Defendants appeal a trial court order denying their motion to disqualify the law firm of Miller, Axline & Sawyer (Miller Firm) from representing plaintiff Orange County Water District (Water District) in this action.
The Legislature created the Water District to manage, regulate, replenish, and protect the groundwater basin generally covering the northern half of Orange County. (See Stats. 1993, ch. 213, § 2, p. 1548, West's Ann. Wat.— Appen. (2010 ed.) § 40-1 et seq., p. 138.) The Water District provides water to more than two million users, but it is not a water retailer and does not provide water directly to the public. Nineteen water producers, including cities, other water districts, and private water companies, pump water from the Water District's groundwater basin and sell it to the public.
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 groundwater contamination. The board thereafter interviewed several law firms before selecting the Miller Firm to represent the Water District. In hiring the Miller Firm, the Water District retained ultimate decisionmaking authority regarding all litigation and required the Miller Firm to obtain authorization to file litigation on a case-by-case basis. Although the details regarding the fee agreement between the Water District and the Miller Firm are not in the record, the Water District acknowledges it agreed to pay the Miller Firm a contingency fee.
The Miller Firm filed this action on the Water District's behalf in December 2004, alleging defendants and other entities that owned, operated, or leased industrial facilities in Anaheim and Fullerton caused the groundwater
In March 2010, defendants moved to disqualify the Miller Firm when they discovered it represented the Water District under a contingency fee agreement. Defendants argued Clancy prohibited a public entity from paying a private attorney a contingency fee to prosecute a public nuisance abatement action. According to defendants, an attorney prosecuting a public nuisance action on the public's behalf may 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.
The trial court denied the motion, finding Clancy did not apply because the Water District did not pursue this action on the public's behalf. Rather, the trial court found the Water District brought this action on its own behalf to recover remediation costs and other damages it suffered distinct from any damages the public suffered. As an alternative ground for denying the motion, the trial court found defendants unreasonably delayed bringing their motion to disqualify.
Defendants filed a timely notice of appeal.
We review a trial court's decision on a disqualification motion for abuse of discretion. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 [86 Cal.Rptr.2d 816, 980 P.2d 371] (SpeeDee Oil).) "`In viewing the evidence, we look only to the evidence
"We will reverse the trial court's ruling only where there is no reasonable basis for its action. [Citation.] However, we must also ensure that the trial court has made a reasoned judgment that complies with the applicable legal standard. [Citation.]" (Adams, supra, 96 Cal.App.4th at p. 323.) "Thus, where there are no material disputed factual issues, the appellate court reviews the trial court's determination as a question of law. [Citation.] In any event, a disqualification motion involves concerns that justify careful review of the trial court's exercise of discretion. [Citation.]" (SpeeDee Oil, supra, 20 Cal.4th at p. 1144.)
Clancy served as the controlling authority at the time the trial court denied defendants' motion to disqualify the Miller Firm. It arose from the City of Corona's efforts to close a bookstore selling sexually explicit materials. Initially, the city passed a zoning ordinance requiring the bookstore to relocate because of its proximity to a church and school. The bookstore owner, however, successfully challenged the ordinance in federal court on constitutional grounds. (Clancy, supra, 39 Cal.3d at p. 743.)
"Frustrated by its defeats in federal court," the city adopted a new ordinance defining the bookstore as a public nuisance and hired Attorney James Clancy to prosecute abatement actions under the new ordinance. (Clancy, supra, 39 Cal.3d at p. 743.) The city's retainer agreement described Clancy as an independent contractor, and retained him on a contingency fee basis—$60 per hour for all cases in which the city prevailed and obtained an attorney's fee award, but only $30 per hour for all other cases. (Id. at p. 745.) Clancy thereafter filed a public nuisance abatement action against the bookstore as the city's "`special attorney.'" (Id. at p. 744.)
