[Wrestler Hulk Hogan’s lawsuit against Gawker Media over its publication of a sex tape resulted in a Florida jury’s award of $140 million against the widely loathed journalistic entity. There had been rumors that someone staked Hogan the money to sue. Now, Ryan Mac and Matt Drange in Forbes write that anonymous sources have told them the hidden funder was Silicon Valley libertarian Peter Thiel. The article does not make clear whether, if the reports are true, Thiel stands to gain a share of the suit’s proceeds, or was acting from dislike of Gawker.]
At common law, funding another’s lawsuit was “champerty” if done for a share of the proceeds and “maintenance” if done for the hell of it. Both were unlawful at common law (as was “barratry,” the stirring up of litigation whether or not resources were advanced for its prosecution) but as I discussed in The Litigation Explosion (1991), the old common law rules have fallen into general disuse. What rules still remain vary from state to state, often taking the form of rules specifically governing what lawyers and their associates can do (which will often leave non-lawyers free to carry on the same acts.)
Champerty and maintenance rules both came under attack from legal academics and influential commentators during the general rise of pro-litigation sentiment in the decades after 1950, and were dismissed as outdated and ethically wrongheaded. The path was different in each case, however. In the case of champerty, the rise to acceptance of the lawyer’s contingency fee, as a wholesome prescription for the general case rather than a necessary evil in special kinds of cases, tended to erode disapproval of champerty: if there was nothing at all wrong with lawyers taking a share in claims, why not invite others to do so too? As an internet search on the phrase “litigation finance” will quickly show — or a glance at a tag on the subject at Overlawyered — third-party financing of lawsuits has become a booming and largely unregulated business in the United States and a few other nations, even as champerty remains unlawful in many other countries. The U.S. Chamber of Commerce, believing that litigation finance is likely to fuel the volume of lawsuits, has fought for restrictions on the practice.
Maintenance, on the other hand, metamorphosed around the 1960s into what we now know as the public interest litigation model: foundation or wealthy individual A pays B to sue C. Since litigation during this period was being re-conceived as something socially productive and beneficial, what could be more philanthropic and public-spirited than to pay for there to be more of it? So what had been stigmatized or even illegal not long before soon emerged as the most admired kind of legal practice.
Once the old ethical qualms about champerty and maintenance fall, it seems unlikely that they will be revived only as to some causes or persons. Funding someone else’s lawsuit for ideological reasons, long perceived as a dangerous stirring up of social conflict that might otherwise have remained at rest, is now applauded as a means of holding powerful institutions accountable, ensuring wronged parties their day in court, and so forth. Inevitably, once all parties grow comfortable with this tool, it will be used not just against the originally contemplated targets, such as large business or government defendants, but against a wide range of others — journalistic defendants included.
15 Comments
There’s only one real “ethical qualm” arising from any of them: does the plaintiff still control the claim?
The law has never had a problem with the assignment of claims (insurance companies do it all the time) or with parties entering into contracts to spread the risk of litigation costs (that’s what insurance is). In the past, “champerty” and “maintenance” were invented as ways to force disadvantaged parties to settle their cases against larger parties, by precluding them from using the same plain-vanilla contracting principles as everyone else. That has rightly fallen.
The real issue relates to client control. If Thiel has, like a typical litigation funder, simply offered to cover costs in exchange for a portion of the return, then there’s no ethical problem.
If, instead, Thiel has effectively taken over the claim and is paying Hogan outside of the litigation so he’ll maintain the lawsuit, that’s another story.
[…] often do you get to think about champerty and maintenance these days? The words ring vaguely from the first year of law school, but they play little role in modern […]
I am afraid I cannot agree with Max Kennerly that possible interference with client control is the only ethical danger to arise from champerty and maintenance. Historically, numerous other concerns have arisen about the practices as well, including the risk of stirring up needless litigation, lack of candor toward the tribunal when a claim is coming from a different quarter or with a different motivation than it appears to be, and others. Some of these concerns (but not others) can also arise with assignment of claims, the operation of liability insurance on the defense side, and so forth. That is one reason those other practices have come under varying degrees of scrutiny from the bench, lawmakers, and others, and have not always received the law’s blessing.
The tale told around campfires by modern American litigators is that these age-old rules never had any real ethical content to them but were a mere conspiracy against the interests of the people and their tribunes. Curiously, this view has not penetrated to many other advanced societies which appear to base their legal systems on ethical intuitions otherwise not too dissimilar from our own.
Help a non-lawyer understand: what is the difference between funding someone else’s litigation for ideological reasons, and representing someone pro bono for ideological reasons?
