Minnesota Supreme Court Abolishes the Common-Law Prohibition Against Champerty

June 4, 2020

In a decision handed down on June 3, 2020, the Minnesota Supreme Court abolished the common-law prohibition against champerty. Champerty is an agreement to divide litigation proceeds between the owner of the litigated claim and an unrelated party with no bona fide interest in the claim who funds the litigation in whole or in part. Minnesota courts had long held that champertous speculation in litigation was against public policy because it encouraged “officious intermeddling” in a litigant’s case, potentially leading to corrupt practices and frivolous litigation. In Maslowski v. Prospect Funding Partners LLC, the Minnesota Supreme Court held that the prohibition against champerty was out of step with societal changes and the present needs of the community. In the Court’s view, the Minnesota Rules of Professional Conduct applicable to lawyers, and the Rules of Civil Procedure governing civil litigation, provide sufficient safeguards against corruption and frivolous litigation such that a blanket prohibition against champerty is no longer necessary. The Court further held that champertous litigation financing arrangements would provide a societal benefit by giving greater access to the judicial system for litigants with limited financial means.

As a result of this decision, litigation financing companies which until now had operated on the periphery of the Minnesota judicial system, may begin playing a much more prominent role in civil litigation. This could lead to an increase in litigated cases. Perhaps more importantly, the involvement of litigation financing arrangements may well present new challenges to the resolution of litigated cases.  

Read the Minnesota Supreme Court decision here.