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HomeMy WebLinkAbout11-City Attorney CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION Date: July 20, 20 II Subject: Resolution of the Mayor and Common Council of the City of San Bernardino Authorizing the Execution of a Retainer Agreement Between Phillips & Cohen LLP, Day Pitney LLP and the City of San Bernardino for Legal Services in the Case of United States and State of California et AI. Ex ReI. Hendrix V J-m Manufacturing Co., et AI., Case No.: ED CV06- 0055-GW From: Diane C. Roth Sf. Assistant City Attorney Dept: CITY ATTORNEY Synopsis of Previous Council Action: 9/8/09 The Mayor and Common Council approved retaining Day Pitney and Phillips & Cohen in this matter in closed session. Recommended motion: That said Resolution be adopted. Signature Contact person: Richard Luczak Phone: 5355 Supporting data attached: StaffReoort Ward: All FUNDING REQUIREMENTS: Amount: Source: Finance: Council Notes: Agenda Item No. II OS~Dh1-()1I STAFF REPORT Council Meeting Date: AUl!ust 1. 2011 TO: Mayor and Common Council FROM: Diane C. Roth, Sr. Assistant City Attorney DATE: July 20, 2011 AGENDA ITEM: Resolution of the Mayor and Common Council of the City of San Bernardino Authorizing the Execution of a Retainer Agreement between Phillips & Cohen LLP and Day Pitney LLP and the City of San Bernardino for Legal Services in the Case of United States and State of California et al. Ex rei. Hendrix v. J-M Manufacturing Co., et al., Case No.: ED CY06-0055-GW The City of San Bernardino is currently one of many plaintiffs in a nationwide lawsuit regarding allegations of defective pipe. On September 8, 2009 in closed session, the Mayor and Common Council approved retention of the law firm of Phillips & Cohen LLP and Day Pitney LLP to represent the City of San Bernardino regarding the case entitled United States and State of California et ai. Ex rei. Hendrix v. J-M Manufacturing Co., et al., Case No.: ED CY06-0055-GW. From that time, the City Attorney's Office and the two law firms have been negotiating certain language in the agreement which has been finalized in a form that is acceptable to the City. Attached hereto is the Retainer Agreement which reflects such approval. It is requested by the City Attorney that the following floor motion be adopted authorizing the Mayor to execute the Professional Services Agreement on behalf ofthe City of San Bernardino. "That the Mayor of the City of San Bernardino and Common Council authorize and direct the Mayor of the City of San Bernardino to execute on behalf of the City of San Bernardino the Retainer Agreement with Phillips & Cohen LLP, Day Pitney LLP to represent the City of San Bernardino regarding the case entitled United States and State of California et ai. Ex rei. Hendrix v. J-M Manufacturing Co., et ai., Case No.: ED CY06-0055-GW 1 RESOLUTION NO. 2 RESOLUTION OF THE MA YORAND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AUTHORIZING THE EXECUTION OF A RET AINERAGREEMENT 3 BETWEEN PHILLIPS & COHEN LLP, DAY PITNEY LLP AND THE CITY OF SAN BERNARDINO FOR LEGAL SERYICES IN THE CASE OF United States and State of 4 California et al. Ex rei. Hendrix v. J-M Manufacturing Co., et al., Case No.: ED CY06-0055-GW 5 6 BE IT RESOL YED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS: 7 8 SECTION 1. The Mayor ofthe City of San Bernardino is hereby authorized and directed 9 to execute on behalf of said City a Professional Services Agreement between Phillips & Cohen LLP, Day Pitney LLP and the City of San Bernardino for legal services in the case of United States and 10 11 State of California et al. Ex rei. Hendrix v. J-M Manufacturing Co., et aI., Case No.: ED CV06- 0055-GW, a copy of which is attached hereto and incorporated herein as Exhibit "A." 12 13 SECTION 2. The authorization granted by this Resolution shall expire and be void and 14 15 of no further effect if the agreement is not executed by all parties and returned to the Office of the City Clerk within ninety (90) days following the effective date of this Resolution. 16 /1/ 17 //1 18 /1/ 19 //1 20 /1/ 21 /1/ 22 //1 23 /1/ 24 /1/ 25 /1/ 26 /1/ 27 /1/ 28 P:\LUCZAK\CIVILVM Mfg (outside)\Resolution Retainer.wpd 1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AUTHORIZING THE EXECUTION OF A PROFESSIONAL SERVICES 2 AGREEMENT BETWEEN BETWEEN PHILLIPS & COHEN LLP, DAY PITNEY LLP AND THE CITY OF SAN BERNARDINO FOR SERVICES IN THE CASE OF UNITED STATES 3 and STATE OF CALIFORNIA, et al. Ex rei. HENDRIX v. J-M Manufacturing Co., et al., USDC Case No. EDV06-0055-GW 4 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and 5 Common Council of the City of San Bernardino at a meeting thereof, held on the _ 6 day of 7 COUNCIL MEMBERS: 8 MARQUEZ 9 JENKINS 10 BRINKER 11 SHORETT 12 KELLEY 13 JOHNSON 14 MC CAMMACK 15 16 17 ,2011, by the following vote, to wit: AYES NAYS ABSTAIN ABSENT Rachel Clark, City Clerk 18 The foregoing Resolution is hereby approved this _ day of , 2011. 19 20 21 PATRICK J. MORRIS, Mayor City of San Bernardino 22 Approved as to form: 23 JAMES F. PENMAN, 24 City Attorney 25 26 27 28 P:\LUCZAK\CIVILVM Mfg (outside)\Resolution Retainer.wpd RETAINER AGREEMENT This Retainer Agreement represents the understanding and agreement between the City of San Bernardino, California ("San Bernardino"), Phillips & Cohen LLP ("P&C"), and Day Pitney LLP ("DP"). Retention of P&C and DP 1. San Bernardino hereby retains P&C and DP to represent it in legal actions that have or will be filed against J-M Manufacturing Company, Inc. and Formosa Plastics Corporation, U.S.A. (collectively, "Defendants"), and related entities, regarding fraud committed against San Bernardino and other governmental entities (the "Lawsuits"). One of the Lawsuits in which P&C and DP are authorized to represent San Bernardino is pending in the Central District of California, United States and State of California et a!. ex reI. Hendrix v. J-M Manufacturing Co.. et a!., Case No. ED CY06-0055-GW. P&C and DP also represent qui tam plaintifflrelator John Hendrix ("Hendrix") and have a separate retainer agreement with him in that action. P&C and DP are also authorized to initiate and represent San Bernardino in another action on the same subject matter that raises causes of action that are not currently being litigated in the first action, including actions initiated in state court in California. P&C and DP also represent other California cities and governmental entities, including, by way of example, Alameda County Water District ("ACWD"), Dublin San Ramon Services District ("DSRSD"), Moulton Niguel Water District ("MNWD"), Calleguas Municipal Water District ("CMWD"), North Marin Water District ("NMWD"), Palmdale Water District ("PWD"), South Tahoe Public Utility District ("STPUD"), El Dorado Irrigation District ("EID"), Yalley of the Moon Water District ("YOMWD"), San Diego County, Soquel Creek Water District ("SCWD") and the Cities of Brentwood, Calistoga, Chino, Livermore, Oceanside, Oxnard, Pomona, Ripon, Sanger, Santa Cruz, Santa Maria, Santa Rosa, Yallejo and Yountville, California and have separate retainer agreements with each. P&C and DP may also represent other governmental entities who are currently real parties in interest in the Lawsuits. Current and future P&C and DP clients in the Lawsuits shall be referred to collectively as "Other Clients." 