Minnesota case law summary by Attorney Richard Clem: Champerty.

Pamela Maslowski v. Prospect Funding Partners LLC, et al.. MN champerty

The respondent in this Minnesota Supreme Court case was injured in a car accident and retained a lawyer to represent her in a claim against the other driver and owner. While the case was pending, she contacted the appellant because she needed money to pay her living expenses. In 2014, she signed a "sale and repurchase agreement." She was advanced $6000. She was to pay this back, with the amount increasing 30 percent every six months, up to a cap of $25.245. to be repaid when her case settled. If she did not receive a settlement, she owed nothing. Her attorney reviewed the agreement with her and signed the last page.

The case settled in 2015, but she declined to pay back the money. Instead, she went to court for a declaratory judgment that the New York forum selection clause was invalid. There was parallel litigation going on in both New York and Minnesota. Ultimately, the case proceeded in Minnesota. Both the District Court and the Court of Appeals held that the agreement was unenforceable because it violated the common-law prohibition against champerty. The Supreme Court agreed to hear that issue.

The common-law rule against champerty is stated in Huber v. Johnson, 70 N.W. 806 (Minn. 1897). Champerty is defined as "an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim." Under the Huber case, the practice was prohibited "in order to prevent officious intermeddlers from stirring up strife and contention by vexatious or speculative litigation which would disturb the peace of society, lead to corrupt practices, and pervert the remedial process of the law."

The court cited a number of other early cases condemning the practice, including one in which an attorney would "hunt up claims" against a railroad and file lawsuits at no expense.

The court pointed out that the agreement in this case did not involve these concerns. The appellant was not a stranger to the lawsuit, but instead provided the claimant with financial support.

The court noted that safeguards now exist, in the Rules of Civil Procedure and Rules of Professional Conduct. It noted that the practice helped ensure access to the courts, much in the same way that contingent fees do.

The high court also noted that people have the freedom to contract, "and we must not lightly disregard that basic principle."

The court did note that courts can and should scrutinize litigation financing agreements to make sure they are not unconscionable. It also noted that the legislature was free to regulate the practice if it deemed it necessary, pointing out that statutes exist in Arkansas, Indiana, Maine, Nebraska, Ohio, Oklahoma, Tennessee, and Vermont.

For these reasons, the Supreme Court reversed the rulings of the court of appeals and the district court and remanded the case.

No. A18-1906 (Minn. June 3, 2020).

Please see the original opinion for the court's exact language.

Advertisement:

Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).

For more information about attorney Clem, please visit his website.
For more information about his low-cost CLE programs, please visit his CLE page.
Return to index of case summaries

Copyright 2020, Richard P. Clem.
Attorney Richard P. Clem is responsible for the content of this page.

Richard P. Clem, Attorney
PO Box 14957
Minneapolis, MN 55414
USA
Phone: +1-612-378-7751
e-mail: clem.law@usa.net
Minnesota Attorney Registration Number 0192648

Books by Richard Clem:

Please visit my author page at amazon.com