How State Laws Can Impact Litigation Funding

Can the medieval doctrines of champerty and maintenance impact litigation funding agreements today? Most jurisdictions have abolished the outdated concepts prohibiting anything that looks like third-parties betting on litigation—but it still behooves counsel to know the laws of their case’s jurisdiction. 

Lake Whillans details that in most places, there’s a push toward creating a welcoming atmosphere for funders and the clients and lawyers who work with them. Let’s look at four major jurisdictions in the US: California, New York, Delaware, and Illinois.

In California, champerty and maintenance were never prohibited to begin with. The larger issue is disclosure, which is required by statute. This includes the identity of any funder of a claim or counterclaim—but does not require full disclosure of funding agreements. In fact, in Impact Engine v Google, courts found that the funding agreement and related materials were protected by the work product doctrine.

New York law Section 489 prohibits the selling of claims with the intention of pursuing legal action. Of course, most TPLF agreements do not assign claims to another party. It’s much more common for claimants to retain their claims. The non-recourse nature of funding makes agreements exempt from usury laws.

Delaware rejected the allegation that legal funding equates to champerty and maintenance. In Charge Injection Technologies v DuPont, DuPont asserted that funders become the true party of interest in the case. The judge rejected this, pointing out that the funding agreement was negotiated without coercion and that funders did not control settlement or strategy decisions.

Illinois set a valuable precedent in Miller v Caterpillar. Caterpillar contended that Miller’s funding agreement violated a standing ban on maintenance. The court disagreed, saying the funding was not used for meddling purposes, and was instead in the interest of justice.