Am. Bankers Mgmt. Co. v. Heryford

• Decision Date: 15 March 2018
• Docket Number: No. 16-16103,16-16103
• Parties: AMERICAN BANKERS MANAGEMENT COMPANY, INC., Plaintiff-Appellant, v. Eric L. HERYFORD, District Attorney, Trinity County, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

885 F.3d 629

AMERICAN BANKERS MANAGEMENT COMPANY, INC., Plaintiff-Appellant,

v.Eric L. HERYFORD, District Attorney, Trinity County, Defendant-Appellee.

No. 16-16103

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 17, 2017—San Francisco, California

Filed March 15, 2018

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. Trice, 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.

Before: Richard R. Clifton and Michelle T. Friedland, Circuit Judges, and Sharon L. Gleason,^* District Judge.

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 held does not violate due process. We therefore affirm the district court's dismissal of American Bankers' civil rights action against Heryford.

I.

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"), Cal. Bus. & Prof. Code § 17200 et seq . That lawsuit was filed by Heryford in Trinity County Superior Court on behalf of "the People of California, by and through the District Attorney for the County of Trinity." Heryford alleged that the defendants had "engaged in deceptive marketing and sales practices in connection with" services offered to California holders of certain credit cards. For these alleged violations, the complaint sought injunctive relief, restitution, attorney's fees, and—most relevant here—civil penalties. 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 Cal. Bus. & Prof. Code §§ 17204, 17206.

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-defendants. 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 litigation." 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 "going to handle the litigation part of this." He made similar statements to a local newspaper.

American Bankers 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-fee 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 prosecute 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, 62 S.Ct. 1173, 86 L.Ed. 1620 (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, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), and 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, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

III.

Although civil penalty provisions are common across federal and state enforcement regimes, we are the first circuit to consider 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 directly on point, our decision in United States ex rel. Kelly v. Boeing Co. , 9 F.3d 743 (9th Cir. 1993), compels us to reject American Bankers' due process claim.

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, 120 S.Ct. 1858, 146 L.Ed.2d 836 (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...