The NAM joined with the Coalition for Public Nuisance Fairness, the American Chemistry Council, and the Property Casualty Insurers Association of America in an amicus brief challenging the power of various cities and counties in California to hire trial lawyers on a contingent-fee basis to sue private industry for public nuisance. The issue arose when the cities and counties filed suit alleging that a group of companies created a public nuisance by selling lead pigments used in house paint decades ago. The companies filed a motion to bar the state from paying its counsel using a contingent fee arrangement, and the trial court agreed. The court of appeal reversed, claiming that because the cities and counties exercised "final authority over all aspects of the Litigation," the private attorneys were "merely assisting government attorneys in the litigation of a public nuisance abatement action and [were] explicitly serving in a subordinate role, in which private counsel lack any decision-making authority or control . . . ."
This ruling was appealed to the California Supreme Court. The NAM and other groups supported the appeal with an amicus letter. We opposed allowing private attorneys with a profit motive to prosecute cases using the police power of the state. Our amicus letter argued that the ruling brings confusion to an area that had previously been clear, and it invalidates legislative and judicial requirements that government attorneys be neutral and unaffected by financial motivations. The lower court ruling converted a firm ethical rule designed to maintain a belief by the people that our system is just and impartial into a "flexible" guideline that can be abused in the name of safeguarding the "right" of public entities to select counsel of their choice. In other contexts, government officials are not allowed to participate in activities that indirectly affect their own financial interests, and the government should not be allowed to transfer even a percentage of financial interest to outside counsel working on a contingent fee basis. In addition, it will be very difficult to detect abuse by outside counsel, meaning that the public must resort to "trust," a dangerously vague ethical limitation that will shake public faith in our judicial system.
The court agreed to hear the appeal, and the NAM and the other amici argued in a brief on the merits that the private interests of contingent-fee counsel conflict with the public interest. Government attorneys owe a duty of neutrality to the public, and allowing them the potential to earn huge profits "creates a powerful incentive for private attorneys wielding the power of government to make decisions based on their own pecuniary interests, rather than the interest of justice." The combination of temptations raised by extraordinary potential rewards with extraordinary power raise obvious appearances of impropriety.
In addition, the California legislature has already addressed lead poisoning, and the legislature is likely to strike a fairer and more effective balance between competing interests because it considers all pertinent issues in their entirety, rather than in the truncated form presented by litigants in court.
On July 26, 2010, the court unanimously ruled that local governments may use contingency fee lawyers as long as the ultimate authority for the litigation remained with the governments. Using a balancing of interests test, it found that neither a liberty interest (such as in a criminal case) nor the right of an existing business to continued operation is threatened by the government's litigation, so contingent fees may be allowed, as long as the lawyers act under a "heightened standard of neutrality." It ruled that "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 imposed protections such as: (1) only government attorneys may settle a case, (2) defendants may contact the government attorneys directly without having to confer with contingent-fee counsel, (3) government attorneys retain a veto power over any decisions made by outside counsel, and (4) a government attorney with supervisory authority must be personally involved in overseeing the litigation.
Even though the court sent the case back for further scrutiny of the contingent-fee arrangements at issue, it will be difficult for defendants to determine whether government lawyers are in fact exercising proper control over contingent-fee lawyers. Communications between such lawyers are subject to attorney-client confidentiality protections.
The use by state and local authorities of contingent-fee private lawyers has been gaining national attention with recent high-profile cases like the lead paint litigation in Rhode Island, which ended in 2008 with a state Supreme Court ruling throwing out the entire public nuisance theory of liability in that context. Although the private lawyers claimed that this litigation would be cost-free to the state, the defendants were ultimately awarded $242,000 in costs.