AMERICAN BANKERS MANAGEMENT COMPANY, INC. v. ERIC L. HERYFORD, Distriсt Attorney, Trinity County
No. 16-16103
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
March 15, 2018
D.C. No. 2:16-cv-00312-TLN-EFB
Opinion by Judge Friedland
FOR PUBLICATION
Appeal from the United States District Court for the Eastern District of California Troy L. Nunley, District Judge, Presiding
Argued and Submitted November 17, 2017 San Francisco, California
Filed March 15, 2018
Before: Richard R. Clifton and Michelle T. Friedland, Circuit Judges, and Sharon L. Gleason,* District Judge.
Opinion by Judge Friedland
SUMMARY**
Civil Rights
The panel affirmed the district court‘s dismissal of a civil rights action brought by American Bankers Management Company seeking declaratory and injunctive relief to prevent the District Attorney of Trinity County, California, from retaining private counsel on a contingency-fee basis to litigate, in the District Attorney‘s name, an action against American Bankers under California‘s Unfair Competition Law.
Citing United States ex rel. Kelly v. Boeing Co., 9 F.3d 743 (9th Cir. 1993), the panel rejected American Bankers’ contention that the District Attorney‘s retention of private counsel on a contingency-fee basis violated federal due process principles. The panel held that the District Attorney‘s retention of private counsel to pursue civil penalties under state law cannot be mеaningfully distinguished from a private relator‘s pursuit of civil penalties under the qui tam provisions of the False Claim Act, an arrangement that this court already held, in Kelly, does not violate due process.
COUNSEL
Brian P. Perryman (argued), W. Glenn Merten, and Frank G. Burt, Carlton Fields Jorden Burt PA, Washington, D.C.; Valerie D. Escalante and Meredith M. Moss, Carlton Fields Jorden Burt LLP, Los Angeles, California; for Plaintiff-Appellant.
Roland K. Tellis (argued) and Jonas P. Mann, Baron & Budd P.C., Encino, California; S. Ann Saucer, Baron & Budd P.C., Dallas, Texas; Eric L. Heryford, Trinity County District Attorney, Weaverville, California; for Defendant-Appellee.
John H. Beisner, Geoffrey M. Wyatt, and Jordan M. Schwartz, Skadden Arps Slate Meagher & Flom LLP, Washington, D.C.; Kate Comerford Todd and Sheldon Gilbert, U.S. Chamber Litigation Center Inc., Washington, D.C.; James C. Stansel and Melissa B. Kimmel, The Pharmaceutical Research and Manufacturers of America, Washington, D.C.; for Amici Curiae Chamber of Commerce of the United States of America, and The Pharmaceutical Research and Manufacturers of America.
Aileen M. McGrath, Deputy City Attorney; Dennis J. Herrera, City Attorney; Office of the City Attorney, San Francisco, California; Laura S. Tricе, Deputy County Counsel; Danny Y. Chou, Assistant County Counsel; Greta S. Hansen, Chief Assistant County Counsel; James R. Williams, County Counsel; Office of the County Counsel, San Jose, California; for Amici Curiae City and County of San Francisco and County of Santa Clara.
FRIEDLAND, Circuit Judge:
Plaintiff-Appellant American Bankers Management Company, Inc. filed this civil rights action seeking declaratory and injunctive relief to prevent Eric L. Heryford, the District Attorney of Trinity County, California, from retaining private counsel on a contingency-fee basis to litigate in Heryford‘s name an action against American Bankers under California‘s Unfair Competition Law. American Bankers argues that the arrangement violates federal due process principles. We disagree. Heryford‘s retention of private counsel to pursue civil penalties under state law cannot be meaningfully distinguished from a private relator‘s pursuit of civil penalties under the qui tam provisions of the False Claim Act, an arrangement that we have already hеld does not violate due process. We therefore affirm the district court‘s dismissal of American Bankers’ civil rights action against Heryford.
