Case No. G CALIFORNIA COURT OF APPEAL FOURTH APPELLATE DISTRICT DIVISION THREE

Transcription

1 Case No. G CALIFORNIA COURT OF APPEAL FOURTH APPELLATE DISTRICT DIVISION THREE PRICELINE.COM INCORPORATED, ET AL. Plaintiffs/Appellants v. CITY OF ANAHEIM, ET AL. Defendants/Respondents. Appeal from the Superior Court of the State of California for the County of Orange (Case No ) The Honorable Ronald L. Bauer APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF AND PROPOSED AMICUS CURIAE BRIEF OF THE CALIFORNIA STATE ASSOCIATION OF COUNTIES AND THE LEAGUE OF CALIFORNIA CITIES IN SUPPORT OF DEFENDANTS AND RESPONDENTS CITY OF ANAHEIM, ET AL. Jennifer B. Henning (SBN ) California State Association of Counties 1100 K Street, Suite 101 Sacramento, CA Telephone: (916) Facsimile: (916) jhenning@coconet.org Attorney for Amici Curiae California State Association of Counties and League of California Cities

2 TO THE HONORABLE PRESIDING JUSTICE: Pursuant to Rule 8.200, subdivision (c) of the California Rules of Court, the California State Association of Counties and the League of California Cities submit this application to file an amicus brief in support of Defendants and Respondents, City of Anaheim, et al. THE AMICI CURIAE The California State Association of Counties (CSAC) is a non-profit corporation, the membership of which consists of the 58 California counties. CSAC sponsors a Litigation Coordination Program, which is administered by the County Counsels Association of California and is overseen by the Association s Litigation Overview Committee, comprised of county counsels throughout the state. The Litigation Overview Committee monitors litigation of concern to counties statewide and has determined that this case involves issues affecting all counties. The League of California Cities is an association of 480 California cities dedicated to protecting and restoring local control to provide for the public health, safety, and welfare of their residents, and to enhance the quality of life for all Californians. The League is advised by its Legal Advocacy Committee, which is comprised of 24 city attorneys from all regions of the State. The Committee monitors litigation of concern to 1

3 municipalities, and identifies those cases that are of statewide or nationwide significance. The Committee has identified this case as being of such significance. STATEMENT OF INTERESTS The issue presented in this case implicates local government s ability to collaborate with private co-counsel on a contingency-fee basis in tax collection actions. The resolution of this issue will have a direct and profound impact on whether such collection actions, especially those with complex underpinnings, can be maintained at all. For this reason, the amici curiae have a substantial interest in the matter before the Court. NEED FOR FURTHER BRIEFING Amici curiae are familiar with the issues and the scope of their presentation and believe additional briefing is needed on the statewide public policy ramifications of the appellant on-line travel companies attempt to disqualify private co-counsel. If adopted, this rule of per se prohibiting contingency fee agreements for tax collection actions will effectively eliminate the option of pursuing such actions in many situations, defeating the important public interest served. The proposed amicus brief will also discuss the constitutional and statutory authority granted to cities and counties to hire special counsel and set the terms of their compensation. Neither argument is presented in the party briefs presently before the court. 2

4 Therefore, Amici Curiae hereby request that leave be granted to allow the filing of the accompanying amicus curiae brief. Dated: Respectfully submitted, By: JENNIFER B. HENNING Attorney for Amici Curiae California State Association of Counties and League of California Cities 3

5 Case No. G CALIFORNIA COURT OF APPEAL FOURTH APPELLATE DISTRICT DIVISION THREE PRICELINE.COM INCORPORATED, ET AL. Plaintiffs/Appellants v. CITY OF ANAHEIM, ET AL. Defendants/Respondents. Appeal from the Superior Court of the State of California for the County of Orange (Case No ) The Honorable Ronald L. Bauer APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF AND PROPOSED AMICUS CURIAE BRIEF OF THE CALIFORNIA STATE ASSOCIATION OF COUNTIES AND THE LEAGUE OF CALIFORNIA CITIES IN SUPPORT OF DEFENDANTS AND RESPONDENTS CITY OF ANAHEIM, ET AL. Jennifer B. Henning (SBN ) California State Association of Counties 1100 K Street, Suite 101 Sacramento, CA Telephone: (916) Facsimile: (916) jhenning@coconet.org Attorney for Amici Curiae California State Association of Counties and League of California Cities

6 TABLE OF CONTENTS TABLE OF AUTHORITIES...iii INTERESTS AND DESCRIPTION OF AMICI CURIAE...1 INTRODUCTION...2 ARGUMENT...4 A. TAX COLLECTION PLAYS A UNIQUE AND IMPORTANT ROLE IN GOVERNMENT OPERATIONS...4 B. LOCAL GOVERNMENT HAS AUTHORITY TO USE PRIVATE CO-COUNSEL ON A CONTINGENCY FEE BASIS WITH PROPER CONTROLS The Key Issue is Who Maintains Control Over the Litigation OTCs Interpretation of the Standard of Absolute Neutrality is Unrealistic and Unobtainable, and is Not Required By Applicable Case Law Until Confronted With Contrary Evidence, Courts Presume That Attorneys Behave Ethically...15 a. Contingent Fees Do Not Create A Structural Conflict of Interest for Lawyers Representing Government...17 b. The OTCs Ethical Concerns Are Speculative and Insubstantial Courts Should Generally Defer to the Legislature s Choice to Allow Government Entities the Discretion to Hire and Compensate Counsel With Specialized Skills...20 C. ECONOMIC REALITIES, RESOURCE ALLOCATION, AND LITIGATION EXPERTISE REQUIRE FLEXIBILITY IN THE USE OF PRIVATE CO-COUNSEL...26 i