2. San Bernardino hereby authorizes P&C and DP to associate or consult in this representation with such other counsel as they may deem necessary, subject to the approval of San Bernardino. Unless otherwise agreed to by San Bernardino, P&C and DP in writing, P&C and DP shall be responsible for compensating any counsel with whom P&C and DP associate or consult. Notwithstanding any such association of other counsel, and unless such authority is expressly delegated by P&C and DP to other counsel with the consent of San Bernardino, P&C and DP shall retain the authority and responsibility of counsel in any litigation pursuant to this Retainer Agreement, subject to the direction of the San Bernardino City Attorney as provided under paragraph 8. f"':'xhibit "A" 7]5989943 Scope of Representation 3. San Bernardino understands that the P&C and DP will represent it to prosecute San Bernardino's claims under the California False Claims Act and common law claims by San Bernardino. San Bernardino understands that the representation presently undertaken by P&C and DP is limited to matters necessary to bring the Lawsuits to a conclusion before the trial court. The representation currently includes pursuit of claims on behalf of Hendrix, ACWD, CMWD, DSRSD, MNWD, NMWD, PWD, STPUD, EID, VOMWD, San Diego County, SCWD, Brentwood, Calistoga, Chino, Livermore, Oceanside, Oxnard, Pomona, Ripon, Sanger, Santa Cruz, Santa Maria, Santa Rosa, Vallejo and Yountville, and may, in the future, include pursuit of other state or federal False Claims Act Claims and common law claims on behalf of other states, localities and/or their respective public water systems. 4. San Bernardino has been informed and understands that P&C and DP do not represent it in connection with the negotiation of the terms of this Retainer Agreement. Rather, P&C and DP are each acting on its own behalf and San Bernardino is entitled and encouraged to review this Retainer Agreement with separate counsel. 5. In the absence of a written agreement to the contrary, P&C and DP do not represent San Bernardino in any legal matter other than as set forth herein. San Bernardino's Oblieations 6. Where appropriate, San Bernardino, P&C and DP will attempt to consult with one another before discussing the Lawsuits with the media or any other third party. 7. San Bernardino agrees to provide promptly any and all information requested by P&C and DP and to cooperate fully in the prosecution of the Lawsuits, including but not limited to, attending scheduled hearings and meetings, answering truthfully any interrogatories propounded by opposing parties, appearing for the taking of any deposition, and participating cooperatively in any judicial or other proceeding as may arise during the course of the Lawsuits. 8. While P&C and DP will act as outside counsel for San Bernardino in prosecuting its claims in the Lawsuits as provided in this Retainer Agreement, San Bernardino's City Attorney's Office ("City Attorney") shall at all times remain San Bernardino's general legal advisor. In addition, City Attorney shall retain control over the course and conduct of the Lawsuits, including any settlement, and shall have the right to veto P&C and DP decisions about the Lawsuits. An attorney from the City Attorney's Office with supervisory authority shall be assigned to be personally involved in overseeing the Lawsuits. City Attorney shall have 71598994.3 2 responsibility for facilitating access ofP&C and DP to San Bernardino's personnel and records in connection with the Lawsuits. As between P&C and DP, on the one hand, and City Attorney on the other, City Attorney shall have primary responsibility for informing, advising and consulting with its public water systems directors, City Councilor other governing bodies with respect to the Lawsuits, including without limitation issues relating to its settlement. Attornevs' Fees, Costs and Expenses 9. San Bernardino understands that, because it elected to intervene in the False Claims Act Lawsuits, San Bernardino is required under the California False Claims Act to provide to Hendrix - as the Qui tam plaintiff - at least 15% but not more than 33% of the money recovered by San Bernardino from Defendants; if San Bernardino had elected not to intervene, it would be required to pay Hendrix at least 25% but not more than 50%. San Bernardino also understands that it has no legal obligation to share with Hendrix any of the money it recovers from Defendants under any of its common law claims. San Bernardino nevertheless agrees to share any common law recovery with Hendrix in order to minimize the conflicts of interest that might otherwise arise between Hendrix and San Bernardino. Therefore, San Bernardino, P&C, DP, and Hendrix understand and agree that San Bernardino will pay to Hendrix 28% of the full amount of any award or settlement San Bernardino recovers under any legal theory from Defendants, or any of them, as a result of the Lawsuits ("the Relator's Share"). To compensate P&C and DP for their services, San Bernardino, P&C, and DP understand and agree that, in addition to paying Hendrix the Relator's Share, San Bernardino will pay to P&C and DP 5% of the full amount of any award or settlement San Bernardino recovers from Defendants, or any of them (before payment of the Relator's Share) as a result of the Lawsuits ("the contingent fee"). 10. San Bernardino has been informed and understands that the above fees are not prescribed by law but are negotiable between attorney and client. San Bernardino has also been informed and understands that Hendrix has agreed to pay to DP and P&C a percentage share of his portion of any recovery in the Lawsuits. 