When “Loser Pays” Threatens Public-Interest Litigation

April 15, 2019
by Deborah J. La Fetra

In the United States, most litigants pay their own lawyers, win or lose. But public-interest cases are different. We want to encourage those brave souls who challenge unconstitutional or otherwise illegal government action, often at great personal cost, to protect fundamental rights or effect social change.

Therefore, both federal and state laws allow successful public-interest plaintiffs to recover attorney fees from the losing governmental entity. As I explain in Fee Awards Turned Upside Down: A Threat to Public-Interest Litigation, published by the Goldwater Institute, California courts have recently begun awarding fees against unsuccessful plaintiffs in public-interest lawsuits—a trend that threatens to deter such litigation, contrary to the public interest.

In public-interest litigation, individuals or associations sue the government to enforce constitutional and other rights. Other interested private parties may intervene, supporting either the plaintiffs or the defendants. Courts are often generous in permitting such intervention, even over the plaintiffs’ objections, and even though it complicates the lawsuit and makes it more expensive to litigate. Advocacy groups that intervene on the side of the government to defend a challenged law (known as designated defendant-intervenors) create special problems for public-interest plaintiffs in California.

For example, the city of San Jose adopted an ordinance requiring residential developers to set aside a certain percentage of new units to sell at below-market rates, or to pay an in-lieu fee. The California Building Industry Association (CBIA), a private trade association representing businesses throughout the homebuilding and development sector, sued the city on behalf of its members, arguing that the ordinance violated the takings clauses of the state and federal constitutions. Although the city committed to defending the ordinance, several affordable housing advocacy groups intervened in defense of the law, over CBIA’s objection. The trial court agreed with CBIA’s claims and enjoined the ordinance, but the Court of Appeal reversed and the California Supreme Court ultimately upheld the law. When the United States Supreme Court denied CBIA’s petition for a writ of certiorari, the advocacy groups moved for attorneys’ fees against CBIA. The trial court awarded them more than $826,000.

It is the nature of cutting-edge public-interest litigation that plaintiffs win some and lose some. These are not “easy” cases. Because the law encourages challenges to governmental action, losing public-interest plaintiffs rarely have to pay attorney fees to the government defendants. Under federal law, a court would have to find that the lawsuit was utterly frivolous and without foundation—an exceedingly high bar—before awarding fees to a prevailing defendant. In California, the state fee-shifting statute explicitly forbids an award of fees to a prevailing governmental agency. But it says nothing about prevailing private defendant-intervenors. And that’s where the problem arises.

Allowing prevailing defendant-intervenors to recover fees from private public-interest plaintiffs subverts the purposes of the fee-shifting statutes and chills plaintiffs’ First Amendment rights to petition the courts. Moreover, in California, defendant-intervenors may be deemed “functional amici” and thus immune from paying fees to a prevailing public interest plaintiff. Parties who cannot be liable for fees also should not be able to recover them. This is especially unfair because plaintiffs usually oppose intervention; they are forced to litigate against an intervening private party. Finally, awarding fees to defendant-intervenors encourages the government to outsource the defense of laws to outside private advocacy groups, creating conflicts between the groups’ ideological goals and the public interest that the government is expected to pursue in court.

Defendant-intervenor motions for attorney fees arise from public-interest plaintiffs’ exercise of fundamental free-speech and petition rights protected by the First Amendment. Fee awards to such defendant-intervenors consequently chill good-faith claims that are necessary to vindicate constitutional and other rights and promote the public good.

Deborah J. La Fetra is a Senior Attorney at the Pacific Legal Foundation. She is the author of the Goldwater Institute report, Fee Awards Turned Upside Down: A Threat to Public-Interest Litigation.