7 1. Private Co-Counsel Make Some Tax Collection Actions Economically Possible Prohibiting Contingency Fee Agreements Per Se Will Deter Tax Collection Actions And Encourage Noncompliance...29 CONCLUSION...32 CERTIFICATION OF COMPLIANCE...33 ii

8 TABLE OF AUTHORITIES CASES Bunker v. County of Orange (2002) 103 Cal.App.4th City and County of San Francisco v. Philip Morris, Inc. (N.D. Cal 1997) 957 F. Supp City of Grass Valley v. Newmont Mining Corp. (E.D.Cal., Nov. 20, 2007, No. 2:04-cv GEB-DAD [2007 U.S.Dist.LEXIS 89187]...8 Compensation Insurance Fund v. Riley (1937) 9 Cal.2d DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th Den ex dem. Murray v. Hoboken Land and Improvement Co. (1856) 59 U.S Fracasse v. Brent (1972) 6 Cal.3d Frazier v. Superior Court (2002) 97 Cal.App.4th Hambarian v. Superior Court (2002) 27 Cal. 4th , 11, 12, 15 Haraguchi v. Superior Court (2008) 43 Cal.4th , 13 Hollywood v. Superior Court (2008) 43 Cal.4th , 13, 14 Law Offices of Cary S. Lapidus v. City of Wasco (2004) 114 Cal.App.4th Marine Forests Society v. California Coastal Commission (2005) 36 Cal.4th Merced County Taxpayers Assoc. v. Cardella (1990) 218 Cal.App.3d iii

9 Modern Barber College v. Cal. Employment Stabilization Com. (1948) 31 Cal.2d Montgomery v. Superior Court (1975) 46 Cal.App.3d , 29, 31 Pavicich v. Santucci (2000) 85 Cal.App.4th , 18 People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d passim People v. Attransco Inc. (1996) 50 Cal.App.4th , 29, 30 People v. Birks (1998) 19 Cal.4th People v. Eubanks (1996) 14 Cal.4th , 11 People v. Lopez (1984) 155 Cal.App.3d People v. Merritt (1993) 19 Cal.App.4th People v. Skinner (1941) 18 Cal.2d People v. Standish (2006) 38 Cal.4th 858, People v. Superior Court (Greer) (1977) 19 Cal.3d People v. Superior Court (Humberto S.) (2008) 43 Cal.4th People v. Vasquez (2006) 39 Cal.4th Philip Morris Inc. v. Glendening (1998) 349 Md Powers v. Hauck (5th Cir. 1968) 399 F.2d Riverside County Community Facilities Dist. No v. Bainbridge (1999) 77 Cal.App.4th State Board of Equalization v. Superior Court (1985) 39 Cal.3d Superior Court v. County of Mendocino (1996) 13 Cal.4th iv

10 Young v. United States ex rel. Vuitton (1987) 481 U.S STATUTES Code Civ. Proc., Code Civ. Proc., Evid. Code, Gov. Code, , 25 Gov. Code, , 22, 25 Gov. Code, et. seq Pen. Code, Pen. Code, Rev. and Tax Code, RULES Cal. Code Jud. Ethics, canon Rule 3-200, Cal. Rules of Prof. Conduct...18 CONSTITUTIONAL PROVISIONS Cal. Constit., art. III, Cal. Constit., art. XI, v

11 INTERESTS AND DESCRIPTION OF AMICI CURIAE The California State Association of Counties (CSAC) and the League of California Cities (League) file this brief in support of Petitioners because the case before the Court has important implications for citizens of counties and cities throughout the State. The appellant on-line travel companies (OTCs) are attempting to impede the ability of cities and counties in their tax collection efforts. While this might be good for the OTCs, it is contrary to applicable statutory authority and case law, and amounts to bad public policy. The trial court s decision should therefore be affirmed. CSAC is a non-profit corporation, the membership of which consists of the 58 California counties. CSAC sponsors a Litigation Coordination Program, which is administered by the County Counsels Association of California and is overseen by the Association s Litigation Overview Committee, comprised of county counsels throughout the state. The Litigation Overview Committee monitors litigation of concern to counties statewide and has determined that this case involves issues affecting all counties. The League of California Cities is an association of 480 California cities dedicated to protecting and restoring local control to provide for the public health, safety, and welfare of their residents, and to enhance the 1

12 quality of life for all Californians. The League is advised by its Legal Advocacy Committee, which is comprised of 24 city attorneys from all regions of the State. The Committee monitors litigation of concern to municipalities, and identifies those cases that are of statewide or nationwide significance. The Committee has identified this case as being of such significance. INTRODUCTION This case presents a critical issue for cities and counties: Whether a local government may collaborate with private co-counsel on a contingency-fee basis in tax collection actions. The trial court correctly concluded that respondents are permitted to undertake tax collection through the use of a contingent fee agreement with private counsel. Amici ask this Court to affirm and make clear that courts must determine on a case-by-case basis if government decision-making and control has been relinquished to private counsel before private co-counsel is disqualified. Where private co-counsel is employed to provide needed resources and expertise, but does not improperly influence the government s actions, disqualification results in an injustice to the citizens of this State and should be not required. In this case, the City of Anaheim identified a potential problem in collection of transient occupancy taxes, and subsequently decided it was 2

