegar: In this case where would that come up? Curtis: What remedies to seek; what witnesses to call; how to question them. Justice Werdegar: How would those decisions be impacted? Witnesses, I don't see that. Curtis: Whether the case should be dismissed. Whether to proceed with the case at all. Contingency fee lawyers would have a natural tendency to expand the litigation and interpret the law as broadly as possible.
[Note: I have to disagree with that. In deciding what cases to take, the strength of the legal arguments and the likelihood of success on the merits are critical considerations. No contingency-fee lawyer is going to take a dud case. It makes no sense to take on the risk. The goal is to take cases with as little risk as possible, which means the strongest possible cases based on existing law, not the reverse.]
Chief Justice George: But if the public entity has veto power; and requiring a senior member of the public office to participate; allowing them to decide to settle without any input from the private attorney: those aren't specific? Curtis: They are not adequately specific. Chief Justice George: Does your argument stand or fall with the analogy to criminal cases? Curtis: It does indeed. We believe Clancy was correctly decided and properly put the facts of that case in the criminal column.
Justice Chin: If we were to adopt the Rhode Island factors what would you change or add to them? Curtis: I don't know how to answer that. Justice Chin: Answer quickly. [The courtroom laughed.] Curtis at this point reiterated that he couldn't say what should be changed or added because he did not think any protections were adequate.
Justice Moreno asked the final question: Can you describe the remedy from which attorneys' fees might come? Curtis: I cannot; we don't know yet.
And then Mr. Curtis, likewise, concluded before his time was up.
I think Chief Justice George agrees with the Rhode Island analysis and will follow it. The question is whether his colleagues will go along. Justice Chin obviously has serious concerns about how to monitor the attorneys. On the other hand, the Chief Justice ends up in the majority in nearly every case. They say that appellate judges use the questioning to communicate with each other as much as to gain information from the attorneys. This argument exemplified that. We'll find out what happens in 90 days.