Making champerty work: an invitation to state action.

AuthorBond, Paul


Genetically, the doctrine of champerty prohibits the sale of the fruit of legal judgement or settlement, in advance of such judgment or settlement, to an otherwise disinterested party. (1) Contemporary scholarship tends to assert that the doctrine is vestigial and on the wane. (2) In pursuit of efficiency and justice in litigation funding, many propose an outright repudiation of the prohibition against champerty. (3) The result of such an outright repudiation would be a free market in future legal judgments.

This Comment suggests that champerty's critics underestimate the continuing vitality of the doctrine. Substantial justifications for the ancient prohibition still obtain. By examining the interests of groups most affected by changes in litigation funding, this Comment develops an alternative to suboptimal "champerty not allowed" and "champerty allowed" rules. This alternative, embodied in a proposed state Model Act of Champerty, (4) simplifies the law, protects those now sheltered by the prohibition, and captures the economic and normative gains sought by proponents of liberalization.

Through a simple slip-and-fall case, Part I introduces champerty in action. A plaintiff needs money. An otherwise disinterested third party--a champertor--wants to invest in the suit. A deal is struck. Unexpectedly, the courts intervene. Part I unpacks the possible rationales the court may have for interfering, providing the vocabulary required for a meaningful discussion of champerty. Part II of this Comment argues that both the total prohibition of champerty and the complete liberalization of the field exact unpalatable social costs. Part III, laying out the proposed Model Act, suggests a more active, nuanced approach for state legislatures to take. Champerty is simply too important to be left to the champertors--the State should supervise the sale of legal claims and shape procedures to protect all interests at stake. Finally, Part IV considers and responds to the most likely objections to this pilot program. Appended to this Comment is a brief survey of the current state of champerty caselaw in all fifty states and the District of Columbia.


    1. A Conventional Account

      A shopkeeper fails to de-ice the path into his store. As a result, customer Smith slips, falls, and breaks her back. Expecting that Smith will prevail in court, Jones offers her $10,000 up front in exchange for whatever she wins at trial. Smith agrees. At trial, Smith is awarded $200,000. She repudiates her written contract with Jones and gives him nothing. When Jones sues Smith for the $200,000, the court holds that the contract at issue is unenforceable as contrary to the state statute, common law, and public policy against champerty. "In this jurisdiction," Jones is told, "the fruit of legal judgment or settlement cannot be sold in advance to a third party." (6)

      For many causes of action, Jones could have purchased not only the future judgment, but also the right to bring the case to court. For example, Jones could have bought accounts receivable owed to Smith (factoring), (7) or a now-broken contract that did not preclude assignment in its terms, or a quitclaim on property with a clouded title, or even, in many states, a tort claim not personal to Smith. (8) On the basis of any of these assignments Jones could bring suit himself and personally receive the judgment. But "public policy still invalidates assignments of certain types of choses in action, including ... personal torts." (9) These unassignable personal torts include those based on "assault and battery; personal injury; false imprisonment; malicious prosecution; invasion of privacy; defamation; conspiracy to injure another's business; [and] unfair and deceptive trade practices." (10)

      In theory, champertous contracts could fund any sort of litigation. In practice, however, most contracts invalidated as champertous were drafted to fund tort litigation. (11) Only the liberalization of personal tort judgments is considered in this Comment. Some assignees are exempt (12) and many end-runs around the prohibition have been suggested. (13) But in most states champerty is banned, and champertous assignments are unenforceable. Where allowed, champerty is authorized only by common law.

    2. Three Unconventional Distinctions

      This Comment distinguishes three forms of champerty: malice champerty, market champerty, and public champerty. (14) Each fits within the genus of champerty defined above. Any close analysis, however, may hang on the often-neglected differences between these species of champerty.

      Malice champerty is the funding of frivolous litigation by an otherwise disinterested party, with the purpose of harming or discomfiting the defendant. To the degree that the prohibition on champerty was directed towards this ill, it has been replaced largely by related doctrines, such as the tort of malicious prosecution and the contract defenses of unconscionability and duress.

