SACRAMENTO - Three major banking institutions accused of deceptively marketing credit card services are now asking a California federal judge to disqualify counsel, saying the district attorney who sued them has illegally hired private firms to handle the cases.
Trinity County District Attorney Eric Heryford's suits against Citigroup, Discover and First Premiere Bank claim the institutions deceived California customers into paying for extra products, failed to disclose terms and conditions of those products, failed to properly handle cancellation requests, and continued to charge customers despite knowing the customers did not “meaningfully consent” to purchasing the products.
Lawyers for the banks are now pushing for a federal judge to disqualify the private law firms of Baron & Budd PC, Carter Wolden Curtis LLP and Golomb & Honic PC. According to the banks, these firms were hired illegally by Heryford to act as lead counsel.
Citigroup, Discover and First Premiere Bank submitted filings in the United States District Court Eastern District of California arguing that the private firms were “fully managing the litigation,” thereby violating California state law.
The banks cite California Government Code section 11042, which deals with the issue of government entities hiring private attorneys. “No state agency, commissioner, or officer shall employ any legal counsel other than the Attorney General or one of his assistance or deputies, in any matter in which the agency, commissioner, or officer is interested, or is a party as the result of office or official duties,” the code states.
The exception to this rule is express permission from the state’s Attorney General to hire outside help. The Northern California Record reached out to Attorney General Kamala Harris’ office to inquire if Heryford had permission to bring on the three firms. Spokeswoman Brenda Gonzales refused to answer, stating the office could not provide legal analysis.
The issue of hiring private attorneys to help with county cases has been hotly contested, making its way to the California Supreme Court in the case of People ex rel. Clancy v Superior Court of Riverside County in 1985. The court found cases involving government entities demand “the representative of the government to be absolutely neutral.” The court held that hiring private attorneys on a contingency basis was contrary to neutrality.
The California Supreme Court revisited the issue in 2010 with Santa Clara v. Superior Court of Santa Clara County. In Santa Clara, the court enumerated a three-part rule for lawyers operating on contingency with the government: government attorneys were to retain control over the case, government attorneys have a veto over decisions made by private counsel and that government attorneys must be involved in overseeing the case.
Government offices often operate on shoestring budgets, especially small ones like the District Attorney’s office in Trinity County. Without outside help, many large cases would not get filed, according to federal court expert and UC Davis Law professor Carlton Larson.
“Trinity County is a small county, and these types of cases require thousands of hours of legal work,” Larson told the Northern California Record. “And a lot of up front money to make the case go forward, so it’s quite hard if you don’t have outside counsel.”
Critics of hiring of private firms often cite the potential for large contingency awards as an inherent conflict of interest.
“I suppose there’s some risk that the firms would stress large settlements over the public interest," Larson said. "On the other hand, if they get paid by the hour, the county just can’t afford that upfront cost. If that’s a requirement the suit’s just never going to happen.”
Citigroup faced and lost a similar battle last year. In July 2015, the company was ordered by the Consumer Financial Protection Bureau to repay customers $700 million for deceptive credit card marketing.
“What they’re trying to do here is basically make this state case go away by not letting the county use private attorneys to prosecute it,” Larson said.
Neither Discover nor Citigroup could comment on pending litigation, though Citi did offer a statement on the $700 million they are currently repaying.
“Customer remediation has been underway since 2013, and Citi will continue to notify and refund affected customers,” the statement read. “Affected customers will automatically receive a statement credit or check and those no longer with Citi who are eligible will be mailed a check.”
The Northern California Record also reached out to Heryford about this case. He did not respond.