Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_16-cv-00312/USCOURTS-caed-2_16-cv-00312-2/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

AMERICAN BANKERS 

MANAGEMENT COMPANY, INC., 

Plaintiff, 

v. 

ERIC L. HERYFORD, 

Defendant. 

No. 2:16-cv-00312-KJM-KJN 

ORDER 

This case challenges the constitutionality of contingency-fee agreements between 

private counsel and county district attorneys who bring cases against corporate defendants. 

Plaintiff American Bankers Management Company, Inc. (“plaintiff” or “ABMC”), filed this 

action, alleging one such agreement infringes on its Fourteenth Amendment due process right to a 

neutral and impartial trial. First Amended Compl. (FAC), ECF No. 12. Defendant Eric Heryford, 

the District Attorney (DA) of Trinity County, California, filed a motion to dismiss ABMC’s 

claim. Mot., ECF No. 21. The court held a hearing on April 22, 2016, at which Brian Perryman 

appeared for ABMC and Roland Tellis appeared for DA Heryford. ECF No. 32. 

For reasons explained below, the court GRANTS defendant’s motion to dismiss, 

with leave to amend. 

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I. FACTUAL ALLEGATIONS 

A. Separate UCL Suit 

On September 4, 2015, DA Heryford filed suit on behalf of the People of the State 

of California against several corporations, including ABMC, alleging violations of the 

“fraudulent,” “unlawful,” and “unfair” prongs of California’s Unfair Competition Law (UCL), 

Bus. & Prof. Code § 17200 et seq. (the UCL Suit). FAC ¶ 4. The UCL Suit was first filed in 

Trinity County Superior Court, then later dismissed and refiled in this court on March 4, 2016. 

Id. ¶¶ 5–6. In the refiled suit, DA Heryford alleges the corporations deceptively marketed and 

sold “ancillary products” in connection with Discover-issued credit cards. Id. ¶ 7. For this 

alleged conduct, DA Heryford has demanded injunctive and declaratory relief, restitution, civil 

penalties, attorneys’ fees and costs, and prejudgment interest. Id. This suit is still pending. See 

Heryford v. Discover Financial Services, et al., No. 16–468 (E.D. Cal. filed March 4, 2016). 

B. Contingency-Fee Agreement 

Prior to filing suit, DA Heryford executed a contingency-fee agreement with the 

law firms of Baron & Budd, P.C., Carter Wolden Curtis, LLP, and Golomb & Honik, P.C. 

(“Barron & Budd” or “law firms”), for the purpose of assisting with the UCL Suit. Id. ¶ 21. In 

the agreement, DA Heryford and the law firms agreed that if there were a recovery as a result of 

the UCL Suit, “the Law Firms’ w[ould] be paid a contingency fee of 30% of the Net Recovery.” 

Id. ¶ 22. The parties also agreed that the law firms would be “Independent Contractors” with “the 

authority and responsibility to control and direct the performance and details of the work and 

services required under this Agreement,” subject to the DA’s “general right” to “inspect work in 

progress to determine whether, in the DA’s opinion, the services are being performed by the [l]aw 

[f]irms in compliance with th[e] Agreement.” Id. ¶ 23. The law firms were not “by reason of this 

Agreement, agents or employees of Trinity County for any purpose.” Id. 

C. District Attorney’s Public Statements 

DA Heryford made statements to the public regarding his work with Barron & 

Budd on the UCL Suit. During an October 20, 2015 meeting of the Trinity County Board of 

Supervisors, Heryford emphasized that he and his office would not be materially involved in the 

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UCL Suit’s management, which could yield great financial rewards for Trinity County; the DA 

characterized the arrangement as having “a lot of upside with not a lot of downside.” Id. ¶ 24. 

As a result of the agreement, DA Heryford explained the UCL Suit would not constitute 

“additional work” for him and his staff. Id. ¶ 25. Although DA Heryford said he would “have 

final say on where [] cases go and how they proceed,” Barron & Budd was responsible for 

“handl[ling] the litigation part.” Id. ¶ 25. DA Heryford also spoke to a local newspaper a week 

later, saying because of the contingency-fee agreement, prosecution of the UCL Suit would not 

“interfere” with his caseload, and the suit would not cost Trinity County or his office any money 

because Baron & Budd was handling it. Id. ¶ 26. 

