People ex rel. City of San Diego v. Experian Data Corp.

77 Cal.App.5th 1006

293 Cal.Rptr.3d 149

The PEOPLE EX REL. CITY OF SAN DIEGO, Plaintiff and Respondent,

v.EXPERIAN DATA CORP., Defendant and Appellant.

G060360

Court of Appeal, Fourth District, Division 3, California.

Filed April 26, 2022

Jones Day, Nathaniel P. Garrett, Richard J. Grabowski, John A. Vogt, Edward S. Chang and Ryan D. Ball, Irvine, for Defendant and Appellant.

Mara W. Elliott, City Attorney, Mark Ankcorn and Kevin King, Deputy City Attorneys; Blood Hurst & O'Reardon, Timothy G. Blood, San Diego, and Paula R. Brown for Plaintiff and Respondent.

OPINION

ZELON, J.^*

INTRODUCTION

The City of San Diego (the City) sued Experian Data Corp. (Experian) on behalf of the People of the State of California for violating the Unfair Competition Law ( Bus. & Prof. Code, § 17200 et seq. ) (UCL). The City hired three private law firms to represent it in the litigation against Experian on a contingency fee basis. The trial court denied Experian's motion to disqualify the private law firms; we affirm.

The contingency fee arrangements between the City and the private law firms in a UCL action filed by the City's attorneys do not violate the prosecutor's duty of neutrality and therefore do not require disqualification. Further, the agreements to pay the private law firms from any penalties recovered from Experian do not violate Business and Professions Code section 17206's requirement that all funds recovered in a UCL action be paid to the City's treasurer.

FACTUAL AND PROCEDURAL HISTORY

U.S. Infosearch.com (USI) is an Ohio-based company that sells data, including social security numbers and other personal data, to licensed investigators, government agencies, and legal industry professionals. Court Ventures, Inc. (CVI) was a California-based corporation that aggregated consumer information from publicly available databases and sold that data. In April 2010, USI and CVI entered into a data-sharing agreement under which the consumer information they had each collected would be aggregated and made available to customers through appcheckdata.com, a web portal owned by CVI.

In March 2012, Experian purchased the business, assets, and liabilities of CVI, including its data services, customer contracts, and the appcheckdata.com website.

SG Investigators, purportedly a private investigation firm based in Singapore, was a customer of USI/CVI and then of Experian. Through appcheckdata.com, SG Investigators and its customers conducted more than three million queries, obtaining personal information of more than 400,000 California residents. In November 2012, Experian learned that SG Investigators was a front for a Vietnamese hacker named Hieu Minh Ngo who was reselling the data to identity thieves and others using it for nonlegal purposes. Ngo was later arrested, pleaded guilty, and was sentenced to 13 years in prison.

In July 2015, a federal lawsuit was filed on behalf of those whose personal data was sold to Ngo, Patton v. Experian Data Corp. (C.D.Cal., case No. 8:15-cv-01142-JVS-PLA) (the Patton litigation). Three law firms—Blood Hurst & O'Reardon, LLP, Barnow and Associates, P.C., and the Coffman Law Firm (collectively the Private Firms)—represented the plaintiff class in the Patton litigation. The Patton litigation plaintiffs asserted claims against Experian, CVI, and USI for intentional and negligent violation of the Fair Credit Reporting Act ( 15 U.S.C. § 1681 et seq. ) and for violation of the UCL. The complaint was later amended to add a claim for injunctive relief under the Customer Records Act. ( Civ. Code, § 1798.82.) The district court dismissed the California plaintiffs from the Patton litigation for failure to state a claim, as they could not allege they were customers of Experian.

The City then filed a UCL complaint in the California Superior Court against Experian, CVI, and USI on behalf of the People of the State of California (the UCL litigation). The UCL litigation alleges that Experian violated the UCL by failing to provide notice to victims of the Ngo hack, in violation of the Customer Records Act. The complaint demands civil penalties in the amount of up to $2,500 per violation ( Bus. & Prof. Code, § 17206, subd. (a) ), with additional penalties for violations against senior citizens and the disabled (id. , § 17206.2, subd. (a)(1)). The complaint also seeks to force Experian to provide notice of the data breach to all its victims.

The City hired the Private Firms on a contingency fee basis to provide legal representation in the UCL litigation. According to the parties' agreement, the Private Firms report to and work under the direction and control of the City Attorney. If the Private Firms are successful in obtaining and collecting penalties from Experian in the UCL litigation, they are entitled to receive 25 percent of the gross recovery; the other 75 percent remains in the City's treasury to be used for enforcement of consumer protection laws. Under no circumstance is the City obligated to pay the Private Firms out of any monies other than those recovered and collected from Experian.