The trial court denied the bookstore owner's request to disqualify Clancy as the city's attorney. The bookstore owner sought a writ of mandate, arguing "it [was] improper for an attorney representing the government to have a financial stake in the outcome of an action to abate a public nuisance" because "a government attorney prosecuting such actions must be neutral, as
The Clancy court began its analysis by "review[ing] the responsibilities associated with the prosecution of a criminal case." (Clancy, supra, 39 Cal.3d at p. 746.) It found a criminal prosecutor has a "duty of neutrality" because the prosecutor does not represent merely an "`"ordinary party to a controversy,"'" but rather "`"a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done."' [Citation.]" (Ibid.) This duty of neutrality, the court explained, renders "[c]ontingent fee contracts for criminal prosecutors ... unethical and potentially unconstitutional." (Id. at p. 748.)
Based on these principles, the Clancy court declared "there is a class of civil actions that demands the representatives of the government to be absolutely neutral. This requirement precludes the use in such cases of a contingent fee arrangement." (Clancy, supra, 39 Cal.3d at p. 748.) Clancy concluded attorneys prosecuting public nuisance abatement actions fall into this class and therefore must be "unaffected by personal interests." (Ibid.) The court explained: "[T]he abatement of a public nuisance involves a balancing of interests. On the one hand is the interest of the people in ridding their city of an obnoxious or dangerous condition; on the other hand is the interest of the landowner in using his property as he wishes. And when an establishment such as an adult bookstore is the subject of the abatement action, something more is added to the balance: not only does the landowner have a First Amendment interest in selling protected material, but the public has a First Amendment interest in having such material available for purchase. Thus, as
"Public nuisance abatement actions share the public interest aspect of eminent domain and criminal cases, and often coincide with criminal prosecutions. These actions are brought in the name of the People by the district attorney or city attorney. (Code Civ. Proc., § 731.) [Fn. omitted.] ... A suit to abate a public nuisance can trigger a criminal prosecution of the owner of the property. This connection between the civil and criminal aspects of public nuisance law further supports the need for a neutral prosecuting attorney. [Fn. omitted.]" (Clancy, supra, 39 Cal.3d at p. 749.)
The Clancy court therefore held "the contingent fee arrangement between the City and Clancy is antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action.... In the interests of justice, therefore, we must order Clancy disqualified from representing the City in the pending abatement action." (Clancy, supra, 39 Cal.3d at p. 750.) Although it disqualified Clancy, the Supreme Court noted the city could rehire him if it removed terms giving the lawyer a financial stake in the outcome. (Id. at p. 750, fn. 5.)
Significantly, Clancy stressed "[n]othing we say herein should be construed as preventing the government, under appropriate circumstances, from engaging private counsel. Certainly there are cases in which a government may hire an attorney on a contingent fee to try a civil case. (See, e.g., Denio v. City of Huntington Beach (1943) 22 Cal.2d 580 [140 P.2d 392] [contingent fee arrangement whereby the city hired a law firm to represent it in all matters relating to the protection of its oil rights].)" (Clancy, supra, 39 Cal.3d at p. 748.)
Three months after the trial court denied defendants' motion to disqualify the Miller Firm, the Supreme Court again considered whether public entities could pay private attorneys a contingency fee to prosecute public nuisance abatement actions. In Santa Clara, several counties and cities, represented by both their own government attorneys and private law firms hired under contingency fee agreements, filed a public nuisance abatement action against numerous lead paint manufacturers. (Santa Clara, supra, 50 Cal.4th at p. 43.)
Relying on Clancy, the manufacturers moved to "`bar payment of contingent fees to private attorneys.'" (Santa Clara, supra, 50 Cal.4th at p. 44.) The trial court granted the motion, finding Clancy prohibited public entities
The Supreme Court reversed the appellate court, but in doing so "narrowed" the broad holding of Clancy: "[T]o the extent our decision in Clancy suggested that public-nuisance prosecutions always invoke the same constitutional and institutional interests present in a criminal case, our analysis was unnecessarily broad and failed to take into account the wide spectrum of cases that fall within the public-nuisance rubric." (Santa Clara, supra, 50 Cal.4th at pp. 44, 52.) The court also noted, "public-nuisance law over the course of its development has become increasingly more civil in nature than criminal." (Id. at p. 52, fn. 8.)
