Pamela Maslowski, Respondent,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-1906

Pamela Maslowski,
Respondent,

vs.

Prospect Funding Partners LLC, et al.,
Appellants,

and

Prospect Funding Holdings (NY) LLC,
defendant and third-party plaintiff,
Appellant,

vs.

James Schwebel, third-party defendant, et al.,
Respondents.

Filed July 8, 2019
Affirmed
Bjorkman, Judge

Hennepin County District Court
File No. 27-CV-15-15143

James R. Schwebel, Matthew J. Barber, James S. Ballentine, Schwebel Goetz & Sieben,
P.A., Minneapolis, Minnesota (for respondents)

Daniel A. Beckman, Abigail A. Pettit, Gislason & Hunter LLP, Minneapolis, Minnesota
(for appellants)

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Considered and decided by Bjorkman, Presiding Judge; Rodenberg, Judge; and
Reyes, Judge.
U N P U B L I S H E D O P I N I O N
BJORKMAN, Judge
Appellant challenges the dismissal of its action to enforce a litigation -funding
agreement, arguing th at the district court erred by (1) declining to apply New York law
pursuant to the agreement and (2) determining the agreement is void under Minnesota law.
In their related appeal, respondents challenge the district court’s denial of attorney fees
under the declaratory-judgment act. We affirm.
FACTS
Respondent Pamela Maslowski was injured in a car accident in March 2012 and
retained respondents James Schwebel and the law firm Schwebel Goetz & Sieben , P.A.
(collectively, Schwebel) to commence a personal-injury action on her behalf. Two years
later, Maslowski entered into a litigation-funding agreement (agreement) with appellants
Prospect Funding Partners LLC and Prospect Funding Holdings LLC (collectively,
Prospect), which do business in both New York and Minnesota.1
Under the terms of the agreement, Maslowski sold to Prospect an interest in her
personal-injury action for $6,000. In the event Maslowski recovers damages, Prospect is
entitled to receive $6,000, a $1,425 processing fee, and 60% annual interest based on a set

1 Throughout the history of this litigation, the relationships and dealings between the
various Prospect entities have been unclear. Because the precise nature of their
relationships is unnecessary to our decision, we refer to them as one entity.

3
schedule, for a total “repurchase” amount not to exceed $25,245. The agreement contains
a forum-selection clause stating that disputes arising under the agreement shall be tried in
New York and a choice-of-law provision stating that the agreement “shall be governed,
construed and enforced in accordance with the laws of the state of New York.” And the
agreement requires all payments and notices to be sent to Prospect ’s Minnetonka address;
Prospect’s manager used the sam e Minnesota address when signing the agreement.
Schwebel signed a mandatory “Attorney Acknowledgement ” and “ Letter of Direction”
related to the agreement.
After settling her personal-injury action in July 2015, Maslowski brought this action
in Minnesota seeking a declaration that the agreement is invalid because it is champertous2
and unconscionable. Prospect initiated a breach-of-contract action in New York. Prospect
moved to dismiss the Minnesota action based on the forum -selection clause. The district
court denied the motion and granted Maslowski’s motion to enjoin Prospect from pursuing
the New York action. This court affirmed, holding that the forum-selection clause is
unenforceable because it attempts to avoid Minnesota law , which b roadly defines and
prohibits champertous agreements. Maslowski, 890 N.W.2d at 769. A New York court
likewise concluded that Minnesota is the proper forum to resolve disputes arising under
the agreement and dismissed the New York action . See Prospect Funding Holdings LLC

2 As more fully discussed below, Minnesota defines champerty as “[a]n agreement between
a stranger to a lawsuit and a litigant by which the stranger pursues the litigant[’s] claims as
consideration for receiving part of any judgment proceeds.” Maslowski v. Prospect
Funding Partners LLC, 890 N.W.2d 756, 763 (Minn. App. 2017) (alterations in original)
(quotation omitted), review denied (Minn. May 16, 2017).