13 necessary to bring a tax collection action against the OTCs to correct the problem. 2 Indeed, tax collection and enforcement of local ordinances is a fundamental function of local government. Both play a critical role in maintaining a functioning society. And the governmental agency charged with these responsibilities is in the best position to know whether or not a proposed action can be accomplished with existing resources. In this case as will be true in other situations in cities and counties around the State the City determined that budgetary constraints, staff levels, and expertise made it unrealistic to alone undertake a collection effort against the OTCs. Without the assistance of private co-counsel, who help shoulder the risk and provide specialized expertise, this litigation and other important tax collection actions around the State could not go forward. This may be a benefit to those individuals or industries that are seeking to avoid payment of taxes, but it does nothing to serve the public interest. Consequently, adopting the OTCs position requiring automatic preclusion of contingency-fee arrangements has adverse ramifications for 2 As noted in the Respodents Opening Brief, City staff advised the City of this problem and recommended in November 2003 that the City collect the full amount of transient occupancy tax due. (Resp. Brief, p. 4.) But as the OTCs note, outside counsel was not retained until April 18, 2007 (App. Opening Brief, p. 11), making clear that the City identified a problem first and subsequently determined outside resources were required to assist with enforcement. 3

14 local government statewide and the citizens that government is trying to serve. ARGUMENT A. TAX COLLECTION PLAYS A UNIQUE AND IMPORTANT ROLE IN GOVERNMENT OPERATIONS. As the OTCs themselves note, a government s power to impose tax on its citizens is a quintessential exercise of its sovereign power. (App. Opening Br., p. 34.) The courts have long recognized the unique role that tax collection holds in maintaining vital public services. Tax collection has been noted as always important to the public welfare, (State Board of Equalization v. Superior Court (1985) 39 Cal.3d 633, 639), and vital to the existence of a government. (Id.) The California Supreme Court long ago noted that interference with the collection of public revenues, for whatever reason, destroys the effectiveness of government. (People v. Skinner (1941) 18 Cal.2d 349, 355.) Stated differently, obstruction with tax collection will derange the operations of government, and thereby cause serious detriment to the public. (Modern Barber College v. Cal. Employment Stabilization Com. (1948) 31 Cal.2d 720, ) Since the earliest days of our jurisprudence, our courts have been aware that effective tax collection has an important role in a functioning government, and as such, tax collectors should be afforded discretion in 4

15 carrying out that function. More than a century ago, the United States Supreme Court noted, The power to collect and disburse revenue, and to make all laws which shall be necessary and proper for carrying out that power into effect, includes all known and appropriate means of effectually collecting and distributing that revenue, unless some such means should be forbidden in some other part of the constitution. (Den ex dem. Murray v. Hoboken Land and Improvement Co. (1856) 59 U.S. 272, 281.) Tax collection is a prerequisite for the many important functions that local governments serve in our State roads and transportation, social services, recreation, and more. In recognition of that, as the cases above make clear, effective tax collection is essential and the methods used to undertake that collection are entitled to deference. B. LOCAL GOVERNMENT HAS AUTHORITY TO USE PRIVATE CO-COUNSEL ON A CONTINGENCY FEE BASIS WITH PROPER CONTROLS. In People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 743 ( Clancy ), the California Supreme Court found impermissible a private attorney serving as the sole representative of the government and in complete control of a public nuisance abatement action. In this case, the trial court recognized that the present case differs from Clancy, concluding that the City s active control of the litigation is in contrast to what the Court 5

16 found objectionable in Clancy allowing a private attorney to act on behalf of the government without restraint. The OTCs argue that to avoid the appearance of any impropriety, Clancy should be extended to establish a bright-line rule prohibiting public entities from retaining contingency fee counsel in any tax collection action. (App. Opening Br., p. 36 [noting that the rationale supporting their argument for a standard of absolute neutrality applies in this case and virtually every conceivable tax enforcement case ].) But Clancy itself suggests exceptions to this supposed rule, for example in cases where private counsel assist, but do not replace, public attorneys. (Clancy, supra 39 Cal.3d at p. 749, fn. 3.) Moreover, bright-line rules are best suited to prohibit conduct that is almost always harmful. Where, as here, the utility of the challenged conduct depends on the facts in question, a bright-line rule arbitrarily would ban many beneficial arrangements. For this reason, along with the constitutional and statutory authority granted to cities and counties to hire special counsel and set the terms of their compensation, the trial court s decision should be affirmed. 1. The Key Issue is Who Maintains Control Over the Litigation The OTCs desire for a per se rule against all contingency fee arrangements in tax collection actions fails to consider the unique aspects 6

