Minnesota Court of Appeals Says State’s Strong Policy Against Champerty Means Litigation Funder Can’t Enforce Forum Selection Clause or Compel Parallel Lawsuit to Proceed in New York

Minnesota Court of Appeals Says State’s Strong Policy Against Champerty Means Litigation Funder Can’t Enforce Forum Selection Clause or Compel Parallel Lawsuit to Proceed in New York

The principles at stake in Maslowski v. Prospect Funding, 890 N.W.2d 756, 2017 Minn. App. LEXIS 26 (Minn. App. Ct. Feb. 13, 2017), can be summed up as follows:

  1. A trial court does not abuse its discretion to refuse to enforce a contractual forum-selection clause where the court’s refusal was based on protecting Minnesota’s local interest against champerty; and
  2. A trial court does not abuse its discretion by issuing an anti-suit injunction enjoining a litigation funding company from prosecuting a lawsuit in another state against a Minnesota resident, where the injunction was also designed to protect Minnesota’s

The facts, though, illustrate how champerty still may have a powerful enough impact to prevent forum-shopping as a way to engage in litigation funding practices.

The facts involved a personal injury claimant, Maslowski, who entered into an arrangement with Prospect Funding, whereby Prospect would provide her with $6,000 and, in exchange, would receive a portion of the recovery, if any, in the personal injury lawsuit. The arrangement prohibited Maslowski from hiring a new attorney for her personal injury claim, unless certain conditions are met. In addition, the agreement contained a forum-selection clause choosing New York – a change from the original agreement. The arrangement broke down, and each party sued the other. Maslowski sued in Minnesota, filing a complaint that sought a declaration that the agreement with Prospect “is void because it is champertous, ‘against Minnesota policy,’ ‘intended to evade Minnesota law,’ and unconscionable.” Prospect filed a complaint in New York against Maslowski, for breach of contract, unjust enrichment, and other claims.

In New York, Maslowski moved to dismiss the New York action based on forum non conveniens and other arguments, and the New York court denied the motion to dismiss the action in that state.

In Minnesota, the trial court denied Prospect’s motion to dismiss, which was based on the forum selection clause, rules of comity, and other grounds.  The trial court said that “Minnesota courts have stated and reaffirmed that they will not enforce champertous agreements . . . .”  Further, the forum-selection and chose-of-law clauses demonstrates that Prospect “chose a sort of ‘end-around’ play” that sought to avoid Minnesota law.  Said the trial court: “If this court were to enforce the forum selection clause as [Prospect] request[s], and if thereafter a New York court, applying New York law, were to decide that champertous contracts are permissible and enforceable in Minnesota, that would effectively reverse a line of precedent that has been established in Minnesota ever since 1897, and reaffirmed by Minnesota’s appellate court as recently as 2003, without any Minnesota court having any say in the matter.”  Enforcing the forum-selection clause, said the trial court “would result in the contravention of a strong Minnesota public policy that its courts should decide whether champertous agreements may be enforced within this state.”  In January, the appellate division of the New York Supreme Court reversed the New York trial court’s decision, concluding that “Maslowski demonstrated that the choice of forum provision in the parties’ agreement is unreasonable and should not be enforced,” noting that “[e]very aspect of the transaction at issue occurred in Minnesota, the parties, documents, and witnesses are located in Minnesota, and defending this action in New York would be a substantial hardship to Ms. Maslowski.”

While Prospect sought to overturn that appellate ruling in New York, the Minnesota appellate court issued its ruling in that state’s proceedings.

The Minnesota Court of Appeals began its analysis with a detailed recitation of the long concerning enforcement of forum selection clauses, which are normally given effect in the same manner as other contract provisions.  However, said the appellate court, a “forum-selection clause is unreasonable, and therefore unenforceable, if ‘(1) the chosen forum is a seriously inconvenient place for trial; (2) the choice of forum agreement is one of adhesion; and (3) the agreement is otherwise unreasonable.'”   Further, a “forum-selection clause is otherwise unreasonable if enforcement of the forum selection clause would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.”

Turning to the issues of champerty and maintenance, the court said that Minnesota’s policy is clear and long-standing in opposition to champertous agreements:

Minnesota follows the common-law rule prohibiting contracts for champerty.  . . .  This court has defined champerty as [a]n agreement between a stranger to a lawsuit and a litigant by which the stranger pursues the litigant[‘s] claims as consideration for receiving part of any judgment proceeds. . . .  This court has defined maintenance, a similar concept, as “‘[a]ssistance in prosecuting or defending a lawsuit given to a litigant by someone who has no bona fide interest in the case; meddling in someone else’s litigation. . . .  The general purpose of the law against champerty and maintenance is to prevent officious intermeddlers from stirring up strife and contention by vexatious or speculative litigation which would disturb the peace of society, lead to corrupt practices, and pervert the remedial process of the law. . . .  In other words, the prohibition on champerty and maintenance is aimed at discouraging intrusion for the purpose of mere speculation in the troubles of others.

The court stated that, “in this particular case, the decision whether the parties’ agreement violates Minnesota’s policy against champerty has the potential to expose personal-injury actions in Minnesota to the negative effects of champerty.”  Further, said the appeals court, “[g]iven that potential, Minnesota has a strong local interest in applying its prohibition against champerty in this case.”  In conclusion, the Minnesota Court of Appeals held that the “the district court did not abuse its discretion by refusing to enforce the forum-selection clause in the parties’ agreement based on Minnesota’s local interest against champerty.”

The full opinion is available here.

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