No Deal: Appeals Court Strikes Champertous Contract

• Author: Katherine M. Devanney
• Pages: 23-24

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AMERICA N BAR ASSOCIATION SPRING 20 20 • VOL. 45 NO. 3 | 23

Intellectual Pro perty Litigation

Committee. I n addition, this decision

reinforces that the C ourt “will protect

the speech of thos e who are speaking

at the edge of the bo undaries that so-

ciety looks to set , at least in the com-

mercial realm,” Steger adds.

Section lead ers found a great

deal wanting in the C ourt’s decision.

The real key to this dispute a bout

the “immoral and scandalous” bar is

not in the majorit y opinion, accord-

ing to Jeanne M . Heernan, New

York, NY, cochair of the Trademarks

Subcommitte e of the Section’s

Intellectual Pro perty Litigation

Committee. She points to dissenting

and concurrin g opinions by Justices

Roberts, Breyer, and Sotomayor.

Heernan no tes that Justice

Roberts’s dis sent “encapsulates real-

ly well the idea that tra demark regis-

tration is not really a bout restricting

speech—it is a bout conferring a benef‌it

on certain spe ech.” In addition, Justic e

Sotomayor’s dissent n otes that while

the PTO has essentia lly read “immoral”

and “scanda lous” to be synonyms, the

Court had an o pportunity in Brunetti

“to read them di erently to preserve

constitutionality,” observes Heernan.

Heernan su ggests that the dissent’s

rationale may provid e the grounds for

future legisla tion. In particular, Justice

Sotomayor wrote that “[r]ather than

read the relevant text a s the majority

does, it is equ ally possible to read that

provision’s bar on the re gistration of

‘scandalous’ marks to address only ob-

scenity, vulgarity, and profanity.” That

narrow construc tion would save the

legislation “by re ndering it a reasonable,

viewpoint-neutral re striction on speech

that is permissi ble in the context of a

benef‌icial governmental initiative like

the trademark-registration system,” ac-

cording to the disse nt.

Indeed, the g overnment in this

case argued th at the Court should es-

sentially “restri ct the PTO to refus-

ing marks that are ‘vulgar’—meaning

‘lewd,’ ‘sexually exp licit or profane.’”

However, “given the Court ’s proclivi-

ty to protect comme rcial free speech,

it is not surprisin g that the majori-

ty rejected the g overnment ’s eorts

to narrow the ‘immo ral or scandalous’

bar to refusing ma rks that were only

lewd, sexually explic it, or profane,”

Steger explains.

Heernan be lieves there is “a really

good possibil ity that Congress will re-

vise the Lanha m Act to accommodate a

bar on the kind of sc andalous content-

based marks th at Justice Sotomayor

described in h er dissent,” she explains.

In anticipation of n ew legislation com-

ing “fairly so on,” the PTO will likely be

slow to register new sca ndalous marks,

and the high hurd le for registration may

not be met for these t ypes of marks in

any event, sh e observes.

Finally, while this de cision “does

eliminate one ba r that previously ex-

isted to obtaining a tr ademark regis-

tration, prac titioners should be care-

ful to evaluate a potential a pplication

under many of the oth er grounds that

are still used to refus e trademark ap-

plications,” Steger cautions.

No Deal: Appeals

Court Strikes

Champertous

Contract

By Katherine M . Devanney, Litigation

News Contributing Editor

Forum selecti on clauses and ch oice-

of-law provisions cann ot override a

state’s policy against champertous

contracts, th e Minnesota Court of

Appeals held f or the second time in

three years, inval idating on public

policy ground s an otherwise valid

litigation fund ing contract. The d e-

cisions in Maslowski v. Prospect

Funding Partne rs LLC, et al. con f‌irm

that champer ty and the related de-

fense of maintena nce remain power-

ful tools for invalid ating otherwise

properly nego tiated contracts . In the

wake of Maslowski, ABA Section of

Litigation leaders caution that prac-

titioners shou ld evaluate not only

the law they have chosen to ap ply to

their agreem ent but also that of the

state(s) in which the practic al eect

of their agreem ent is likely to be felt.

In March 2012, M innesota reside nt

Pamela Maslows ki was injured in a

motor vehicle accid ent. She sued for

damages and e ntered into a litigation

funding agre ement that provided her

with $6,000 i n exchange for an inter-

est in her pers onal injury ac tion. The

agreement included a choice-of-law

provision designating New York law

to govern the contract a nd a forum

selection cla use providing that all ac-

tions arising ou t of the agreement

would be brought in N ew York.

After it becam e apparent that the

personal inj ury case was likely to set-

tle, Maslowski bro ught an action in

Minnesota se eking a declaration that

the agreement w as invalid because i t

was champertous and unconsciona-

ble. The fund ing company moved to

dismiss, arguing that Minnesota was

an improper for um under the par-

ties’ contract . Despite the forum se-

lection claus e in the agreement, the

trial court de nied the motion, ci t-

ing Minnesota’s strong policy against

champertous agreements. The fund-

ing company appealed.

The Minnesot a Court of Appeals

armed in Maslowski v. Prospect

Funding Partne rs LLC, et al.

(Maslowski I), f‌inding th at the trial

court did not ab use its discretion by

refusing to enforce th e forum selec-

tion clause because Minnesota—unlike

New York—followed the common- law

prohibition against champertous con-

tracts. Alth ough New York had a stat-

utory prohibition against champertous

contracts, its prohibition was narrower

than Minnesot a’s. As a result, the court

noted a public ben ef‌it to keeping the

case in Minnesota—regardless of the

parties’ contractual agreeme nt.

After the forum se lection issue was

resolved in Maslowski I, the case co n-

tinued in Minn esota and the funding

company asserted certain counter-

claims and third -party claims stem-

ming from Maslows ki’s alleged breach

of the agreemen t. The trial court dis-

missed those cla ims, declining to en-

force the choice- of-law provision and

holding that the a greement was “void

and unenforcea ble” as a violation of

Minnesota’s prohibition against cham-

perty and maintenance. Again, the

funding company appealed.

Noting that Maslows ki I had already

resolved the appe al in Maslowski’s

favor “[a]s a practical matter,” the

court of appea ls armed in Maslowski

v. Prospect Funding P artners LLC,

et al. (Maslowski I I), emphasizing for

a second time the co nf‌lict between

Minnesota and New York champer-

ty law.