D. Barron & Budd’s Statements 

Baron & Budd, one of the law firms retained through the contingency-fee 

agreement, publishes a statement on its website regarding its role generally in government 

enforcement suits: 

An important benefit of this unique and close relationship is that it 

minimizes the burden of litigation on the employees and staff of 

Public Entities. Bolstered by our superior team members and 

resources, we are able to perform most of the day-to-day litigation 

tasks, thus helping you stay focused on your important work, free 

from the demands of litigation. It is our intention to do whatever is 

required –from the mundane gathering and copying of documents to 

the complex work of full briefings, oral arguments, and trial. Our 

focus is fully managing the litigation so that you, the Public Entity, 

can carry on the critical business of representing your community 

without distractions. 

Id. ¶ 27. ABMC alleges this statement showed the law firms’ desire to minimize DA Heryford’s 

role in the UCL Suit. Id. 

E. Procedural History and Claims Raised in this Case 

ABMC filed the complaint in this case on February 16, 2016. ECF No. 1. On 

March 7, 2016, ABMC filed a first amended complaint (FAC), on which this action is now 

proceeding. ECF No. 12. On March 25, 2016, the DA moved to dismiss ABMC’s complaint. 

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Mot. ABMC filed an opposition, Opp’n, ECF No. 25, and DA Heryford replied, Reply, ECF No. 

30. ABMC also filed a motion for summary judgment, which is currently pending. ECF No. 13. 

Additionally, the United States Chamber of Commerce and the Pharmaceutical Research and 

Manufacturers of America filed a motion for leave to file a brief as Amici Curiae in support of 

ABMC’s motion for summary judgment. ECF No. 18. For reasons explained below, the court 

DENIES ABMC’s summary judgment motion and Amici’s motion as MOOT. 

In the first amended complaint, ABMC alleges the contingency-fee agreement, 

which gives Barron & Budd a financial stake in the outcome of the UCL Suit, infringes on its 

Fourteenth Amendment due process right to an impartial trial. FAC ¶ 59. ABMC seeks (1) a 

declaration that DA Heryford violated its due process right; (2) an injunction barring DA 

Heryford from retaining counsel under the contingency-fee agreement; and (3) costs of suit and 

attorneys’ fees. Id. ¶¶ 69(a)–(d). DA Heryford moves to dismiss, arguing (1) ABMC lacks 

standing to bring the suit; and alternatively (2) ABMC does not allege facts sufficient to state a 

claim upon which relief can be granted. See generally Mot. ABMC opposes the motion, arguing 

(1) it has standing; and (2) it has alleged facts sufficient to overcome the motion to dismiss. See 

generally Opp’n. In the reply, DA Heryford reiterates his original arguments while addressing 

ABMC’s opposition. Reply at 4–12. 

II. LEGAL STANDARD 

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to 

dismiss a complaint for “failure to state a claim upon which relief can be granted.” A court may 

dismiss “based on the lack of cognizable legal theory or the absence of sufficient facts alleged 

under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 

1990). 

 Although a complaint need contain only “a short and plain statement of the claim 

showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a motion 

to dismiss this short and plain statement “must contain sufficient factual matter . . . to ‘state a 

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something 

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more than “an unadorned, the-defendant-unlawfully-harmed-me accusation” or “‘labels and 

conclusions’ or ‘a formulaic recitation of the elements of a cause of action. Id. (quoting 

Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss 

for failure to state a claim is a “context-specific task that requires the reviewing court to draw on 

its judicial experience and common sense.” Id. at 679. Ultimately, the inquiry focuses on the 

interplay between the factual allegations of the complaint and the dispositive issues of law in the 

action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). 

 In making this context-specific evaluation, this court must construe the complaint 

in the light most favorable to the plaintiff and accept as true its factual allegations. Erickson v. 

