We’ve blogged a number of times about how litigation funding arrangements involving personal injuries and mass torts collide with various ethical and statutory obligations owed by either the funders or the lawyers they fund.  These all involve United States litigation.  But when the New York Times reported on the questionable funding arrangements that have occurred

This post does not involve a drug/device case – or even a tort case − but counsel worried about potentially abusive litigation funding should take a look at WFIC, LLC v. Labarre, ___ A.3d ___, 2016 WL 4769436 (Pa. Super. Sept. 13, 2016), in which a statewide appellate court, in a precedential decision, invalidated a litigation funding agreement as “champertous.”

WFIC involved commercial litigation. The underlying litigation is not important, except for its being extensive and expensive, and that the result was a significant verdict (low eight figures) – but not the nine-figure whopper that the plaintiffs had been hoping for.  2016 WL 4769436, at *1.

After entry of judgment, to keep the litigation going during the appeal, the plaintiff’s lawyer rejiggered his own fee arrangement so that various litigation funders, who had previously advanced funds, would be paid out the lawyer’s contingent fee.  Id.  The funds from the eventual satisfaction of the affirmed judgment were insufficient to satisfy obligations to the various litigation funders, the expectations of the original plaintiff (WFIC was an assignee of the original plaintiff, id. at *3 n.10), and also provide counsel with a fee.  Id. at *2.  As a result, various parties sued various parties.  Id. at *3.  The appeal in question pitted plaintiffs’ counsel against the world over whose priorities (if any) in the remaining funds were superior to his under the litigation funding agreement.  Id.

The Superior Court didn’t decide the priority question.  Instead the three-judge panel unanimously declared the litigation funding agreement itself “champertous,” and therefore void and unenforceable by anyone.  WFIC, 2016 WL 4769436, at *5 (“we conclude that the 2008 Fee Agreement is champertous and, therefore, invalid”).  In Pennsylvania, “champerty” is defined as:

[T]he unlawful maintenance of a suit in consideration of some bargain to have a part of the thing in dispute or some profit out of the litigation. . . . An agreement by a stranger to defray the expenses of a suit in which he has no interest or to give substantial support and aid thereto in consideration of a share of the recovery or the proceeds thereof is condemned by the courts as champertous[.]

Id. (emphasis added) (discussion of “maintenance” – essentially the same thing without a written agreement – omitted).  “[T]he common law doctrine of champerty remains a viable defense in Pennsylvania.”  Id.


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Back in October, all of the Philadelphia Reed Smith bloggers participated in an in-house CLE presentation attended by colleagues and clients.  Our portion of the presentation dealt with third party litigation funding.  There are several different funding models, but all are united by a common theme: funding companies, aided by plaintiffs’ lawyers, identify vulnerable litigants