Public entities are permitted to enter into contingency-fee agreements with outside counsel. County of Santa Clara v. Superior Court (Atlantic Richfield Co.) (2008) __ Cal.App.4th __. A Santa Clara County Superior Court judge had previously ruled that such arrangements were "antithetical to the standard of neutrality that an attorney representing the government must meet when prosecuting a public nuisance abatement action." The decision was based upon a 1985 case, Clancy v. Superior Court (1985) 39 Cal.3d 740, in which the California Supreme Court called the contingent fee agreement between a city government and a private attorney in a lawsuit against an adult bookstore “inappropriate under the circumstances.”
Federal government agencies will continue to avoid such arrangements, under an executive order signed by President Bush barring the federal government from entering contingent-fee arrangements to compensate lawyers or witnesses. If you are interested in this kind of work, you can download the opinion here in pdf or word format.