17 of the Clancy case. Clancy was disqualified based on the egregious, casespecific facts. Clancy s sliding hourly-fee arrangement operated as an unchecked bounty on the public. Because of the constitutional and criminal overtones, notably absent here, the Clancy Court was particularly concerned with the contingency nature of Clancy s work. 3 Thus, the standard of neutrality in Clancy was influenced by a set of constitutional and criminal concerns not present here. The Clancy Court itself recognized that particularized set of facts with which it was faced, warning that [n]othing we say herein should be construed as preventing the government, under appropriate circumstances, from engaging private counsel. (Clancy, 39 Cal.3d at p. 352; See also Law Offices of Cary S. Lapidus v. City of Wasco (2004) 114 Cal.App.4th 1361 [affirming contingency fee agreement between city and private counsel for securities investigation and recovery of funds from bond underwriter].) The issue of control over contract experts in prosecution of an action was recently addressed by the California Supreme Court in Hambarian v. 3 In Clancy, the subject of the case was a nuisance action against an adult bookstore. The bookstore owner challenged the ordinances being enforced against her as unconstitutional. There was also the element of potential criminal liability under Penal Code section (prohibiting the sale of obscene matter). These constitutional and criminal elements are not raised in the present case. 7

18 Superior Court (2002) 27 Cal. 4th 826. In Hambarain, the Court considered whether the district attorney should be disqualified for using a forensic-accountant expert whose $314,000 in fees was paid for by the party who stood to gain from the prosecution. (Id. at p. 835.) The Court refrained from narrowly focusing on the type of financial assistance provided. Instead, the Hambarian Court used a flexible standard whether financial assistance is of a nature and magnitude likely to put the prosecutor s discretionary decision-making within the influence or control of an interested party. (Id. at p. 836.) Similarly, the United States District Court for the Eastern District of California recently rejected a claim that a city s outside counsel must be disqualified in a public nuisance action under Clancy, focusing instead on who retains control over the litigation. Even assuming arguendo that the City s outside counsel is hired on a contingency fee basis, Defendants have not countered Plaintiff s showing that the City Attorney for the City of Grass Valley is acting as co-counsel in this action and the City retains the ultimate decision-making authority in the case. (Dec. of Jeffrey Folz in Opp. P 4; Pl s Opp. At 6:12-20.) (City of Grass Valley v. Newmont Mining Corp. (E.D.Cal., Nov. 20, 2007, No. 2:04-cv GEB-DAD [2007 U.S.Dist.LEXIS 89187].) 8

19 Consequently, disqualification is not required under the case law merely because financial assistance to the government has made the litigation economically feasible. (People v. Eubanks (1996) 14 Cal.4th 580, 599 [ defendants do not have a right to expect crimes to go unpunished for lack of public funds ].) Instead, the court s inquiry must focus on whether the government s decision-making has been placed within the influence or control of an interested party. (Ibid.; See also City and County of San Francisco v. Philip Morris, Inc. (N.D. Cal 1997) 957 F. Supp. 1130, 1135 [holding that law firm was not subject to disqualification under the Clancy analysis where public counsel retains control of the litigation]; Philip Morris Inc. v. Glendening (1998) 349 Md. 660.) In the present case, the record shows that the government was not swayed or pressured by interested parties to initiate this collection effort. The City was concerned about the transient occupancy tax collection issue more than three years before outside counsel was retained. (Resp. Br., p. 4.) The agreement requires outside counsel to obtain prior approval from the City Attorney for all substantive matters related to the litigation. (Resp. Br., p. 21.) The City Attorney has designated his Assistant City Attorney, Moses Johnson, to manage the litigation. (Resp. Br., p. 22.) And this is more than just a paper arrangement; Mr. Johnson declared that he has had 9

20 near daily contact with outside counsel during the course of the litigation, and that no outside attorneys have been permitted to take any substantive action without his direct oversight and approval. (Id.) The private attorneys can also be terminated without cause. (Id.) The facts here demonstrate that contingency-fee agreements with private counsel can be proper in tax collection cases where control measures are firmly in place. Consequently, the OTCs proposed per se rule of disqualification too rigidly excludes reasonable contingency-fee arrangements and should be rejected. 2. OTCs Interpretation of the Standard of Absolute Neutrality is Unrealistic and Unobtainable, and is Not Required By Applicable Case Law The OTCs have cited cases, mostly from the criminal context, dealing with neutrality requirements for prosecutors, and have asked this Court to create a standard of absolute neutrality for all government lawyers in tax collection actions and beyond. But the OTCs premise is wrong. California law does not require such absolute neutrality for prosecutors, even in criminal cases. Prior to 1980, criminal prosecutors in California were subject to disqualification under an appearance of conflict standard, set forth in such cases as People v. Superior Court (Greer) (1977) 19 Cal.3d 255,

21 67. In response to Greer, the Legislature adopted Penal Code section 1424, which made it more difficult for criminal defendants to recuse prosecutors. (People v. Merritt (1993) 19 Cal.App.4th 1573, 1578.) Under the current standard, a prosecutor may be recused only if a conflict of interest exists such as would render it unlikely that the defendant would receive a fair trial. (Pen. Code, 1424.) To justify recusal under this standard, a two-pronged test must be met. First, the defendant must demonstrate a reasonable possibility that the prosecutor may not exercise its discretionary function in an even handed manner. (Hambarian, supra, 27 Cal.4th at 832.) Second, the potential for prejudice to the defendant the likelihood that the defendant will not receive a fair trial must be real, not merely apparent, and must rise to the level of a likelihood of unfairness. (Id. at p. 834 [emphasis in original], quoting People v. Eubanks (1996) 14 Cal.4th 580, 592.) As noted in Eubanks: Section 1424, unlike the Greer standard, does not allow disqualification merely because the district attorney s further participation in the prosecution would be unseemly, would appear improper, or would tend to reduce public confidence in the impartiality and integrity of the criminal justice system. (Eubanks, 14 Cal.4th at 592. [emphasis in original].) Under section 1424, [o]nly an actual likelihood of unfair treatment, not a subjective perception 11

