Update (June 5, 2020):
Our hope (expressed in the original post below) has been realized. The Minnesota Supreme Court struck down the “hoary” common law doctrine of champerty this week in Maslowski v. Prospect Funding Partners.
Read the Minnesota Supreme Court’s discussion of the origin of the doctrine and it will highlight how out of place it is today. (“In medieval England, those with means played ‘the game of writs’ to increase their power and harass their rivals through the medieval court system.”) (Third party litigation funding, at issue in the Maslowski case, is not that.)
Original Post (1/10/2020):
(Under the headline: The Doctrine of Champerty Is Doomed in Minnesota (We Hope))
Back in June of 2017, a Minnesota Litigator headline declared, “Give me champerty or give me death” but, if readers went on to read the post, they saw that Minnesota Litigator was actually advocating the reverse: Death to Champerty.
[Editor’s note to self: find and discipline the headline writer for that post’s shaky headline.]
Admittedly, “Death to Champerty” sounds a little harsh. In the hearing this week in Maslowski v. Prospect Funding Patners, Justice Barry Anderson wondered out loud whether “the doctrine [of champerty] has outlived its usefulness,” which is a more delicate turn of phrase, for sure. We’re ok with that. Champerty has outlived its usefulness.
In light of the Minnesota Supreme Court’s hearing argument in a lawsuit involving Prospect Funding, a company in the business of “litigation funding,” we have some cause for optimism that the doctrine will be euthanized in 2020 although time will tell.
The doctrine of champerty is a “hoary doctrine.” (The word, “hoary” is, itself, hoary. It is an archaic word meaning “ancient.”) The seminal Minnesota champerty cases are from 1897 (Huber v. Johnson, 68 Minn. 74, 70 N.W. 806 (1897)), 1899 (Gammons v. Johnson, 76 Minn. 76, 78 N.W. 1035 (1899)) and 1932 (Hackett v. Hammel, 185 Minn. 387, 241 N.W. 68 (1932)).
These champerty cases are from a bygone era. They come from an era where the economic facts of litigation (that legal claims might be considered to be assets, for example, or that our litigation system is so expensive that most Americans cannot afford it, etc.) seem to have been facts that judges and courts thought were unspeakable, unnotable, perhaps distasteful, perhaps even immoral to consider.
This was an era when even lawyer advertising was condemned and prohibited, as if the mere idea of a commercial aspect of “the law” was not to be spoken, acknowledged, or considered.
As pointed out in our original post, there are some analytical holes in the champerty doctrine large enough to drive a truck through, most notably that contingent fee arrangements are a basic part of our legal system and it seems quite inconsistent to deem those okay but other kinds of financial arrangements or risk-sharing to be out of bounds.
Most importantly in our view, in this week’s oral argument, the justices of the Minnesota Supreme Court seemed quite properly to focus on the fact that Ms. Maslowski, the personal injury tort plaintiff “borrower,” had her own separate lawyer negotiating the so-called “litigation funding” loan that she entered into.
Further, as Justice Hudson pointed out, Ms. Maslowski, the tort victim “borrower,” reached out and contacted Prospect Funding, the lender (rather than the other way around), in addition to having her own separate lawyer.
Further still, the Justices pointed out that, under the litigation funding arrangement, Ms. Maslowski maintained substantial control of the course of her litigation.
Even further, without the hoary common law doctrine of champerty, borrowers would still have recourse to the courts for claims of deceptive trade practices, unconscionability, and maybe additional defenses to a litigation funder’s contract claims (fraud? fraudulent inducement? duress?).
Again, further, Justice Lillehaug pointed out that the champerty argument, as advocated by Ms. Maslowski’s lawyers, would not only bar such agreements in cases like Ms. Maslowski’s (that is, a personal injury plaintiff, a tort victim) but the prohibition would apply in cases involving the nationwide $5-10 billion industry of commercial litigation financing, in cases involving the most sophisticated lawyers and businesses on earth.
Shouldn’t these most sophisticated economic actors on earth have the right to mitigate litigation risk by recourse to litigation funding, Justice Lillehaug queried. “Does [prohibiting] that make any sense at all?” Justice Lillehaug followed up.
It was a rhetorical question. It makes no sense at all.
Later, Justice Lillehaug questioned Ms. Maslowski’s lawyer again, positing the hypothetical of a public interest group financing a plaintiff’s case with a 0% interest rate, with recovery only allowed from a recovery in the case. “Would that be champertous and void as a matter of public policy?” he asked. Counsel for Ms. Maslowski answered in the affirmative. “Is that the right result?” Justice Lillehaug followed up.
Again, it was a rhetorical question. It would be the wrong result.
It is foolhardy to predict judges’ decisions based on their questions in court hearings. Having said that, in our view, there seemed quite strong signals, most obviously from Justice Lillehaug, but also from Justices Gildea (Chief Judge), Hudson, Thissen, and Anderson (that is, a majority of the seven-member court) that, in their view, the doctrine of champerty “has outlived its usefulness.”
(Justices McKeig and Chutich’s questions expressed concerns about the risk of predatory lending practices targeting tort victims. Other justices, on the other hand, seemed less concerned about this risk since, in this case, for example, the tort victim had her own separate lawyer to advise her as to the terms of the loan (that she, herself, sought out). Under such circumstances, the borrower seeking to void the agreement she entered into seems more the exploiter than the exploited.)