The story of this lawsuit starts with a different lawsuit, one that Heryford filed against American Bankers and several other companies on behalf of the people of California under California‘s Unfair Competition Law (“the UCL“),
Although private parties may seek injunctive relief and restitution under the UCL, only a public prosecutor such as Heryford may pursue civil penalties. See California v. IntelliGender, LLC, 771 F.3d 1169, 1174 (9th Cir. 2014); see also
Attorneys from the district attorney‘s office were not the only counsel listed on the complaint. Attorneys from Baron & Budd, P.C. and Carter Wolden Curtis, LLP were too. Heryford‘s office had retained these law firms along with Golomb & Honik, P.C. (collectively, “the Law Firms“) under an agreement designating them as “Special Assistant District Attorneys.” Under the agreement, the Law Firms were charged with “assist[ing] in the investigation, research, filing and prosecution” of the UCL suit against American Bankers and its co-defendаnts. More specifically, the agreement required the Law Firms to “provide all legal services that are reasonably necessary for such representation and assistance, including without limitation, the preparation and filing of all claims, pleadings, responses, motions, petitions, memoranda, brief[s], notices and other documents,” and to “conduct negotiations and provide representations at all hearings, depositions, trials, appeals, and other appearances as may be required.” The agreement gave the Law Firms “the authority and responsibility to control and direct the performance and details of their work.”
The agreement also stated, however, that the Law Firms would work “under the direction of the District Attorney,” and that his office did “not relinquish its constitutional or statutory authority or responsibility.” Heryford retained “sole and final authority to initiate and settle” the UCL suit, along with “final authority over all aspects of the litigatiоn.” He also had “a general right to inspect work in progress to determine whether . . . the services [we]re being performed by the Law Firms in compliance with” the agreement.
Heryford retained the Law Firms on a contingency-fee basis. Under the terms of the agreement, the Law Firms would bear “[a]ll reasonable and necessary costs of litigation,” for which they would be reimbursed from any recovery in the action. They were also entitled to thirty percent of any remaining funds. If the UCL suit did not result in a recovery, the Law Firms would neither be reimbursed for their expenses nor compensated for their services.1 Heryford told the Trinity County Board of Supervisors that this arrangement meant there was “a lot of upside with not a lot of downside for [his] office or the county.” The UCL suit, he contended, was “not going to be additional work for [Heryford‘s] staff” because the Law Firms were
American Bankеrs filed a civil rights action against Heryford in the United States District Court for the Eastern District of California, challenging the contingency-fee agreement as a violation of its federal due process rights, which is the lawsuit now on appeal before us.2 Days after that action was filed, Heryford and the Law Firms voluntarily dismissed the UCL suit pending in Trinity
County Superior Court, only to refile it the next month in the Eastern District, where it apparently remains pending.
American Bankers alleged that the contingency-feе agreement between Heryford and the Law Firms gave the latter “a direct and substantial financial stake in the imposition of civil penalties and restitution,” which “compromise[d] the integrity and fairness of the prosecutorial motive and the public‘s faith in the judicial process.” American Bankers sought a declaration that the arrangement violated due process and an injunction “allowing the UCL Suit to proceed . . . but prohibiting the District Attorney from employing the Law Firms to prosеcute the UCL Suit under their existing contingency-fee agreement.”
Heryford moved to dismiss, and American Bankers moved for summary judgment. The district court considered the motions together, granting the former with leave to amend and denying the latter as moot. American Bankers opted not to amend and asked the district court to enter judgment, which it did. This appeal followed.
II.
As a threshold matter, Heryford asks us, under Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942), to exercise our “discretion in determining whether and when to entertain an action under the Declaratory Judgment Act,” Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995), аnd to decline to decide this case. In addition to declaratory relief, however, American Bankers seeks injunctive relief that is independent of, but related to, the requested declaratory relief. Brillhart does not apply in such circumstances. See Vasquez v. Rackauckas, 734 F.3d 1025, 1040 (9th Cir. 2013). We therefore exercise the jurisdiction given to us and proceed to the merits, consistent with our “virtually unflagging obligation” to do so. Id. at 1041 (quoting Gilbertson v. Albright, 381 F.3d 965, 982 n.17 (9th Cir. 2004) (en banc)); see also Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).
