Friday, April 06, 2007

Restricting Government by Contingent Fee - A Welcome Development

We’ve been leery of the practice of government’s hiring private personal injury lawyers on a contingency fee basis to press lawsuits against non-resident product manufacturers from the moment that practice arose not very long ago. The government is supposed to be neutral and unbiased – something that’s impossible where attorneys conducting government business don’t get paid unless they recover money from the people they sue. Especially when such contracts are awarded without public bidding they create, at minimum, an appearance of improper alliance between public and private interests. See, e.g., Robert A. Levy, “The Great Tobacco Robbery: Hired Guns Corral Contingent Fee Bonanza,” Legal Times, at p. 27 (Feb. 1, 1999) (describing ethical issues involving non-bid contingent fee contracts in Texas).

Government attorneys are “the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all.” Berger v. United States, 295 U.S. 78, 88 (1935). A governmental unit’s delegation of its police powers to private persons with a financial interest in the outcome of the case has always struck us as unseemly and dangerous. We know how contingency fees generate powerful financial incentives, see, e.g., Lewis v. Casey, 518 U.S. 343, 374 n.4 (1996), and when mixed with the people’s business, these incentives can work to the detriment of the public interest in the hope of a large recovery – incentives not ordinarily shared by public prosecutors and other government attorneys.

Another problem is that “the participation of states and cities in a lawsuit brings credibility and a ‘moral authority’ to the cause.” Bryce A. Jensen, "From Tobacco to Health Care and Beyond – A Critique of Lawsuits Targeting Unpopular Industries," 86 Cornell L. Rev. 1334, 1370 (2001). In such litigation, the government’s participation can generate “credibility” and “moral authority” for otherwise novel and far-fetched claims against manufacturers of lawful products and others.

We also think it’s politically dangerous. Industry-wide liability actions brought by governmental units amount to attempts to raise taxes for governmental programs through lawsuits rather than through the legislature. Antipathy to “taxation without representation,” was a major basis why this country was founded. Politicians don’t like to raise taxes, though, so the temptation to use the judicial system to demand payments from non-resident corporations with little or no political clout in the particular jurisdiction can be overwhelming.

It seems like someone’s finally heard us. It’s reported today in The Recorder (a California legal publication, for those who don’t know) that the judge supervising municipal litigation against lead paint manufacturers has told the government plaintiffs that they can’t proceed using private lawyers hired on contingent fee. See Matthew Hirsch, "Judge Stops Fee Pacts in Lead Paint Suit," The Recorder (Apr. 6, 2007). Here's a link to law.com.

In reaching its decision, the court followed prior California precedent holding that “a contingent fee arrangement between [a governmental unit and a private attorney] is antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action.” See County of Santa Clara v. Atlantic Richfield Company, No. 1-00-CV-788657, slip op. at 2 (Cal. Super. Ct. Apr. 4, 2007) (quoting People ex rel. Clancy v. Superior Court, 705 P.2d 347, 353 (Cal. 1985)). Here's a link.

Clancy recognizes that, unlike cases brought for private plaintiffs, the court said, this class of civil actions “involves a balancing of interests” and a “delicate weighing of values” that “demands the representative of the government to be absolutely neutral.” 705 P.2d 352. The court continued that “[a]ny financial arrangement that would tempt the government attorney to tip the scale cannot be tolerated,” which “precludes the use in such cases of contingent fee arrangement.” Id.

The newspaper article says that the cities and their contingent fee lawyers have vowed to appeal. We welcome that, too. It’s long past time for somebody to set some firm legal rules on what can, and can’t, be done in this area.

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