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Priceline.com Inc. v. City of Anaheim

January 5, 2010

PRICELINE.COM INCORPORATED ET AL., PLAINTIFFS AND APPELLANTS,
v.
CITY OF ANAHEIM ET AL., DEFENDANTS AND RESPONDENTS.



Appeal from a judgment of the Superior Court of Orange County, Ronald L. Bauer, Judge. Affirmed. (Super. Ct. No. 30-2008-00180048).

The opinion of the court was delivered by: Ikola, J.

CERTIFIED FOR PUBLICATION

OPINION

Plaintiffs*fn1 appeal from a judgment denying their petition for a writ of mandate directed to defendants the City of Anaheim, Mayor Curt Pringle, and City Attorney Jack White (collectively, Anaheim). Plaintiffs sought to compel Anaheim to litigate tax assessment proceedings without the assistance of outside counsel retained pursuant to a contingency fee agreement. They contend outside counsel's contingency fee arrangement violates a government lawyer's duty of neutrality. (See People ex rel. Clancy v. Superior Court (1985) 39 Cal.3d 740, 746-751 (Clancy).)

Clancy grants that "there are cases in which a government may hire an attorney on a contingent fee to try a civil case." (Clancy, supra, 39 Cal.3d at p. 748.) But Clancy bars contingency fee lawyers from being the government's representative in a vaguely defined "class of civil actions" (Clancy, supra, 39 Cal.3d. at p. 748) that require "a balancing of interests" and "a delicate weighing of values" (id. at p. 749). The only California appellate case applying this restriction is Clancy itself, which barred a contingency fee lawyer from trying public nuisance actions as the city attorney. Clancy does not bar contingency fee lawyers from assisting government lawyers as co-counsel in ordinary civil litigation. This is such a case. The tax assessment proceeding is a civil administrative action that does not require "the delicate weighing of values" described in Clancy. We affirm the judgment denying plaintiffs' writ petition.

FACTS

The Taxes and the Contingency Fee Agreements

Plaintiffs are "online travel companies that provide the service of facilitating the reservation of hotel rooms at hotels in the City, or are corporate affiliates of such companies...." Anaheim - through the law firm Kiesel, Boucher and Larson - informed plaintiffs in October 2007 they were liable for failing to remit transient occupancy taxes.

The transient occupancy tax is a local hotel tax. (Anaheim Mun. Code, § 2.12.000 et seq.) Every city hotel guest or other "`transient'" (id., § 2.12.005.100) must "pay a tax in the amount of fifteen percent of the rent" "[f]or the privilege of occupancy of space in any hotel" (id., § 2.12.010.010). Every hotel "`[o]perator'" (id., § 2.12.005.050) shall "collect the tax... at the same time as the rent is collected from every transient" (id., § 2.12.020.010) and remit the collected taxes to Anaheim each month*fn2 (id., § 2.12.030.010).

Plaintiffs responded to the tax notice by asking Anaheim whether its outside counsel was serving on a contingency fee basis. Plaintiffs later asked for a copy of the retention agreement and followed with a formal request under the California Public Records Act. (Gov. Code, § 6250 et seq.)

Anaheim produced three retention agreements in March 2008. In the first agreement, dated April 2007, Anaheim retained Kiesel, Boucher and Larson, LLP, and Baron and Budd, P.C., as "Special Counsel to represent it in litigation seeking... relief for the non-payment or underpayment to the City of transient occupancy taxes by online booking companies... (collectively, the `Litigation')." The law firms agreed to "obtain prior approval from the City concerning all substantive matters related to the Litigation including dispositive motions, selection of consultants and experts, and resolution of the Litigation. The City agrees to consult in good faith with Special Counsel prior to making a recommendation regarding any such substantive matter." Anaheim designated its city attorney "to direct Special Counsel.... This designation is intended to establish a clear line of authority and to minimize potential uncertainty...."

