The Illegality of Contingency-Fee Arrangements When Prosecuting Public Natural Resource Damage Claims and the Need for Legislative Reform

Abstract

Private attorneys are entering into contingency-fee based special counsel agreements with states, territories and tribes, to bring public natural resource damage (NRD) claims. Under this agreement, special counsel brings a NRD action on behalf of the public and fronts the litigation costs, but deducts a percentage of the public's damage recovery to pay the attorney's contingency fee; the remainder goes into a fund to be allocated by the government's NRD trustee. Because NRD claims implicate gargantuan damage awards, the legality of depleting such a damage award by a substantial percentage to pay an attorney's fee is a significant issue that compels public discourse and judicial review.

This article concludes that such contingency-fee arrangements violate the express language of, and legislative intent underlying, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Congress included fee shifting provisions permitting recovery for litigation-related attorney's fees in other parts of CERCLA; however, Congress did not similarly provide a fee shift for litigation-related attorney's fees when bringing a NRD claim. Such fees are simply not part of CERCLA's natural resource damage measurement. Moreover, Section 107(f)(1) of CERCLA mandates that [s]ums recovered by the ... trustee ... shall be retained by the trustee, without further appropriation, for use only to restore, replace, or acquire the equivalent of such natural resources. Because contingency-fee agreements divert a significant percentage of the NRD recovery away from its intended purpose - natural resource restoration - to instead pay an attorney's fee, such arrangements violate CERCLA's use restriction. Additionally, the legislative history of CERCLA reflects that CERCLA's NRD provisions are part of tightly-woven congressional design that contemplates a damage award sufficient to accomplish actual restoration of the injured natural resource. However, because litigation-related attorney's fees are not part of the damage measurement, when governments bring NRD claims and improperly deplete the recovery to pay such attorney's fees, the remainder is likely insufficient to accomplish natural resource restoration. For these same reasons, any attempt by special counsel to avoid CERCLA by bringing NRD claims under, and drawing the attorney's fee from, state, territorial and/or common NRD laws, undermines Congress's carefully-crafted NRD scheme, and is therefore preempted by CERCLA.

While this article concludes that contingency-fee arrangements are illegal under CERCLA as currently structured, the author recognizes that CERCLA is flawed because it fails to provide the appropriate financial incentives to facilitate government efforts to bring NRD claims. Thus, the author proposes legislative reform to permit the recovery of the government's reasonable litigation-related attorney's fees and costs when prosecuting CERCLA NRD actions. Such reform will enable governments to bring NRD claims, and to lawfully recoup the litigation costs from the NRD award.

Because CERCLA's present scheme does not permit payment of litigation-related attorney's fees, however, the current use of contingency-fee attorneys to prosecute such actions must cease. Pending reform, NRD actions must be prosecuted by either salaried government counsel or, alternatively, special counsel paid a comparable salary or a reasonable fee, drawn from a lawful government appropriation.

Keywords: Environmental Law, Natural Resources, Contracts, Contingency Fee, Public Law, Trust Law, Environment, Federalism, Preemption