Metropolitan News-Enterprise


Thursday, January 7, 2010


Page 1


C.A.: Firm Paid on Contingency May Serve as City’s Co-Counsel


By SHERRI M. OKAMOTO, Staff Writer


Outside counsel may assist government lawyers in civil litigation under a contingency fee agreement, the Fourth District Court of Appeal has ruled.

Div. Three on Tuesday affirmed Orange Superior Court Judge Ronald L. Bauer’s decision declining to disqualify private attorneys from acting as co-counsel for the City of Anaheim in a tax assessment proceeding.

In 2007, Anaheim—through the law firm of Kiesel, Boucher & Larson—informed various travel companies which provided services facilitating the reservation of hotel rooms within the city that they were liable for failing to remit transient occupancy taxes.

Records Request

Pursuant to a Public Records Act request by the companies, the city produced a copy of its retainer agreement with Kiesel Boucher, and one with Baron & Budd. The agreements stated that the city was retaining the firms as “Special Counsel to represent it in litigation seeking…relief for the non-payment or underpayment to the City of transient occupancy taxes by online booking companies.”

The firms agreed that Anaheim’s city attorney would “direct” Special Counsel, who were to “obtain prior approval from the City concerning all substantive matters related to the Litigation.”

The retention agreement provided for compensation “on a contingency fee basis” wherein outside counsel would receive 30 percent of any “Gross Recovery” should the city recover and collect any monies “by settlement, arbitration award, Court judgment, or otherwise.”

Anaheim also produced an agreement with Diamond McCarthy LLP, retaining that firm as “Associate Counsel” in the tax litigation. This agreement had similar terms regarding the scope of the representation, compensation, and the relationship between Anaheim and outside counsel.

Tax Assessments

After the city issued estimated tax assessments to the companies in May 2008, the companies requested an administrative hearing. The companies challenged the propriety of the retainer agreements at the hearing, but the hearing officer ruled that he lacked jurisdiction to consider their claims.

The companies then petitioned for a writ of mandate directing Anaheim “to immediately cease and desist using Contingency Fee Counsel in the administration and enforcement of the City’s transient occupancy tax.” They contended that the city had violated its “duty of neutrality” set forth in People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740 by involving private counsel who had a financial interest in the outcome in the tax enforcement and collection process.

Bauer found that the facts involved in the tax dispute were “distinctly different” from the public nuisance abatement action at issue in Clancy, and declined to grant the requested relief.

Clancy held that a contingent fee agreement between a city and private counsel was “antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action.”

‘Duty of Neutrality’

Writing for the appellate court, Justice Raymond J. Ikola noted that Clancy “used the criminal prosecutor’s duty of neutrality as a starting point,” and expanded that duty to government lawyers in civil actions and administrative proceedings.

The Clancy court suggested that those attorneys have “the responsibility to seek justice and to develop a full and fair record,” and that “the neutrality so essential to the system is violated” if an attorney had a personal interest in the litigation.

However, the Clancy court cautioned that “there are cases in which a government may hire an attorney on a contingent fee to try a civil case,” and Ikola posited that “California governments have routinely retained contingency fee counsel for decades, before and after Clancy.”

Ikola declined to extend Clancy to reach all civil actions, based on the Clancy court’s statement that the duty of absolute neutrality applies only to “a class of civil actions.” He further reasoned that even in that class of actions where Clancy would apply, its holding would not bar contingency fee lawyers from assisting government attorneys as co-counsel since the government attorneys would “check” the contingency fee lawyer’s financial interests.

As the companies did not offer evidence contradicting the evidence proffered by the city as to its attorneys’ active and constant supervision of outside counsel and the tax assessment proceedings did not involve the “balancing of interests and weighing of values contemplated by Clancy,” since “[a]ll that this action requires is a determination that the transient occupancy tax is due,” the justice concluded, Clancy is inapplicable.

Justices William F. Rylaarsdam and Richard D. Fybel joined Ikola in his decision.

The attorneys for the plaintiffs were Darrel J. Heiber, Stacy R. Horth-Neubert, Daniel M. Rygorsky and Raoul D. Kennedy of Skadden, Arps, Slate, Meagher & Flom on behalf of Incorporated, LLC, and Travelweb LLC; Kelly Hart & Hallman’s Brian S. Stagner for Inc., LP, and LLC; Thomas R. Malcolm, James Karen, and Travis Biffar of Jones Day for LP, GP LLC, Expedia Inc., and Inc.; and Jeffrey A. Rossman and Elizabeth B. Herrington of McDermott Will & Emery for Orbitz, Inc., Orbitz, LLC, Trip Network, Inc., and Internetwork Publishing Corporation.

Paul R. Kiesel and William L. Larson of Kiesel, Boucher & Larson, along with Patrick J. O’Connell, Kevin D. McHargue and Laura J. Baughman of Baron & Budd, and McKool Smith’s Steven D. Wolens and Gary Cruciani represented the city.

The case is Incorporated v. City of Anaheim, 10 S.O.S. 60.


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