The Supreme Court explained Clancy's unique facts—"a long-running attempt by the City of Corona to shut down a single adult bookstore" and thereby threaten the owner's "vital property rights" in continuing to operate an established, lawful business—prompted the Clancy court to import the criminal law's absolute prohibition against contingency fee arrangements. (Santa Clara, supra, 50 Cal.4th at pp. 52-53.) Because the public nuisance action in Clancy raised constitutional concerns, threatened ongoing business activity, and carried the potential of criminal liability, "the case required the same `balancing of interests' and `delicate weighing of values' on the part of the government's attorney prosecuting the case as would be required in a criminal prosecution." (Santa Clara, at p. 54.)
The public nuisance action in Santa Clara fell "between these two extremes on the spectrum of neutrality required of a government attorney. The present matter is not an `ordinary' civil case in that the public entities' attorneys are appearing as representatives of the public and not as counsel for the government acting as an ordinary party in a civil controversy. A public-nuisance-abatement action must be prosecuted by a governmental entity and may not be initiated by a private party unless the nuisance is personally injurious to that private party. [Citations.] There can be no question, therefore, that the present case is being prosecuted on behalf of the public, and that accordingly the concerns we identified in Clancy as being inherent in a public prosecution are, indeed, implicated in the case now before us." (Santa Clara, supra, 50 Cal.4th at p. 55.)
The court, however, also noted the difference between the nuisance abatement actions in Clancy and Santa Clara, explaining "[t]his case will not result in an injunction that prevents defendants from continuing their current business operations. The challenged conduct (the production and distribution of lead paint) has been illegal since 1978. Accordingly, whatever the outcome of the litigation, no ongoing business activity will be enjoined. Nor will the case prevent defendants from exercising any First Amendment right or any other liberty interest. Although liability may be based in part on prior commercial speech, the remedy will not involve enjoining current or future speech. Finally, because the challenged conduct has long since ceased, the statute of limitations on any criminal prosecution has run and there is neither a threat nor a possibility of criminal liability being imposed upon defendants." (Santa Clara, supra, 50 Cal.4th at p. 55, original italics.) The court observed that the potential outcome, which would require the defendants to bear the cost of abating the environmental nuisance, bore the earmarks of a typical civil "remedy one might find in an ordinary civil case ...." (Id. at p. 56.)
The Santa Clara court nonetheless found the private attorneys before it "subject to a heightened standard of ethical conduct applicable to public officials acting in the name of the public—standards that would not be invoked in an ordinary civil case." (Santa Clara, supra, 50 Cal.4th at p. 57.) The Supreme Court imposed this heightened standard because the private attorneys were prosecuting the public nuisance action on the public's behalf. In that capacity, the private attorneys were "entrusted with the unique power of the government and therefore must refrain from abusing that power by failing to act in an evenhanded manner. [Citations.] Indeed, it is a bedrock principle that a government attorney prosecuting a public action on behalf of the government must not be motivated solely by a desire to win a case, but instead owes a duty to the public to ensure that justice will be done. [Citation.]" (Ibid.)
The Supreme Court found the retainer agreements in Santa Clara did not contain the requisite provisions and therefore reversed the Court of Appeal's decision. The Santa Clara court explained the public entities could retain the private law firms on a contingency fee basis "after revising the respective retention agreements to conform with the requirements set forth in this opinion." (Santa Clara, supra, 50 Cal.4th at p. 65.)
The issue before us is whether the Water District and the Miller Firm are prosecuting a public nuisance abatement action on the public's behalf. If so, their contingency fee arrangement is subject to the limitations established in Clancy and Santa Clara. If not, the Miller Firm is free to represent the Water District without regard to the limitations imposed by those cases.
