Litigation Finance in Massachusetts

Massachusetts law is hospitable to litigation finance agreements, but it imposes a general rule of reasonableness on those agreements.  In particular, case law establishes that litigation finance agreements are enforceable to the extent that they do not call for excessive fees to the funder or involve any other kind of “impermissible overreaching” by the funder.

The leading case in this area is Saladini v. Righellis, 687 N.E.2d 1224 (Mass. 1997), which arose from a dispute about the enforceability of an agreement under which a third party would finance litigation costs for a litigant. Saladini and Righellis entered into a contract under which Saladini agreed to advance funds to Righellis to allow him to pursue potential legal claims he had arising out of his interest in certain real estate. In return, Righellis agreed that, if pursuit of his claims yielded any recovery, the first amount recovered would be used to reimburse Saladini, and that Saladini would, in addition, receive 50% of any net recovery remaining after payment of attorney’s fees.

During the litigation, Righellis changed lawyers.  The new lawyer was not committed to the agreement, and, when Righhellis obtained a recovery, the promised repayment to Saladini was not made.  Saladini sued to enforce the agreement, and Righellis responded by contending that the agreement was unenforceable because of the doctrine of champerty.

After discussing the history of the champerty doctrine, the Saladini court held that it was no longer the law in Massachusetts.

We also no longer are persuaded that the champerty doctrine is needed to protect against the evils once feared: speculation in lawsuits, the bringing of frivolous lawsuits, or financial overreaching by a party of superior bargaining position. There are now other devices that more effectively accomplish these ends.

But the Saladini Court also held that, as a general rule, the validity of litigation financing agreements would depend upon the reasonableness of the terms of the agreement.  In other words, the general contract principle of reasonableness is always available as a means for regulating such agreements.  As the court explained, “if an agreement to finance a lawsuit is challenged, we will consider whether the fees charged are excessive or whether any recovery by a prevailing party is vitiated because of some impermissible overreaching by the financier.”

Topics:  litigation finance, legal reform, third-party funding, Massachusetts

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