22 of impropriety, can warrant a court taking the significant step of recusing an individual prosecutor or prosecutor s office. (Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 719.) Applying the standard set forth in section 1424, the California Supreme Court refused to disqualify the district attorney in Hambarian, despite the fact that the victim paid a forensic accountant more than $300,000 to become a full member of the prosecution team. (Hambarian, supra, 27 Cal.4th at 839.) Notably, in Hambarian the Court focused not on whether any member of the prosecution team had a personal stake in the litigation, but instead on whether the government attorneys who had no such stake sufficiently retained and exercised control. (Id. at p. 839.) In addition, the Hambarian opinion expressed no view on whether California law would permit private counsel for interested parties to prosecute a criminal action so long as the Criminal District Attorney retains control and management of the prosecution. (Id. at p. 840, fn. 6, quoting Powers v. Hauck (5th Cir. 1968) 399 F.2d 322, 325.) The California Supreme Court recently revisited the issue of prosecutorial disqualification in a trio of cases: Haraguchi v. Superior Court (2008) 43 Cal.4th 706; Hollywood v. Superior Court (2008) 43 Cal.4th 721; and People v. Superior Court (Humberto S.) (2008) 43 Cal.4th 12

23 737. These cases all involved claims that the criminal prosecutors were personally biased. Lower courts had disqualified the prosecutors. But the California Supreme Court unanimously reversed in each instance and reinstated the allegedly biased prosecutors. The Court held that the criminal defendants in these cases had not established that they would be unlikely to receive a fair trial. (Haraguchi, supra, 43 Cal.4th at 718; see also Hollywood, supra, 43 Cal.4th at 730.) By so ruling, the Court recognized that prosecutors are not required to be absolutely neutral in their beliefs and motives in order to prosecute criminal cases. The OTCs emphasize dictum from Clancy suggesting that governmental lawyers should be absolutely neutral. (Clancy, supra, 39 Cal.3d at 748.) But in light of the subsequent decisions discussed above, this dictum does not accurately describe the disqualification standard in California, even as applied to criminal cases. The courts have recognized repeatedly that prosecutors are not expected to be indifferent to the conviction or acquittal of the defendant or to share in the neutrality expected of the judge and jury. (People v. Vasquez (2006) 39 Cal.4th 47, 55.) To the contrary, the courts recognize the reality that a criminal prosecutor has the same interest in burnishing his legacy that every 13

24 attorney has in a high-profile case.... (Hollywood, supra, 43 Cal.4th at 734.) Thus courts acknowledge that in the real world prosecutors act as advocates as well as public servants, and that prosecutors will often be personally motivated to obtain a conviction. In the cases discussed above, the California Supreme Court rejected the argument that criminal prosecutors must be recused because of their personal motivation to secure a conviction, even when that motivation is strengthened by factors extraneous to the prosecution. The neutrality standard for attorneys representing the government in civil tax collection actions should not be more demanding than that applied to criminal prosecutors. It is counter-intuitive to argue, as the OTCs do, that California law requires a standard of absolute neutrality in civil tax collection actions that is higher than the standard applicable to criminal cases. One would expect instead that the neutrality of government lawyers would be highest in criminal cases, where a defendant s liberty is at stake. Although the neutrality standard need not be as stringent in tax collection actions as in criminal prosecutions, even that higher standard has been satisfied here. The OTCs have made no showing that there is a reasonable possibility that the public attorneys who retain control of this 14

25 case may not exercise [their] discretionary function in an even-handed manner. (Hambarian, supra, 27 Cal.4th at 832.) Nor have they demonstrated the likelihood that [they] will not receive a fair trial. (Id. at p. 834.) Given their representation by some of the largest and most capable national law firms in the country, there is simply no possibility, let alone the likelihood, that the public entities and their outside counsel will overwhelm the OTCs counsel and deprive the OTCs of a fair hearing process and a fair trial. For these same reasons, the OTCs have failed to establish that it is necessary in the furtherance of justice to disqualify outside counsel here. (Clancy, supra,39 Cal.3d at 745.) 3. Until Confronted With Contrary Evidence, Courts Presume That Attorneys Behave Ethically. The OTCs rather boldly imply that the contingency contract between the private and public attorneys in this matter has resulted in behavior by the attorneys that should cause this Court alarm. 4 But California courts 4 For example, the OTCs state that the City Attorney merely asserted he was involved and had decision-making authority in the litigation (App. Opening Br., p. 18), that the claims of control over the litigation are based on a naked assertion by the City Attorney (id. at p. 48), that the City Attorney supposedly retains final say over outside counsel (ibid.), that it is a generous assumption that the City Attorney is committed to justice and impartiality (id. at p. 50), that outside counsel s financial interest in the case dictates their advice to their client (App. Reply Br., p. 35), and that the City Attorney considers the financial well being of his longstanding co-counsel in his management of this litigation (ibid.). 15

