American Bankers Management Company, Inc. v. Heryford

Case Updates

The U.S. District Court for the Eastern District of California granted the motion to dismiss a constitutional challenge to a contingency-fee agreement between a California county district attorney and a plaintiff’s firm. The court found that the county’s lawsuit against American Bankers is “penal in nature,” but held that the contingency-fee agreement was nonetheless constitutional because the district attorney has retained “control” over the litigation, even though the litigation is conducted by an outside firm.

The U.S. Chamber and Pharmaceutical Research and Manufacturers of America urged the U.S. District Court for the Eastern District of California to hold that the due process protections of the Constitution categorically bar the government from using contingency-fee counsel in quasi-criminal enforcement lawsuits. The amicus brief explains that increasingly, state attorneys general and other government officials are delegating quasi-criminal enforcement powers to private attorneys who are litigating multiple claims against corporate defendants. In nearly every such case—including the civil lawsuit brought by the Trinity County District Attorney that gave rise to this action—the private attorneys enter into a contingency-fee agreement with the state, under which they are to be paid only if they win; and if they do win, they are paid more and more for each additional dollar they recover. The brief argues that such arrangements entrust the government’s duty to impartially administer justice to attorneys with an overwhelming economic incentive to “win” the case – even if it is entirely bereft of merit.

As a result of these pressures, the neutral forum assured to defendants by basic principles of due process is incurably tainted. Given the personal interests of counsel, defendants have no hope of persuading them to abandon a meritless case because the quest for a high-dollar recovery becomes the paramount consideration, no matter how unreasonable the case. The result is guaranteed litigation and, when the state prevails, highly inflated penalties, placing additional burdens on court dockets and harming American businesses.

John H. Beisner of Skadden, Arps, Slate, Meagher & Flom LLP served as counsel for the U.S. Chamber of Commerce on behalf of the U.S. Chamber Litigation Center.