4
v. Maslowski, 146 A.D.3d 535, 535 (N.Y. App. Div. 2017) (stating that “[e]very aspect of
the transaction at issue occurred in Minnesota, the parties, documents, and witnesses are
located in Minnesota, and defending this action in New York would be a substantial
hardship to Ms. Maslowski”). Prospect then asserted contract and tort -related
counterclaims arising out of Maslowski’s failure to make payments under the agreement
and third-party claims against Schwebel for advising Maslowski to breach the agreement.
The district court granted Schwebel’s and Maslowski’s motions to dismiss and
Maslowski’s motion for judgment on the pleadings. The court concluded that Prospect’s
third-party complaint and counterclaims failed to state claims u pon which relief could be
granted. The district court declined to enforce the agreement’s choice-of-law provision,
concluding that it was drafted to evade Minnesota law, and determined the agreement is
“unenforceable and void ” because it violates Minnesot a’s prohibition against champerty
and maintenance.3 But the district court denied Maslowski and Schwebel’s joint motion
for $197,836.27 in attorney fees under Minn. Stat. § 555.10 (2018).

3 The district court took judicial notice of adjudicative facts from (1) this court’s opinion
in Maslowski, (2) the New York appellate court decision, and (3) a Minnesota district court
order in Prospect Funding Partners LLC & Prospect Funding Holdings LLC v. Deanna
Williams, No. 27-CV-13-8745 (Minn. Dist. Ct. May 5, 2014). [Opinion not available on
Westlaw.] In the Williams order, which was issued before Maslowski entered into the
agreement with Prospect, the district court voided a “nearly identical” agreement based on
Minnesota’s champerty and maintenance laws. The Williams agreement selected
Minnesota as the governing law. Here, t he district court concluded that Prospect’s
admissions that it drafted both the forum -selection and choice-of-law provisions to avoid
Minnesota champerty law, coupled with the fact Prospect drafted the agreement “so closely
on the heels of the summary judgment ruling in Williams,” demonstrated that selection of
New York law was “no coincidence.”

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Prospect appeals. Maslowski and Schwebel filed a related appeal challenging the
denial of their attorney-fee motion.
D E C I S I O N
A civil action is subject to dismissal when the pleadings fail “ to state a claim upon
which relief can be granted.” Minn. R. Civ. P. 12.02(e). When a party includes and
references a written contract in its pleading, the motion to dismiss is not converted to one
for summary judgment. In re Hennepin Cty. 1986 Bond Litig. , 540 N. W.2d 494, 497
(Minn. 1995). We review cases dismissed for failure to state a claim de novo, accepting
the facts alleged in the complaint as true and construing all reasonable inferences in the
nonmoving party’s favor. Bodah v. Lakeville Motor Express, Inc. , 663 N.W.2d 550, 553
(Minn. 2003).
I. Minnesota law governs the agreement.
A. The district court did not err by declining to enforce the agreement’s
choice-of-law provision.

As a general rule, Minnesota courts enforce contractual choice -of-law provisions.
Hagstrom v. Am . Circuit Breaker Corp. , 518 N.W.2d 46, 48 (Minn. App. 1994), review
denied (Minn. Aug. 24, 1994). Such provisions are enforceable so long as the parties
“act[ed] in good faith and without an intent to evade the law.” Combined Ins. Co. of Am.
v. Bode, 77 N.W.2d 533, 536 (Minn. 1956). Choice-of-law issues are questions of law,
which we review de novo. Kolberg-Pioneer, Inc. v. Belgrade Steel Tank Co., 823 N.W.2d
669, 672 (Minn. App. 2012), review denied (Minn. Jan. 15, 2013).

6
Prospect argues this court should effectuate the agr eement’s choice -of-law
provision and apply New York law. Maslowski contends the provision is invalid because
Prospect included it to evade application of Minnesota law.
As a practical matter, this court has already resolved this issue in Maslowski’s favor.
In affirming the anti -suit injunction, we noted the rule favoring forum -selection clauses,
but concluded that the rule is outweighed by Minnesota’s “strong local interest in applying
its prohibition against champerty in this case.” Maslowski, 890 N.W.2d at 767. In light of
the agreement’s choice-of-law provision and Prospect’s expressed intent to enforce it, this
court concluded that “enforcement of the forum -selection clause could be the first step in
thwarting Minnesota’s policy against champerty.” Id. We expressly recognized Prospect’s
admission that it drafted the agreement in an “attempt[] to avoid Minnesota’s law against
champerty.” Id. at 769. And we cited with approval the district court’s finding that
Prospect “acted in a calculated and sy stematic manner to deprive the Minnesota courts of
their jurisdiction to determine whether pre -settlement funding contracts affecting
Minnesota lawsuits are champertous.” Id. Given our holding in Maslowski, we discern no
error by the district court in declining to enforce the choice-of-law provision. Accordingly,
we turn to general choice-of-law principles.
B. There is true conflict between New York law and Minnesota law.
As a threshold matter, we must decide whether a true conflict exists and whether
“both states’ laws can be constitutionally applied.” Kolberg-Pioneer, 823 N.W.2d at 672.
“A conflict exists if the choice of one forum’s law over the other will determine the