From the outset, the City Attorney actively litigated the case; drafted pleadings, motions, and briefs; formulated written discovery requests and responses; participated in hearings and depositions; participated in meet and confer discussions; and oversaw all litigation strategy. The City Attorney has maintained complete control over the prosecution of the UCL litigation and has had the final say in all material litigation decisions.

In February 2021, almost three years after the UCL litigation was filed, Experian moved to disqualify the Private Firms on two grounds. First, Experian argued that the Private Firms' contingency fee arrangement, in a case seeking civil penalties, violated the public prosecutor's duty of neutrality, and thus the fee agreement was per se grounds for disqualification. Second, Experian argued the Private Firms' contingency fee agreement violated the UCL's plain language, which provides that any civil penalties collected "shall be paid to the treasurer of the City of San Diego" ( Bus. & Prof. Code, § 17206, subd. (c)(3)(B) ) and used exclusively "for the enforcement of consumer protection laws" ( id. , § 17206, subd. (c)(4) ).

The trial court denied Experian's motion in May 2021. The court found that the City was permitted to retain private counsel on a contingency fee basis to litigate an action for civil penalties under the UCL without violating the duty of neutrality. The court also found that while the Private Firms' agreement "could violate [Business and Professions Code] section 17206's requirement of where the penalty funds recovered are deposited," this was not a basis to disqualify counsel.

Experian filed a notice of appeal from the trial court's disqualification order on June 14, 2021.

DISCUSSION

I. Standard of Review

" ‘ "Generally, a trial court's decision on a disqualification motion is reviewed for abuse of discretion." ’ [Citation.] Under this standard, the trial court's legal conclusions are reviewed de novo, but its factual findings are reviewed only for the existence of substantial evidence supporting them, and its ‘ "application of the law to the facts is reversible only if arbitrary and capricious." ’ " ( Doe v. Yim (2020) 55 Cal.App.5th 573, 581, 269 Cal.Rptr.3d 613 [quoting In re Charlisse C. (2008) 45 Cal.4th 145, 159, 84 Cal.Rptr.3d 597, 194 P.3d 330 ].)

II. The Contingency Agreement Does Not Violate the Duty of Neutrality.

A criminal prosecutor has a duty of neutrality because he or she must "act with the impartiality required of those who govern," and because "he or she must refrain from abusing [the vast power of the government] by failing to act evenhandedly." ( County of Santa Clara v. Superior Court (2010) 50 Cal.4th 35, 49, 112 Cal.Rptr.3d 697, 235 P.3d 21 ( Santa Clara ).) Therefore, compensation of government counsel by contingency fee is prohibited in most if not all circumstances. ( Id. at p. 51, 112 Cal.Rptr.3d 697, 235 P.3d 21.) Whether contingency fee agreements with private attorneys are also prohibited in public nuisance prosecutions depends on the type of remedy sought and the types of interests implicated by the case. ( Id. at p. 52, 112 Cal.Rptr.3d 697, 235 P.3d 21.)

In Santa Clara, supra , 50 Cal.4th at page 43, 112 Cal.Rptr.3d 697, 235 P.3d 21, the county was represented by both its government counsel and private counsel in a public nuisance action brought against lead paint manufacturers. The paint manufacturers sought to disqualify the private counsel who had been retained on a contingency fee basis. ( Ibid. ) The contingency fee agreements provided that private counsel would recover unreimbursed costs and a percentage of the "net recovery" as their fees. ( Id. at pp. 44-45, 112 Cal.Rptr.3d 697, 235 P.3d 21.) The remedies might include civil penalties and the expenditure of funds to clean up the nuisance the defendants had created, but would not involve an injunction shutting down the defendants' business. ( Id. at pp. 55-56, 112 Cal.Rptr.3d 697, 235 P.3d 21.) Further, no liberty interests were involved. ( Ibid. ) The court therefore determined the contingency fee agreements between the county and the private attorneys were permissible. "[I]n a case where the government's action poses no threat to fundamental constitutional interests and does not threaten the continued operation of an ongoing business, concerns about neutrality are assuaged if the litigation is controlled by neutral attorneys, even if some of the attorneys involved in the case in a subsidiary role have a conflict of interest that might—if present in a public attorney—mandate disqualification." ( Id. at p. 58, 112 Cal.Rptr.3d 697, 235 P.3d 21.)

The court noted, however, that "a heightened standard of neutrality is required for attorneys prosecuting public-nuisance cases on behalf of the government." ( Santa Clara, supra , 50 Cal.4th at p. 57, 112 Cal.Rptr.3d 697, 235 P.3d 21.) The court identified...