also can exploit plaintiffs who unwittingly
agree to exorbitant repayment sums out of
their litigation proceeds. Id.
The last Illinois Supreme Court case to
address third party financing of a lawsuit as
champerty was Rieman v. Morrison in 1914.
BY JENNIFER GREGORY Rieman v. Morrison, 264 Ill. 279 (1914).
Rieman had signed a contract to recover
Payday Loans for Lawsuits?
stolen goods for Morrison, in return for half
the proceeds of the goods recovered. Id. at
281. The court held that the contract was
Champerty in Illinois not void as champerty because Rieman had
not agreed to bear any portion of the costs
of a lawsuit. Id. at 286. The most recent
Illinois Appellate Court decision regarding
laintiffs in need of money while in man, 789 N.E.2d at 218–19. The loan champerty was Puckett v. Empire Stove Co.
the midst of litigation can readily was $7,000 and the repayment obligation in 1989. Puckett v. Empire Stove Co., 183 Ill.
find companies offering cash to from the plaintiff’s $100,000 settlement App. 3d 181 (5th Dist. 1989). In Puckett,
meet their needs. But at what cost? Adver- was $19,600, or an interest rate of 180%. the court held the assignment of a cause
tisements appear on television and the Id. at 219. The defendant claimed that the of action for contribution against a valve
internet, encouraging plaintiffs to apply advance was an investment in the lawsuit, manufacturer from a landlord to the tenant
for “immediate cash” with no obligation to not a loan. Id. The Ohio Supreme Court injured by the valve was not champertous.
repay the loan unless they win their case. did not address whether the arrangement Id. at 192. The injured plaintiff stood to
Interest rates, however, can border on the was a loan or investment, but voided the benefit from the third party action against
astronomical. The companies justify their contract and characterized the defendant the manufacturer of the valve and, therefore,
offerings by asserting they are taking a third party lender as an “officious inter- had a direct interest in the action for contri-
“humanitarian approach.” Outside finan- meddler.” Id. In Rancman, the court held bution. Id. at 191–92. In other words, the
cial assistance can often make otherwise that the defendant company’s arrangement plaintiff was no stranger to the litigation.
impossible claims possible, and plaintiffs was maintenance because the company A current Illinois statute forbids the
welcome the opportunity to relieve the had no bona fide interest in the lawsuit practice of maintenance, where a person
financial pressures of lengthy litigation. and the loan was champertous because the unassociated with litigation maintains or
Molly McDonough, Venture Capitalists See defendant sought to profit from the litiga- assists either party with a view to promote
Profits in Judgments on Appeal, Chi. Daily tion. Id. Thus, the contract was void. Id. the litigation. Criminal Offenses: Interfer-
L. Bull., July 6, 1998. Nevertheless, the Notably, many litigation funding company ence with Judicial Procedure - Maintenance,
usurious interest rates involved have led web sites state in fine print that they do not 720 Ill. Comp. Stat. 5/32-12 (2008).
one state to hold such arrangements void give advances on claims in Ohio. Another Illinois statute forbids “barratry,”
as champerty and maintenance. Rancman Historically, attorneys were the perpe- where a person “wickedly and willfully
v. Interim Settlement Funding Corp., 789 trators of champerty and maintenance; excites and stirs up actions or quarrels
N.E.2d 217 (Ohio 2003). “Champerty” is today, such attorney issues are resolved by between the people of this State with a view
an agreement between a litigant and a non- disciplinary rules. Id. at 220. To strike down to promote strife and contention.” Crimi-
party in which the nonparty funds or oth- impermissible litigation funding arrange- nal Offenses: Interference with Judicial
erwise pursues the party’s claim in exchange ments, many courts rely on usury laws, which Procedure–Barratry, 720 Ill. Comp. Stat.
