March 16, 2018
A recent The Recorder story by Amanda Bronstad, “9th Circuit OKs Government’s Hiring of Law Firms on Contingency,” reports that a California district attorney’s hiring of outside law firms on a contingency basis did not violate a defendant’s rights to due process, according to the first federal circuit court to address the issue.
In an opinion on Thursday, the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a case that American Bankers Management Co. Inc. brought against the district attorney of Trinity County. The district attorney hired three law firms on contingency to pursue injunctive relief and civil penalties against the company under California consumer protection laws. The panel disagreed with American Bankers’ contention that the hiring of the law firms violated its due process rights under the Fourteenth Amendment.
“Although civil penalty provisions are common across federal and state enforcement regimes, we are the first circuit to consider whether government officials may, without violating federal due process, retain private counsel on a contingency-fee basis to litigate an action for civil penalties,” wrote Judge Michelle Friedland in the unanimous opinion. Relying on its own 1993 decision in United States ex rel. Kelly v. Boeing, which involved a False Claims Act case, the Ninth Circuit rejected the due process claims.
“Because Kelly held the qui tam provisions of the False Claims Act do not offend due process, and because the contingency fee arrangement here is not meaningfully different from qui tam litigation in terms of the incentives it creates or the power it confers, we hold that the contingency fee arrangement at issue here does not offend due process either,” she wrote.
The three firms were Dallas-based Baron & Budd, Carter Wolden Curtis in Sacramento and Philadelphia’s Golomb & Honik. Baron & Budd’s Roland Tellis, who argued the case on behalf of the district attorney and the law firms, wrote in an email that the ruling “has put an end to American Bankers’ delay tactic.”
“The notion that our contingent fee arrangement with the district attorney somehow violated the due process rights of a major financial institution with unlimited resources was laughable,” he wrote. “The Ninth Circuit’s ruling accords with its prior rulings in analogous qui tam actions and with Supreme Court precedent. We look forward to getting the case back on track. Frankly, it is not my contingent fee agreement that should worry the defendants—they should worry about the allegations of their conduct.”
The lawyer who argued for American Bankers, Brian Perryman of Carlton Fields Jorden Burt in Washington, D.C., did not respond to a request for comment.
Challenges over a government’s hiring outside counsel have come up in several mass torts, including those involving lead paint and opioids. A footnote in Thursday’s opinion acknowledged several state court rulings on the issue, including a New Hampshire ruling that blessed the use of outside lawyers in an opioid case and another in a Rhode Island case against three lead paint companies.
The counties of Santa Clara and San Francisco and the city of San Francisco filed an amicus brief in the American Bankers case. The California communities’ own hiring of outside counsel in a lead paint case was reviewed and approved by the California Supreme Court. “These partnerships are one of the critical tools that public law offices use to pursue a broad range of civil law enforcement cases on behalf of the public,” wrote San Francisco Deputy City Attorney Aileen McGrath and Santa Clara Assistant County Counsel Danny Chou. The “sweeping constitutional ban” that American Bankers would impose “threatens to remove this important device from the arsenal government law offices can deploy in their efforts to protect the public.”
The U.S. Chamber of Commerce and The Pharmaceutical Research and Manufacturers of America also filed an amicus brief. John Beisner of Skadden Arps pushed for a ban on such “unseemly quid pro quo relationships” that “undermine public confidence in the justice system.”
The American Bankers case started in 2015 when Trinity County District Attorney Eric Heryford hired the three firms to pursue a case alleging that American Bankers and several other financial services firms that allegedly used deceptive marketing to offer “ancillary products,” like protection plans, to California credit cardholders. Under contingency contracts, the firms were to receive 30 percent of recoveries.
The case originally was brought in Trinity County Superior Court, but the district attorney voluntarily dismissed and refiled it in the U.S. District Court for the Eastern District of California. American Bankers moved to dismiss those claims and disqualify the outside law firms.
But the company also fired back with its own suit in the Eastern District of California challenging the contingency fee contracts on constitutional grounds. It said the district attorney’s case was more akin to a criminal enforcement action that challenged its First Amendment rights.
In 2016, U.S. District Judge Kimberly Mueller in Sacramento dismissed the case, prompting the appeal.