11. For as long as they remain counsel to San Bernardino in the Lawsuits, P&C and DP agree that they will advance all funds needed to pay for the following expenses incurred in connection with representing San Bernardino in the Lawsuits: filing fees, faxing, postage, phone, routine photocopying (other than photocopying performed by San Bernardino, as described below), transcripts, court reporters and expert witness expenses as well as the costs involved in taking and defending depositions and preparing for and prosecuting San Bernardino's claims at trial. The parties agree that all internal costs and expenses of the Lawsuits including without limitation photocopying expenses incurred by or on behalf of San Bernardino in connection with responding to subpoenas and document requests, shall be advanced by San Bernardino. To the extent that any costs and expenses advanced or incurred 7]5989943 3 by P&C and DP are later awarded to San Bernardino by the court or recovered through settlement, San Bernardino hereby assigns to P&C and DP such award or settlement proceeds. Any reasonable costs and expenses associated with the Lawsuits that are incurred or advanced by P&C, DP or by San Bernardino, but that are not awarded by the court or recovered through settlement, shall be reimbursed to the party who incurred or advanced the expenses from San Bernardino's recovery, if any, prior to the division and distribution of such recovery referred to in paragraph 9 above. 12. San Bernardino shall not be obligated to payor to guarantee payment of any compensation to P&C or DP for services rendered or costs incurred in the Lawsuits other than as set forth in this Retainer Agreement. If for any reason there is no recovery in the Lawsuits, San Bernardino shall not be obligated to pay for or reimburse to P&C or DP any costs incurred in connection with the Lawsuits. 13. San Bernardino agrees to cooperate fully in the prosecution of any claim by P&C and DP for court awarded expenses, costs, or fees. Termination of Representation 14. San Bernardino may discharge P&C and/or DP at any time by written notice to P&C and DP. Upon termination (or otherwise), San Bernardino retains the right to demand return of all of its client files, including confidential communications, provided, however, that P&C and DP may keep a copy of and continue to use San Bernardino's confidential information in their continuing representation of other parties in the Lawsuits. IS. IfP&C and/or DP determine at any time that it is no longer feasible or desirable to pursue the Lawsuits on behalf of San Bernardino, P&C and/or DP may, after providing thirty days written notice to San Bernardino, withdraw from further representation, as provided by law. In that event, the withdrawing firm shall be entitled to a portion of the contingent fee as provided by law. As provided in paragraph 22 below, in the event P&C and/or DP terminate representation of San Bernardino, P&C and DP may keep a copy of and continue to use San Bernardino's confidential information in their continuing representation of other parties in the Lawsuits. 16. San Bernardino understands and agrees that in the event P&C and/or DP is discharged and (i) San Bernardino proceeds with the Lawsuits with or without substitute counsel; (ii) San Bernardino receives a recovery from Defendants, and (iii) P&C and DP are not entitled to their full 5% contingent fee as provided in paragraph 9, then San Bernardino shall pay the discharged counsel on a quantum meruit basis. The parties agree that for purposes of this Retainer Agreement quantum meruit shall be measured as a portion of the 5% contingent fee described in paragraph 9 in proportion to the percentage of the hours expended by the discharged 71598994.3 4 counsel compared with the hours expended by substitute counsel, if any (appropriately weighted based upon normal hourly rates). In addition, San Bernardino understands and agrees that, ifDP and/or P&C is discharged, Hendrix's right to share in any recovery obtained from Defendants shall not be affected, i.e., Hendrix shall continue to receive 28% of the full amount of any award or settlement San Bernardino recovers from Defendants as a result of the Lawsuits, including the California False Claims Act and common law claims, as provided in paragraph 9 hereto. San Bernardino also understands and agrees that it will not object to the discharged counsel's continued representation of the Other Clients. Waiver of Potential Conflicts Arisinl! from Representation in Matters Unrelated to the Lawsuits 17. San Bernardino hereby agrees that P&C and DP, at any time, may represent existing or new clients in any matter (including without limitation any litigation, action, proceeding, transaction or negotiation) that is not substantially related to the Lawsuits, even if the interests of those clients are directly adverse or potentially directly adverse to San Bernardino. San Bernardino hereby expressly waives any conflict of interest that may hereafter arise in connection with such representation. 18. Except as to information disclosed to Other Clients whom DP and P&C represent in the Lawsuits, San Bernardino's confidential information obtained in the course of the Lawsuits will remain confidential and will not be disclosed to any other clients ofDP and P&C. In the event of any representation adverse to San Bernardino, not involving parties to the Lawsuits, DP and P&C will establish as appropriate, procedures to make certain that no attorney or paralegal working on such matter has access to any confidential information which San Bernardino has provided to P&C and/or DP. Waiver of Conflicts Resultim!: From Joint Representation of San Bernardino and Other Clients in Lawsuits 19. San Bernardino is aware that while multiple representation may result in economic or tactical advantages, it also involves significant risks. San Bernardino understands that P&C and DP's joint representation of San Bernardino and Other Clients creates the potential for a conflict of interest to arise between or among them, or any of them, in the future. The potential for conflict exists for at least the following reasons: (i) because P&C and DP are entitled to statutory attorneys' fees under the California False Claims Act for the prosecution of Hendrix's claims but P&C and DP are not entitled to statutory fees for the prosecution of the claims of San Bernardino or any additional Other Clients; and (ii) because San Bernardino may wish to pursue a litigation strategy or tactic, including without limitation settling the Lawsuits, with which one or more of the Other Clients disagree or believe to be contrary to their/its interests. Conversely, one or more of the Other 71598994.3 5 Clients may want to pursue a litigation strategy or tactic, including without limitation settling the Lawsuits, with which San Bernardino disagrees or believes to be contrary to its interests. San Bernardino hereby expressly waives any such conflicts