For most of Anglo-American legal history, it was unlawful for a stranger to buy a piece of someone else’s lawsuit. The doctrine was called champerty, and Minnesota enforced it until 2020.
Then a $6,000 advance to an injured woman named Pamela Maslowski produced a decision that changed the economics of litigation in this state.
What did Maslowski decide?
The Minnesota Supreme Court abolished the common-law prohibition against champerty. Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235 (Minn. 2020).
The facts were modest. Prospect Funding Partners paid Maslowski $6,000 in exchange for an interest in the proceeds of any settlement she might receive in her personal injury case. If she recovered nothing, she owed nothing. She settled, did not pay under the agreement, and Prospect sued to enforce it.
The lower courts held the agreement void as champertous. The Supreme Court reversed, holding that Minnesota’s common-law prohibition against champerty is abolished.
Champerty, as the Court described it, is “an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim.” That is now a description of a lawful transaction in Minnesota.
Why the doctrine went away
The traditional justification for champerty rules was that outside money encourages frivolous suits and lets speculators stir up litigation for profit.
The modern answer is that the concern is both dated and addressed by other means. Frivolous litigation is policed directly — by Rule 11 and its state analogue, by sanctions, by fee-shifting statutes, and by the simple fact that a funder loses its investment when a case loses. And the doctrine’s practical effect was regressive: it disabled precisely the plaintiffs who could not otherwise afford to litigate, while defendants with insurance and corporate treasuries were never constrained by it.
Minnesota joined a clear national trend. The doctrine’s abolition here was not an outlier.
What litigation funding actually is
Several distinct things travel under the name, and the differences matter.
Consumer legal funding. A non-recourse advance to an individual plaintiff, usually in a personal injury case, repaid from the recovery. If there is no recovery, there is no repayment. Maslowski is this category. Rates are high, and the reason is that the funder bears the entire risk of loss.
Commercial litigation finance. Investment in a business’s claim — often patent, antitrust, contract, or international arbitration — in exchange for a share of the proceeds. Deal sizes range from hundreds of thousands to eight figures, and terms are negotiated, not form.
Portfolio funding. Capital advanced against a group of a law firm’s or company’s cases rather than a single matter, which spreads risk and generally improves pricing.
Law firm financing. Working capital or case-cost lending to contingency-fee firms, secured by expected fees.
Defense-side and monetization structures. Less common, but growing — including selling an interest in a judgment already obtained.
What still governs these agreements
Abolishing champerty did not make funding agreements unreviewable. It removed one categorical defense. Everything else in contract law survived, and a funded party has more protection than is generally appreciated:
- Unconscionability. Both procedural (how the deal was presented, to whom, under what pressure) and substantive (whether the terms are so one-sided as to be unenforceable). This is the primary battleground now.
- Ordinary contract defenses — fraud, duress, mistake, ambiguity construed against the drafter.
- Usury and lending law, where a transaction is structured or functions as a loan rather than a true non-recourse purchase — though the Minnesota Supreme Court has since narrowed this considerably. See the section immediately below.
- Consumer protection statutes, depending on the transaction and the parties.
- The attorney’s independent professional obligations, which do not bend to the funder.
The 2023 sequel: usury is off the table where repayment is contingent
The same case came back, and the second decision matters at least as much as the first.
In Maslowski v. Prospect Funding Partners LLC (“Maslowski II”), No. A21-1338 (Minn. Aug. 23, 2023), the district court and court of appeals had held that the agreement’s 60 percent repurchase rate violated Minnesota’s usury statute, and had reduced it to 8 percent. The Supreme Court reversed. Its syllabus states the holdings:
A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law, Minn. Stat. § 334.01 (2022), when repayment of the purchase price is contingent upon a recovery in the underlying litigation.
Remand to the district court is appropriate to address plaintiff’s challenge to the repurchase rate under the common-law doctrine of unconscionability.
The repurchase rate specified in the litigation financing agreement began to accrue after the agreement was signed, not after our abolition of the former common-law prohibition on champerty.
Read those three together and the practical picture changes.
Holding 1 closes the second status-based gate. Maslowski I removed champerty; Maslowski II removes usury for the contingent-repayment structure. The contingency is doing the work — a rate that is only owed if there is a recovery is not interest on a loan.
