For most of Anglo-American legal history, a stranger couldn’t lawfully buy a piece of somebody 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 turned into 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 small. Prospect Funding Partners paid Maslowski $6,000 for an interest in the proceeds of any settlement she might get in her personal injury case. If she recovered nothing, she owed nothing. She settled, didn’t 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.” In Minnesota, that’s now a description of a lawful deal.
Why the doctrine went away
The old 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 worry is dated, and other tools already handle it. Frivolous litigation gets policed directly — by Rule 11 and its state analogue, by sanctions, by fee-shifting statutes, and by the plain fact that a funder loses its money when a case loses. And in practice the doctrine hit the wrong people. It shut out exactly the plaintiffs who couldn’t otherwise afford to litigate, while defendants with insurance and corporate treasuries were never held back by it at all.
Minnesota joined a clear national trend. Abolishing the doctrine here wasn’t an outlier.
What litigation funding actually is
Several different 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 out of the recovery. No recovery, no repayment. Maslowski is this category. Rates are high, and that’s because the funder carries the entire risk of loss.
Commercial litigation finance. Money invested in a business’s claim — often patent, antitrust, contract, or international arbitration — for a share of the proceeds. Deals run from hundreds of thousands to eight figures, and the terms get negotiated. They aren’t a form.
Portfolio funding. Capital advanced against a group of a law firm’s or company’s cases rather than one matter. That spreads the risk and generally improves the 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 you’ve already won.
What still governs these agreements
Abolishing champerty didn’t put funding agreements beyond review. It took away one categorical defense. The rest of contract law survived, and a funded party has more protection than people generally realize:
- Unconscionability. Both procedural (how the deal was presented, to whom, under what pressure) and substantive (whether the terms are so one-sided they can’t be enforced). This is the main battleground now.
- Ordinary contract defenses — fraud, duress, mistake, ambiguity construed against the drafter.
- Usury and lending law, where a transaction is structured as a loan or works like one rather than a true non-recourse purchase — though the Minnesota Supreme Court has since narrowed this a lot. See the next section.
- Consumer protection statutes, depending on the transaction and the parties.
- The attorney’s independent professional obligations, which don’t 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 knocked it down 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.
Put those three side by side and the picture changes.
Holding 1 shuts the second status-based gate. Maslowski I took out champerty. Maslowski II takes out usury for the contingent-repayment structure. The contingency is what carries it: a rate you owe only if there’s a recovery isn’t interest on a loan.
Holding 2 is what’s left, and it’s now the whole fight. The Court didn’t 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-heavy and turns as much on how the deal was presented as on the number.
Holding 3 is a trap for anyone who assumed otherwise. The rate ran from signing, not from the day Minnesota changed the law. A funded plaintiff who figured the clock started in 2020 was off by years of accrual.
We go deeper on what this leaves — assignment, unconscionability, and how Minnesota regulates a comparable transaction by statute — here.
The ethics layer, which is where lawyers get into trouble
Funding puts a third party with money riding on a case into a case where it isn’t 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 has to stay the lawyer’s. Rule 5.4(c) exists for exactly the situation where somebody other than the client is paying.
- Confidentiality. Sharing case materials with a funder during diligence requires informed client consent, and the work-product consequences need to be handled on purpose, not assumed.
- Fee-sharing limits with non-lawyers.
- Conflicts coming out of the lawyer’s own relationship with a repeat funder.
Whether funded materials are discoverable is a live, unsettled question, and the answer varies by court and by how the diligence was done. That’s a reason to structure the disclosure carefully at the start, not after a discovery request shows up.
If you’re a plaintiff thinking about an advance
- Get the total cost in dollars, not a rate. Ask what you’ll owe at 12, 24, and 36 months. Compounding on a case that takes three years produces numbers people don’t see coming from a percentage.
- Confirm it’s really non-recourse. If you owe money when the case loses, it’s 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 find out the leftover is a lot smaller than they expected.
- Take only what you actually need. The most common regret is a bigger advance than the emergency called for.
- Never give up settlement control. Not to the funder, not indirectly, not in a clause you didn’t read.
- Have your own lawyer review it. Your litigation counsel may be conflicted or unwilling to give an opinion. That’s a reason for a second set of eyes, not a reason to skip the review.
If you’re a business or a firm thinking about commercial funding
The math is different and often favorable. Funding turns a contingent asset into working capital, moves case costs off the balance sheet, and prices risk the company isn’t built to carry. Terms are negotiable — waterfall priority, multiples, caps, budget approval rights, and control provisions all move.
Push hardest on control. A funder is entitled to information and to protection against a collusive settlement. It isn’t entitled to run the case.
Where this is heading
Litigation funding is a large and growing industry, and in Minnesota it operates under general contract law, not a statute of its own. That holds only until a bad enough fact pattern lands in front of 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 simple: these agreements are enforceable, and their terms are what protects you. So the whole weight of the deal sits on reading the document before you sign it — which is exactly 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 working through the ethics 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); 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.