Pamela Maslowski,

1
STATE OF MINNESOTA

IN SUPREME COURT

A18-1906

Court of Appeals Hudson, J.

Pamela Maslowski,

Respondent,

vs. Filed: June 3, 2020
Office of Appellate Courts
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.

________________________

James R. Schwebel, James S. Ballenti ne, Matthew J. Barber, 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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S Y L L A B U S
Minnesota’s common law prohibition against champerty is abolished.
Reversed and remanded.
O P I N I O N
HUDSON, Justice.
This appeal arises from a contract between appellant Prospect Funding Holdings
LLC and respondent Pamela Maslowski whereby appellant purchased an interest in
respondent’s personal injury suit. When respondent settled her suit and did not abide by
the terms of the contract, appellant sued respondent to enforce the contract. Both the
district court and the court of appeals held that appellant could not enforce the contract
because it violated Minnesota’s common law prohibition against champerty. We reverse
and remand to the district court for further proceedings consistent with this opinion.
FACTS
Appellant Prospect Funding Partners LLC (“Prospect”) is a litigation financing
company.1 Respondent Pamela Maslowski is a Minnesota resident who was injured in a
car accident in Woodbury in 2012. Following the accident, she retained Schwebel, Goetz
& Sieben, P.A. to represent her concerning a possible claim against both the driver and
owner of the other car involved in the accident.

