Litigation Finance in Florida

Florida is one of the few states that has explicitly affirmed the validity of litigation financing agreements.  In the decision making that affirmation, the court focused on whether the funder was “intermeddling” in the litigation.  As long as the funder does not intermeddle, litigation financing agreements will not run afoul of Florida law.

In Kraft v. Mason, 668 So. 2d 679 (Fla. 4th DCA 1996), the Florida District Court of Appeals considered the validity of a contract under which a non-party to a lawsuit provided funding to a litigant in return for a share of any eventual recovery.  There, the defendant was involved in antitrust litigation and lacked the funds to pay for litigation expenses, as required by the contingent fee arrangement with his lawyer.  He contacted his sister for financial support.  He proposed that she take out a bank loan for $100,000 and direct the loan funds to him for use in the litigation.  He then promised to cover interest payments during the pendency of the antitrust case and to pay his sister a portion of any recovery, including the first $100,000 of the recovery (which would be used to pay off the bank loan), and a percentage of total award in the case.

The contract governing this arrangement was drafted by the defendant.  The sister signed the contract and provided the funds.  The defendant partially performed his repayment obligations, but then stopped making interest payments to the bank, apparently because of an unrelated family dispute with the sister.  Eventually, the defendant obtained a substantial recovery in the antitrust action, but still did not pay the sister in accordance with the contract.

The sister sued to enforce the contract, and, on appeal, the Court of Appeals held that it was enforceable.  In reaching this ruling, the Court affirmed the lower court’s ruling that the contract was not champertous because the sister did not instigate the litigation or solicit the loan.  Thus, she was not “intermeddling” in the antitrust action.  As long as the party providing litigation financing does not prompt a lawsuit or convince a party to start litigation, that party will not be deemed to have engaged in champerty.

Consequently, in Florida, litigation funders and litigants are free to negotiate the economic terms of their relationship.  But they must be careful to avoid any provision in their agreement that would give the funder control over litigation decisions.

 Works Cited: Kraft v. Mason, 668 So. 2d 679 (Fla. 4th DCA 1996)