of interest that may currently exist or hereafter arise between it on the one hand, and the Other Clients, or any of them, on the other hand. P&C and DP represent that they have informed Hendrix of the potential for a conflict of interest arising from the joint representation and Hendrix has executed a formal, written conflict of interest waiver. Should P&C or DP agree to represent additional Other Clients, they will similarly inform them and execute waivers with them. 20. San Bernardino, P&C and DP are not aware of any adversity or conflicts of interest that currently exist. Should a conflict of any type develop in the course of the representation of San Bernardino by P&C and DP in the Lawsuits (including without limitation those waived in paragraphs 17 and 19 above), P&C and DP might reach the conclusion that they cannot continue to represent all of their then clients. San Bernardino hereby agrees that, should P&C and DP in their sole discretion reach such a conclusion, P&C and DP may terminate their relationship with San Bernardino pursuant to the terms of the Retainer Agreement and continue to represent one or more of their Other Clients in the Lawsuits, even though P&C and DP would be in possession of San Bernardino's confidential information and even though, as provided in this Retainer Agreement, San Bernardino agrees that P&C and DP may keep a copy of and use that confidential information in their continued representation of Other Clients in the Lawsuits and those Other Clients may be adverse to San Bernardino. San Bernardino understands that in the event that P&C and DP determine that a conflict does exist and that P&C and DP could not continue to represent all of their Other Clients, P&C and DP would continue to represent Hendrix and one or more of the additional Other Clients rather than San Bernardino. San Bernardino hereby agrees that, in the event P&C and DP terminate their representation of San Bernardino and continue with representation of Other Clients, San Bernardino will not assert any conflict of interest (such conflicts having been expressly waived herein) and will not seek to disqualify P&C and/or DP from representing Hendrix and/or any Other Clients notwithstanding any conflict or adversity that may develop. San Bernardino further understands that, even with thirty days' written notice, the termination of P&C and DP's representation of San Bernardino, as provided by law, could come at an inopportune time (even at trial). In the event P&C and DP terminate their representation of San Bernardino, they agree to take reasonable steps to reduce any hardship or prejudice to San Bernardino, including supporting reasonable requests for extensions or reasonable delay of trial in order to allow San Bernardino an opportunity to obtain replacement counsel. 21. San Bernardino hereby agrees that in the event that P&C and DP terminate their representation of San Bernardino, P&C and DP shall be entitled to keep a copy of and use San Bernardino's confidential information in their continued 71598994.) 6 representation of other clients in the Lawsuits. Further, San Bernardino hereby agrees that P&C and DP at any time may share San Bernardino's confidential communications with Other Clients whom P&C and DP are jointly representing in this matter (even ifP&C and DP are no longer representing San Bernardino). 22. Furthermore, because P&C and DP will be jointly retained by both San Bernardino and the Other Clients in the Lawsuits, in the event of a dispute between San Bernardino on the one hand and Other Clients, or any of them, on the other hand, the attorney-client privilege generally will not shield San Bernardino's communications with P&C and DP from discovery by the Other Clients whom P&C and DP are jointly representing. 23. Conflict waivers are always serious matters and always have potential downsides to the waiving party. In this case, San Bernardino's waivers may result, for example, in P&C and DP being adverse to San Bernardino while in the possession of confidential or other information which San Bernardino has provided. In addition, it is possible in accordance with these waivers that P&C and DP would be simultaneously representing San Bernardino and parties adverse to San Bernardino and that this may cause San Bernardino to lose confidence in P&C and DP at an inopportune moment when it would be disadvantageous to San Bernardino to discharge P&C and DP. The waivers set forth in paragraphs 17-22 above are particularly critical to San Bernardino's rights and interests. For this reason, and because of the importance and complexity of conflict waivers generally, P&C and DP strongly recommend that San Bernardino consult with independent counsel prior to executing the Retainer Agreement so that San Bernardino may independently be advised of its rights and needs. Non-bindinl!: Arbitration 24. In the event of a dispute between or among the parties hereto regarding fees, costs, or any other matter related to or arising out of this retainer agreement, the lawsuits, or the engagement by San Bernardino of the attorneys herein, including without limitation the quality of the services rendered, the dispute may, without limitation, be determined, settled and resolved by non-binding arbitration in California and California law will apply. The prevailing party in any such arbitration shall be entitled to reasonable attorneys' fees and costs. Arbitration may be sought by the sending of written notice to the other party or parties. If arbitration is sought and all parties agree to arbitrate the matter, within twenty (20) days of the agreement to arbitrate San Bernardino shall present a list of five (5) qualified individuals who would be willing to serve that San Bernardino would find acceptable to act as arbitrator. To serve as arbitrator, the individual must be a retired judge having served on any federal court or the California Superior Court or higher court in the State of California. Within twenty (20) days of P&C and DP receiving San Bernardino's list, P&C and DP may at their sole discretion 715989943 7 (i) select any individual from that list and that individual shall serve as the arbitrator, or (ii) propose their own list of five (5) individuals for arbitrator. IfP&C and DP choose to present a separate list, San Bernardino may within twenty (20) days select any individual from that list and that person shall serve as arbitrator. If no arbitrator can be agreed upon at the end of this process, San Bernardino on the one hand and P&C and DP on the other hand shall select one individual from their own respective list and those two persons shall jointly select the arbitrator. The