Pardus, 551 U.S. 89, 93–94 (2007). This rule does not apply to “‘a legal conclusion couched as a 

factual allegation,’” Papasan v. Allain, 478 U.S. 265, 286 (1986), nor to “allegations that 

contradict matters properly subject to judicial notice” or to material attached to or incorporated by 

reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 

2001). A court’s consideration of documents attached to a complaint or incorporated by reference 

or matter of judicial notice will not convert a motion to dismiss into a motion for summary 

judgment. United States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003); Parks Sch. of Bus. v. 

Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); cf. Van Buskirk v. Cable News Network, Inc., 

284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on 

motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion). 

III. DISCUSSION 

As noted, DA Heryford seeks to dismiss ABMC’s first amended complaint on two 

grounds: (1) ABMC lacks standing to bring its claims, Mot. at 21, and (2) ABMC has not 

sufficiently alleged a Fourteenth Amendment due process violation, id. at 11. ABMC opposes the 

motion, asserting (1) it has standing to bring suit against DA Heryford, Opp’n at 19, and (2) it has 

adequately alleged a due process violation, id. at 9. These arguments are addressed in turn. 

A. Standing 

DA Heryford contends ABMC lacks standing to “interfere with its opponent’s 

selection of attorneys,” and thereby does not show it has suffered an “injury in fact,” as required 

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for standing. Mot. at 21. ABMC argues it has standing, for it is “being compelled to defend itself 

in an inherently biased quasi-criminal proceeding in violation of its due process right.” Opp’n at 

19. 

The requirements for standing are (1) the plaintiff must have suffered an “injury in 

fact,” (2) there must be a “causal connection between the injury and the conduct complained of,” 

and (3) it must be likely that the injury will be redressed by a favorable decision. Lujan v. 

Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). To find an “injury in fact,” there must be 

“an invasion of a legally protected interest which is (a) concrete and particularized . . . and 

(b) actual or imminent, not conjectural or hypothetical.” Id. at 560 (internal citations and 

quotation marks omitted). 

With respect to standing, DA Heryford mischaracterizes ABMC’s claims. ABMC 

alleges the contingency-fee agreement, not the DA’s choice of contingency-fee counsel, violates 

its due process right. Opp’n at 21. In ABMC’s view, the contingency-fee agreement creates an 

inherent prejudice in the underlying UCL Suit by giving private counsel a pecuniary interest in 

the outcome of the case, making it unlikely ABMC would receive a fair trial. Id. at 6, 14. A 

personal interest in the litigation extraneous to a government lawyer’s official functions may 

tempt him or her to pursue an action, even where it is not feasible or justifiable to do so. Cf. City 

& Cty. of S.F. v. Philip Morris (Philip Morris), Inc., 957 F. Supp. 1130, 1135 (N.D. Cal. 1997) 

(discussing necessity of barring contingency fee agreements where government lawyer gains a 

personal interest in the litigation extraneous to his or her official functions). 

Accepting these allegations as true, ABMC has suffered an injury in fact, and will 

suffer a concrete and ongoing injury. Moreover, ABMC has demonstrated a causal connection 

between the injury and the conduct it complains of, because the alleged prejudice flows from DA 

Heryford’s reliance on contingency fees to compensate the attorneys who are prosecuting the 

UCL Suit. Finally, a favorable decision would result in DA Heryford’s being enjoined from 

using contingency-fee attorneys in prosecuting the UCL Suit and, therefore, the injury would be 

redressed. ABMC has standing. 

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The court turns next to DA Heryford’s challenge to the adequacy of ABMC’s due 

process claim.

B. Fourteenth Amendment Due Process Violation 

DA Heryford argues the contingency-fee agreement with Baron & Budd cannot 

violate the Due Process Clause. Mot. at 11. ABMC disputes this, contending the Due Process 

Clause bars contingency-fee agreements as they apply to the unique features of the UCL Suit. 

Opp’n at 17. 

