Champerty in litigation finance

Understanding how the doctrine of champerty applies to litigation finance

While Legalist treats ethical issues such as champerty with great care, the standards of the litigation finance industry have evolved beyond the outdated doctrine of champerty (and the related doctrines of maintenance and barratry) and should not deter lawyers and their clients from pursuing litigation funding. In particular, rulings in US Federal courts and opinions from prominent bar associations affirm the widely-accepted consensus that litigation funding is not related to champerty, maintenance, and barratry. Even in jurisdictions where the doctrines have not been abolished altogether, they do not affect litigation finance as practiced by Legalist.

Champerty, maintenance, and barratry are defined as helping someone else maintain a lawsuit, generally by providing financial assistance. Champerty is maintenance for profit, and these doctrines originated during the time of the English medieval feudal system as a preventative measure to guard against litigious barons and provide for equal justice and due process of law. By the 1900s, England had concluded that maintenance and champerty were "dead letters that were no more than useless lumber".

Today, the Ninth Circuit summarizes the status quo in a 2011 opinion: "The consistent trend across the country is toward limiting, not expanding, champertys outsiders involvement in a lawsuit does not constitute champerty or maintenance merely because the outsider provides financial assistance to a litigant and shares in the recovery" Del Webb Communities, Inc. v. Partington, 652 F.3d 1145, 1156 (9th Cir. 2011).

While champerty is still used occasionally to protect against meritless litigation outside of a commercial litigation finance context, modern commercial litigation funders like Legalist are not affected by these restrictions. Today, champerty has "narrow scope" (13 N.Y.3d at 199) and does not even encompass a "speculative litigation venture" (591 F.3d at 123). In fact, the only time champerty still exists at all in New York is when litigation is brought "for the purpose of generating costs therein" (591 F.3d at 123; emphasis in original) – in other words, when a lawyer buys a claim in order to generate legal fees for himself by litigating that claim. Many bar associations have suggested that litigation finance is an ethically robust business that increases, rather than decreases access to justice.