The Fall of Champerty and the Future of Litigation Funding
The ancient doctrine of champerty, as it is typically defined, bars “strangers” to a lawsuit from funding litigation fees and costs in return for a financial interest in the case’s outcome. It is a blunt tool that throws out valuable funding arrangements in pursuit of an antiquated goal and it has long been in decline in the U.S.: some states never adopted it, some states did and abandoned it, and some states notably, New York continue to have champerty laws on their books but have so limited their scope that they rarely apply. This abandonment of champerty and its close relation, maintenance, has helped fuel the growing demand for litigation funding in the United States in recent decades.While only a handful of states continue to recognize champerty, until this month Minnesota was one of them. In the case at issue, both the state district court and appeals court refused to enforce a consumer funding agreement. While the equities appeared to weigh in the funder’s favor (the plaintiff sought out the funding and entered into the agreement on the advice of her attorney), the Minnesota Supreme Court seems to have welcomed the opportunity to review whether champerty should ever apply.
Unsurprisingly, it concluded that it should not. For starters, the court acknowledged what industry advocates have long claimed: funding has demonstrated its value and is here to stay. After issuing a reminder that “as society changes, ‘the common law must also evolve’ with it,” the court explained:
- Societal attitudes regarding litigation have changed significantly. Many now see claim as a potentially valuable asset, rather than viewing litigation as an evil to be avoided. The size of the market for litigation financing reflects this attitudinal change. Businesses often seek financing to mitigate the risks associated with litigation and maintain cash flow for their operations. It is also possible that litigation financing, like the contingency fee, may increase access to justice for both individuals and organizations.
How Funding Should Operate
The decision is most obviously notable for what it means to funders and claimants in the immediate term: funding is now possible in Minnesota, where funders are already moving to establish or renew relationships. With an increase in funding will come an increased availability of justice for less well-funded plaintiffs within the state. The value that third-party litigation funding adds to the legal system is justification for both abolishing outdated rules like champerty and wading carefully into the debate over how funding is best conducted.
Topics: Litigation Finance, New York Court, Minnesota Court, Champerty
Work Cited: Julia Gewolb and Joshua Libling, Bloomberg Law, June 16, 2020