1. Absence of Binding Ninth Circuit Authority 

In a relatively recent unpublished opinion, the United States Court of Appeals for 

the Ninth Circuit discussed the due process implications of a contingency-fee agreement between 

the City of San Diego and private counsel to bring private tort claims on behalf of the city against 

a group of business entities. In re City of San Diego, 291 F. App’x 798, 799 (9th Cir. 2008). 

The court held the City was allowed to obtain contingency-fee private counsel to bring the tort 

claims. Id. Here, the UCL Suit is not a private claim brought on behalf of Trinity County as an 

“ordinary party . . . simply enforcing its own contact and property rights against individuals. . . 

that allegedly have infringed upon those interests,” but instead is brought on behalf of the People 

of California. See Mot. at 21; Santa Clara, 50 Cal. 4th at 54. Accordingly, even as it is not 

binding on this court, the City of San Diego case also is distinguishable. See Ninth Circuit Rule 

36–3; Johnson v. Nevada ex rel. Bd. of Prison Comm’rs, No. 11-00487, 2013 WL 5428423, at *7 

(D. Nev. Sept. 26, 2013) (under Ninth Circuit Rule 36–3, unpublished Ninth Circuit opinions 

have “only persuasive rather than authoritative or precedential value”); see also Gray v. Astrue, 

No. 11–294, 2012 WL 4097762, at *9 (D. Idaho Sept. 17, 2012) (same). 

2. California Supreme Court Clancy and Santa Clara Decisions 

Absent controlling authority from this circuit, the court looks to decisions from 

other jurisdictions that discuss the requirements of due process when public entities engage 

private counsel on a contingency-fee basis. The leading analyses can be found in two California 

Supreme Court cases: People ex rel. Clancy v. Superior Court (Clancy), 39 Cal. 3d 740 (1985) 

and County of Santa Clara v. Superior Court (Santa Clara), 50 Cal. 4th 35 (2010). See, e.g., 

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In re City of San Diego, 291 F. App’x at 799–800; Philip Morris, 957 F. Supp. at 1135; Valley v. 

Newmont Mining Corp., No. 04–00149, 2007 WL 4166238 at *1 (E.D. Cal. Nov. 20, 2007); 

Merck Sharp & Dohme Corp. v. Conway (Merck I), 861 F. Supp. 2d 802, 811–814 (E.D. Ky. 

2012). 

In Clancy, the City of Corona, California hired a private attorney on a 

contingency-fee basis to bring a civil public nuisance abatement suit against an adult bookstore 

after several attempts to shut it down, including the City’s adoption of two ordinances purportedly 

regulating adult bookstores. 39 Cal. 3d at 743. In evaluating the constitutionality of the 

contingency-fee agreement, the state Court first reviewed a prosecutor’s responsibilities in a 

criminal case as a point of reference, noting a prosecutor does not merely represent an ordinary 

party to a controversy, but instead is the representative of a “sovereignty whose obligation to 

govern impartially is as compelling as its obligation to govern at all; and whose interest, 

therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done.” 

Id. at 746. 

The state Court observed a prosecutor’s duty of impartiality, or “neutrality,” stems 

from two fundamental aspects of his employment: (1) the obligation to act with the impartiality 

required of those who govern; and (2) the obligation to “refrain from abusing that power by 

failing to act evenhandedly.” Id. With these principles in mind, the state Court concluded “not 

only is a government lawyer’s neutrality “essential to a fair outcome for the litigants in the case in 

which he is involved, it is essential to the proper function of the judicial process as a whole.” Id. 

The state Court then held the neutrality rules applicable to criminal prosecutors 

were equally applicable to government attorneys prosecuting certain civil cases, including private 

attorneys who step into the shoes of government lawyers. Id. at 746–47. It clarified that public 

nuisance abatement suits belong to the “class of civil actions” in which an attorney who 

represents the government must be absolutely neutral. Id. at 748. As such, the state Court 

concluded contingency-fee agreements were “antithetical to the standard of neutrality that an 

attorney representing the government must meet,” and thereby disqualified the private attorney 

from representing the government in the civil nuisance abatement action. Id. at 750. 

