Advance Lawsuit Funding

Written by Patricia Tunstall
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Advance Lawsuit Funding to Impoverished Plaintiffs

To advance lawsuit funding is legal and ethical, but so new it causes ripples in many circles. Attorneys are not the only ones to disagree about whether litigation financing is proper. Business groups, corporations, and defendants in general in civil lawsuits are largely against third parties having a financial stake in the outcome of a claim.

So far, however, the activities of organizations that provide lawsuit money so a claim can continue are acceptable. The major exception is Ohio, where the Supreme Court in 2003 voided a contract between an injured plaintiff and a litigation funding group (Rancman v. Interim Settlement Funding Corp.). A woman sold a portion of her interest in her personal injury claim to the group, but the court held that this is "champerty," and that it violates Ohio law.

What is "Champerty"?

English common law had ancient origins, but it still holds sway today, as seen in the Ohio case. Indeed, common law is the foundation of the laws in the United States, but it has been seriously modified, and sometimes revoked, by statutory law. "Champerty" is a common law rule against a lawyer having a financial interest in the outcome of a client's lawsuit, where the lawyer and client have an arrangement for the lawyer to advance lawsuit funding in return for some part of the client's award. More generally, it makes illegal the sale of a person's interest in a lawsuit.

Obviously, this is not strictly adhered to in modern law, since contingency fees are the common arrangement to advance lawsuit funding today. These contracts give a portion of an award to the attorney if the client wins in court, but nothing if the client loses. Even without this contract, the argument goes that the attorney still has a clear financial interest in the outcome of the claim.

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