Champerty and Contingent Fees
Bill Long 12/13/05
Clearing the Decks
Legal history is virgin territory. You pose an issue, think about it a little while, and discover that no one has really dealt adequately with the issue. Or, probably more to the point, someone has dealt inadequately with it and so in order to gain understanding you have to undo the work of your predecessors before going on. A case in point has to do with the history of contingent fees and its relationship to prohibitions of champerty at common law in 19th century America. Well, let's state the issue as clearly as possible.
(1) We know that the common law, for reasons I will only touch on briefly below, prohibited the practice of someone's taking a financial stake in another person's litigation. This was called champerty. I will probably write about the history of this word eventually, but a good, though difficult, introduction if you can't wait is Max Radin's article "Maintenance by Champerty," 24 CaLR 48 (1936). Champerty was known at common law as a species of maintenance, which prohibited a person from engaging in a suit not his own. Now this prohibition was fine and good in England up until the 18th century, but when the common law came to America it had to be sifted through the sieve of the American experience.
(2) One of the innovations in the early/mid 19th century that the frontier experience in America brought about was the contingent fee arrangement. Such an arrangement means that you will pay an attorney a fixed percentage of a recovery in an action at law. These arrangements were pursued usually because the plaintiff had no money but possibly had a just cause. For example, in an early Ohio case (1824), the plaintiff declared that a poor individual, "placed in the power of unfeeling and and rapicious men, is illegally and oppressively stripped of his property, and turned, with his family, destitute, desolate" (Key v. Vattier, 1 OH 123, 136 (1823)). In other words, the American experience, especially in the settlement of the "West" (beyond the Appalachians) was characterized by the following reality:
"Settlers who had purchased titles from mere squatter-enclosers and had built homes, cleared farms and paid taxes for years, now found themselves ejected, their improvements treated as mere offsets for rent they had not paid to the true land grantees. These disseized settlers, desperate for for legal representation and with no ability to pay up-front fees, had no choice but to use attorney contingency fee arrangements to defend their rights at trial or on appeal" (Peter Karsten, "Enabling the Poor," 47 DePaul LR 231, 236-37 (1998)).
Many frontier settlers, thus, would be put off their land, would have no money with which to pursue their legal claims and therefore, unless some device could be developed, would have to acquiesce in their situation. The contingent fee was the means by which they could gain access to legal services. An attorney would take the case for a "piece" of the recovery, ranging from a few percent up to 50%.
So, the problem should be swimming into our ken right about now. We have a reality from the common law, a sort of "brooding omnipresence," to use Holmes' phrase, that is "there" in the background and the foreground (champerty), and we also have the need of people. Make no mistake about it. A contingent fee is champertous. It is the taking of a part of a legal action instead of a fee. It is precisely what the common law disapproved. So, what is the American common law to do?
I focused further on the nature of this contradiction when I was studying Professor David Hoffman's 1836 Fifty Resolutions with Regard to Professional Deportment. Click here for the particular essay. In his longest resolution (#24) he says the following: "I will never be tempted....to purchase, in whole or in part, my client's cause." Ok. No champerty. Then, in the second paragraph. "I do not thereby mean to repudiate, as wholly inadmissible, the taking of contingent fees." Then he says something that worries me. "The distinction is very clear" (i.e., between champerty and contingent fees). And then, his discussion becomes very unclear, though he does try to make a distinction between the two.
What is fascinating about Hoffman's work is that it appeared at the very time when the clash of values between champerty and contingency fees was heating up (1836). But what I don't find in the literature is any awareness of how this problem was met in the early 19th century. For the remainder of this essay, I want to say a word about the way I would handle the issue and make mention of the leading article on the history of early contingency fees (cited above). The following essays look at some cases from the 19th century on champerty.
A Few Words on Karsten
Karsten is definitely aware of the issue that champerty and contingent fees were vying for public support in the 1820s-1880s. But I didn't get the impression that he handled the issue with any precision. He discussed some cases, but he doesn't handle legal cases with a surefootedness which many lawyers would. If I were going to write a history of the issue, I would need to do the following:
1. Go state by state and ask whether they had adopted a statute or common law definition of champerty. That is, were there cases dealing with the issue?
2. Look at how they defined champerty. Any narrowing from the common law? Any sense that the common law was too broad in its application of the term?
3. Look at the appearances of the word "contingent fee" and see where the concept emerges. I did a Westlaw search last evening for the term "contingent fee" before 1840 and found about 50 "hits." However, about 35 or more of the "hits" had to do with doctrines in wills and estates, where a person inherited a fee contingent on another event's happening.
4. Review in detail a few significant cases for what they teach about how courts tried to deal with the issue of champerty/contingent fees.
The clash of values as culture changes is fascinating to me. Let's look at a few champerty/contingency cases and see how the early courts decided them.
Copyright © 2004-2009 William R. Long