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Twenty-five years later, in Santa Clara, the California Supreme Court relied on

Clancy in discussing the due process implications of another public nuisance abatement action 

brought by several public entities against numerous businesses that manufactured lead paint. 

50 Cal. 4th at 43. The public entities were represented by government attorneys as well as private 

law firms through several contingency-fee agreements, and the defendants moved to bar the 

County of Santa Clara’s use of such agreements. Id. Although Clancy and Santa Clara

addressed the same sort of civil public nuisance abatement issue, the Court in Santa Clara held 

the facts before it did not require barring the contingency-fee agreement. Id. at 54. 

In distinguishing Clancy, the Santa Clara Court first discussed the “spectrum of 

neutrality required of a government attorney.” Id. at 55. At one end of this spectrum, absolute 

neutrality was required, which meant that contingency-fee agreements were categorically barred. 

Id. at 51–52. At the other end of the spectrum, where the government was simply enforcing its 

own contract and property rights, no neutrality was needed, and the government could enter in 

contingency-fee agreements without violating the Due Process Clause. Id. at 55. For the Santa 

Clara Court, Clancy fell at the end of the spectrum requiring absolute neutrality, while Santa 

Clara fell in the middle. Id. at 54–55. 

The Santa Clara Court discussed three factors Clancy relied on to decide that 

absolute neutrality was required. Id. at 53. First, the Clancy Court looked at the city’s repeated 

efforts to shut down the bookstore long before it hired private counsel. Id. at 53. This history 

revealed a “profound imbalance between the institutional power and resources of the government 

and the limited means and influence of the defendants—whose vital property rights were 

threatened.” Id. Second, the Clancy Court analogized the public nuisance abatement action in 

that case to an eminent domain action, a type of proceeding in which the state Court had 

previously concluded government attorneys must be unaffected by personal interests such as a 

pecuniary incentive in bringing suit against the defendant. Id. at 57, 49 (citing City of L.A. v. 

Decker, 18 Cal. 3d 860 (1977)). To the state Court, the abatement of a public nuisance posed by 

a bookstore involved a weighing of values, much like an eminent domain proceeding. Id. at 50. 

On balance, Clancy concluded absolute neutrality was needed because the store owner and public 

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had a First Amendment interest in selling and purchasing protected material, respectively. Id. 

Given the values implicated, “any financial arrangement that would tempt the government 

attorney to tip the scale cannot be tolerated.” Id. Third, the Clancy Court noted the suit 

threatened ongoing business activity, id. at 54, and could trigger a criminal prosecution of the 

owner of the property, id. at 50. Taken together, these three considerations warranted a “delicate 

weighing of values on the government attorney’s part, much like a criminal suit,” and thereby 

required disqualification of a private attorney with a pecuniary interest in the outcome of the suit. 

Id. at 50, 54. 

None of these factors were implicated in Santa Clara. Id. at 55. There was no 

threat to the defendants’ legitimate business activities because manufacturing lead paint had been 

illegal since 1978. Id. The suit posed no threat to constitutional rights because no 

constitutionally protected interest was enjoined or implicated by any remedy in the case. Id.

Finally, the court saw no threat of criminal liability because the statute of limitations had run on 

criminalizing the manufacture of lead paint. Id. At the same time, the case did not fall to the 

other end of the spectrum where contingency-fee agreements were allowable without question. 

Unlike an “ordinary civil case,” Santa Clara involved government attorneys appearing as 

representatives of the public, so the concerns identified in Clancy as inherent in a criminal 

prosecution were implicated in Santa Clara. Id. at 55. This public representation, combined with 

the absence of any other Clancy considerations, placed Santa Clara in the middle of the neutrality 

spectrum. Id. at 55. 

In this context, the Santa Clara Court had to decide what due process required. 

