champerty and contingent fees and thurston v. percival and arden v. patterson

In this and the following essay I propose to work through three cases from the 1820s and one from 1891 to show how the issue of champerty/contingency fees was handled near the beginning and end of the century. Only by patiently working through the cases can we see the issue "morph" right before our eyes. One of the cases from the 1820s has a long doctrinal discussion of champerty at common law which will aid us in focusing the question. Let's begin with a clear and easy MA case. I always like to start my understanding of difficult problems with a simple statement of the issue.

Thurston v. Percival, 18 MA 415 (1823)

Thurston was a MA lawyer who entered into a contract with his client, Percival, to recover, for legal services rendered, 10% of any award that the latter would gain in a suit pending in New York. It happened that Percival recovered a huge judgment for the day ($29,734) which was compromised to $20,000. Thurston couldn't argue Percival's case in NY, but he accompanied Percival to NY and did considerable work on the case. After Percival received the $20,000 he refused to honor the contract with Thurston on the ground that it was champertous. Thurston sued for his 10% share. The first lines of the court's decision tell us almost all we need to know:

"We cannot hesitate to pronounce the contract offered in the case by the plaintiff, by which he was to receive ten per cent for his trouble and services, upon what ever sum should be recovered in the suit pending in NY, to be unlawful. It comes within the description of champerty..." (citing an old English statute; 18 MA at 423).

The court went on to cite several common law authorities, including Sir Edward Coke, Bracton and Fleta. Then, in an interesting move because of what the next case will provide, the court held that even though the contract made reference to a suit pending in NY, and they had no information whether NY had a champerty statute, "champerty is malum in se, and an offence at common law, [and so] it is to be presumed, without any statute, that the same law is in force there" (Id. at 424). No court would argue this way today about its sister state, but there you have it. Thus, the contract was considered void due to champerty. However, the court did allow Thurston a quantum meruit recovery based on the time he spent on the case before executing the contract.

Arden v. Patterson, 5 Johnson 44 (NY Chancery, 1821)

The facts in this case are more complex than the MA case, but the issue is understandable. A certain De Peyster had deposited 13 pipes of Madeira wine with Arden as collateral for payment of promissory notes worth $4,000 made by him and held by Arden. De Peyster became insolvent and assigned to Sullivan & Roe all his property in trust for his creditors. Sullivan & Roe, as a means of collecting all De Peyster's property, sued Arden for the return of the 13 pipes of Madeira wine.* They lost the suit

[*It is nowhere explained why they even could sue Arden for the wine, since I would think that he would have the highest security interest in it.]

and had to pay $351.31 for costs. Defendant Patterson, a lawyer, then entered into the picture. He had a private conversation with De Peyster to learn about the details of the arrangement made with Arden. Upon learning these details, he decided to purchase Sullivan & Roe's right of action against Arden (rather than representing them as attorney. Choses in action, which is what a claim is, were then assignable in NY) for a note worth $351.31. Patterson then sued Arden in trover in S & R's names (the way you did it then) and recovered $5,987.25. [These old cases never give you any of the juicy details, unfortunately, regarding what Patterson knew...]. Arden then compromised with S & R, rather than Patterson, for $2,500. Patterson brought suit to vacate that settlement, and the settlement was vacated. The question before the Supreme Judicial Court was whether it was proper to set aside the assignment of S & R to Patterson and leave S & R to take the benefit of the judgment or settlement with Arden.

Chancellor James Kent, one of the few really big names in early American law, argued as follows:

"This was a purchase by an attorney, for a very small and inadequate consideration, of a matter in litigation, and for the very purpose of a renewed litigation. It was a purchase by a person known to the other contracting party to be an attorney, and he knowing that the other contracting parties held the claim merely in trust for the benefit of creditors. The purchase was avowedly made as a matter of speculation, and at a time when this attorney knew, from previous disclosures made to him in his character of attorney, all the facts on which the foundation of the claim so purchased rested, and which created a belief in his mind that the value of the wine could be recovered. Such a purchase, by such an officer, and under such circumstances, cannot be sustained. It is champerty..." (4 Johnson at 48).

The New York Statute

What is interesting to understand is that the reason Kent invalidated the purchase by attorney Patterson as champertous was because of a NY statute, dating either to 1813 or 1818, which provided: "no officer, or other person, shall take upon him any business that is or may be in suit in any Court for to have part of the thing in plea or demand; and no person, upon any such agreement, shall gie up his right to another, and every such conveyance and agreement shall be void" (1 N.R.L. 172). That is, New York invalidated the champertous arrangement because of a statute, while MA disallowed the contingent fee arrangement because of common law teaching. What is interesting however, is that the MA court passed judgment on whether the state of NY had such a statute or common law prohibition on champerty and concluded that NY did not! Plainly, NY did.

Can't you see now why it is absolutely fascinating to read the cases to understand this issue? But, in any case, we have clear testimony from the two most influential state courts (apart from VA) in the early 1820s that any kind of sharing arrangement where a person takes on a suit or contributes to a suit that doesn't belong to him is participating in a champertous arrangement, and he will not be able to collect on a contract giving him a percentage of the "take."

Now let's turn to a case also from NY a few years later, where the doctrine of champerty is "massaged" because of the facts at issue.

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