Holding 2 is what is left, and it is now the whole fight. The Court did not bless the 60 percent rate. It sent the unconscionability challenge back to be decided on the merits. Every argument about a funding agreement’s terms in Minnesota now runs through unconscionability, which is fact-intensive and turns on how the deal was presented as much as on the number.
Holding 3 is a trap for anyone who assumed otherwise. The rate ran from signing — not from the date Minnesota changed the law. A funded plaintiff who thought the clock started in 2020 was wrong by years of accrual.
We take up what this leaves — assignment, unconscionability, and how Minnesota regulates a comparable transaction by statute — in more depth here.
The ethics layer, which is where lawyers get into trouble
Funding creates a third party with a financial stake in a case in which they are not the client. Under the Minnesota Rules of Professional Conduct, several duties come under pressure at once:
- The client controls settlement. A funding agreement that hands settlement authority — or a practical veto — to the funder is a serious problem.
- Independent professional judgment must remain the lawyer’s. Rule 5.4(c) exists precisely for the situation where someone other than the client is paying.
- Confidentiality. Sharing case materials with a funder in diligence requires informed client consent, and the work-product implications need to be handled deliberately rather than assumed.
- Fee-sharing limits with non-lawyers.
- Conflicts arising from the lawyer’s own relationship with a recurring funder.
Whether funded materials are discoverable is a live, unsettled question, and it varies by court and by how the diligence was conducted. That is a reason to structure the disclosure carefully at the outset, not after a discovery request arrives.
If you are a plaintiff considering an advance
- Get the total cost in dollars, not a rate. Ask what you will owe at 12, 24, and 36 months. Compounding on a case that takes three years produces numbers people do not anticipate from a percentage.
- Confirm it is genuinely non-recourse. If you owe money when the case loses, it is a loan with a different name, and the analysis changes.
- Understand the payment waterfall. Funder, medical liens, subrogation, attorney fees, costs — in what order? Plaintiffs regularly discover the residual is far smaller than expected.
- Take only what you actually need. The most common regret is a larger advance than the emergency required.
- Never give up settlement control. Not to the funder, not indirectly, not in a clause you did not read.
- Have your own lawyer review it. Your litigation counsel may be conflicted or unwilling to opine; that is a reason for a second set of eyes, not a reason to skip the review.
If you are a business or a firm considering commercial funding
The calculus is different and often favorable: it converts a contingent asset into working capital, moves case costs off the balance sheet, and prices risk that the company is not equipped to bear. Terms are negotiable — waterfall priority, multiples, caps, budget approval rights, and control provisions all move.
The provision to negotiate hardest is control. A funder is entitled to information and to protection against a collusive settlement. It is not entitled to run the case.
Where this is heading
Litigation funding is a large and growing industry operating in Minnesota under general contract law rather than a dedicated statute. That is a stable arrangement only until a bad enough fact pattern reaches a court or a legislature. Several states have adopted disclosure requirements or rate caps for consumer legal funding, and federal courts have moved unevenly toward disclosure of funding arrangements.
For now, in Minnesota, the rule is straightforward: these agreements are enforceable, and their terms are what protects you. Which puts the entire weight of the transaction on reading the document before signing it — precisely where Ms. Maslowski’s case ended up.
Madgett Law, LLC advises Minnesota plaintiffs, businesses, and law firms on litigation funding — reviewing consumer advance agreements, negotiating commercial finance terms, and addressing the ethical and discovery questions funding creates. Send us a message or call 612-470-6529.
Sources: Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235 (Minn. 2020) (abolishing Minnesota’s common-law prohibition against champerty); Maslowski v. Prospect Funding Partners LLC, No. A21-1338 (Minn. Aug. 23, 2023) (a repurchase rate is not subject to Minn. Stat. § 334.01 where repayment is contingent upon a recovery; remand on common-law unconscionability; accrual from signing rather than from the abolition of champerty) (opinion retrieved from the Minnesota Judicial Branch’s published opinion archive; no North Western Reporter citation is given here because none was verified); Minn. Stat. § 334.01; Minnesota Rules of Professional Conduct, including Rules 1.6, 1.8(f), and 5.4(c). This article is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Nothing here is a recommendation to enter into or decline any funding transaction. Enforceability of a particular agreement depends on its terms and the circumstances. No outcome is promised or implied.