See id. at 57. Because the nuisance abatement action was prosecuted on behalf of the public, the 

prosecuting attorneys were subject to the “heightened standard of ethical conduct applicable to 

public officials acting in the name of the public—standards that would not be invoked in an 

ordinary civil case.” Id. In such cases, a “government attorney prosecuting a public action on 

behalf of the government must not be motivated solely by a desire to win a case, but instead owes 

a duty to the public to ensure that justice will be done.” Id. In following Clancy, the Santa Clara

Court held that under this heightened standard, governmental attorneys needed to control and 

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supervise the litigation, for such control would override private counsel’s pecuniary interest in the 

outcome of the case as well as the conflict between personal interests of counsel, the defendant, 

and the general public. Id. Thus, for middle-of-the-neutrality-spectrum cases, the touchstone due 

process inquiry was whether the government attorney had control over the case when he or she 

worked with private counsel under a contingency-fee agreement. Id.

To establish control, the state Court held contingency-fee agreements must provide 

that (1) the public-entity attorneys would retain complete control over the course and conduct of 

the case; (2) government attorneys would retain a veto power over any decisions made by outside 

counsel; and (3) a government attorney with supervisory authority would be personally involved 

in overseeing the litigation. See id. at 64. These provisions were neither exhaustive nor binding 

in every case. Id. (“The unique circumstances of each prosecution may require a different set of 

guidelines for effective supervision and control of the case, and public entities may find it useful 

to specify other discretionary decisions that will remain vested in government attorneys.”). 

Against this backdrop, the Court in Santa Clara held several of the contingencyfee agreements before it were deficient because they did not contain specific provisions regarding 

retention of control and division of responsibility. Id. at 65. Because other contingency-fee 

agreements were not provided in the record for the court to review, the case was remanded for 

determination of the sufficiency of those agreements and to allow private counsel to revise them. 

Id. 

3. Post-Santa Clara Decisions 

Numerous cases after Santa Clara, including several cases from district courts 

within the Ninth Circuit, have adopted the California Supreme Court’s neutrality-spectrum 

analysis. For example, In County of San Francisco v. Philip Morris, Inc., the district court 

concluded that a RICO claim brought by the government against corporate defendants with the 

assistance of private counsel fell in the middle of the neutrality spectrum. See 957 F. Supp. at 

1135–36. Applying the Santa Clara factors, the court found that because the private law firm 

acted as co-counsel, with government attorneys retaining full control over the litigation, there was 

no Due Process Clause violation. Id. Similarly, in City of Grass Valley v. Newmont Mining 

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Corp., No. 04–00149, 2007 WL 4166238, at *1 (E.D. Cal. Nov. 20, 2007), the court denied a 

corporate defendant’s motion to disqualify the city’s contingency-fee counsel because the 

defendant did not counter the city’s showing that private counsel was acting as co-counsel with a 

government attorney and was not appearing in the place of public counsel. 

Although not binding, the Eastern District of Kentucky’s decision in Merck I

presents a case identical in all material aspects to the case before this court. In Merck I, the state 

Attorney General (AG) retained contingency-fee counsel to assist with a state consumer 

protection suit against a corporate defendant. 861 F. Supp. 2d at 806. The defendant filed suit for 

injunctive and declaratory relief, alleging the AG “delegated [its coercive powers] to private 

lawyers having a clear, direct and substantial financial stake in the outcome of [the suit], which it 

alleged violated its [d]ue [p]rocess rights.” Id. at 807. 

The court in Merck I tracked Santa Clara to conclude the consumer protection suit 

before it fell in the middle of the neutrality scale. See id. at 814. This was because, while the 

civil penalties sought in the consumer protection suit were intended to “punish and deter” and 

were thus penal in nature, the case did not implicate Clancy’s considerations with respect to 

constitutional implications of the activity regulated, analogies to eminent domain or public 

nuisance suits, or threats to on-going business activity. See id. at 813–14. Thus, as in Santa 

Clara, the due process inquiry turned on whether the AG controlled the litigation. Id. at 814. 

After looking at the contingency-fee agreements, as well as other evidence before the court that 

shed light on the balance of power between the AG and private counsel, id. at 814–15, the court 

concluded the AG controlled the litigation, and therefore rejected the defendant’s due process 

claim and denied its motion for injunctive and declaratory relief. Id. at 814–15, 817. 