arbitration shall be conducted pursuant to the procedures set forth in the California Code of Civil Procedure SS 1280, et seq., and in that connection San Bernardino, P&C and DP agree that Section 1283.05 thereof is applicable to any such arbitration. Unless inconsistent with California Code of Civil Procedure SS 1280, et seq. (in which case SS 1280, et seq. shall prevail), the arbitration will be conducted by the American Arbitration Association pursuant to its then current rules. Venue and Choice of Law 25. If either party chooses not to arbitrate, venue for any dispute arising out of this agreement shall be proper only in a court with competent jurisdiction in the County of San Bernardino or the United States District Court for the Central District of California. California law shall apply to the interpretation and enforcement of this agreement. Miscellaneous 26. The entire agreement between San Bernardino, P&C and DP relating to the subject matter of this Retainer Agreement is contained herein. No promises, inducements, or considerations have been offered, accepted or given except as herein set forth. This Retainer Agreement supersedes any prior oral or written agreement concerning the subject matter of this Retainer Agreement. 27. This Retainer Agreement may not be modified, changed, altered or amended in any way except in a writing signed by all parties. The parties expressly agree that no oral modification of this Retainer Agreement shall be effective, notwithstanding any provisions of the governing law that may allow for oral modification. 28. The parties hereby acknowledge that they have read and understand the foregoing, that they have had the opportunity to consult with independent counsel, and that they agree to the representation on the terms set forth in this Retainer Agreement. 29. If any provision of this Retainer Agreement is held in whole or in part to be unenforceable for any reason, the remainder of that provision and of the entire Retainer Agreement will be severable and remain in effect. 71598994.3 8 30. Duplicate originals of this Retainer Agreement will be executed by the Parties. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same agreement. 715989943 9 THE UNDERSIGNED HAS READ AND AGREES TO THE FOREGOING NINE PAGES CONSISTING OF THIRTY (30) PARAGRAPHS. Dated: By: PHILLIPS & COHEN LLP Dated: By: DAY PITNEY LLP AGREED; CONFLICTS WAIVED AS PROVIDED ABOVE: By: CITY OF SAN BERNARDINO, CALIFORNIA Dated: By signing below, I understand and agree to the Relator's Share provided in paragraph 9. Dated: By: JOHN HENDRIX 71598994.3 10 RETAINER AGREEMENT This Retainer Agreement represents the understanding and agreement between the City of San Bernardino, California ("San Bernardino"), Phillips & Cohen LLP ("P&C"), and Day Pitney LLP ("DP"). Retention of P&C and DP I. San Bernardino hereby retains P&C and DP to represent it in legal actions that have or will be filed against J-M Manufacturing Company, Inc. and Formosa Plastics Corporation, U.S.A. (collectively, "Defendants"), and related entities, regarding fraud committed against San Bernardino and other governmental entities (the "Lawsuits"). One of the Lawsuits in which P&C and DP are authorized to represent San Bernardino is pending in the Central District of California, United States and State of California et a!. ex reI. Hendrix v. J-M Manufacturing Co.. et a!., Case No. ED CV06-0055-GW. P&C and DP also represent Qui tam plaintiff/relator John Hendrix ("Hendrix") and have a separate retainer agreement with him in that action. P&C and DP are also authorized to initiate and represent San Bernardino in another action on the same subject matter that raises causes of action that are not currently being litigated in the first action, including actions initiated in state court in California. P&C and DP also represent other California cities and governmental entities, including, by way of example, Alameda County Water District ("ACWD"), Dublin San Ramon Services District ("DSRSD"), Moulton Niguel Water District ("MNWD"), Calleguas Municipal Water District ("CMWD"), North Marin Water District ("NMWD"), Palmdale Water District ("PWD"), South Tahoe Public Utility District ("STPUD"), EI Dorado Irrigation District ("ElD"), Valley of the Moon Water District ("VOMWD"), San Diego County, Soquel Creek Water District ("SCWD") and the Cities ofBrentwood, Calistoga, Chino, Livermore, Oceanside, Oxnard, Pomona, Ripon, Sanger, Santa Cruz, Santa Maria, Santa Rosa, Vallejo and Yountville, California and have separate retainer agreements with each. P&C and DP may also represent other governmental entities who are currently real parties in interest in the Lawsuits. Current and future P&C and DP clients in the Lawsuits shall be referred to collectively as "Other Clients." 2. San Bernardino hereby authorizes P&C and DP to associate or consult in this representation with such other counsel as they may deem necessary, subject to the approval of San Bernardino. Unless otherwise agreed to by San Bernardino, P&C and DP in writing, P&C and DP shall be responsible for compensating any counsel with whom P&C and DP associate or consult. Notwithstanding any such association of other counsel, and unless such authority is expressly delegated by P&C and DP to other counsel with the consent of San Bernardino, P&C and DP shall retain the authority and responsibility of counsel in any litigation pursuant to this Retainer Agreement, subject to the direction of the San Bernardino City Attorney as provided under paragraph 8. 71598994.3 Scope of Representation 3. San Bernardino understands that the P&C and DP will represent it to prosecute San Bernardino's claims under the California False Claims Act and common law claims by San Bernardino. San Bernardino understands that the representation presently undertaken by P&C and DP is limited to matters necessary to bring the Lawsuits to a conclusion before the trial court. The representation currently includes pursuit of claims on behalf of Hendrix, ACWD, CMWD, DSRSD, MNWD, NMWD, PWD, STPUD, EID, VOMWD, San Diego County, SCWD, Brentwood, Calistoga, Chino, Livermore, Oceanside, Oxnard, Pomona, Ripon, Sanger, Santa Cruz, Santa Maria, Santa Rosa, Vallejo and Yountville, and may, in the future, include pursuit of other state or federal False Claims Act Claims and common law claims on behalf of other states, localities and/or their respective public water systems. 4. San Bernardino has been informed and understands that P&C and DP do not represent it in connection with the negotiation of the terms of this Retainer Agreement. Rather, P&C and DP are each acting on its own behalf and San Bernardino is entitled and encouraged to review this Retainer Agreement with separate counsel. 