Posts Tagged ‘champerty’

Champerty and maintenance explainer (Gawker/Hogan/Thiel edition)

[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commentators during the general rise of pro-litigation sentiment in the decades after 1950, and were dismissed as outdated and ethically wrongheaded.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.

Liability roundup

  • “Is Arbitration Awful? The New York Times Thinks So.” [New Jersey Civil Justice Institute, earlier here and here] And speaking of that paper, I’m going to miss Joe Nocera’s incisive coverage of the litigation business in his column, often linked here; he’s off to other duties at the Times [Politico/New York]
  • Yet more from the Times, longread on litigation investing and champerty: “Should You Be Allowed To Invest In a Lawsuit?”
  • Mikal Watts through the years: “It was part of my strategy to affect the stock price, which I was very successful at.” [Madison County Record, more]
  • “No negligence liability for injuries by fellow players in contact sport” [Eugene Volokh, martial arts, Colorado Court of Appeals]
  • Defense lawyer claims adversary had advance word about jury deliberations, grabbed $25 million settlement [Chicago Law Bulletin]
  • Is data privacy the next source of mass lawsuits? [Chamber Institute for Legal Reform]
  • Funds needlessly drained: “Asbestos reforms needed to protect first responders and veterans” [Rep. Blake Farenthold, The Hill]

Medical roundup

  • Surprised this story of interstate lawsuit exposure hasn’t had national coverage: “Texas docs threaten to stop seeing New Mexico patients” [Hobbs, N.M., News]
  • More on the Daraprim episode and the fiasco of FDA generic-drug regulation [Watchdog, earlier here and here] More: Ira Stoll/N.Y. Sun;
  • Warrants, HIPAA be damned: Drug Enforcement Administration agents pose as Texas medical board to get at patient records [Jon Cassidy/Watchdog, Tim Cushing/TechDirt via Radley Balko]
  • Litigation finance and champerty: the reaction is under way [MathBabe, earlier on pelvic and transvaginal mesh surgery speculation]
  • No longer alas a surprise to see JAMA Pediatrics running lame, politicized content on topics like “youth gun carrying” [Jacob Sullum]
  • “Shame, blame, and defame”: in alcohol regulation as in other public health fields, government-funded research can look a lot like advocacy [Edward Peter Stringham, The Hill]
  • More adventures in public health: study finds dry counties in Kentucky have bigger problems with methamphetamine [Christopher Ingraham, Washington Post “WonkBlog”]

The New Age of Litigation Finance

On Thursday I was a panelist at the Federalist Society National Lawyers’ Conference discussing the rapid rise of litigation funding — specifically, well-capitalized firms that advance money to plaintiffs in commercial high-stakes litigation, often in exchange for a share in the proceeds. (A separate wing of the litigation finance business, which was not the panel’s primary focus, advances smallish sums to individual injury plaintiffs at high interest rates in a sort of analogue of payday lending.)

My opening remarks speculate about the future emergence of divorce trolls — excuse me, “marital rights assertion entities” — set up to buy out an ex-spouse’s stake in ongoing matrimonial strife and play it for maximum extraction value. While no one has yet rolled out that kind of business model, note that outside financiers have indeed begun to fund divorce litigation.

More seriously, I went on to argue that the rise of patent trolls and mass tort operations prefigures problems we are likely to see emerge from litigation finance, from the encouragement given to low-value claims to a settlement process skewed by the interests of the funders rather than the original disputants, and suggest that the age-old rules against champerty, maintenance and barratry might owe something to an appreciation of such dangers. A link to the video is here.

More: Check out Roger Pilon’s post on what else Cato people were up to at the Mayflower last week.

“Judge rules Righthaven lacks standing to sue, threatens sanctions over misrepresentations”

Copyright troll tripped up:

A federal judge in Las Vegas today issued a potentially devastating ruling against copyright enforcer Righthaven LLC, finding it doesn’t have standing to sue over Las Vegas Review-Journal stories, that it has misled the court and threatening to impose sanctions against Righthaven. … [U.S. District Court Judge Roger] Hunt’s ruling today came in a 2010 Righthaven lawsuit against the Democratic Underground, operator of a big political website.