III.
Although civil penalty provisions are common across federal and state enforcement regimes, we are the first circuit to cоnsider whether government officials may, without violating federal due process, retain private counsel on a contingency-fee basis to litigate an action for civil penalties.3 Despite the lack of federal precedent
A.
In Kelly, we rejected a due process challenge to contingent monetary awards for private plaintiffs bringing qui tam actions under the False Claims Act. See 9 F.3d at 759-60. Originally signed into law during the Civil War by
President Abraham Lincoln,4 the False Claims Act exposes those who commit fraud against the federal government to treble damages and civil penalties, both of which “are essentially punitive in nature.” Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 768-69, 784 (2000). The statute‘s qui tam provisions allow private plaintiffs—often called “relators“—to bring a civil action to recover damages and civil penalties “for the person and for the United States Government,” though any such action is “brought in the name of the Government.” Kelly, 9 F.3d at 745-46 (quoting
If successful, relators conducting actions themselves generally receive between twenty-five and thirty percent of any recovery in the action.6 See
come out worse than empty handed because they bear the costs they incurred during the litigation.
The defendant in Kelly argued that this “promise of a reward to relators for successful prosecution create[d] a conflict of interest between a relator‘s desire for pecuniary gain and duty as a prosecutor performing ‘government functions’ to seek a just and fair result.” 9 F.3d at 759. We disagreed, explaining that prosecutors “need not be entirely neutral and detached.” Id. (quoting Marshall v. Jerrico, Inc., 446 U.S. 238, 248 (1980)) (internal quotation marks omitted).
We further explained in Kelly that “the fact that relators sue in the name of the United States does not mean that they wield governmental рowers and therefore owe the same type of duty to serve the public interest as government prosecutors.” Id. at 760. Instead, the False Claims Act “effectively assigns the government‘s claims to qui tam plaintiffs . . . who then may sue based upon an injury to the federal treasury,” but who otherwise function in court like private civil litigants. Id. at 748, 760. Relators thus “do not have the ‘power to employ the full machinery of the state in
For all these reasons, we held that “qui tam litigation does not implicate due process concerns.” Id.
B.
Kelly controls this case. It is true, as Amеrican Bankers argues, that under the contingency-fee agreement with Heryford, the Law Firms have a financial incentive to seek as much in civil penalties as possible. But the same is true of private relators bringing qui tam actions under the False Claims Act. See
American Bankers contends that this case is nevertheless distinguishable from Kelly because the Law Firms are not acting in the UCL suit “essentially as private plaintiffs,” Kelly, 9 F.3d at 760, as would a relator going it alone under the False Claims Act. American Bankers argues that, as “Special Assistant District Attorneys,” the Law Firms have prosecutorial tools that qui tam plaintiffs lack. But the Law Firms do not have “the power to employ the full machinery of the state,” id. (quoting Young, 481 U.S. at 814), against American Bankers. To the contrary, the contingency-fee agreement makes clear that the Law Firms’ resources, not those of the state, will be brought to bear in the UCL suit. The Law Firms must themselves hire any personnel needed to litigate the UCL suit. They must also front the costs of the litigation.
And although Heryford has prosecutorial powers at his disposal, nothing suggests that the Law Firms may exercise such powers unilaterally. For example, American Bankers maintains that, unlike private litigants, Heryford could use administrative subpoenas under
American Bankers also maintains that, unlike private litigants, Heryford could authorize wiretapping or other forms of electronic surveillance to obtain evidence in the UCL suit. This argument falls flat too. Federаl law would prevent any such effort involving wiretapping. Title III of the Omnibus Crime Control and Safe Streets Act of 1968,
limits on who may apply for a wiretap. In a state proceeding, an application for “interception of wire, oral, or electronic communications” may be submitted to a state court judge only by the “principal prosecuting attоrney of any State, or the principal prosecuting attorney of any political subdivision thereof, if such attorney is authorized by a statute of that State.”