5. In the absence of a written agreement to the contrary, P&C and DP do not represent San Bernardino in any legal matter other than as set forth herein. San Bernardino's Oblil!:ations 6. Where appropriate, San Bernardino, P&C and DP will attempt to consult with one another before discussing the Lawsuits with the media or any other third party. 7. San Bernardino agrees to provide promptly any and all information requested by P&C and DP and to cooperate fully in the prosecution of the Lawsuits, including but not limited to, attending scheduled hearings and meetings, answering truthfully any interrogatories propounded by opposing parties, appearing for the taking of any deposition, and participating cooperatively in any judicial or other proceeding as may arise during the course of the Lawsuits. 8. While P&C and DP will act as outside counsel for San Bernardino in prosecuting its claims in the Lawsuits as provided in this Retainer Agreement, San Bernardino's City Attorney's Office ("City Attorney") shall at all times remain San Bernardino's general legal advisor. In addition, City Attorney shall retain control over the course and conduct of the Lawsuits, including any settlement, and shall have the right to veto P&C and DP decisions about the Lawsuits. An attorney from the City Attorney's Office with supervisory authority shall be assigned to be personally involved in overseeing the Lawsuits. City Attorney shall have 715989943 2 responsibility for facilitating access ofP&C and DP to San Bernardino's personnel and records in connection with the Lawsuits. As between P&C and DP, on the one hand, and City Attorney on the other, City Attorney shall have primary responsibility for informing, advising and consulting with its public water systems directors, City Councilor other governing bodies with respect to the Lawsuits, including without limitation issues relating to its settlement. Attornevs' Fees, Costs and Expenses 9. San Bernardino understands that, because it elected to intervene in the False Claims Act Lawsuits, San Bernardino is required under the California False Claims Act to provide to Hendrix - as the qui tam plaintiff - at least 15% but not more than 33% of the money recovered by San Bernardino from Defendants; if San Bernardino had elected not to intervene, it would be required to pay Hendrix at least 25% but not more than 50%. San Bernardino also understands that it has no legal obligation to share with Hendrix any of the money it recovers from Defendants under any of its common law claims. San Bernardino nevertheless agrees to share any common law recovery with Hendrix in order to minimize the conflicts of interest that might otherwise arise between Hendrix and San Bernardino. Therefore, San Bernardino, P&C, DP, and Hendrix understand and agree that San Bernardino will pay to Hendrix 28% of the full amount of any award or settlement San Bernardino recovers under any legal theory from Defendants, or any of them, as a result of the Lawsuits ("the Relator's Share"). To compensate P&C and DP for their services, San Bernardino, P&C, and DP understand and agree that, in addition to paying Hendrix the Relator's Share, San Bernardino will pay to P&C and DP 5% of the full amount of any award or settlement San Bernardino recovers from Defendants, or any of them (before payment of the Relator's Share) as a result of the Lawsuits ("the contingent fee"). 10. San Bernardino has been informed and understands that the above fees are not prescribed by law but are negotiable between attorney and client. San Bernardino has also been informed and understands that Hendrix has agreed to pay to DP and P&C a percentage share of his portion of any recovery in the Lawsuits. 11. For as long as they remain counsel to San Bernardino in the Lawsuits, P&C and DP agree that they will advance all funds needed to pay for the following expenses incurred in connection with representing San Bernardino in the Lawsuits: filing fees, faxing, postage, phone, routine photocopying (other than photocopying performed by San Bernardino, as described below), transcripts, court reporters and expert witness expenses as well as the costs involved in taking and defending depositions and preparing for and prosecuting San Bernardino's claims at trial. The parties agree that all internal costs and expenses of the Lawsuits including without limitation photocopying expenses incurred by or on behalf of San Bernardino in connection with responding to subpoenas and document requests, shall be advanced by San Bernardino. To the extent that any costs and expenses advanced or incurred 71598994.3 3 by P&C and DP are later awarded to San Bernardino by the court or recovered through settlement, San Bernardino hereby assigns to P&C and DP such award or settlement proceeds. Any reasonable costs and expenses associated with the Lawsuits that are incurred or advanced by P&C, DP or by San Bernardino, but that are not awarded by the court or recovered through settlement, shall be reimbursed to the party who incurred or advanced the expenses from San Bernardino's recovery, if any, prior to the division and distribution of such recovery referred to in paragraph 9 above. 12. San Bernardino shall not be obligated to payor to guarantee payment of any compensation to P&C or DP for services rendered or costs incurred in the Lawsuits other than as set forth in this Retainer Agreement. If for any reason there is no recovery in the Lawsuits, San Bernardino shall not be obligated to pay for or reimburse to P&C or DP any costs incurred in connection with the Lawsuits. 13. San Bernardino agrees to cooperate fully in the prosecution of any claim by P&C and DP for court awarded expenses, costs, or fees. Termination of Representation 14. San Bernardino may discharge P&C and/or DP at any time by written notice to P&C and DP. Upon termination (or otherwise), San Bernardino retains the right to demand return of all of its client files, including confidential communications, provided, however, that P&C and DP may keep a copy of and continue to use San Bernardino's confidential information in their continuing representation of other parties in the Lawsuits. 15. If P&C and/or DP determine at any time that it is no longer feasible or desirable to pursue the Lawsuits on behalf of San Bernardino, P&C and/or DP may, after providing thirty days written notice to San Bernardino, withdraw from further representation, as provided by law. In that event, the withdrawing firm shall be entitled to a portion of the contingent fee as provided by law. As provided in paragraph 22 below, in the event P&C and/or DP terminate representation of San Bernardino, P&C and DP may keep a copy of and continue to use San Bernardino's confidential information in their continuing representation of other parties in the Lawsuits. 