Champerty and Independent Judgment

Champerty and Independent Judgment

Rule 1.8(i) bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, subject to a short list of exceptions.¹ Two concerns stand behind the bar. A personal stake in the outcome can distract a lawyer's professional judgment, and a lawyer who may buy into claims has a reason to promote litigation that would not otherwise be brought.² The first concern is about the quality of the lawyer's advice. The second is the one the common law attacked through champerty.

The first concern is the lawyer's judgment. In Wunschel Law Firm, P.C. v. Clabaugh, the court identified the danger: the possibility of an adverse effect on the free judgment a lawyer exercises for the client during litigation makes it undesirable for the lawyer to acquire a proprietary interest in the client's cause or otherwise to become financially interested in the outcome.³ The distortion is easy to see. A lawyer who owns part of the claim stands to gain from a larger recovery, so advice to hold out for more or to refuse a settlement can serve the lawyer's share as readily as the client's interest. The client sees the advice and not the motive. Because the danger lies in the possibility of an adverse effect, the rule keys on acquiring the interest and not on proof that judgment was actually compromised.

The Model Rules apply the same worry to publicity. A client's grant to the lawyer of literary or media rights in the representation is a “forbidden” “financial arrangement,” because the grant would give the lawyer an incentive to generate the maximum publicity and suspense around the case. It would also risk the disclosure of confidential information.⁴

The second concern is older. Lawyers have always needed fees to survive, and since the Middle Ages society has frowned on their marketing of services, but what disquieted medieval law was less advertising than the financing of litigation.⁵ Blackstone described a triad of related crimes. Barratry was the stirring up of litigation. Maintenance was the financing of litigation. Champerty was the splitting of the fruits of litigation. He lamented that the offender, “as is too often the case,” belonged to the profession of law.⁶ Each label targets a different moment in a lawsuit's life: the decision to sue, the money that keeps the suit going, and the division of the winnings.

The triad has not survived intact in modern law. It sits uneasily beside the contingent fee, which gives a lawyer a financial interest in the outcome. One distinction Corbin drew in this area becomes “rather flimsy” once one recalls that the lawyer has a charging lien in the sum recovered.⁷ Many jurisdictions also hold that a lawyer who cannot enforce a champertous contract may still recover the reasonable value of the services in quasi contract.⁸ Some courts have discarded the triad altogether. In 1997 the Massachusetts Supreme Judicial Court abolished all three offenses, quoting an earlier decision that saw their decline as a fundamental change in how society views litigation, from “a social ill, which like other disputes and quarrels, should be minimized” to “a socially useful way to resolve disputes.”⁹ The change in view explains the change in law. If litigation is a harm, anyone who promotes or finances it multiplies the harm. If litigation is how people vindicate their rights, the same person provides a service.

What remains is a limited ban. The Restatement (Third) of the Law Governing Lawyers preserves only a limited survival of the champerty prohibition: a lawyer may not acquire a proprietary interest in the client's cause of action. The Restatement does not forbid a client's assigning a cause of action to the client's lawyer, provided the lawyer had not represented the client in asserting the claim.¹⁰ Rule 1.8(i) is narrow in the same way. It reaches only litigation the lawyer is conducting, and it expressly permits a contract with a client for a reasonable contingent fee in a civil case.¹¹

Every exception in the rule concerns the lawyer's fee, and the two concerns explain why. Contingent fees, which ordinarily rest on a percentage of the recovery, are recognized as an appropriate and ethical means of compensation because they enhance access to legal services for people who could not otherwise afford them and encourage lawyers to take cases with a substantial risk of loss. Rule 1.5(c) says that “[a] fee may be contingent on the outcome of the matter for which the service is rendered.”¹² The Wunschel court's discussion draws the same lines. A reasonable contingent fee is permissible in civil cases because it may be the only means by which a layperson can obtain the services of the lawyer of choice, and a lawyer may protect the right to a fee through legally permissible liens even though doing so gives the lawyer an interest in the outcome. A lawyer should still enter a contingent fee arrangement only when it will benefit the client.¹³ These exceptions mark where the law weighed the risk to the lawyer's judgment against clients' need for access and lawyers' need to be paid. The rule tolerates a lawyer's interest in the outcome when it takes the form of a fee and forbids it when it takes the form of ownership.