for an interest in the proceeds of the lawsuit. void contracts demanding excessively high 5/32-11 (2008). No current Illinois statute
Black’s Law Dictionary 93 (pocket 2nd interest rates on loans. The humanitarian specifically addresses champerty; however,
ed. 2001). “Maintenance” refers to a situa- view of the prohibition against champerty Ohio had no statute forbidding champerty,
tion where a stranger to a lawsuit provides and maintenance is that they unnecessar-
assistance to a party in prosecuting or ily restrict plaintiffs’ access to a legitimate
defending a case. Id. at 433. source of sorely needed funding in the midst
In 2003, the Supreme Court of Ohio of litigation. McDonough, supra note 1. Jennifer Gregory is a 2008
in Rancman v. Interim Settlement Corp., These funding sources unquestionably help
addressed a situation where a plaintiff sued make some lawsuits feasible, especially when graduate and was the Editor of
an insurance company in a direct action for plaintiffs face defendants with vast resources. the Morrissey Scholars at The
personal injury and had obtained an advance However, the traditional view is that specula- John Marshall Law School.
of funds from a third party lender–the funds tion in lawsuits for profit by third parties not
being secured by her pending claim. Ranc- only turns lawsuits into commodities, but
60 OCTOBER 2008
when the court relied on precedent and
common law to void the litigation finance
contract at issue in Rancman.
The Illinois State Bar Association has
advised that an attorney “may ethically
assist clients in obtaining loans for payment
of attorney fees, providing the attorney
protects the client’s confidences and meets
his fiduciary obligation of complete disclo-
sure.” Illinois State Bar Association Ethics
Opinion: Financial Support to Clients;
Confidentiality, No. 92-9 (1993). This
ISBA advisory opinion is listed on litigation
funding web sites as a guide to the law in Now accepting engagements
Illinois. However, the ethics opinion nar-
rowly addresses a situation where the loan for December 2008!
is used to pay the attorney’s fees, not where
the loan proceeds are given to the plaintiff
in an unstructured manner. Select ensembles of the CBA Chorus
Attorneys with clients who contract
with third party litigation firms should be are ready to entertain at your next
wary of the unsettled state of Illinois law business social or holiday event.
on this topic. The common law precedent
indicates that Illinois courts would reject
many of these funding arrangements. The
Illinois Supreme Court in Rieman stated
that “to make out a case of champerty it
For details, contact Jennifer Widmer at
must be shown that the costs and expenses email@example.com or Terry Kennedy at
of the suit…are paid or agreed to be paid firstname.lastname@example.org.
by one not a party to the suit.” Rieman, 264
Ill. at 286. The 5th District Appellate Court
of Illinois in Puckett stated, “[c]hamperty
Proceeds benefit the CBA Chorus.
and maintenance have been disapproved by
the courts as against public policy because
a litigious person could harass and annoy
others.” Puckett, 183 Ill. App. 3d at 191. The
precise issue of funding litigation by third
parties for purposes other than the payment
of attorney’s fees has not been addressed
in recent memory by the Illinois courts.
The Illinois legislature has recently focused
on “Payday Loans,” and it would behoove
the legislature to broaden the scope of this
inquiry to investigate third party litigation
STATE V. BEAN LAWYERS MEET ON OCTOBER 23, 2008
funding. Business Transactions: Payday In 2007, the CBA YLS was awarded the ABA Public Service Project of the Year for the State v. Bean Mock Trial DVD Video
Loan Reform Act, 815 Ill. Comp. Stat. 122 produced in conjunction with the Constitutional Rights Foundation of Chicago and Lawyers for the Creative Arts with
(2008). Maintenance and champerty may be the generous support of the Chicago Bar Foundation. In our continued effort to promote Lawyers in the Classroom and
flourishing as the “Payday Loans” of litiga- the State v. Bean DVD teaching young students about the inner workings of jury trials, the YLS seeks to recruit volunteer
tion. The ethical Illinois lawyer should be lawyers to work with the students from the Goudy Elementary School, the CBA YLS’s adopted Chicago Public School,
mindful of champerty lurking behind third on October 23, 2008. There will be a training session at the Goudy School at noon with the classroom session to follow
party financing of plaintiffs’ potential claims from 1:00 - 2:30 pm. In preparing for our visit, the students will watch the Mock Trial DVD based upon the story of Jack
when first their clients express concern over and the Bean Stalk. The lawyers will facilitate a lesson plan created in conjunction with the DVD.
their litigation finance needs. If you are interested in volunteering for this event, please contact Natacha von Will at email@example.com or call
CBA RECORD 61