1 The term “litigation financing” refers to “mechanisms that give a third party (other
than the lawyer in the case) a financial stake in the outcome of the case in exchange for
money paid to a party in the case.” Amer. Bar Ass’n Comm’n on Ethics 20/20,
Informational Report to the House of Delegates 5 (2012).
3
While her personal injury claim was pending, Maslowski contacted Prospect
regarding the company’s litigation financing services because she needed money to pay
her living expenses. On May 21, 2014, Prospect and Maslowski executed a “Sale and
Repurchase Agreement.” Maslowski was the “seller” and Prospect was the “purchaser”
under the contract. Maslowski sold to Prospect the right to receive a portion of the proceeds
of any settlement that she received from her personal injury suit. As consideration for the
sale, Maslowski received $6,000 from Prospect that was essentially a cash advance on her
prospective settlement. Under the contract’s fee schedule, the amount Maslowski owed to
Prospect increased by 30 percent every 6 months, starting from a baseline of the $6,000
plus fees, with a cap at $25,245.00. But if Maslowski did not receive a settlement, she
owed Prospect nothing. The contract also provided that Maslowski’s obligation to Prospect
would not exceed the amount of her settlement. Maslowski’s attorney in the personal
injury suit discussed the contract with her and signed the last page of the agreement
certifying that he had reviewed the terms with Maslowski and acknowledged the payment
directions in the event of a settlement.
On June 22, 2015, Prospect contacted Maslowski to inform her that she would owe
Prospect $14,108.00 if her personal injury claim settled and she made payment to Prospect
before September 22, 2015. Maslowski’s attorney then informed Prospect that he believed
that the litigation financing agreement between Maslowski and Prospect was
unenforceable.
Maslowski settled her personal injury suit in July of 2015. When Maslowski did
not pay Prospect according to the terms of their agreement, Prospect filed suit in New York
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against Maslowski, her attorney, and her attorney’s law firm for breach of contract and
other related claims.
Maslowski served a complaint for declaratory relief on Prospect on August 6, 2015,
seeking a ruling from the Hennepin County District Court that the New York forum -
selection clause in the Maslowski-Prospect agreement was invalid. Litigation over the
proper forum went on for two years, concluding with decisions in appellate courts of both
New York and Minnesota. The New York Supreme Court, Appellate Division, held that
the New York action should have been dismissed because the choice-of -forum provision
was “unreasonable and should not be enforced.” Prospect Funding Holdings L.L.C. v.
Maslowski, 43 N.Y.S.3d 904, 905 (N.Y. App. Div. 2017). The Minnesota Court of Appeals
agreed that any litigation over the agreement should occur in Minnesota. Maslowski v.
Prospect Funding Partners LLC, 890 N.W.2d 756, 769 (Minn. App. 2017) (“The district
court did not abuse its discretion by refusing to enforce the forum -selection clause in the
parties’ agreement based on Minnesota’s local interest against champerty.”), rev. denied
(Minn. May 16, 2017).
The litigation as to the validity of the agreement itself proceeded in Minnesota, with
both the district court and the court of appeals holding that Prospect could not enforce the
agreement against Maslowski because Minnesota law applied to the agreement and the
agreement violated Minnesota’s common- law prohibition against champerty. See
Maslowski v. Prospect Funding Partners LLC , No. A18-1906, 2019 WL 3000747 (Minn.
App. July 8, 2019). Prospect petitioned for review of the court of appeals’ decision. We
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granted review only on the question of whether the agreement violates Minnesota’s
prohibition against champerty.
ANALYSIS
This case concerns the common-law prohibition against champerty. Champerty is
“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.” Champerty,
Black’s Law Dictionary (11th ed. 2019). It is closely related to the concept of maintenance.
See Maintenance, Black’s Law Dictionary (11th ed. 2019) (“Improper assistance 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.”). The issue before us is whether
we should affirm the court of appeals’ decision on the ground that the contract between
Prospect and Maslowski is void as against public policy, or reverse the decision and
abolish, under Minnesota law, the common-law doctrine that champertous agreements are
unenforceable.
The common law’s disapproval of champerty and maintenance traces back many
centuries. See Max Radin, Maintenance by Champerty , 24 Calif. L. Rev. 48, 48 (1935)
(explaining that laws in both ancient Greece and Rome prevented a third party from
intervening in the legal dispute of another). In medieval England, those with means played