      I contend that the rule against champerty finds its modern justification in the danger of market champerty. That is, even meritorious suits, when made the object of unlimited funding, can cause harm in and through the courts. The current rule against champerty stops this harm only by stunting the market for future legal judgments.

      Finally, I propose that the states have the power to harness all incentives toward champerty and turn them towards the common good. This still-theoretical process could be called public champerty. With public supervision, full-scale markets for legal judgments someday may become as beneficial and uncontroversial as any field of finance. This Comment suggests one bridge of laws that might be built toward that goal.


    Jurists have described the doctrine of champerty as "dated," (15) "ancient," (16) and "rare," (17) and have indicated that it is "not often addressed by our courts." (18) As long ago as 1816, champerty was considered a "hard-named and little-heard-of practice." (19) This Part proposes that champerty has not become obsolete; rather, it has become such a background principle of law that it is invoked under its own name infrequently. This Part will subsequently survey the champertous constituency--groups concretely affected by the state's approach in dealing with champerty.

    1. Champerty's Importance Exceeds Its Mention

      The doctrine of champerty has become obscure. From state to state, the very definitional elements of champerty vary. Even where state law arguably permits champerty, the point is too little-known and tentative for extensive use by planners. As a result, few champertous contracts are made and fewer are challenged. Judicial neglect, the conflation of the doctrine with related principles, and the creation of independent ethical constraints on lawyers all have contributed to the quiescence of champerty under its own name.

      1. Definitions: Confusion Run Riot

        Generically, the doctrine of champerty prohibits the sale of the fruit of legal judgment or settlement, in advance of such judgment or settlement, to an otherwise disinterested party. (20) State courts and legislatures have added to these basic requirements elements suggested to them by legal history or modern policy. In states such as Florida and North Dakota, a contract is not champertous unless the champertor, acting as an "officious intermeddler," provoked or guided the suit. (21) In New Hampshire, only someone who buys a suit with the purpose of promoting litigious strife can be a champertor. (22) In Kansas, only someone who "frequently excit[es] and stir[s] up quarrels" will have her assignments barred as champertous. (23) Other states bar champerty even if the champertor entered into the contract at the assignee's urging and for the best of intentions. (24) Contingency fees for lawyers' services are generally exempted from the champerty rule. (25) Some jurisdictions, however, seem to apply their champerty laws only to those lawyers who overstep the limits of that exception. (26) In Maryland and Virginia, it is no longer champerty for a tort sufferer to assign the fruits of her personal injury suit to her treating hospital, up to the value of the care she received for the same injuries. (27)

        These states have chosen to narrow champerty's scope by adding elements to its definition. Other states' courts strike down agreements that, while not technically champertous, are close enough to draw judicial ire. (28) For example, in Wilson v. Harris, the Alabama Court of Civil Appeals refused to enforce a contract that "[did] not satisfy all the requirements for champerty," because the court believed that the contract "nevertheless violate[d] the public policy against gambling and speculating in litigation." (29)

        In short, confusion reigns over what the doctrine of champerty is and to whom it applies. Failure to create a close band of champerty standards necessarily stifles prosecution, limits champerty's application as a contract defense, and retards public and scholarly interest. (30)

      2. Too Obscure to Challenge

        Aside from the few states that attach criminal sanctions to champerty, (31) champerty's most visible impact is as a contract defense. Therefore, champerty's presence in caselaw is limited by the volume of champertous contracts.

        The shifting and absent champerty standards described in this Part suggest the risk premiums on such contracts are prohibitive. The information cost of assessing the state's champerty laws and the merits of the underlying suit is substantial, especially for a layperson. Except for a few repeat buyers of lawsuits who can minimize their costs, (32) and investors in suits with the prospect for substantial profit, (33) most champertors probably make the deal in ignorance of the law. (34) If the assignee of the legal judgment is equally ignorant of the law, and does not plead the defense of champerty, many courts hold that the defense is...

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