16. San Bernardino understands and agrees that in the event P&C and/or DP is discharged and (i) San Bernardino proceeds with the Lawsuits with or without substitute counsel; (ii) San Bernardino receives a recovery from Defendants, and (iii) P&C and DP are not entitled to their full 5% contingent fee as provided in paragraph 9, then San Bernardino shall pay the discharged counsel on a quantum meruit basis. The parties agree that for purposes of this Retainer Agreement quantum meruit shall be measured as a portion of the 5% contingent fee described in paragraph 9 in proportion to the percentage of the hours expended by the discharged 71598994.3 4 counsel compared with the hours expended by substitute counsel, if any (appropriately weighted based upon normal hourly rates). In addition, San Bernardino understands and agrees that, ifDP and/or P&C is discharged, Hendrix's right to share in any recovery obtained from Defendants shall not be affected, i.e., Hendrix shall continue to receive 28% of the full amount of any award or settlement San Bernardino recovers from Defendants as a result of the Lawsuits, including the California False Claims Act and common law claims, as provided in paragraph 9 hereto. San Bernardino also understands and agrees that it will not object to the discharged counsel's continued representation of the Other Clients. Waiver of Potential Conflicts Arisinl!: from Representation in Matters Unrelated to the Lawsuits 17. San Bernardino hereby agrees that P&C and DP, at any time, may represent existing or new clients in any matter (including without limitation any litigation, action, proceeding, transaction or negotiation) that is not substantially related to the Lawsuits, even if the interests of those clients are directly adverse or potentially directly adverse to San Bernardino. San Bernardino hereby expressly waives any conflict of interest that may hereafter arise in connection with such representation. 18. Except as to information disclosed to Other Clients whom DP and P&C represent in the Lawsuits, San Bernardino's confidential information obtained in the course of the Lawsuits will remain confidential and will not be disclosed to any other clients ofDP and P&C. In the event of any representation adverse to San Bernardino, not involving parties to the Lawsuits, DP and P&C will establish as appropriate, procedures to make certain that no attorney or paralegal working on such matter has access to any confidential information which San Bernardino has provided to P&C and/or DP. Waiver of Conflicts Resultinl!: From Joint Representation of San Bernardino and Other Clients in Lawsuits 19. San Bernardino is aware that while multiple representation may result in economic or tactical advantages, it also involves significant risks. San Bernardino understands that P&C and DP's joint representation of San Bernardino and Other Clients creates the potential for a conflict of interest to arise between or among them, or any of them, in the future. The potential for conflict exists for at least the following reasons: (i) because P&C and DP are entitled to statutory attorneys' fees under the California False Claims Act for the prosecution of Hendrix's claims but P&C and DP are not entitled to statutory fees for the prosecution of the claims of San Bernardino or any additional Other Clients; and (ii) because San Bernardino may wish to pursue a litigation strategy or tactic, including without limitation settling the Lawsuits, with which one or more of the Other Clients disagree or believe to be contrary to their/its interests. Conversely, one or more of the Other 71598994.3 5 Clients may want to pursue a litigation strategy or tactic, including without limitation settling the Lawsuits, with which San Bernardino disagrees or believes to be contrary to its interests. San Bernardino hereby expressly waives any such conflicts of interest that may currently exist or hereafter arise between it on the one hand, and the Other Clients, or any of them, on the other hand. P&C and DP represent that they have informed Hendrix of the potential for a conflict of interest arising from the joint representation and Hendrix has executed a formal, written conflict of interest waiver. Should P&C or DP agree to represent additional Other Clients, they will similarly inform them and execute waivers with them. 20. San Bernardino, P&C and DP are not aware of any adversity or conflicts of interest that currently exist. Should a conflict of any type develop in the course of the representation of San Bernardino by P&C and DP in the Lawsuits (including without limitation those waived in paragraphs 17 and 19 above), P&C and DP might reach the conclusion that they cannot continue to represent all of their then clients. San Bernardino hereby agrees that, should P&C and DP in their sole discretion reach such a conclusion, P&C and DP may terminate their relationship with San Bernardino pursuant to the terms of the Retainer Agreement and continue to represent one or more of their Other Clients in the Lawsuits, even though P&C and DP would be in possession of San Bernardino's confidential information and even though, as provided in this Retainer Agreement, San Bernardino agrees that P&C and DP may keep a copy of and use that confidential information in their continued representation of Other Clients in the Lawsuits and those Other Clients may be adverse to San Bernardino. San Bernardino understands that in the event that P&C and DP determine that a conflict does exist and that P&C and DP could not continue to represent all of their Other Clients, P&C and DP would continue to represent Hendrix and one or more of the additional Other Clients rather than San Bernardino. San Bernardino hereby agrees that, in the event P&C and DP terminate their representation of San Bernardino and continue with representation of Other Clients, San Bernardino will not assert any conflict of interest (such conflicts having been expressly waived herein) and will not seek to disqualify P&C and/or DP from representing Hendrix and/or any Other Clients notwithstanding any conflict or adversity that may develop. San Bernardino further understands that, even with thirty days' written notice, the termination ofP&C and DP's representation of San Bernardino, as provided by law, could come at an inopportune time (even at trial). In the event P&C and DP terminate their representation of San Bernardino, they agree to take reasonable steps to reduce any hardship or prejudice to San Bernardino, including supporting reasonable requests for extensions or reasonable delay of trial in order to allow San Bernardino an opportunity to obtain replacement counsel. 