“the game of writs” to increase their power and harass their rivals through the medieval
court system. R. D. Cox, Champerty as We Know It, 13 Mem. St. U. L. Rev. 139, 142
(1983). Part of this practice included the maintenance by a lord of a lawsuit against a
landowner in exchange for a share of the proceeds of land. Id. at 143–44.
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To address this problem, English statutes and common law prohibited third parties
from taking a financial interest in litigation. Id. at 153–54. The law against champerty
explains the early prohibitions against assignment of claims and against contingency fees
for attorneys in both England and the United States, because both practices were seen as
champertous. Radin, supra, at 68–70. Although these attitudes were very strong in
England, the adoption of the prohibition against champerty in the United States was
uneven. Id. at 68, 70; Cox, supra, at 160 (“Judicial opinion on the question whether a rule
against champerty would be good or bad ran from the view that it would be intolerable to
the view that it was required for the happiness of mankind.”).
We addressed champerty as it applies to an agreement to finance litigation in our
decision in Huber v. Johnson, 70 N.W. 806 (Minn. 1897). We explained that the “general
purpose of the law against champerty and maintenance was 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.” Id. at 807. We subsequently applied the principle articulated in Huber
to void contracts between attorneys and laypersons to instigate litigation for a profit. See,
e.g., Holland v. Sheehan, 122 N.W. 1, 2–3 (Minn. 1909) (involving an agreement between
a layperson and an attorney to find potential plaintiffs for personal injury suits in exchange
for a percentage of the settlements); Gammons v. Johnson , 78 N.W. 1035, 1037 (Minn.
1899) (involving a plan by an attorney to “hunt up claims” against a railroad company and
fund the lawsuits at no expense to the plaintiffs in return for a share of the recovery).
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We most recently considered the status of champertous agreements in Hackett v.
Hammel, 241 N.W. 68 (Minn. 1932). Hammel was involved in a lawsuit over a stake in
an iron mine in northern Minnesota. 241 N.W. at 69. Hackett “advanced $705 to aid
[Hammel] in the prosecution of the case” pursuant to a contract that promised Hackett “ten
times the amount so advanced” if Hammel prevailed in the suit involving the iron mine.
Id. If Hammel lost, he owed Hackett nothing. Id. When Hammel won the suit, he paid
Hackett only $700, and Hackett sued. Id. We held that the contract between Hackett and
Hammel was void: “Such speculation in litigation in which the adventurer has no interest
otherwise, and where he is in no way related to the party he aids, is champertous.” Id.
Under the rule of law articulated by these cases, the contract between Prospect and
Maslowski is champertous because Prospect is a stranger to the lawsuit who agreed to
provide Maslowski with financial support during her personal injury litigation in exchange
for a right to recover from the proceeds of the settlement of her lawsuit. The lower courts
therefore did not err in determining that, under our prior decisions, the contract was
unenforceable.
We decline, however, to hold that the contract between Maslowski and Prospect is
void as against public policy as we understand it today. Champerty is a common law
doctrine, and the development of the common law is “determined by the social needs of
the community which it governs.” Tuttle v. Buck, 119 N.W. 946, 947 (Minn. 1909). We
have previously explained that, as society changes, “the common law must also evolve”
with it. Lake v. Wal-Mart Stores, Inc., 582 N.W.2d 231, 234 (Minn. 1998). Our review of
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changes in the legal profession and in society convinces us that the ancient prohibitio n
against champerty is no longer necessary.
We first recognized the prohibition against champerty in the years before we
adopted formal rules of ethics 2 and before we adopted Minnesota’s Rules of Civil
Procedure.3 Today, the rules of professional responsibility and civil procedure address the
abuses of the legal process that necessitated the common-law prohibition. Although
attorneys may advertise to the general public, there are strict limits on solicitation . See
Minn. R. Prof. Conduct 7.2 (generally permitting, but regulating, attorney advertisements);
Minn. R. Prof. Conduct 7.3 (limiting solicitation of clients); see also Lester Brickman, Of
Arterial Passageways through the Legal Process: The Right of Universal Access to Courts
and Lawyering Services, 48 N.Y.U. L. Rev. 595, 645 (1973) (explaining that the “historical
antecedents” of restrictions on advertising and solicitation by lawyers “are found in
common law proscriptions against barratry, champerty, and maintenance”). Attorneys who
file frivolous claims or use the legal system for harassment are subject to discipline and

