Beyond Champerty: Why Old Doctrines Aren’t Necessary to Regulate Third-Party Funding

As noted before in this blog, the common law doctrines of champerty and maintenance have long been used to prohibit third parties from financing the legal costs of one of the parties in a litigation matter.  In many situations, the continued reliance on these medieval doctrines is justified by the argument that they are necessary to protect litigants from predatory behavior by well-heeled financiers.  But courts in several states have abandoned these doctrines, making it clear that they are not necessary to protect parties who need financial help in their pursuit of justice.

In 1997, in Saladini v. Righellis, the Massachusetts Supreme Court eliminated the doctrines of champerty and maintenance.  In that case, the parties entered into an agreement under which the plaintiff would support the defendant in litigation involving real estate.  After the defendant successfully settled the real estate matter, he refused to pay the plaintiff according to the agreement.  When the plaintiff sued to enforce the agreement, the defendant argued that the agreement was invalid as contrary to the doctrine of champerty.  Although the trial court relied on the doctrine of champerty to rule in favor of the defendant, the Massachusetts Supreme Court overruled it.  According to that court, modern doctrines of contract law, such as public policy, duress, and good faith, along with rules prohibiting misconduct and frivolous lawsuits were sufficient to address any issues arising from an allegation that a particular contract was improer and unenforceable.

The Supreme Court of South Carolina adopted a similar rationale in Osprey Inc. v. Cabana Ltd. Partnership. It held that “[w]e are convinced that other well-developed principles of law can more effectively accomplish the goals of preventing speculation in groundless lawsuits and the filing of frivolous suits than dated notions of champerty.”  Like the court in Saladini, the Osprey court noted that state rules of professional conduct, contract law, and the doctrines of unconscionability, duress, and good faith are more appropriate ways to challenge questionable litigation finance agreements.

California takes a similar approach to litigation financing.  In Abbott Ford, Inc. v. Superior Court, the California Supreme Court upheld an agreement for third-party litigation financing, noting that California courts had never adopted the doctrine of champerty.  The Abbot Ford court then employed the doctrine of good faith to conclude that there was no obstacle to enforcing the litigation finance agreement.

These cases show that the doctrines of champerty and maintenance are rather like your appendix.  They once served an important function, but that time is past, and they now have no practical value or serve any contemporary purpose.  There are plenty of legal rules that prevent parties from maintaining frivolous lawsuits or exploiting counterparties in contractual agreements.  It is those contemporary rules, not medieval doctrines, that should be applied to determine the legality of litigation funding agreements.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, legal costs, champerty, maintenance, consumer protection,

 Works Cited:

Saladini v. Righellis, 687 N.E.2d 1224 (Mass. 1997)

Osprey, Inc. v. Cabana Ltd. P’ship, 532 S.E.2d 269 (S.C. 2000)

Abbott Ford, Inc. v. Superior Court, 714 P.2d 124; 43 Cal. 3d 858 (1987)