Litigation Financing and the Concept of Champerty

Back in January, 2010, the exchange between the Second Circuit Courts of Appeals and the New York Court of Appeals regarding the case of Trust v. Love Funding brought forth a question: Is legal funding a form of champerty? Citing  Ogden v. Des Arts, 4 Duer (N. Y.) 275,   TheLawDictionary.org defines champerty as "the carrying on a suit in the name of another, but at one’s own expense, with the view of receiving as compensation a certain share of the avails of the suit."

Is it Champerty?

The most interesting question raised by the Circuit Court to the Court of Appeals was whether a party that “buys a lawsuit” with the sole purpose of collecting damages for losses would be committing champerty. If the case happened during the Medieval period, the answer would have been yes, as it can be considered supporting the litigation of a stranger without just cause.

Today, the concept of legal funding is accepted in most states, save for others that still hold the concept unlawful. The case of whether legal funding is champertous or not was answered years ago, in a 2003 issue of the ABA Journal, with a commentator saying that funding companies “offer…non-recourse funding, meaning that if the case loses at trial or is overturned on appeal, the client is not obligated to reimburse the funder.” Of course, each state has its own unique interpretation of the definition of champerty, and not all cases will be the same.