4. Application of Santa Clara to this Case 

This court is persuaded that the neutrality spectrum analysis applies to this case. 

The court therefore first determines whether the government’s underlying suit is criminal, civil, or 

civil but penal in nature. Merck I, 861 F. Supp. at 814. DA Heryford brings the UCL Suit against 

ABMC under California Business and Professions Code sections 17200, et. seq., alleging ABMC 

engaged in “deceptive marketing and sales practices” in connection with “fee-based ancillary 

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products and services to its California credit cardholders.” ECF No. 12-1 at 3. Although civil 

penalties may be assessed under section 17200, the law contains no criminal provisions, and 

remedies are generally limited to injunctive relief and restitution. Korea Supply Co. v. Lockheed 

Martin Corp., 29 Cal. 4th 1134, 1144 (2003). DA Heryford seeks statutory penalties, which, as 

his counsel conceded at the hearing, are intended to punish and deter. See Beaver v. Tarsadia 

Hotels, ___F. 3d ___, No. 15-55106, 2016 WL 909163, at *3 (9th Cir. Mar. 10, 2016) (the 

unlawful prong proscribes the kinds of unlawful business practices punishable under the statute); 

see also In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009) (UCL is intended to deter unfair 

business practices). The court finds the UCL Suit against ABMC is civil but penal in nature and 

thus implicates the requirement of neutrality. See Merck I, 861 F. Supp. 2d at 814. 

ABMC argues this case falls on the same end of the scale as Clancy, contending 

ABMC’s First Amendment interests are implicated, given the attack on its marketing to 

cardholders. Opp’n at 14. ABMC cites no case law to support a conclusion that conduct giving 

rise to an action under the UCL, targeting deceptive marketing of ancillary products and services, 

is protected by the First Amendment, in contrast to the well-established First Amendment 

protection afforded to the Clancy plaintiff’s right to distribute adult materials.1 ABMC’s 

conclusory assertion that the UCL Suit targets protected commercial speech is insufficient, 

without more, to support a finding that constitutional concerns are implicated by the litigation. 

The court need not give weight at this stage to such legal conclusions cast in the form of factual 

assertions. See Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011). The level of neutrality 

implicated here is similar to that in Santa Clara and Merck I. 

The second question, then, is who controls the UCL Suit against ABMC. See 

Merck I, 861 F. Supp. 2d at 815. To answer this question, the court looks first at the contingencyfee agreement itself, attached to the operative complaint, and then to other alleged facts to 

determine whether private counsel “have ever engaged in any conduct that invaded the sphere of 

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some lawful activity and not be misleading. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. 

Comm’n of New York, 447 U.S. 557, 557 (1980). 

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control” reserved to DA’s Heryford’s office. Id.; see also Lee v. City of L.A., 250 F.3d 668, 688 

(9th Cir. 2001) (court may consider attached “material which is properly submitted as part of the 

complaint” on motion to dismiss without converting motion into one for summary judgment) 

(internal citations omitted). 

DA Heryford asserts the contingency-fee agreement requires he maintain 

“complete control” over the litigation. Mot. at 16. ABMC alleges DA Heryford’s participation in 

the UCL Suit is “significantly diminished or nonexistent” as a result of the contingency-fee 

agreement. FAC ¶ 24. ABMC points to several provisions in the contract, including its 

characterization of the law firms as “independent contractors” with the “authority and 

responsibility to control and direct the performance and details of the work and services required 

under this Agreement.” FAC ¶ 23; Opp’n at 8. ABMC also points out that the law firm’s work is 

subject merely to the DA’s “general right” to “inspect work in progress to determine whether, in 

the District Attorney’s opinion, the services are being performed by [Barron & Budd] in 

compliance with this Agreement.” Id. 

