CBA Record September 2018

Illinois’ Stance on the Ethics of TPLF In 1890, years before the 1908 Cannons of Professional Ethics were instituted, the Illinois Appellate Court found an attorney’s agreement with a client to advance costs and file a lawsuit for a client in exchange for 50% of the amount recovered as not champertous. Dunne v. Herrick, 37 Ill. App. 180 (Ill. App. Ct. 1890). The court explained “[t]he old law upon the subject of barratry, champerty and maintenance, seems to have been founded upon the con- servative English feeling that whatever is, is right, and ought not to be disturbed. A hundred years ago Justice Buller expressed his contempt for it. It has been so pruned away and exceptions so grafted upon it, that there is nothing of substance left of it in this State, and it has been wholly abandoned in others.” Maintenance and champerty have con- tinued to be whittled away and now just a toothpick of the common law’s foundation remains: profiting from a lawsuit is accept- able, so long as the funder does not (1) encourage the filing of a frivolous suit, and (2) does not use the suit to harass others. In Miller UK Ltd. v. Caterpillar, Inc., the Northern District of Illinois summarizes Illinois’ definitions of maintenance and champerty. 17 F. Supp. 3d 711 (N.D. Ill. 2014). “The common-law offense of maintenance was abolished by statute and has remained virtually unchanged for over a century.” A criminal statute, 720 ILCS § 5/32-12, provides: Maintenance. If a person officiously intermeddles in an action that in no way belongs to or concerns that person, by maintaining or assist- ing either party, with money or otherwise, to prosecute or defend the action, with a view to promote litigation, he or she is guilty of maintenance and upon conviction shall be fined and punished as in cases of common barratry. It is not maintenance for a person to main- tain the action of his or her relative or servant, or a poor person out of charity. (emphasis added). “Under Illinois law, ‘champerty’ is a bargain by a stranger with a party to a suit,

ETHICS EXTRA

BY JEANETTE BRAUN

Third Party Financing of Lawsuits: Ethical Considerations for Illinois Attorneys

T hird party financing of lawsuits (TPFL) has become a big business in the U.S. Case in point: Gerchen Keller Capital, a Chicago-based litigation investment firm, opened its doors in 2013, and was sold for $160 million in 2016. TPFL firms lend money to cover the costs of a lawsuit (along with money to cover expenses associated with injury, e.g., medi- cal expenses) and in return, take a portion of the winnings that exceed the original loan amount. TPLF proponents argue that it levels the playing field for plaintiffs and defendants by creating revenue streams both parties may not have had access to before. Critics argue that TPLF violates common law standards of maintenance and champerty because a third party is supporting the suit. The A.B.A. Commis- sion on Ethics 20/20 weighed in with its white paper of February 2012. The Com- mission believes the legal profession has shifted “away from […] doctrines such as champerty, and society’s embrace of credit as a financial tool [has] paved the way for a litigation financing industry that appears poised to continue to grow….” Jennifer Anglim Kreder & Benjamin A. Bauer, Litigation Finance Ethics: Paying Interest, 2013 Prof. Law. 1, 6, 21 (discussing the A.B.A.’s Commission on Ethics 20/20’s white paper of February 2012). Jeanette Braun, a Francis D. Morrissey Scholar at the John Marshall Law School, will receive her J.D. in the spring of 2019

Definitions; Is It Unlawful for a Third Party to Profit from a Lawsuit? The U.S. Supreme Court defined mainte- nance and champerty in 1978: “mainte- nance is helping another prosecute a suit; champerty is maintaining a suit in return for a financial interest in the outcome; and barratry is a continuing practice of maintenance or champerty.” In re Primus, 436 U.S. 412, 424, n.15 (1978). American common law aimed to prevent “multitudi- nous and useless lawsuits and…speculation in lawsuits” by creating laws against cham- perty, maintenance, and barratry. 14 C.J.S. Champerty & Maintenance § 2 (1991). At first glance, it seems TPLF fully encompasses maintenance, champerty, and barratry, and participation in TPLF practices should be unethical for attorneys. TheTPLF firms help others prosecute a suit by providing the funds to bring the suit (maintenance).The business model of most firms is to invest in many lawsuits for profit (barratry). If TPLF practices fall within the U.S. Supreme Court’s definitions of maintenance, champerty, and barratry, and American common law prohibited such practices to suppress frivolous lawsuits, then how is it ethical for attorneys to accept monies from TPLF firms? The states have different answers to that question (see Heather Morton, Litigation or Lawsuit Funding Transactions 2015 Legislation, National Conference of State Legislatures, Jan. 8, 2016, http://www. ncsl.org/research/financial-services-and- commerce/litigation-or-lawsuit-funding- transactions-2015-legislation.aspx). How- ever, it is not unlawful in most states for a TPLF firm to profit from lawsuits. Where does Illinois stand?

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