2 The American Bar Association adopted a Code of Professional Responsibility in
1969, and we adopted the code shortly after. See Edward J. Cleary & William J. Wernz,
Ethics and Enforcement, 25 Wm. Mitchell L. Rev. 143, 146 (1999). This period marked
the beginning of the “modern professional responsibility system, built on a single,
statewide system for dealing with all ethics complaints, operating according to formal
rules, and under the ultimate jurisdiction” of our court. Id. at 147. In 1985, we repealed
the Minnesota Code of Professional Responsibility and enacted the Minnesota Rules of
Professional Conduct. Id. at 151.

3 We adopted the Minnesota Rules of Civil Procedure for the District Courts in 1951.
Order of Promulgation of the Rules Governing the Regulation of Pleadings, Practice,
Procedure, and the Forms Thereof in the District Courts of the State of Minnesota (Minn.
filed June 25, 1951).
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sanctions. See Minn. R. Prof. Conduct 3.1 (prohibiting lawyers from asserting frivolous
claims); Minn. R. Civ. P. 11.02 (requiring attorneys who submit pleadings, motions, or
other documents to the court to certify that they present the materials for a proper and
nonfrivolous purpose); Minn. R. Civ. P. 11.03 (providing sanctions for attorneys, law
firms, and parties who violate Rule 11.02).
Along with the increase in regulation, another important development in the law has
been the narrowing or abolition of other common law prohibitions based on concerns about
champerty and maintenance. Although contingency fees were disfavored under early
common law, all American jurisdictions now allow attorneys to take cases on contingency.
Lester Brickman, Contingent Fees Without Contingencies: Hamlet Without the Prince of
Denmark, 37 UCLA Law Rev. 29, 38–39 (1989); see also Minn. Stat. § 549.01 (2018) (“A
party shall have an unrestricted right to agree with an attorney as to compensation for
services, and the measure and mode thereof . . . .”). Today, we understand contingent fee
agreements as a way to facilitate access to justice by incentivizing attorneys to take cases
that they might otherwise decline because the client cannot afford their services on an
hourly or fixed-fee basis. Brickman, Contingent Fees Without Contingencies, supra, at
43–44; see also Hollister v. Ulvi, 271 N.W. 493, 497 (Minn. 1937) (“Contracts for
contingent fees are as much for the benefit of the client as for the attorney, because if the
client has a meritorious cause of action, but no means with which to pay for legal services
unless he can . . . make a contract for a contingent fee to be paid out of the proceeds of the
litigation, he cannot obtain the services of a law-abiding attorney . . . .” (internal quotation
marks omitted) (citation omitted)).
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Similarly, attitudes have shifted concerning the assignment of choses in action. See
Leuthold v. Redwood County, 288 N.W. 165, 167 (Minn. 1939) (“The law of this state is
that an assignment of a chose in action is valid and complete in itself upon the mutual
assent of the assignor and assignee without notice to the debtor.” (internal quotation marks
omitted) (citation omitted)); Anthony J. Sebok, The Inauthentic Claim, 64 Vand. L. Rev.
61, 72– 74 (2011) (explaining that fears of champerty and maintenance underlie the
traditional common law rule of non-assignability of claims, but the rule has generally been
abandoned across the United States in favor of a more modern approach).
Societal attitudes regarding litigation have also changed significantly. Many now
see a claim as a potentially valuable asset, rather than viewing litigation as an evil to be
avoided. Radin, supra , at 72. The size of the market for litigation financing reflects this
attitudinal change. See Investing in Legal Futures: The Rise of the Litigation Finance
Firm, The Practice, Sept./Oct. 2019, at 1 (citing an estimate of the litigation finance
market’s value at $50 to $100 billion). Businesses often seek financing to mitigate the
risks associated with litigation and maintain cash flow for their operations. Victoria A.
Shannon, Harmonizing Third- Party Litigation Funding Regulation , 36 Cardozo L. Rev.
861, 869 (2015). It is also possible that litigation financing, like the contingency fee, may
increase access to justice for both individuals and organizations. Maya Steinitz, Follow
the Money? A Proposed Approach for Disclosure of Litigation Finance Agreements,
53 U.C. Davis L. Rev. 1073, 1085 (2019).
Maslowski argues that these changes do not justify an abolition of the common law
prohibition against champerty. She raises three specific points in support of her argument.
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First, she contends that the rules of professional responsibility and civil procedure are
insufficient because they do not regulate the substance of champertous agreements.
Second, she argues that litigation financing agreements have the potential to strip tort
victims of their recovery. Third, she claims that champertous agreements will deter