26 presume that attorneys will behave ethically. (Frazier v. Superior Court (2002) 97 Cal.App.4th 23, 26; DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 834.) This presumption applies to all attorneys, regardless of whether they are acting on an hourly, contingent, or pro bono basis. For this reason, mere speculation that an ethical violation exists is insufficient to disqualify counsel. As distinguished from judicial recusals, which may be required on the basis of a mere appearance of impropriety (Cal. Code Jud. Ethics, canon 2; see Code Civ. Proc., 170.1, subd. (a)(6)(c)), such an appearance of impropriety by itself does not support a lawyer s disqualification. (DCH Health Services Corp., supra, 95 Cal.App.4th at 833 [ [s]peculative contentions of conflict of interest cannot justify disqualification of counsel ]; see also People v. Lopez (1984) 155 Cal.App.3d 813, [ [j]udicial decisionmaking should not turn on the psychological or philosophical perceptions of those involved ].) In addition, California law presumes that public officials, including public attorneys, will regularly perform their duties. (Evid. Code, 664.) Because of the robust presumption that attorneys will behave ethically, unsupported assertions by the OTCs that contingency fee counsel 16

27 may be tempted to behave badly do not provide a basis for disqualification in this case. a. Contingent Fees Do Not Create A Structural Conflict of Interest for Lawyers Representing Government. Structural conflicts of interest exist when an attorney is representing two clients with conflicting goals, for example the victim of a crime and the People, whose interest is in a just outcome in the criminal prosecution. (See Young v. United States ex rel. Vuitton (1987) 481 U.S. 787 [holding that special counsel s dual role of representing the victim in a civil matter and the government in a criminal matter created an irreconcilable conflict of interest].) No similar structural problems exist in using outside counsel for tax collection actions. Private counsel here are not representing different clients with differing objectives. Although the OTCs assert that private counsel s own self-interest, resulting from a contingency fee agreement, creates a conflict of interest, private counsel s ethical duty of loyalty requires them to act at all times in the best interest of their client, rather than their own best interest. (Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 398.) Should private counsel nevertheless be overzealous or otherwise disregard their client s best interests, that would represent a personal, not structural, conflict that should be addressed on a case-by-case basis and not by a per se rule. 17

28 b. The OTCs Ethical Concerns Are Speculative and Insubstantial. In the absence of any actual misconduct or any structural conflict of interest, the Court need not consider the speculative concerns raised by the OTCs. But these concerns do not withstand scrutiny in any event. The OTCs are quick to assume that contingency fee counsel are focused only on their own self-interest in a recovery, and are unwilling to pursue the larger interest of their client, the City of Anaheim. The archaic argument presumes that counsel acting on a contingency fee will blatantly disregard the duty of loyalty they owe to the clients (Pavicich, supra, 85 Cal.App.4th at 398), and is an indictment of all contingency fee arrangements. However, California law has long approved of the use of contingency fee agreements, and recognizes them as both necessary and beneficial to promote access to justice. (Fracasse v. Brent (1972) 6 Cal.3d 784, 792.) Similarly, there can be no realistic concern that contingency fee counsel will pursue meritless claims against the OTCs. Not only does this presume that both outside and private counsel will ignore their ethical duties not to pursue meritless claims (Rule 3-200, Cal. Rules of Prof. Conduct), but it simply makes no sense for private counsel, acting on contingency, to encourage the filing or pursuit of meritless claims, as they 18

29 will not be paid unless their claims prevail. If after investigation, contingency fee lawyers conclude that a case lacks merit, they have every incentive to counsel their clients to drop the matter to avoid putting further time into a dry hole. In contrast, lawyers who are paid by the hour never have a financial incentive to drop or even settle a case, as doing so will deprive them of their continued hourly fees. But courts do not assume that this inherent conflict renders hourly attorneys incapable of providing objective advice to their clients regarding settlement. Counsel working on a contingent fee basis are entitled to the same presumption of ethical behavior. This presumption is borne out by the facts in this case, which contradicts the notion that contingency fee counsel are engaged in some sort of shake down of the on-line travel industry. Indeed, if the private lawyers here were looking for a get rich quick scheme, they have failed spectacularly. As the OTCs have noted, counsel was retained more than two years ago and in that time they have performed, under the City Attorney s direction, all aspects of this enforcement action, starting with letters commencing the audits, working through the administrative enforcement proceedings, and now defending the City in legal proceedings on the merits of the enforcement action. Unlike their opponents on the 19

30 other side of the case, who presumably have been collecting hourly fees, private counsel representing the City have not received a dime for their efforts. In light of this record, it seems apparent that private counsel are not motivated solely by the prospect of financial gain. Rather, they have developed an expertise in a particular area of tax law and are dedicated to assisting cities and counties collect what they believe are taxes legitimately owed to the public coffers. The OTCs are free to disagree with this view, of course, but they should not be so cynical as to reject the possibility that it is held in good faith. In sum, the OTCs concerns about the risks of unethical behavior must be rejected. The presumption here must be that contingency counsel are acting ethically and in the public interest, and that the public attorneys who are in control of this case are also faithfully discharging their duties. 4. Courts Should Generally Defer to the Legislature s Choice to Allow Government Entities the Discretion to Hire and Compensate Counsel With Specialized Skills A central function of government is to make tax policy decisions and allocate resources toward tax collection. Government needs, and should be given, wide latitude in how it executes this function. Interference from the judiciary should only occur to rectify demonstrable violations of constitutional or statutory rights. 20

