Litigation Finance in Iowa

When courts want to rule that litigation finance agreements are improper or unlawful, they often rely on the common-law doctrine of champerty, which has been around for centuries.  Proponents of litigation finance often respond to champerty-based arguments by noting that the doctrine is out-dated.  Support for this response can be found in Iowa, where courts recognized the obsolescence of champerty over 150 years ago.

The rationale behind champerty has always been that it prevents the use of litigation for improper purposes.  In particular, champerty is supposed to prevent a one party from manipulating another party to assert an umeritorious claim for the purpose of harassment or oppression.  This is the kind of “intermeddling” or “stirring up of litigation” that champerty case law refers to.

In a nineteenth century decision, the Iowa Supreme Court recognized that the evolution of tort law made the doctrine of champerty redundant.  In Wright v. Meek, 3 Greene 472 (Iowa 1852), it held that the statutes of limitation and the cause of action for malicious prosecution were enough to prevent the wrongful conduct that champerty and maintenance were designed to combat.  Indeed, the analysis in that decision could be read as a kind of endorsement of the concept behind litigation finance.

Discussing the kinds of conduct addressed by champerty and maintenance, the Iowa Supreme Court reasoned:

To check and prevent this, our statutes in relation to malicious prosecutions and limitations of actions have been passed. We have no statute in this state against champerty and maintenance, as they have in New York and some other states of the Union; neither do we see any necessity for adopting the English law on this subject. The state of society which produced them, and the evils which they were intended to remedy do not exist here. To transfer the right of action, or to maintain the suit of another without having any direct or contingent interest in it, will not necessarily produce mischief or oppression in this country. It may, on the other hand, in particular cases, have a tendency to secure rights and promote the ends of justice.
Id. at 484.

It is interesting to see that, in 1852, the Iowa Supreme Court could recognize what many still cannot see:  that transferring an interest in a legal claim is not, in itself, a moral hazard.  If a party brings an unmeritorious case, or if it engages in improper litigation tactics, there are instruments to regulate that kind of conduct.  Preventing a party from transferring an interest in a claim is not the most accurate or effective instrument for preventing litigation abuse.

Topics:  litigation finance, legal reform, third-party funding, Iowa, champerty

 Works Cited: Wright v. Meek, 3 Greene 472 (Iowa 1852)

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