Monday, June 27, 2011
C.A. Declines to Disqualify Firm Over Fee Arrangement
Justices Say Lawsuit Not Nuisance Abatement Action
By a MetNews Staff Writer
A law firm hired to represent the Orange County Water District in an action to recover compensatory damages allegedly caused by the contamination of certain groundwater aquifers was not subject to disqualification on the basis of its contingency fee arrangement with the agency, the Fourth District Court of Appeal ruled in a decision ordered published on Friday.
Div. Three concluded the suit, filed on behalf of the Water District by attorneys from Miller, Axline & Sawyer, as not a nuisance abatement action on the public’s behalf, in which the law firm could not maintain a financial interest.
In 2004, after investigating contamination discovered in groundwater aquifers underlying Anaheim and Fullerton, the Water District’s Board of Directors voted to begin litigation to recover the costs of investigating and remediating the contamination. The board thereafter interviewed several law firms before selecting the Miller firm to represent the Water District on a contingency basis.
An action on the Water District’s behalf was filed by the firm against Northrop Grumman Systems Corporation, The Arnold Engineering Company, Moore Wallace North America Inc., MAG Aerospace Industries Inc., CBS Broadcasting Inc., Telex Communications Holdings Inc., Mark IV Industries Inc., Crucible Material Corp., and Alcoa Global Fasteners Inc., alleging that they, and other entities that owned, operated, or leased industrial facilities in northern Orange County, had caused the groundwater contamination by discharging and dumping hazardous waste.
The complaint asserted statutory claims under the Water District’s enabling legislation and the Carpenter‑Presley‑Tanner Hazardous Substance Account Act, as well as causes of action for negligence, public nuisance, and trespass. The district also sought compensatory damages for investigation and remediation costs associated with the contamination and, on its public nuisance claim, an order compelling defendants to abate the nuisance.
After learning of the Water District’s contingency arrangement with its attorneys in March 2010, the defendants moved to disqualify the Miller firm. They argued that an attorney prosecuting a public nuisance action on the public’s behalf could not have a financial stake in the litigation because the attorney must remain neutral when acting as a representative of the public exercising the government’s sovereign powers.
Orange Superior Court Judge Thierry Patrick Colaw denied the motion, finding the Water District did not pursue this action on the public’s behalf. The Court of Appeal, in a May 24 decision by Justice Richard M. Aronson, agreed.
At the time of Colaw’s ruling, Aronson noted People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740 served as the controlling authority. That case arose from the City of Corona’s efforts to close a bookstore selling sexually explicit materials. The city hired an attorney to file a public nuisance abatement action against the bookstore on a contingency basis, but the California Supreme Court ruled the fee arrangement was “inappropriate under the circumstances.”
The high court said public nuisance abatement actions are part of “a class of civil actions that demands the representatives of the government to be absolutely neutral,” and so attorneys involved in such cases must be “unaffected by personal interests.” This requirement, the court said, “precludes the use in such cases of a contingent fee arrangement.”
Shortly after Colaw denied the defendants’ motion to disqualify the Miller firm, the Supreme Court again addressed the question of whether public entities could pay private attorneys a contingency fee to prosecute public nuisance abatement actions in County of Santa Clara v. Superior Court (2010) 50 Cal.4th 35.
This case involved a public nuisance abatement action against numerous lead paint manufacturers by several counties and cities, represented by both their own government attorneys and private law firms hired under contingency fee agreements.
In Santa Clara, the court clarified that a contingency fee arrangement only creates the potential for a conflict of interest between a private attorney’s financial stake in the outcome of a public nuisance abatement action and the duty to “ensur[e] that a public prosecution is pursued in a manner that serves the public.”
The court concluded, however, that the possibility of such a conflict does “not necessarily mandate disqualification in public-nuisance cases when fundamental constitutional rights and the right to continue operation of an existing business are not implicated.” The justices explained “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” because “the heightened standard of neutrality is maintained and the integrity of the government’s position is safeguarded.”
Aronson differentiated Clancy and Santa Clara from the instant case because “the Water District did not bring this action on the public’s behalf seeking only an order requiring defendants to abate a public nuisance.”
He reasoned that the Water District’s pleading “makes clear that, as the trial court found, this is an action to recover remediation costs,” and the alleged nuisance “specially and adversely affected” the agency and caused it injury “separate and distinct from that of the public.”
Although the Water District represents the water users in its service area, and may bring litigation on their behalf, Aronson said, this action had not been brought in a representative capacity or on its users’ behalf since it did “not seek to enforce any rights the Water District’s users may have in the groundwater or to recover any damages its users may have suffered from the contamination.”
Aronson acknowledged that the “public always benefits when a public entity is able to obtain monetary damages from a defendant that injured the public entity’s property or interests” since “the public entity obtains additional funds to carry out its public purpose,” but said this “does not mean the action is brought on the public’s behalf under Clancy and Santa Clara.”
The justice emphasized that the Water District is statutorily authorized to bring civil actions on its own behalf to recover costs it incurs from the investigation and remediation of groundwater contamination, and that both Clancy and Santa Clara, recognized the ability of public entities to bring litigation in their own name to recover damages and hire contingent counsel to prosecute the litigation.
He concluded the trial correctly determined the Water District’s lawsuit was “essentially an action seeking to recover the costs to investigate and remediate the contaminated groundwater, not a public nuisance abatement action prosecuted on the public’s behalf,” and therefore Clancy and Santa Clara were inapplicable.
Justices William F. Rylaarsdam and Eileen C. Moore joined Aronson in his decision.
The case is Orange County Water District v. The Arnold Engineering Company, 11 S.O.S. 3387.
Copyright 2011, Metropolitan News Company