California law of coursе reflects the restrictions required by federal law, and in some ways it goes further. When it comes to wiretapping, as mandated by federal law California law requires a “specified law enforcement official[],” like a district attorney, to obtain a court order, which will issue only if, among other things, there is “probable cause to believe the target was involved” in a statutorily enumerated crime. People v. Leon, 150 P.3d 207, 210 (Cal. 2007); see also
In sum, nothing meaningfully distinguishes the Law Firms’ pursuit of civil penalties under the UCL from private relators’ pursuit of civil penalties under the qui tam provisions of the False Claims Act. Indeed, nothing meaningfully distinguishes the situation here from a hypothеtical one in which California has amended the UCL to allow private plaintiffs to pursue civil penalties—and Kelly leaves no doubt that California could, consistent with federal due process, do just that.9 Because Kelly held that
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 powers it confers, we hold that the contingency-feе arrangement at issue here does not offend due process either.10
C.
Our conclusion accords with Supreme Court precedent. In Marshall v. Jerrico, Inc., 446 U.S. 238 (1980), the Court observed that prosecutors in an adversary system “are necessarily permitted to be zealous in their enforcement of the law.” Id. at 248. For this reason, the “constitutional interests in accurate finding of facts and application of law, and in preserving a fair and open process for decision, are not to the same degree implicated if it is the prosecutor, and not the judgе, who is offered an incentive for securing civil penalties.” Id. at 248-49. Thus, the “rigid requirements” against financial incentives recognized in cases such as Tumey v. Ohio, 273 U.S. 510 (1927), and Ward v. Village of Monroeville, 409 U.S. 57 (1972), apply only to public “officials performing judicial or quasi-judicial functions,”
to write the UCL like Congress did the False Claims Act, that state-law question does not affect American Bankers’ federal due process rights, which are the sole bases for the claims at issue here.
not to public officials “acting in a prosecutorial or plаintiff-like capacity.” Marshall, 446 U.S. at 248.
Granted, in Marshall the Supreme Court cautioned that it was not suggesting “the Due Process Clause imposes no limits on the partisanship of prosecutors,” for they “are also public officials” who “must serve the public interest,” and that a “scheme injecting a personal interest, financial or otherwise, into the enforcement process may bring irrelevant or impermissible factors into the prosecutorial decision and in some contexts raise serious constitutiоnal questions.” Id. at 249-50. The Court nevertheless declined to “say with precision what limits there may
American Bankers argues that, by “giving the Law Firms a sizeable contingent stake in the UCL Suit‘s outcome,” the contingency-fee agreement “directly injects the Law Firms’ financial interest into the enforcement process” to an extent that might have concerned the Court in Marshall. But the same was true in Kelly, where we rejected precisely this argument. We emphasized in Kelly that the “contention that the Marshall Court ‘strongly suggested’ that the Due Process Clause prohibits civil prosecutions by financially interested prosecutors is exaggerated, and does not support a finding of a due process violation.”11 Kelly, 9 F.3d at 759.
Young v. United States ex rel. Vuitton et Fils S.A., 481 U.S. 787 (1987), is also of no help to American Bankers. In Young, the Supreme Court held that “counsel for a party that is the beneficiary of a court order may not be appointed as prosecutor in a [criminal] contempt action alleging a violation of that order.” Id. at 809. Rather than a financial conflict, the problem in Young was that the appointed prosecutor was forced “to serve two masters“: his client on the one hand and a “public responsibility for the attainment of justice” in a criminal proceeding on the other. Id. at 814. Moreover, the decision was grounded in the Court‘s “supervisory power,” not due process.12 Young, 481 U.S. at 790. We distinguished Young on these same grounds in Kelly, dismissing as “misplaced” the argument that Young established a due process bar to financial incentives for pursuing civil penalties. See Kelly, 9 F.3d at 759-60. The argument is as misplaced now as it was then.
IV.
For the foregoing reasons, we AFFIRM.