assignability of tort claims and maintenance and champerty

A fairly new and controversial wind is blowing in tort law. Or, better said, it has been blowing for a while but is now taking on a sharper focus and more eloquent articulation. To put it in the language of a 2005 law review article: "This Note argues that allowing free assignability and creating primary and secondary markets consisting of current and future-contingent tort claims, will be more beneficial to nearly all parties involved in the current tort system" ("Selling your Torts: Creating a Market for Tort Claims and Liability," 33 Hofstra LR 1543 (2005)). I think that if this approach continues to be illegal it will be so only because lawyers' status in American society continues to plummet, and people will see this device as just another way for unscrupulous lawyers to make money at the expense of innocent people. Nevertheless the idea in the abstract has an appeal.

The Issue in a Nutshell

At common law you only had a legal claim against the person who was indebted to you (contract) or had injured you (tort). Law was a two-person affair, and claims were made based on that assumption.* The idea of "assigning"

[These four essays on the nature of choses in action at common law explain this.]

one's claim to a "champion," though possible in some kinds of medieval contests, was generally anathema to the medieval and early modern legal mind. The realities of commerce in the 18th-19th centuries relaxed this rule. Debts could now be assignable. That is, the theory of direct or "person to person" law broke down when a contract (such as a debt) was in view. That this is the case in modern America can easily be seen by checking out the Internet. When I did a search using "purchase judgments," one of the first companies I came up with was Dahlink Financial Corporation, incorporated under the laws of Delaware. In their self-description, they say, "We purchase charged-off consumer debt and judgments." If you as a seller live in Delaware or have a contract originating there, "we would like to talk to you about purchasing your credit card, installment loan and student loan accounts."

These type of statements shows that assignability of debts is the rule in modern America. Here is how it works. A student takes out a loan. S/he cannot pay it back. The holder of the loan "writes it off" as a "bad loan." However, companies like Dahlink come along and "buy the loan," possibly for 5 cents on the dollar, and now can go against the student for payment. This would have been impossible at common law but is common today. And, the theory is that everyone "wins." That is, the loan originator can get a nice tax write-off as well as a little money for their (useless) debts, Dahlink can probably milk some money out of the student (more than the loan originator could) and the student learns some valuable lessons about financial responsibility [and no, I am not laughing as I wrote that].

Well, the argument goes, why not be able to do this also with tort claims? They, no less than contract claims, were non-assignable at common law, but with the relaxation of the rule with respect to the former, why not do it with respect to the latter? Here is a practical way that it would work. Let us say that I am a homeowner and I am visited by a friend, who slips on my steps and injures herself. Let us say that such a fall, what with medical bills, pain and suffering, emotional distress, etc. etc., "normally" could generate a recovery of $20,000. But my friend, because she is such a nice Christian person, turns the other cheek, so to speak, and doesn't sue me. But, while she is lying on the ground another person comes by and says to her: "If you will sell me your claim to go against Mr. Long, I will give you $5,000." Now, what's a good Chrsitian woman to do? She will get $5,000 and won't have to "go after me," the person who comes along can "go after me" and get $20,000, which will come from my insurance company (after a deductible payment by me), and I will suffer nothing, except maybe that my insurance rates will minimally climb. It is a win-win for everyone. Why can't we do this?

The Two Common Law Justifications Against Assignability

The common law gave two reasons for not allowing alienability either of contract-type or tort-type claims. First, as indicated above, the nature of the legal process was one person against another. The Roman notion of obligatio in contract and tort law suggested the personal nature of legal actions. Second, the English fear of champerty and maintenance, in which a person would stir up lawsuits (technically known as "barratry") in order to make life difficult for defendants or, more usually, in order to cash in on the potential recovery that was coming, prohibited assignment of claims.

The next essay looks more closely at these two justifications, especially the latter, and asks the question whether the time has come to allow the assignability of tort claims.

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