31 California law empowers local government entities to enter into contracts, including the express right to enter into contracts for special services, such as legal services. Two sections of the California Government Code expressly authorize a general law city, and other public agencies, to employ and compensate personnel for the performance of special services. (Montgomery v. Superior Court (1975) 46 Cal.App.3d 657, 668.) 5 The Government Code specifically authorizes local governments to contract with any specially trained and experienced persons, firm, or corporation for special services and advice in... legal... matters. (Gov. Code, ) The statute further allows a local government to provide compensation to these experts as it deems proper. (Ibid (emphasis added).) The Legislature has also conferred on the legislative body of any public or municipal corporation or district the power to employ any persons for the furnishing to the corporation or district special services and advice in... legal... matters if such persons are specially trained and experienced and competent to perform the special services required. (Gov. Code, ) Like Government Code section 37103, this 5 Cities and counties in California are authorized to adopt charters controlling their governance. (Cal. Constit., art. XI, 3-4.) The City of Anaheim is a charter city and also acted pursuant to the legal authority granted by its charter. 21

32 provision authorizes the municipal corporation or district to provide compensation for such persons as it deems proper for the services rendered. (Gov. Code, (emphasis added).) Another example recognizing the unique ability of cities and counties to control the manner in which they handle tax collection is Revenue and Taxation Code section That section prohibits courts from issuing an injunction or writ of mandate against cities or counties that would prevent or enjoin the collection of property taxes. The courts have recognized that revenue collection is so integral to governmental operation that it should continue during the course of the litigation, even if the tax is arguably illegal. (Bunker v. County of Orange (2002) 103 Cal.App.4th 542, 555; Merced County Taxpayers Assoc. v. Cardella (1990) 218 Cal.App.3d 396, 400 [revenue collection should be allowed to continue during litigation because essential public services depend on the funds].) This concept has been expanded beyond property taxes to other taxes collected on the property tax roll as well. (See Riverside County Community Facilities Dist. No v. Bainbridge (1999) 77 Cal.App.4th 644, [denying prepayment challenges to special taxes assessed under the Mello-Roos Community Facilities Act].) 22

33 While Revenue and Taxation Code section 4807 deals with property taxes, there is a relevant analogy to this case. The courts in these cases recognize the importance of tax collection in maintaining essential public services and support broad authority for local taxing agencies to do what is necessary to collect the taxes they believe are owed. This includes steps that are not statutorily prohibited (such as hiring counsel on a contingency fee basis). Additionally, California s separation of powers clause, article III, section 3 of the California Constitution, provides: The powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution. The separation of powers doctrine unquestionably places limits upon the actions of each branch with respect to the other branches. (Marine Forests Society v. California Coastal Commission (2005) 36 Cal.4th 1, 25, citing Superior Court v. County of Mendocino (1996) 13 Cal.4th 45, 53.) The judiciary, in reviewing statutes enacted by the Legislature, may not undertake to evaluate the wisdom of the policies embodied in such legislation; absent a constitutional prohibition, the choice among competing policy considerations in enacting laws is a legislative function. (Ibid.) 23

34 Indeed, the California Supreme Court has recognized that, [t]he law is well settled that a public agency may employ special counsel to protect its rights, unless specifically prohibited from so doing by statutory or charter provision. (Compensation Insurance Fund v. Riley (1937) 9 Cal.2d 126, 131.) No such prohibition exists here. The Riley court recognized that a variety of circumstances exist that might require the employment of other counsel, to prevent the interests of the county or city from being neglected or sacrificed: [The District Attorney] may be incompetent, or sick, or absent from the county, or engaged in other business, or the business in hand may be of such magnitude and importance as to demand, on the part of the Board, in the exercise of such foresight and care as business men bestow upon important matters, the employment of additional counsel. (Id. at p. 132.) Thus, both California statutes and case law have expressly recognized that local governments have the authority and discretion to contract with and determine compensation for special counsel. While the courts have inherent authority to control in furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a judicial proceeding before it, in every matter pertaining thereto, (Code Civ. Proc., 128, subd. (a)(5)), that authority is not boundless. It does not allow 24

35 the courts to override the cities and counties right to set the terms for compensating special counsel. Of necessity the judicial department as well as the executive must in most matters yield to the power of statutory enactments. (People v. Standish (2006) 38 Cal.4th 858, 879.) Where possible, a court should avoid constitutional or statutory interpretations in one area which raise serious and doubtful constitutional questions in another. (People v. Birks (1998) 19 Cal.4th 108, 135.) Here, the OTCs argument directly conflicts with the discretion given to city and county governments pursuant to legislative enactments. Specific statutory provisions give petitioners the power to employ special counsel where such services are necessary. The City of Anaheim exercised its discretion in determining not only that the services of special counsel were necessary, but also that compensating them on a contingency fee basis was necessary. (Gov. Code, 37103, ) The OTCs fail to take into account separation of powers considerations. Creating a per se bar to contingency fee contracts in tax collection cases ignores the statutory authorization for such contracts and the complicated and delicate balancing of authority between the separate branches of government. Given the importance of tax collection to vital public services, and the broad 25