One of DU’s message board posters had reprinted without permission, but with link and credit, four paragraphs’ worth of an article under copyright to the Las Vegas Review-Journal, which is one of a number of newspapers with working agreements with RightHaven. And this part’s interesting:

In their counterclaim [which Judge Hunt allowed to proceed], attorneys for the Electronic Frontier Foundation (EFF), a digital free speech group based in San Francisco, hit Righthaven and Stephens Media with allegations of barratry (the alleged improper incitement of litigation); and champerty (an allegedly improper relationship between one funding and one pursuing a lawsuit)….

Some fans of entrepreneurial lawyering in the academy and elsewhere have sought to portray rules against barratry and champerty as wrongheaded survivals of a much older approach to the role of the legal profession. But it looks as if EFF — no one’s idea of a Blackstone-reading antiquarian club — just put those rules to powerful use. [Las Vegas Sun]

P.S. Bloggers who settled wonder: can we get our money back?

February 15 roundup

  • Artist Jeff Koons drops his lawsuit against maker of resin balloon dogs [Legal Blog Watch, BoingBoing, earlier]
  • The car pile-up happened fast, the come-ons from lawyers and chiropractors were almost as speedy [Adler/Volokh]
  • Andrew Thomas update: former Maricopa County Attorney intends to sue former bar president and ethics investigators [ABA Journal, Coyote]
  • Litigation finance: “Poker Magnate, London Firm Bankroll Chevron Plaintiffs” [Dan Fisher, Forbes] Case for champerty pleaded before ethics commission [Podgers, ABA Journal] The experience in Australia [Karlsgodt]
  • Judge: Kansas City stadium mascot hot dog toss suit can go to trial [OnPoint News, earlier]
  • How National Enquirer matched wits with John Edwards to expose scandal [David Perel, HuffPo] More: Justice Department building a case? [AW]
  • “The Whooping Cough’s Unnecessary Return” [Paul Howard/Jim Copland, City Journal] Theodore Dalrymple reviews new Paul Offit vaccine book [same]
  • Many trial lawyers yank funding from Ralph Nader operations in pique over his role in depriving Al Gore of White House victory [ten years ago on Overlawyered]

Righthaven update

Having defeated a Righthaven suit filed against the political site Democratic Underground, lawyers from the Electronic Frontier Foundation now would like the court to award attorneys’ fees. [Kravets, Wired “Threat Level”] Among the claims advanced by EFF in that case were that Righthaven had engaged in barratry and champerty, concepts familiar to many Overlawyered readers if in desuetude in some sectors of the legal world these days. It had also pointed out that some of the newspapers facilitating the suits themselves, or websites they operate, appear to engage in or encourage practices that might be considered wrongful under Righthaven’s theories, such as “cutting and pasting” potentially copyrighted text.

Separately, Groklaw has analyzed what happened in one sample case. Of the furor aroused by the lawsuits, “I think the benefits are worth the negative publicity,” said one executive with the Las Vegas Review-Journal’s owner at a September panel.

The entrepreneurial copyright litigation firm has also now signed up the Denver Post as a new affiliate, and has made a splash by suing the owner of the Drudge Report over its use of a photo allegedly swiped from the Colorado newspaper, an offense (if proven) presumably not as readily defended under “fair use” doctrine as some others over which it has sued.

NY Times on litigation finance

Yes, it’s an informative piece, and yes, it does explore some of the drawbacks and abuses, particularly for clients whose lawsuits are being financed by banks, hedge funds or other investors. But the Times (with its reporting partner, the Center for Public Integrity) also buys in to what David Oliver correctly identifies as a big, central fallacy when it claims that the influx of money into plaintiff’s cases “is helping to ensure that cases are decided by merit rather than resources.” So when an outside investor makes it possible for, say, a patent troll to launch mass royalty demands on behalf of marginal patents, or a mass tort firm to roll out scientifically dubious toxic-injury claims, or an Indian tribe to assert 200-year-old land claims against nearby farmers for casino-seeking leverage, it means that cases are now suddenly being resolved on a basis that more closely tracks the merits? Check your premises, please. More: Dan Fisher/Forbes and Ted Frank/PoL, and earlier on Counsel Financial.

P.S. Good round table at New York Times “Room for Debate”, check out in particular the Paul Rubin and Richard Epstein contributions; Kenneth Anderson/Volokh (“insurable interest”).