Should the law preserve party control? Litigation investment, insurance law, and double standards.

Author:Sebok, Anthony J.
Position:III. Loss of Party Control in Tort and Insurance Law through Conclusion, with footnotes, p. 859-897

Part II presented the rule-of-law critique of litigation investment based on the centrality of party control. The central thesis of this Article is that the idea that party control is central to the common law is a myth. By knocking down this myth, I hope to show that there is no reason to fear that litigation investment will open the door to litigation led by nonlawyers lacking any commitment to the core values of the legal system. The following sections demonstrate that the alienation of party control is a common feature of tort and insurance law. The larger question that this Part will leave for the Conclusion is what we can learn from the variety of ways in which the courts have allowed control to be alienated, abandoned, and contracted away. But before this larger question can be adequately addressed, the degree to which control is much more fluid than the critics of litigation investment seem to realize must be demonstrated in detail.

  1. Introduction: How to Lose Control

    There are many ways that parties can transfer control in litigation. The most familiar is assignment, by which a party transfers the entire cause of action to a new party and, by extension, full control as well as a legal right in whatever is gained in the outcome, whether it is damages, property rights, or an injunction. (106) Related to assignment is contractual subrogation. A contractual subrogee is a stranger to a wrong who pays the victim for the victim's injury and then gains the right to receive repayment from the defendant based on the victim's rights, often by enforcing those rights. (107) However, as will be illustrated in greater detail below, there are significant differences between assignment and subrogation. Finally, a party can by simple contract agree to accept the instructions of the promisor with regard to litigation involving the promise. (108) The sorts of promises that could be made are limited only by the imagination of the contract drafters and the law. For example, one could imagine an asbestos producer desperate for capital promising a bank that in exchange for a loan, the bank would have the right to instruct the asbestos producer on every detail of its mass tort litigation. Curiously, there seems to be very little evidence that covenants concerning control of litigation are explicitly built into commercial contracts ex ante. (109) That is, however, with one exception: almost every contract for liability insurance demands from the insured that it cede control of litigation in which it is a defendant to the insurer in exchange for a promise of coverage. (110)

  2. Assignment

    1. The History of Limitations on the Assignment of Choses of Action

      An assignment is the act of transferring all or part of one's property, interest, or rights to another. (111) The early common law prohibited all assignments of choses of action, regardless of whether they were based in contract, property, or tort. (112) This prohibition was relaxed until, as one court put it in 1947, "assignability of things [in action] is now the rule; non-assignability, the exception; and this exception is confined to wrongs done to the person, the reputation, or the feelings of the injured party." (113)

      Today, the original common law rule of non-assignability has been almost fully abandoned. (114) However, exceptions do persist. Someone with a cause of action for a personal injury is barred in almost all parts of the United States from assigning it to a stranger. (115) This is based on the common law maxim actio personalis moritur cum persona ("a personal cause of action dies with the person"). (116) The original theory of actio personalis cannot be said to play much of a role in the common law since the advent of survivorship statutes in the nineteenth century; it goes without saying that tort claims now survive the death of the plaintiff and can be maintained by a set of persons named in the statute, usually members of the plaintiff's family. (117)

      Prior to the nineteenth century, common law courts embraced the "doctrine of the non-assignability of choses in action" and prohibited the assignment of any suit for damages in property, contract, or tort. (118) A chose in action was any "personal right[] ... which can only be claimed or enforced by action, and not by taking physical possession." (119) These included, according to Holdsworth, "rights to debts of all kinds, and rights of action on a contract or a right to damages for its breach; rights arising by reason of the commission of tort or other wrong; and rights to recover the ownership or possession of property real or personal." (120)

      The doctrine of the non-assignability of choses in action must have proven an increasingly difficult hurdle to overcome in commercial litigation. Creative lawyers and courts used legal fictions to soften its bite, such as using equity to circumvent the prohibition of the assignment of contracts. (121) As Holdsworth dryly noted, the common law "was induced to connive at the introduction and extension of ... evasion [s] of its principle that a chose in action is not assignable." (122) Eventually the exceptions swallowed the rule, and over the nineteenth century, the British Parliament legislatively removed almost all limitations on the assignment of choses in action for property and contract. (123)

      After independence, the experience in the United States was similar to that of England, except that the Americans were even more eager than the British to allow the assignment of choses of action in as many areas of law as possible. (124) In Comegys v. Vasse, the U.S. Supreme Court regarded the doctrine of the non-assignability of choses in action with skepticism and adopted a new theory of assignments in bankruptcy that did not rely on the legal fictions developed by the English courts. (125) State courts followed suit. In Rice v. Stone, the Massachusetts Supreme Judicial Court noted that

      [the] ancient doctrine [against assignment] has been greatly relaxed. Commercial paper was first made assignable to meet the necessities of commerce and trade. Courts of equity also interfered to protect assignments of various choses in action.... And at the present day claims for property and for torts done to property are generally to be regarded as assignable. (126) The Rice court noted "two principal reasons" for why assignments of choses of action were completely prohibited in the early common law. (127) The first was that "[i]n early times [an assignment] was regarded as an evil principally because it would enable the rich and powerful to oppress the poor." (128) The second was that under common law theory, an assignment is impossible "unless the assignor has either actually or potentially the thing which he attempts to assign." (129)

    2. Modern Permissiveness in the Law of Assignment

      The first reason offered by the Rice court is the historical argument made by Blackstone and others against litigation investment. (130) It is derived from the idea that, as Lord Abinger said in Prosser v. Edmonds, "no encouragement should be given to litigation by the introduction of parties to enforce those rights, which others are not disposed to enforce." (131) The precise negative consequence to society is less important than the fundamental point that uniquely bad consequences flow from giving control over legal claims to strangers. The Supreme Court of Alabama only gestured towards the dangers that free assignment of inheritance rights would produce when it prohibited such an assignment in 1857:

      Some of the recent cases do indeed relax the rules [of assignment] ... but ... when fully considered, they do not go the length of breaking down the barrier which the wisdom of ages has erected against the perversion of the course of justice, by opening a door for strangers to come in and interfere with suits in which they have no interest. (132) This may seem like an anachronistic rationale given the relatively liberal attitude towards assignment in the modern common law today, but it persists in various isolated doctrines. For example, as noted above, New York prohibits the assignment of a "thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon," (133) Maryland public policy will not recognize assignments which are part of a "scheme[] to promote litigation for the benefit of the promoter rather than for the benefit of the litigant or the public." (134) The leading case interpreting Maryland law on this point illustrates the pitfalls of trying to limit assignment in modern times. (135) In Accrued Financial Services v. Prime Retail, Inc., a company with expertise in forensic accounting took assignments of the legal claims of commercial tenants in over fifty shopping malls and promised to remit to the assignors between fifty and sixty percent of any discrepancies discovered and paid to the company by the assignors' landlords, some of which were in Maryland. (136) The Fourth Circuit held that this practice violated Maryland public policy because it "improperly, and for the purpose of stirring up litigation and strife, encourag[ed] others either to bring actions, or to make defenses which they have no right to make." (137) Virginia, along with many other states, will not recognize the assignment of legal malpractice claims. (138) In its decision in MNC Credit Corp. v. Sickels, the Supreme Court of Virginia justified this outcome on a consequentialist argument concerning the "undue burden" such assignments would place on the legal profession and "the already overburdened judicial system." (139)

      The second reason offered by the Rice court, upon examination, can be linked up to variations of the rule-of-law arguments. To take but one example, when the Rice court referred to a "principle of law, applicable to all assignments," it based its argument not on a prediction about the specific...

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