7
outcome of the case.” Nodak Mut. Ins. Co. v. Am. Family Mut. Ins. Co., 604 N.W.2d 91,
94 (Minn. 2000). Both threshold requirements are met here.
First, a true conflict exists between Minnesota and New York champerty law. As
we explained in Maslowski, New York has a statute that generally prohibits champerty but
defines the concept much more narrowly than Minnesota law does. 890 N.W.2d at 7 66.
The New York statute provides that an association may not “solicit, buy or take an
assignment of, or be in any manner interested in buying or taking . . . any claim or demand,
with the intent and for the purpose of bringing an action or proceeding thereon.” N.Y. Jud.
Law § 489 (McKinney 2018). In other words, it is the stranger’s intent to sue that makes
an agreement champertous in New York. Bluebird Partners, L.P. v. First Fid. Bank, NA,
731 N.E.2d 581, 587 (N.Y. 2000). In contrast, Minnesota common law prohibits
champerty and maintenance. Johnson v. Wright , 682 N.W.2d 671, 675 -76 (Minn. App.
2004), review granted (Minn. Oct. 19, 2004), and appeal dismissed (Minn. Jan. 10, 2005).
Champerty in Minnesota is “[a]n agreement between a stranger to a lawsuit and a litigant
by which the stranger pursues the litigant [’s] claims as consideration for receiving part of
any judgment proceeds.” Id. at 675 (alteration in original). Maintenance is “[a]ssistance
in prosecuting or defending a lawsuit given to a litigant by someone who has no bona fide
interest in the case; meddling in someone else’s litigation.” Id. (alteration in original). The
distinctions between New York and Minnesota law make a difference in this case. Under
New York law, the agreement is valid because Prospect did not enter into it with intent to
bring an action . Under Minnesota law, the agreement is not valid because it permits

8
Prospect to receive part of Maslow ski’s judgment proceeds . See id. at 678 (holding that
agreement assigning to lender a percentage of borrower’s tort recovery is champertous).
Second, the parties agree and the record demonstrates that there is no constitutional
impediment to the application of either state’s laws. See Jepson v. Gen. Cas. Co. of Wis. ,
513 N.W.2d 467, 469 (Minn. 1994) (“[F]or a State’s substantive law to be selected in a
constitutionally permissible manner, that State must have a significant contact or
significant aggregation of contacts, creating state interests, such that choice of its law is
neither arbitrary nor fundamentally unfair.” (alteration in original) (quotation omitted)).
C. The five-factor choice-of-law test favors application of Minnesota law.
When faced with a true conflict between the substantive law of two states , we
employ a five-step analysis to decide what law to apply, considering the “(1) predictability
of result; (2) maintenance of interstate order; (3) simplification of judicial task;
(4) advancement of the forum’s governmental interests; and (5) application of the better
rule of law.” Schumacher v. Schumacher, 676 N.W.2d 685, 690 (Minn. App. 2004); see
Jepson, 513 N.W.2d at 470.4
The first factor , predictability of results, seeks to avoid forum shopping and
preserves “the parties’ justified contractual expectations.” Nodak Mut. Ins., 604 N.W.2d
at 94. Several facts indicate t he parties should have expected Minnesota law to govern
their agreement . The agreement originated in Minnesota . Maslowski, Schwebel, and

4 Maslowski argues that we need not analyze the five choice -of-law factors because
Prospect did not argue in the district court that the analysis favors application of New York
law. We disagree. Even if Prospect did not specifically make this argument, the general
issue was presented and the district court applied the five-factor analysis.