plaintiffs from settling their claims because they will need larger settlements to offset the
cost of litigation financing. We address these objections in turn.
It is true that the rules of professional responsibility and civil procedure do not
specifically regulate champertous agreements. But, as we have explained, the rules of
professional responsibility and civil procedure prevent both attorneys and parties from
profiting off of frivolous litigation—which is the type of behavior that we took issue with
in Huber, Holland, and Gammons. It is also unlikely that companies like Prospect will
fund frivolous claims because they only profit from their investment if a plaintiff receives
a settlement that exceeds the amount of the advance—an unlikely result in a meritless suit.
See David Tyler Adams, Note, Laissez Fair: The Case for Alternative Litigation Funding
and Assignment of Lawsuit Proceeds in Georgia, 49 Ga. L. Rev. 1121, 1148–49 (2015).
Litigation financing companies have claim valuation procedures to avoid this very
problem. Id.
We are likewise unpersuaded by Maslowski’s argument that concern for tort victims
requires us to maintain an ancient prohibition. Although it is important that the victims of
torts receive compensation for their injuries, they nonetheless have the freedom to contract,
and we must not lightly disregard that basic principle. See Jepson v. Gen. Cas. Co. of Wis.,
513 N.W.2d 467, 472 (Minn. 1994) (“[H]owever significant Minnesota’s interest in the
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compensation of tort victims, we have other interests which in situations like this one are
in conflict with the value we place on victim compensation. For example, we also believe
that people should get the benefit of the contracts they enter into, nothing less and nothing
more.”). Maslowski’s argument ignores the many sophisticated parties to whom this
reasoning does not apply, such as those who seek commercial litigation financing and
understand the risks involved with such agreements.
Regarding Maslowski’s argument that litigation financing “under-incentivizes
settlement,” she cites no empirical evidence to support her claim. There is also a well-
reasoned argument to the contrary made by scholars considering the same issue. See, e.g.,
Ronen Avraham & Abraham Wickelgren, Third-Party Litigation Funding—A Signaling
Model, 63 DePaul L. Rev. 233, 235 (2014) (explaining that the decision to fund a plaintiff
may create a “credible signal” t hat the plaintiff’s case has merit, which can affect a
defendant’s incentives to settle). And, as Prospect points out, contingent fee agreements
arguably affect a plaintiff’s calculation regarding settlement in a similar manner because
they reduce the pla intiff’s ultimate recovery. Yet we permit such arrangements because
they allow plaintiffs who would otherwise be priced out of the justice system to assert their
rights. We believe the same is true of litigation financing, as explained above.
Finally, we note that district courts may still scrutinize litigation financing
agreements to determine whether equity allows their enforcement. See, e.g., Osprey, Inc.
v. Cabana Ltd. P’ship, 532 S.E.2d 269, 278 (S.C. 2000) (“Our abolition of champerty as a
defense does not mean that all such agreements are enforceable as written.”). Parties like
Maslowski retain the common law defense of unconscionability. See Abernethy v. Halk,
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166 N.W. 218, 220 ( Minn. 1918) (observing that a court “may decline to enforce an
unconscionable contract”). Courts should carefully review uncounseled agreements,
particularly between parties of unequal bargaining power or agreements involving an
unsophisticated party. Courts and attorneys should likewise be careful to ensure that
litigation financiers do not attempt to control the course of the underlying litigation, similar
to the “intermeddling” that we described in our early champerty precedent. See Huber,
70 N.W. at 808 (stating that “it is difficult to conceive of any stipulation m ore against
public policy” than a contract term requiring the litigation financier’s permission to settle
the underlying litigation). There is also the possibility of further regulation by the
Legislature,4 although this prospect is an issue beyond the scope of our review.
For these reasons, we abolish Minnesota’s common-law prohibition against
champerty.
CONCLUSION
For the foregoing reasons, we reverse the decision of the court of appeals and
remand this case to the district court for further proceedings consistent with this opinion.
Reversed and remanded.

4 Arkansas, Indiana, Maine, Nebraska, Ohio, Oklaho ma, Tennessee, and Vermont
have adopted statutes to regulate consumer litigation financing agreements. See Ark. Code
Ann. § 4-57-109 (2017); Ind. Code §§ 24-12-1 to -12-10-1 (2019); Me. Rev. Stat. tit. 9-a,
§§ 12-101 to -107 (2008); Neb. Rev. Stat. §§ 25-3301 to -3309 (2010); Ohio Rev. Code
Ann. § 1349.55 (West 2008); Okla. Stat. tit. 14a, §§ 3-801 to -817 (2013); Tenn. Code Ann.
§§ 47-16-101 to -110 (2014); Vt. Stat. Ann. tit. 8, §§ 2251–2260 (2019).