States Increasingly Approve of Litigation Financing
Since its inception in the United States approximately twenty years ago, alternative litigation financing (“ALF”) has grown exponentially. A 2017 survey found that nearly 30 percent of attorneys in private practice had used ALF compared to 7 percent a few years earlier. Michael F. Alyward, “Beyond Champerty: The Rise of Third Party Litigation Funding”, 2017 University of Michigan Law School Symposium (October 20, 2017).
Many jurisdictions initially sought to block or limit ALF, generally relying on common law doctrines such as barratry, champerty and maintenance. In recent years, many jurisdictions have rethought their resistance to ALF as its benefits have become widely acknowledged among practitioners and academics.
Massachusetts’s Supreme Judicial Court in 1997 declared that the doctrine of champerty would no longer be recognized. Other states, including Arizona, California, Connecticut, New Jersey, New Hampshire, New Mexico, and Texas take the position that the doctrine of champerty was never adopted, and thus, it does not apply. The Wall Street Journal noted in 2014 that the litigation funding “climate looks friend[ly] in Illinois,” and that restrictions on third-party litigation financing have been “relaxed or abolished” in a number of other states, including Texas, South Carolina, Massachusetts and Florida. Eighteen states explicitly permit champerty in some form.
It has been reported that Alabama, Colorado, Kentucky, and Pennsylvania are among the states that are most hostile to ALF. Litigation funding is restricted wholly or part in 20 states. “Beyond Champerty”, supra.
Some states require particular disclosures in connection with ALF arrangements. New York has not eliminated the doctrine of champerty in its entirety but encourages more disclosure. The New York City Bar Association identified a number of elements of funding agreements which should be disclosed. Similarly, Connecticut, New Jersey, Pennsylvania, Missouri, and Maryland require certain disclosures to funding clients pursuant to their state bar ethics committees. The American Bar Association also issued a cautiously favorable opinion regarding ALF subject to “full, candid disclosure of all of the associated risks and benefits”. ABA Comm’n on Ethics 20/20, White Paper on Alternative Litigation Finance 17-40 (2011), http://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111019_draft_alf_white_paper_posting.pdf.
The doctrines of champerty, maintenance, and the like remain on the books in a majority of states, but those doctrines are not necessarily dispositive on the issue of ALF within those jurisdictions. Massachusetts and Florida, for example, are among the thirty jurisdictions (twenty-nine states and the District of Columbia) that maintain prohibitions against both the assignment of personal injury claims as well as the assignment of the proceeds from any such claims. One commentator recently noted that “[t]oday, third-party funding is governed in the United States by a patchwork of relatively weak laws, cases, rules, and regulations—and they are only in force in a handful of states. The requirements of specific jurisdictions need to be closely examined, as this issue continues to evolve.
For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide. TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved.
Topics: Litigation finance, state approval, trends, third-party funding, alternative litigation finance.