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Prospect’s manager signed the agreement in Minnesota. While Prospect may have its
principal place of business in New York, it also has a business presence in this state ,
including an office in Minnetonka. The agreement was to be fully performed in Minnesota.
Given Minnesota’s demonstrated “strong local interest in applying its prohibition against
champerty,” Prospect’s claimed reliance on the agreement’s choice -of-law provision was
not justified. Maslowski, 890 N.W.2d at 767. This factor favors application of Minnesota
law. See Jepson, 513 N.W.2d at 471 (applying North Dakota law where insurance policy
was issued there, and other circumstances tied to that state suggested “what the par ties’
reasonable expectations should have been at the time of contract”).
The second factor, m aintenance of interstate order, addresses whether applying
Minnesota law would “manifest disrespect ” for New York or “impede the interstate
movement of people and goods.” Schumacher, 676 N.W.2d at 690. Again, the transaction
occurred in Minnesota, and all of the parties were represented here, resided here, or had a
business presence here. In the words of the district court, “choosing to import another
state’s more lenient standard would subvert the interest of the Minnesota courts.” It would
also encourage forum shopping, which would demonstrate disrespect for Minnesota law.
See id. at 691. Accordingly, this factor favors application of Minnesota law.
The third factor, simplification of judicial task, is not implicated because the district
court could easily apply the laws of either state.
The fourth factor, the interest of the forum, concerns which state’s law “would most
effectively advance a significant interest of the forum state.” Medtronic, Inc. v. Advanced
Bionics Corp., 630 N.W.2d 438, 455 (Minn. App. 2001) (quotation omitted). Minnesota

10
has a strong interest in compensating tort victims and in protecting Minnesota ’s judicial
system and litigants from the deleterious effects of champerty and maintenance. Prospect
argues that these interests are not implicated because Minnesota has no interest in “policing
the actions of forei gn entities operating primarily in foreign jurisdictions.” We disagree.
The agreement, by its terms, was to be performed in Minnesota and involves parties who
reside or are present here. See Maslowski, 890 N.W.2d at 767 (finding a strong Minnesota
interest in prohibiting champerty because of its “potential to expose personal-injury actions
in Minnesota to” its “negative effects”).
The fifth factor , which state has the b etter rule of law , includes consideration of
which rule makes “good socio-economic sense for the time when the court speaks.”
Jepson, 513 N.W.2d at 473 (quotation omitted). We agree with the district court’s cogent
assessment that champertous agreements have untoward economic effects on the legal
system that can provide both i mproper incentives and disincentives to pursue and settle
litigation. As the district court stated in its order granting Maslowski’s and Schebel’s
motions to dismiss,
the high interest rates charged in champertous agreeements
may both over-incentivize and discourage victims from settling
their cases. These agreements may over -incentivize the
settlement of claims, by encouraging victims to settle sooner
and for a smaller amount than they may otherwise be entitled
to, in order to reduce the interest they w ould have to pay the
litigation funding company out of the ultimate proceeds of their
action. Champertous agreements may also discourage the
settlement of claims, because litigants will be less likely to
settle their claims as the interest they ow e on the ir funding
skyrockets, and the amount they would receive from a
settlement, after payment to the litigation funding company,
plummets toward zero. In the end, litigants may be stripped of

11
much of the compensation for their injuries, as the interest on
their loan increases the amount owed under their champertous
agreement beyond any potential recovery in their case, after
repayment of their loan and payment of their attorney[] fees.

By prohibiting such conduct, Minnesota has a better rule of law.
In sum, the five choice -of-law factors favor application of Minnesota law to the
agreement.
II. The agreement is void under Minnesota law.
A contract may be void as against public policy if “it is injurious to the interests of
the public or cont ravenes some established interest of society.” Isles Wellness, Inc. v.
Progressive N. Ins. Co., 725 N.W.2d 90, 93 (Minn. 2006) (quotation omitted). Whether a
contract is void is a question of law that we review de novo. Id. at 92.
As noted above, Minnesota law prohibits champerty and maintenance for public
policy reasons. These prohibitions are designed “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.”
Maslowski, 890 N.W.2d at 763 (quotation omitted). In modern vernacular, the law against
champerty and maintenance aims to prevent an outsider’s intrusion into a lawsuit solely
for speculative gain. Id.
As we held in the prior appeal, the agreement meets Minnesota’s definition s of
champerty and maintenance. Id. Prospect was not a party to Maslowski’s personal-injury
action. The agreement speculates on Maslowski’s potential recovery by effectively selling
$6,000 to her in exchange for her payment of a $1,425 administrative fee and a 60% annual

