Champerty and Maintenance
“Champerty” and “maintenance” are legal concepts from as far back as the 17th Century that were once used to restrict the financing of litigation in certain circumstances, before this country was founded. Many states have declared the notions of champerty and maintenance archaic and no longer accepted law.[i] Champerty is defined as a bargain by a stranger with a litigant, in which the stranger carries on the lawsuit at his own cost and risk in consideration for a portion of the proceeds of the lawsuit.[ii]
Legitimate CLF companies take steps to ensure that the money is not used for litigation costs. For instance, the funded amount is sent to the consumer directly, not to the attorney. The consumer must also be represented by an attorney pursuant to a contingency fee agreement where the attorney has already agreed to advance the case costs prior to the execution of the purchase agreement. Additionally, the amount funded to the consumer is always a small percentage of the estimated case value, typically no more than 10%, and nowhere close to the amount of money spent on the prosecution of the plaintiff’s legal claim. These factors demonstrate that CLF is not used to finance the litigation nor does the CLF Company “carry on” or participate in the litigation as its own cost or risk. Therefore, the purchase agreement cannot be a deemed a “champertous contract”. Most state law precedent is similarly unanimous in that the doctrine of maintenance prohibits only contracts that are entered into “with a view to promote litigation” and that result in “officious intermeddling” by third-parties that otherwise would have no stake in the lawsuits.[iii] In contrast, CLF contracts are entered into only after a legal claim has already begun and plaintiffs have pre-existing legal representation. CLF companies expressly disclaim any control whatsoever over the litigation, leaving the development and disposition of the lawsuit in the full control of the parties to the lawsuit.
[i] The following states have determined that champerty and maintenance are no longer viable doctrines: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.
[ii] See Compaq Computer Corp. v. Horton, 631 A.2d 1, 12 n.1 (Del. 1993); Anderson v. Anderson, 78 S.E. 271 (Ga. Ct. App. 1913); Mock v. Higgins, 121 N.E.2d 865, 871 (Ill. App. Ct. 1954); Reichhart v. City of New Haven, 674 N.E.2d 27 (Ind. Ct. App. 1996); Boettcher v. Criscione, 299 P.2d 806 (Kan. 1956); Hovey v. Hobson, 51 Me. 62 (1863); Sneed v. Ford Motor Co., 97-CA-00914, 735 So. 2d 306 (Miss. 1999); State ex rel. Neb. State Bar Ass’n v. Rein, 4 N.W.2d 829, 832 (Neb. 1942); Lum v. Stinnett, 488 P.2d 347, 350 (Nev. 1971); Rienhardt v. Kelly, 1996-NMCA-50, 917 P.2d 963 (N.M. Ct. App.1996); Ehrlich v. Rebco Ins. Exch., Ltd., 649 N.Y.S.2d 672, 674 n.1 (N.Y. App. Div. 1996); Gregory v. Lovlien, 26 P.3d 180 (Or. Ct. App. 2000); Belfonte v. Miller, 243 A.2d 150, 152 (Pa. Super. Ct. 1968); Can Do Pension & Profit Sharing Plan & Successor Plans v. Manier, Herod, Hollabaugh & Smith, 922 S.W.2d 865, 867 (Tenn. 1996); D’Angelo v. Cornell Paperboard Prods. Co., 120 N.W.2d 70 (Wis. 1963).
[iii] See Horton, 631 A.2d at 12 n.1; Mason, 668 So. 2d at 682; Newkirk v. Cone, 18 Ill. 449 (1852); Schnabel v. Taft Broad. Co., 525 S.W.2d 819, 823 (Mo. Ct. App. 1975); Interstate Collection Agency v. Kuntz, 181 N.W.2d 234, 242 (N.D. 1970); Voiles v. Santa Fe Minerals, Inc., 911 P.2d 1205 (Okla. 1996).