SACRAMENTO (Legal Newsline) - The contingency fee controversy is coming to California's Supreme Court.

The Justices decided Wednesday to hear the appeal of a group of former manufacturers of lead paint that has challenged a contingent fee agreement engineered by the entities suing it

Seven California counties and four cities (San Francisco, Los Angeles, San Diego and Oakland) claim the paint companies created a public nuisance when they made lead-based paint before it was outlawed in 1978. A similar suit recently failed in Rhode Island, as others had in New Jersey, Missouri and Wisconsin.

The California suit has been put on hold while the two sides argue if the plaintiffs' 17-percent contingent fee agreement with private counsel should be allowed to stand.

"The Santa Clara lawsuit raises important issues involving the constitutionality of contingency fee agreements in public nuisance cases," said Sean Morris, counsel for the paint companies.

"Precedents of the California Supreme Court and the U.S. Supreme Court establish the fundamental legal principle of prosecutorial neutrality -- the idea that lawyers who bring a lawsuit in the name of the government have no personal financial stake in the outcome of litigation."

It's a similar situation to one in Pennsylvania that LNL recently profiled. Attorneys for Janssen Pharmaceutica say the agreement between private counsel and Pennsylvania Gov. Ed Rendell violates the company's Constitutional rights.

Janssen's attorneys say those who filed the suit must not have a financial or personal interest in the outcome. Houston-based law firm Bailey Perrin Bailey's obvious financial interest (15 percent of any monetary recovery) will affect the actions of a public office, they claim.

The Due Process Clause requires Rendell to be guided by the sense of public responsibility for the attainment of justice, Janssen says.

Paint companies, including public nuisance veterans Atlantic Richfield, Sherwin-Williams, NL Industries and Millennium Holdings, say that the neutrality issue has already been decided in California.

"In a 1985 ruling, the California Supreme Court said that contingent fee agreements are 'antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action,'" Morris said.

Initially, the companies' argument was successful, but an appellate court reversed the lower court decision and encouraged the Supreme Court to take a look at the issue.

"I recognize... that the issue of the circumstances under which public entities may properly retain private counsel under contingency fee agreements to assist in the litigation of public nuisance abatement actions is of great public significance," wrote Justice Patricia Bamattre-Manoukian, of the Sixth District Court of Appeals.

"For this reason, I would respectfully invite the California Supreme Court to review this issue and to provide guidance to the courts and public entities in this important and developing area of the law."

The City of Columbus recently dropped its suit against the paint industry after learning of the July 1 Rhode Island decision.

Lead paint was outlawed in 1978, and plaintiffs firm Motley Rice convinced former Rhode Island Attorney General Sheldon Whitehouse to hire it on a contingency fee to bring the first state-backed case over the issue in 1999.

The first trial resulted in a mistrial, the second (filed by current Attorney General Patrick Lynch) in a 2006 verdict against the three companies. It was the longest civil trial in state history.

The public nuisance claim keeps defendants from using the tolled statute of limitations as a defense in a products liability claim.

The Rhode Island Justices, in siding with the paint industry, also wrote that they would have affirmed Lynch's right to hire outside counsel on a contingent fee, provided Lynch was the one in control of the decision-making.

From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.