12
interest rate on the “repurchase” of the $6,000, with Maslowski owing nothing if she does
not recover in the underlying action. And the agreement requires Maslowski to relinquish
control over certain aspects of her action , such as requiring Prospect to be notified if she
retains a different attorney and requiring her attorney to sign an “Acknowledgement” and
“Letter of Direction” as to how Prospect should be paid. The key circumstances of this
case—a contingent recovery , exorbitant interest rate, and a contrived interest in the
underlying litigation—are the same as those Minnesota’s appellate courts have deemed to
violate the law against champerty and maintenance. See id. at 763-64 (reviewing caselaw).
Citing authority from other jurisdictions, Prospect argues that champerty requires
both “intermeddling” and a lack of interest in the underlying litigation. We are not
persuaded. Other states vary in their definitions of champerty, as exemplified in the New
York and Minnesota laws at issue here. But Minnesota law treats a third party’s contractual
stake in the recovery of the underlying lawsuit under the circumstances presented here as
“intermeddling.” And champerty is not limited to contracts in which a third party to an
underlying litigation directly purchases an interest in the plaintiff’s recovery. Because the
agreement is champertous, it is void and unenforceable.
III. Maslowski and Schwebel are not entitled to recover attorney fees under the
declaratory-judgment act.

District courts have discretion to award or deny attorney-fee claims. Becker v. Alloy
Hardfacing & Eng’g Co. , 401 N.W.2d 655, 661 (Minn. 1987). But attorney fees are
generally not recoverable absent a contractual provision or statute. Kallok v. Medtronic,
Inc., 573 N.W.2d 356, 363 (Minn. 1998). Maslowski and Schwebel argue that they are

13
entitled to recover the $197,836.27 in attorney fees incur red in Minnesota and New York
under the declaratory-judgment act. This argument is unavailing.
The act authorizes district courts “to declare rights, status, and other legal relations
whether or not further relief is or could be claimed.” Minn. Stat. § 555.01 (2018). Among
the powers conferred by the act is the district court’s discretion to “make such award of
costs as may seem equitable and just .” Minn. Stat. § 555.10 (emphasis added). The act
does not similarly authorize courts to award attorney fees. We must apply the statute as
written. See State v. Boecker, 893 N.W.2d 348, 351 (Minn. 2017) (“The plain language of
the statute controls when the meaning of [a] statute is unambiguous.”). 5
Maslowski and Schwebel cite Andrist v. First Trust Co. of St. Paul , 260 N.W. 229
(Minn. 1935), to support their argument that the declaratory -judgment act authorizes an
award of attorney fees. This reliance is misplaced. In Andrist, a will granted a trust
company “full power” to manage a trust fund, including selling all of its property, and
further authorized the trust company to “employ counsel . . . in the discharge of its duties
and . . . pay to them reasonable compensation.” 260 N.W. at 230. After the trust company
was faced with li tigation regarding purported mismanagement of the trust , the supreme
court concluded that the trust company was entitled “to recover reasonable attorneys’ fees
paid by it in the conduct of its defense” because “it would be inequitable and unfair if

5 Review of other statutory remedies shows the legislature distinguishes costs from
attorney fees. See, e.g., Minn. Stat. §§ 8.31, subd. 3a (permitting parties to recover attorney
fees and costs for violations of laws the attorney general is authorized to enforce), 181.75,
subd. 4 (including attorney fees and costs as separate remedies for violation of the
polygraph statute) , 363A.33, subd. 7 (including attorney fees and costs allowed for
violation of the Minnesota Human Rights Act) (2018).

14
necessary fees paid to counsel by the trustee were disallowed.” Id. at 229, 231. Andrist
turned on the fact that the will permitted the trust company to retain an attorney in defense
of the trust and the fact that the fees were incurred only in defending against the petitioners’
unmeritorious claims.
More importantly, Maslowski and Schwebel’s argument ignores our supreme
court’s more recent jurisprudence, which holds that the declaratory-judgment act does not
provide a statutory basis for attorney fees. See Garrick v. Northland Ins. Co., 469 N.W.2d
709, 714 (Minn. 1991) (rejecting argument that declaratory -judgment act entitled insured
to recover attorney fees in action seeking first-party insurance benefits); see also Sazama
Excavating, Inc. v. Wausau Ins. Cos., 521 N.W.2d 379, 384 (Minn. App. 1994) (declining
to award attorney fees absent “specific legislative authorization” in a declaratory-judgment
action brought to determine whether an insurer had properly cancelled a workers’
compensation policy), review denied (Minn. Oct. 27, 1994).
We are mindful of the lengthy and costly efforts Maslowski and Schwebel
undertook to obtain a judicial declaration that the agreement is void. But we are
constrained to follow supreme court precedent. See State v. Curtis, 921 N.W.2d 342, 346
(Minn. 2018) (“The court of appeals is bound by supreme court precedent . . . .”). And
there is no precedent for awarding attorney fees under the circumstances of this case. We
observe no error or abuse of discretion in the district court’s denial of the requested attorney
fees.
Affirmed.