21. San Bernardino hereby agrees that in the event that P&C and DP terminate their representation of San Bernardino, P&C and DP shall be entitled to keep a copy of and use San Bernardino's confidential information in their continued 71598994.3 6 representation of other clients in the Lawsuits. Further, San Bernardino hereby agrees that P&C and DP at any time may share San Bernardino's confidential communications with Other Clients whom P&C and DP are jointly representing in this matter (even ifP&C and DP are no longer representing San Bernardino). 22. Furthermore, because P&C and DP will be jointly retained by both San Bernardino and the Other Clients in the Lawsuits, in the event of a dispute between San Bernardino on the one hand and Other Clients, or any of them, on the other hand, the attorney-client privilege generally will not shield San Bernardino's communications with P&C and DP from discovery by the Other Clients whom P&C and DP are jointly representing. 23. Conflict waivers are always serious matters and always have potential downsides to the waiving party. In this case, San Bernardino's waivers may result, for example, in P&C and DP being adverse to San Bernardino while in the possession of confidential or other information which San Bernardino has provided. In addition, it is possible in accordance with these waivers that P&C and DP would be simultaneously representing San Bernardino and parties adverse to San Bernardino and that this may cause San Bernardino to lose confidence in P&C and DP at an inopportune moment when it would be disadvantageous to San Bernardino to discharge P&C and DP. The waivers set forth in paragraphs 17-22 above are particularly critical to San Bernardino's rights and interests. For this reason, and because of the importance and complexity of conflict waivers generally, P&C and DP strongly recommend that San Bernardino consult with independent counsel prior to executing the Retainer Agreement so that San Bernardino may independently be advised of its rights and needs. Non-bindinl!: Arbitration 24. In the event of a dispute between or among the parties hereto regarding fees, costs, or any other matter related to or arising out of this retainer agreement, the lawsuits, or the engagement by San Bernardino of the attorneys herein, including without limitation the quality of the services rendered, the dispute may, without limitation, be determined, settled and resolved by non-binding arbitration in California and California law will apply. The prevailing party in any such arbitration shall be entitled to reasonable attorneys' fees and costs. Arbitration may be sought by the sending of written notice to the other party or parties. If arbitration is sought and all parties agree to arbitrate the matter, within twenty (20) days of the agreement to arbitrate San Bernardino shall present a list of five (5) qualified individuals who would be willing to serve that San Bernardino would find acceptable to act as arbitrator. To serve as arbitrator, the individual must be a retired judge having served on any federal court or the California Superior Court or higher court in the State of California. Within twenty (20) days ofP&C and DP receiving San Bernardino's list, P&C and DP may at their sole discretion 715989943 7 (i) select any individual from that list and that individual shall serve as the arbitrator, or (ii) propose their own list of five (5) individuals for arbitrator. IfP&C and DP choose to present a separate list, San Bernardino may within twenty (20) days select any individual from that list and that person shall serve as arbitrator. If no arbitrator can be agreed upon at the end of this process, San Bernardino on the one hand and P&C and DP on the other hand shall select one individual from their own respective list and those two persons shall jointly select the arbitrator. The arbitration shall be conducted pursuant to the procedures set forth in the California Code of Civil Procedure 99 1280, et seq., and in that connection San Bernardino, P&C and DP agree that Section 1283.05 thereof is applicable to any such arbitration. Unless inconsistent with California Code of Civil Procedure 99 1280, et seq. (in which case 99 1280, et seq. shall prevail), the arbitration will be conducted by the American Arbitration Association pursuant to its then current rules. Venue and Choice of Law 25. If either party chooses not to arbitrate, venue for any dispute arising out of this agreement shall be proper only in a court with competent jurisdiction in the County of San Bernardino or the United States District Court for the Central District of California. California law shall apply to the interpretation and enforcement of this agreement. Miscellaneous 26. The entire agreement between San Bernardino, P&C and DP relating to the subject matter of this Retainer Agreement is contained herein. No promises, inducements, or considerations have been offered, accepted or given except as herein set forth. This Retainer Agreement supersedes any prior oral or written agreement concerning the subject matter of this Retainer Agreement. 27. This Retainer Agreement may not be modified, changed, altered or amended in any way except in a writing signed by all parties. The parties expressly agree that no oral modification of this Retainer Agreement shall be effective, notwithstanding any provisions of the governing law that may allow for oral modification. 28. The parties hereby acknowledge that they have read and understand the foregoing, that they have had the opportunity to consult with independent counsel, and that they agree to the representation on the terms set forth in this Retainer Agreement. 29. If any provision of this Retainer Agreement is held in whole or in part to be unenforceable for any reason, the remainder of that provision and of the entire Retainer Agreement will be severable and remain in effect. 7159H9943 8 30. Duplicate originals of this Retainer Agreement will be executed by the Parties. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same agreement. 71598994.3 9 THE UNDERSIGNED HAS READ AND AGREES TO THE FOREGOING NINE PAGES CONSISTING OF THIRTY (30) PARAGRAPHS. Dated: By: PHILLIPS & COHEN LLP Dated: By: DAY PITNEY LLP AGREED; CONFLICTS WAIVED AS PROVIDED ABOVE: Dated: By: CITY OF SAN BERNARDINO, CALIFORNIA By signing below, I understand and agree to the Relator's Share provided in paragraph 9. Dated: By: JOHN HENDRIX 71598994_3 10