The governmental entities in Clancy and Santa Clara brought public nuisance abatement actions on the public's behalf. In Clancy, the city's lawsuit sought to abate the public nuisance posed by an adult bookstore, but did not assert any other claims and did not seek compensatory damages or allege an injury distinct from that suffered by the public in general. (Clancy, supra, 39 Cal.3d at pp. 743-744.)
In Santa Clara, the public entities initially brought multiple claims against numerous lead paint manufacturers, including fraud, strict liability, negligence, unfair business practices, and public nuisance. When the manufacturers moved to disqualify the public entities' contingent-fee counsel, however, the public entities alleged only a single cause of action for public nuisance seeking abatement as the sole remedy. The public entities did not seek any compensatory damages and they did not allege any injury distinct from the injury to the general public. (Santa Clara, supra, 50 Cal.4th at p. 44.) Because the public entities sought abatement only, the Supreme Court found "[t]here [could] be no question ... the present case is being prosecuted on behalf of the public ...." (Id. at p. 55.)
The Water District brought its first cause of action under the Water Code to recover all costs it paid, or will pay in the future, to investigate and remediate the groundwater contamination. West's Annotated Water Code—Appendix section 40-8 provides that "the person causing or threatening to cause that contamination or pollution shall be liable to the district to the extent of the reasonable costs actually incurred in cleaning up or containing the contamination or pollution, abating the effects of the contamination or pollution, or taking other remedial action. The amount of those costs, together with court costs and reasonable attorneys' fees, shall be recoverable in a civil action by, and paid to, the district." (Stats. 1989, ch. 802, § 4, p. 2632, West's Ann. Wat.—Appen., supra, § 40-8, subd. (c), p. 160; see also Stats. 1933, ch. 924, § 2, p. 2412, West's Ann. Wat.—Appen, supra, § 40-2, subd. (9), p. 152 [authorizing the Water District to sue in its own name "to prevent interference with water or water rights used or useful to lands within the district, or diminution of the quantity or pollution or contamination of the water supply of the district"].) This legislation authorizes the Water District to bring a claim on its own behalf to recover all reasonable costs the Water District itself actually incurred.
In its third cause of action for negligence and fifth cause of action for trespass, the Water District also seeks to recover present and future damages
Defendants argue the action is prosecuted on the public's behalf because the Water District represents the water users in its service area. According to defendants, the Water District merely exercises sovereign powers to regulate and protect groundwater for its users' benefit and therefore seeks to protect the public's rights by bringing this action. This argument, however, misses the mark.
Although the Water District represents the water users in its service area, and may bring litigation on their behalf (Orange County Water District v. City of Riverside (1959) 173 Cal.App.2d 137, 167 [343 P.2d 450]), the Water District did not bring this action in a representative capacity or on its users' behalf. This action does 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.
Defendants base their argument on the assumption the Water District can only act in a representative capacity when it is carrying out its duties to manage, regulate, replenish, and protect the groundwater within its service area. Defendants, however, fail to cite any authority to support that assumption. If this assumption were true, all public entities could only act in a representative capacity and could never hire a contingent-fee attorney. Both Clancy and Santa Clara, however, recognize that public entities can bring litigation in their own name to recover damages and hire contingent counsel to prosecute the litigation. (Clancy, supra, 39 Cal.3d at p. 748; Santa Clara, supra, 50 Cal.4th at p. 55.)
Defendants also argue the Water District holds only a regulatory interest in the groundwater at issue and therefore lacks the proprietary interest required
This argument, however, is a red herring. It addresses just one of the Water District's five causes of action seeking monetary damages for its investigation and remediation costs. Defendants make no argument a proprietary interest in the groundwater is required to recover on the Water District's other causes of action. Indeed, regardless whether the Water District's interest in the groundwater is classified as regulatory, proprietary, or usufructuary,
The order is affirmed. The Water District shall recover its costs on appeal.
Rylaarsdam, Acting P. J., and Moore, J., concurred.