In the case of environmental litigation, the pro bono lawyer who is successful is paid by the taxpayer, so there is no pro bono unless they lose.
A “lack of candor toward the tribunal when a claim is coming from a different quarter or with a different motivation than it appears to be” is not all that uncommon when dealing with, e.g., environmental claims.
As an example, a proposed mall in Suffolk County, Long Island that I’m familiar with was opposed for many years by civic associations, local politicians and “activists” alleging significant environmental impacts/harm resulting from excessive traffic, noise and damage to the sensitive and pristine environment, etc.
As a result, these people were able to maintain the stance that they were trying to do something for the public good and were given good publicity by the local newspaper and (probably) consideration by the courts.
The project eventually cratered due to the extraordinary delays caused by litigation and the prolonged environmental review process.
As it turns out, the opponents of the mall were funded by (guess who?) the owners
of an existing mall which was located about 20 – 25 miles away from the proposed mall, and would have had to endure some competition.
Can’t have that.
Ironically, I think Mr. Olson and I agree on the specifics, but disagree on the generalities.
On the generalities, Mr. Olson sees huge potential for misconduct and chicanery, and a whole world of needless and punitive litigation. I see the great majority of lawsuit loans and litigation funding as having very little effect on the extent of litigation, except to enable plaintiffs with meritorious cases to properly pursue them in light of the time and expense necessary for litigation, which ordinary plaintiffs often can’t bear.
On the specifics, I see Mr. Olson’s concern about “candor to the tribunal” being the same as my concern regarding client control of the litigation. If the litigation funder has simply put forward capital for costs in exchange for a portion of the proceeds, there’s no big issue. If, however, the plaintiff has effectively assigned the claim away to the litigation funder, then we do indeed have a problem with the nominal plaintiff not actually being the real party in interest.
That’s my concern with the Hogan case. It does not look like a typical case worthy of litigation financing, not least because defamation/privacy lawsuits are very rarely funded at all because of their extreme risk, and also because the funder in question is not someone typically engaged in litigation financing, and who has apparent motivation for maintaining an unnecessary claim beyond the point where it should have resolved. On the flipside, however, the extraordinary size of the jury verdict would suggest that perhaps the funder here knows better than most, and correctly identified a high value privacy case that was worthy of pursuit.
All of which is to say, this particular case certainly raises my eyebrows just the same as Mr. Olson’s. But it is an outlier, and I don’t think it should be used as a vehicle to impair typical plaintiffs’ pursuit of appropriate redress in the courts.
The problem with outlawing litigation funding, of which this appears to be a type, is that it may effectively close the courthouse doors to those litigants (and lawyers) of modest means.
Is there the potential for abuse? Sure, but so is the alternative where wealthy litigants (such as insurance companies) can put the screws to the injured who may be out of work and desperate.
Litigation funding generally sucks, due to very high fees. But it also, to some degree, levels the playing field.
[…] against a media company by someone with the money to drive a company to ruin through litigation. (Some lawyers have speculated that Thiel’s lawsuit sponsorship is technically called “maintenance” if he […]
Does a plaintiff’s lawyer offering to work on a contingency basis qualify as champerty? How about a fund started on Kickstarter (or similar) to fund a lawsuit? Does it matter if the fund is for the plaintiff or the defendant?
I would be against laws restricting these practices unless the notion of standing were reexamined and broadened. It excludes too many people now (as in the case about that California anti-gay-marriage proposition that its authors were found not to have standing to defend).
[…] If we take Thiel’s comments at face value, then there really is no issue here. Thiel has more than enough lawyers to structure a funding arrangement in an appropriate way, and his personal reasons for funding the case and his own belief that he doesn’t “expect to make any money from this” don’t change the underlying legality of the investment. Litigation funding has grown remarkably in the past few years, and has enabled plaintiffs to truly take on giants, including taking on the tobacco companies in Florida. If you want to know more about this subject, you can read Walter Olson’s take and my comments at Overlawyered. […]
[…] sought out and funded other litigants besides Hogan in order to make that happen. As I said in my explainer the other day, the decay of age-old rules against outsider funding of litigation (“champerty and […]
[…] financing of the Hulk Hogan lawsuit as part of a campaign to take down Gawker Media (earlier here, here). The episode, which follows Frank VanderSloot’s announcement that he wishes to devote […]
[…] Olson, author of “The Litigation Explosion” (1991), explained in his Overlawyered.com blog that Mr. Thiel’s approach was predictable after maintenance […]
[…] to be.” [New Yorker] My recent posts on Gawker, Peter Thiel, and paying others to sue are here and […]