Definition
Champerty is an agreement between a litigant and an external party that allows the external party to financially support the litigant’s lawsuit in exchange for a share of the proceeds if the lawsuit is successful. This practice was historically considered illegal because it could encourage frivolous lawsuits and conflicts of interest. However, in modern times, champerty is only prohibited in a few jurisdictions and in modified forms, largely due to the evolving needs of litigation finance.
Examples
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Example 1: An attorney agrees to cover all of the costs associated with a plaintiff’s legal case. In return, the attorney will receive 30% of any financial judgment or settlement awarded to the plaintiff.
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Example 2: A third-party investor provides financial backing for a class-action lawsuit against a large corporation. The investor stands to gain a predetermined percentage of the compensation awarded if the class-action suit is successful.
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Example 3: A law firm offers to fund an environmental litigation case for a group of villagers against a pollutant company. The firm requests 25% of the compensation as payment for their services should the case result in a settlement.
Frequently Asked Questions
What is the main concern related to champerty?
The primary concern is that it could lead to an increase in frivolous lawsuits or ethical violations due to conflicts of interest.
Champerty specifically involves a third party covering litigation costs in exchange for a portion of the damages, while other forms of litigation financing might include loans or advance payments that are repaid regardless of the lawsuit’s outcome.
Is champerty still illegal?
Champerty is mostly legal today but remains prohibited in a few jurisdictions with certain restrictions to prevent abuse.
Can champerty agreements be part of ethical law practice?
Yes, provided they adhere to jurisdictional regulations and ethical guidelines designed to prevent conflicts of interest and ensure the integrity of the legal process.
Are there alternatives to champerty for litigants who need financial support?
Yes, alternatives include litigation loans, crowdfunding, legal expense insurance, and contingency fee arrangements with lawyers.
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Maintenance: The support of litigation by a third party without receiving any portion of the proceeds, historically seen as unethical but now more common in the context of ensuring access to justice.
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Contingency Fee: A payment arrangement whereby an attorney receives a percentage of the settlement or award rather than upfront fees, contingent upon winning the case.
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Litigation Finance: The provision of funds to plaintiffs and law firms engaged in litigation, repaid from the proceeds of the lawsuit if successful.
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Legal Funding: Financial support provided to litigants or law firms, typically in exchange for a share of the legal proceeds or based on a loan agreement.
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Third-Party Litigation Funding (TPLF): Financing provided by third parties for litigation costs, including legal fees and expenses, with repayment contingent upon the lawsuit’s outcome.
Online References
Suggested Books for Further Studies
- Law’s Madness (The Amherst Series in Law, Jurisprudence, and Social Thought) by Austin Sarat and Thomas R. Kearns
- The Ethics of Capitalism by Daniel Halliday
- Third Party Funding: Law and Practice by Camilla Godman and Georgios Fasfalis
Fundamentals of Champerty: Legal Ethics Basics Quiz
### Champerty is historically considered illegal because:
- [ ] It always leads to successful lawsuits.
- [ ] It encourages fair and swift justice.
- [x] It could lead to frivolous lawsuits and conflicts of interest.
- [ ] It ensures litigants always win their cases.
> **Explanation:** Champerty was considered illegal because it could lead to an increase in frivolous lawsuits and pose conflicts of interest.
### What happens in a typical champerty arrangement?
- [x] A third party funds the lawsuit in return for a share of the damages.
- [ ] The attorney receives an hourly fee regardless of the case's outcome.
- [ ] The defendant provides the plaintiff with financial assistance.
- [ ] The court pays for the legal expenses of the lawsuit.
> **Explanation:** In a champerty arrangement, a third party funds the lawsuit in exchange for a portion of the damages awarded.
### How is champerty different from a contingency fee?
- [ ] Champerty involves loans with interests.
- [ ] Champerty only applies to criminal cases.
- [x] Champerty involves funding from a third party, while contingency fees are a direct arrangement between client and attorney.
- [ ] There is no difference.
> **Explanation:** Champerty involves funding from a third-party investor, whereas contingency fees are agreements where attorneys are paid from the case proceeds if successful.
### Why has modern champerty become more accepted?
- [ ] To discourage litigation.
- [ ] Because it ensures only wealthy individuals can litigate.
- [ ] To help with workload in courts.
- [x] To provide increased access to justice through litigation finance.
> **Explanation:** Champerty has become more accepted as it provides increased access to justice, allowing litigants who might not afford legal costs to pursue legitimate claims.
### Which of the following terms is closely related to champerty?
- [ ] Subrogation
- [x] Maintenance
- [ ] Aberration
- [ ] Contumacy
> **Explanation:** Maintenance is closely related to champerty, both historically viewed as unethical support of litigation, although maintenance doesn't involve sharing in lawsuit proceeds.
### Who primarily benefits from champerty arrangements in the contemporary legal landscape?
- [ ] Only the defendant.
- [ ] The attorneys representing the losing side.
- [ ] Legal system administrators.
- [x] Plaintiffs needing financial support for legal battles.
> **Explanation:** Plaintiffs who require financial assistance to cover litigation costs primarily benefit from champerty arrangements.
### What is one key jurisdictional restriction often associated with champerty agreements today?
- [ ] They can only be used in criminal cases.
- [x] They remain prohibited or restricted to avoid cases with little merit from flooding courts.
- [ ] They must provide a minimum share to defendants.
- [ ] They are subject to global regulation by the UN.
> **Explanation:** Jurisdictional restrictions aim to prevent champerty from encouraging cases with little merit and causing unnecessary burdens on the legal system.
### How does maintenance differ from champerty?
- [ ] Maintenance always involves sharing litigation proceeds.
- [x] Maintenance involves supporting a lawsuit without taking any financial share.
- [ ] Maintenance only occurs in criminal law.
- [ ] Maintenance requires court approval before proceeding.
> **Explanation:** Maintenance involves providing support for litigation efforts but does not involve taking a financial share from the lawsuit proceeds as in champerty.
### What aspect makes modern litigation finance similar to traditional champerty?
- [ ] It ensures winning every lawsuit.
- [ ] It involves court approval after trial.
- [ ] It reduces legal cost across the board.
- [x] It uses third-party funds to finance lawsuits in exchange for a portion of the outcome.
> **Explanation:** Like traditional champerty, modern litigation finance involves third-party funding for lawsuits with an expectation of sharing in the lawsuit's outcomes.
### What ethical consideration is pivotal when forming champerty agreements?
- [x] The agreement should avoid conflicts of interest.
- [ ] The litigant must personally repay the funding, win or lose.
- [ ] Only minor legal costs should be funded.
- [ ] The funder must always be an attorney.
> **Explanation:** Ethical consideration to avoid conflicts of interest is crucial to ensure the integrity and fairness of the litigation process in champerty agreements.
Thank you for exploring the intricate subject of champerty. May this comprehensive guide and challenging quiz deepen your understanding of legal ethics and litigation finance principles!