36 legislative authority to hire and set compensation for outside counsel, courts should not interfere with a taxing agency s discretion to compensate outside counsel on a contingency basis absent a clear mandate to do so. C. ECONOMIC REALITIES, RESOURCE ALLOCATION, AND LITIGATION EXPERTISE REQUIRE FLEXIBILITY IN THE USE OF PRIVATE CO-COUNSEL. In refusing to disqualify the California Attorney General s use of private counsel in People v. Attransco Inc. (1996) 50 Cal.App.4th 1926, the court noted that only the Attorney General is in a position to know how the office s personnel and resources can be stretched. Leanly staffed counties and cities with severe budget constraints and no experience in the specific business practices of the OTCs are certainly acting within their discretion in seeking out the assistance of private counsel. A contingency fee, co-counsel relationship that provides needed financial support and personnel to accomplish tasks that require immense resources as well as the specialized expertise is sometimes the only realistic way to ensure that complex tax collection actions, such as the present case, can be addressed. 1. Private Co-Counsel Make Some Tax Collection Actions Economically Possible. The Chief Justice of the California Supreme Court, Ronald George stated in his 2001 State of the Judiciary Speech: 26

37 If the motto, and justice for all becomes justice for those who can afford it, we threaten the very underpinnings of our social contract. Without citation or support, the OTCs reference in a footnote that concerns about accessing justice cannot be said to exist where, as here, a city government is the party engaging [contingency] counsel. (App. Opening Br., p. 33.) A cursory review of the headlines of the day, with city and county layoffs, reductions in services, furloughs, and full scale program eliminations, disprove this mistaken assertion. Tax collection is a critical government function upon which important services depend. In certain cases, however, economic realities would frustrate this effort because public entities need private co-counsel to assist for any number of reasons (lack of staff, expertise, etc.), but cannot afford to pay them on an hourly basis. 6 And a pro bono relationship for this sort of undertaking is not realistic. It is important to realize that the per se rule requested by the OTCs would apply not only to this application of TOT ordinances, but to virtually every conceivable tax enforcement case. (App. Opening Br., p. 36.) But even in smaller-scale tax collection actions, it is not difficult to 6 Even if the government could hire co-counsel on an hourly-fee basis would-be taxpayers could quickly exploit this arrangement by running up costs and deterring these collection efforts over time. 27

38 imagine the necessity of a contingency-fee agreement with co-counsel. For example, Mariposa County is home to the Yosemite Valley and has under 20,000 residents based on the last census. With its amazing natural resources, Mariposa County is a draw for tourists from around the world and tourism is a major industry in the County. Yet the County employs only one in-house attorney, the Mariposa County Counsel. Under these circumstances, efforts by local hotels or larger corporations like the OTCs to avoid paying TOTs owed could present a serious problem for county revenues. Yet bringing a comprehensive tax collection action would be nearly impossible given the staffing limitations of the in-house counsel. And hiring qualified legal counsel on an hourly-basis may not be an option given the small tax-base and therefore limited budget of a small county. Without the availability of a contingency fee agreement for co-counsel, this type of tax collection action would almost certainly not go forward. This situation is surely not unique. For example, of California s 58 County Counsel Offices, 26 have 10 attorneys or less. In fact, 18 have five attorneys or less. In addition three counties do not have full time in-house counsel, but instead have appointed a contract attorney in private practice as County Counsel, and one has a part-time in-house County Counsel who also maintains a private practice. 28

39 The sure consequence of the OTCs position is that many local government agencies would never be in a position to pursue tax collection actions with any kind of complexity due to the lack of in-house resources and the lack of funding for outside counsel paid on an hourly basis. Given the size of many of the public law offices in this State, this Court should strive for a practical outcome that acknowledges the realities attending the position of a city attorney in the cities of California, particularly the smaller ones. (Montgomery v. Superior Court (1975) 46 Cal.App.4th 657, ) 7 A contingency fee agreement, where private co-counsel provides added resources and expertise in exchange for the prospect of a modest portion of the outcome, is sometimes the only economically realistic way to pursue large, complex enforcement actions, or even smaller actions depending on the size of the staff and budget of the affected city or county, and should be permitted. 2. Prohibiting Contingency Fee Agreements Per Se Will Deter Tax Collection Actions And Encourage Noncompliance. In Attransco, supra, 50 Cal.App.4th at 1930, the Department of Fish and Game employed outside counsel in a case against a corporation to 7 Current statistics on the number of in-house City Attorneys and the size of their offices is not available. The court in Montgomery noted that in 1972, of the 412 cities then in existence, only 64 had any full-time in-house legal staff. (Montgomery v. Superior Court (1975) 46 Cal.App.4th 657, 672.) 29

40 recover cleanup costs from an oil spill. The Attorney General handled the litigation for a period of time, but then recommended that the department seek special counsel to assist. The corporation moved to disqualify the private counsel based on civil service requirements prohibiting state agencies from employing counsel other than the Attorney General. (Gov. Code, et. seq.) The Attransco court quickly honed in on the true motivation behind the motion to disqualify private counsel, noting that it is unthinkable that a state agency would be prohibited from recovering costs from pollution clean up efforts because they can be outmanned in a paper war. (Attransco, supra, 50 Cal.App.4th at 1930.) The Attransco court further stated that every lawyer knows that it is fact of life that a lawsuit can be won or favorably settled if the opposition cannot respond quickly enough to a hefty motion. (Ibid.) The Attransco court s pointed discussion of the threats presented by resource inequities during litigation are the same risks the government is attempting to prevent in this case. But this problem is not limited to the instant case. As noted above, half of the counties in California have ten or fewer in-house civil attorneys. Indeed, two counties have just a single county counsel, and four counties have no in-house counsel at all and rely 30