The retention agreement provided for compensation "on a contingency fee basis." Outside counsel would receive 30 percent of any "Gross Recovery" and "[t]he sole contingency upon which the City [would] pay compensation to Special Counsel is a recovery and collection on behalf of the City, whether by settlement, arbitration award, Court judgment, or otherwise."

The retention agreement contemplated legal challenges to the contingency fee agreement. It provided "in the event that this contingency fee Agreement is found to be invalid, Special Counsel agrees to continue to represent the City in the Litigation with the understanding that, if there is no recovery, the City will owe nothing for attorneys' fees or Costs. [¶] If there is a recovery (including collection of the recovery), and this contingency fee Agreement is found to be invalid, the City shall pay a reasonable fee for the services rendered, plus Costs."

In the second agreement, dated October 2007, Anaheim retained Diamond McCarthy LLP as additional "`Associate Counsel'" in the tax litigation. The agreement had similar terms regarding the scope of the representation and the relationship between Anaheim and outside counsel, though it now also specified that "[t]he City Attorney, as the chief legal officer for the City, is charged with representing the City in legal proceedings with respect to which it has an interest." Its contingency fee provisions mirrored those in the first agreement. The third retention agreement provided for fee sharing among the three law firms acting as outside counsel.

Anaheim issued estimated tax assessments to plaintiffs in May 2008, which plaintiffs appealed by requesting an administrative hearing.*fn3 Plaintiffs challenged the propriety of the contingency fee agreements in their hearing request and subsequent filings with the hearing officer. The administrative hearing officer ruled he lacked jurisdiction to consider Anaheim's contingency fee arrangement with outside counsel.

The Writ Proceedings

Plaintiffs petitioned for a writ of mandate directing Anaheim "to immediately cease and desist using Contingency Fee Counsel in the administration and enforcement of the City's transient occupancy tax."*fn4 They asserted Anaheim violated its "`duty of neutrality' by involving persons in the tax enforcement and collection process that have a financial interest in the outcome."

Plaintiffs offered a declaration from their counsel. Plaintiffs' counsel stated, "Contingency Fee Counsel has represented and acted for the City in every aspect of the Anaheim administrative appeal hearing process. Contingency Fee Counsel have handled all communications and negotiations with [plaintiff online travel companies] regarding those proceedings, prepared and submitted all briefing to the Hearing Officer, made legal argument for the City at the hearings, made all evidentiary objections for the City, cross-examined all witnesses for the City, and has been the City's exclusive mouthpiece at the hearings for its legal positions and issues. During four days of testimony, resulting in a 1,200 page transcript, the record reflects that the City's in-house counsel spoke no more than eleven times, and each time for the sole purpose of scheduling access of the City's hearing room."

Plaintiffs' counsel further stated Anaheim's auditor manager, Susan Grabemeyer-Grande, "admits under oath... Contingency Fee Counsel's retained outside expert, Econ One, calculated the estimated assessment for each [plaintiff online travel company], and her role as to the estimated assessments was essentially limited to checking Econ One's math."

Plaintiffs also offered the auditor manager's declaration from a separate hotel tax class action. (Transient Occupancy Tax Cases, (Super. Ct. L.A. County, JCCP No. 4472).) She stated "that [her] office would estimate the tax due by the [online travel companies] by using the best information available to [her]." Based on the plaintiffs' tax payments and data obtained by an Anaheim consultant, EconOne, she "determined that a valid estimate of the amounts due by each [online travel company] could be calculated by using a nine-step process using [this] information...." She allowed EconOne to perform these calculations, but "instructed [her] Senior Management Auditors to review the calculations of EconOne to insure that such calculations were accurate and done pursuant to the typical and normal methodology used by [her] office."

Anaheim opposed the petition, offering a new declaration from the auditor manager. She stated, "I and my staff directed the methodology and calculations of the assessments on the [online travel companies] to ensure compliance with Chapter 2.12 of the Anaheim Municipal Code and consistency with Anaheim's past audit practices. EconOne provided assistance and their expertise with the [online travel companies'] data file and prepared the initial assessment schedule. I and my staff then recalculated and verified the calculations, ...


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