The court disagrees that the contingency-fee agreement diminishes the DA’s 

control over the UCL Suit. The beginning of the agreement states Barron & Budd is “authorized 

and directed to assist the District Attorney in making claims for Trinity County, and to prosecute 

such claims through assessment, enforcement, collection and all necessary and reasonable appeals 

as the District Attorney shall direct, and to enforce all judgments and settlements as shall be 

obtained.” ECF No. 12-1 at 30. To the extent Barron & Budd provides legal services, it is for 

“representation and assistance.” Id. Additionally, the contract makes clear DA Heryford does not 

“relinquish [his] constitutional or statutory authority or responsibility through this Agreement,” 

and that he has “sole and final authority to initiate and settle this litigation on behalf of Trinity 

and its citizens, and retains final authority over all aspects of the litigation.” Id. Read as a whole, 

the agreement provides that DA Heryford controls the litigation, with Baron & Budd serving as 

co-counsel. Accordingly, the fee agreement does not violate ABMC’s due process rights. See 

Merck I, 861 F. Supp. 2d at 815 (“[C]ontingency-fee agreements can be constitutional so long as 

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the Office of Attorney General retains absolute and total control over all critical decisionmaking.”). 

Notwithstanding the contingency-fee agreement’s written provisions, other factual 

allegations may show Barron & Budd, and not DA Heryford, controls the litigation. Id. (“Even 

though there is an explicit clause reserving the AG’s authority over the [] litigation, the Court 

may ask whether the private counsel have ‘ever engaged in any conduct that invaded the sphere 

of control’ reserved to the AG’s office.”). As noted, ABMC does allege DA Heryford made 

public comments at a meeting with the Trinity County Board of Supervisors, in which the DA 

characterized the relationship with Barron & Budd as “a lot of upside with not a lot of downside.” 

FAC ¶ 24. ABMC also alleges DA Heryford told a newspaper that because of the contingencyfee arrangement, prosecution of the UCL Suit would not “interfere” with his caseload, and that 

the suit would not cost Trinity County or his office any money because it was “being handled by 

the law firms.” FAC ¶ 26. Lastly, ABMC cites to Barron & Budd’s website where counsel states 

their focus is “fully managing the litigation.” FAC ¶ 27. 

These allegations do not support a finding that DA Heryford has ceded control of 

the UCL Suit to Barron & Budd. Rather, DA Heryford maintains final control over the direction 

of the litigation. FAC ¶ 25. As to the newspaper statements, nonparticipation in the legwork of a 

case does not mean a lack of control. See Merck Sharp & Dohme Corp. v. Conway (Merck II), 

947 F. Supp. 2d 733, 748 (E.D. Ky. 2013). The same reasoning applies to the statements on 

Barron & Budd’s website: when read in context, the firm says it will “provide assistance” to the 

DA or “advis[e]” the DA on matters in the litigation. FAC ¶ 27. 

ABMC’s allegations, taken together, do not support the conclusion that DA 

Heryford does not control the underlying UCL Suit. 

5. Conclusion

The underlying UCL Suit against ABMC is civil but penal in nature such that the 

neutrality principle is implicated. However, the complaint’s allegations are insufficient to show 

that DA Heryford does not control litigation of the UCL Suit. The court concludes ABMC does 

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not state a claim for violation of its Fourteenth Amendment due process rights. Accordingly, DA 

Heryford’s motion to dismiss is GRANTED. 

IV. LEAVE TO AMEND 

In dismissing for failure to state a claim, “a district court should grant leave to 

amend even if no request to amend the pleading was made, unless it determines that the pleading 

could not possibly be cured by the allegation of other facts.” Doe v. United States, 58 F.3d 494, 

497 (9th Cir. 1995). Because the complaint’s shortcomings might be cured by allegations 

regarding DA Heryford’s control over the litigation, ABMC is granted leave to amend. ABMC 

shall file the second amended complaint within fourteen (14) days of the date of this order. 

ABMC’s motion for summary judgment, however, ECF No. 13, is DENIED as MOOT as it relies 

on the now dismissed first amended complaint. Additionally, Amici’s motion to file a brief in 

support of ABMC’s now dismissed motion for summary judgment is also DENIED as MOOT. 

This resolves ECF Nos. 13, 18, and 21. 

IT IS SO ORDERED. 

DATED: June 2, 2016. 

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