May a mass-tort firm borrow litigation funds on a nonrecourse loan repaid only if cases succeed?

Plain-English summary

A firm proposed a nonrecourse loan from a nonlawyer to fund mass-tort expenses, with repayment depending on successful prosecution of the cases as a group.

The opinion says third-party borrowing to fund litigation is generally permissible, but repayment may not be tied to lawsuit outcomes. It describes champerty and maintenance and quotes a Missouri case defining those doctrines.

In practice

The opinion rejects the proposed outcome-dependent repayment term while allowing borrowing in general.

Common questions

Q: Is third-party funding automatically prohibited?

A: No. The opinion says borrowing to fund litigation is generally permissible.

Q: What term does the opinion reject?

A: Repayment based on the outcome of the lawsuit.

Background and rules framework

The opinion cites Schnabel v. Taft Broadcasting Company, Inc. and Macke Laundry Serv. Ltd. v. Jetz Serv. on champerty and maintenance, without a numbered ethics rule.

Citations and references

Cases:

• Schnabel v. Taft Broadcasting Company, Inc., 525 S.W.2d 819 (Mo. App. W.D. 1975)
• Macke Laundry Serv. Ltd. v. Jetz Serv., 931 S.W.2d 166 (Mo. App. W.D. 1996)

See also

• Missouri Informal Op. 20090043: Subrogation Fee

Source

• Landing page: https://mo-legal-ethics.org/informal-opinion/20030022/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

QUESTION: Attorney’s firm proposes to borrow money from a non-lawyer for the purpose of funding expenses in mass tort litigation. The loan will be on a non-recourse basis. The firm’s duty to repay would be based on successful prosecution of the cases as a whole, but not on the recovery of any individual case.

ANSWER: Generally, it is permissible for the law firm to borrow money from a third party to fund litigation. However, it is not permissible for the repayment of the loan to be based on the outcome of the lawsuit. An attorney cannot engage in conduct that would amount to champerty or maintenance.

The elements of champerty are “(1) an agreement by one with no interest in a lawsuit of another (2) to support or maintain the litigation at his own expense (3) in exchange for a part of the litigated matter in the event of a successful conclusion of the cause.” [Schnabel v. Taft Broadcasting Company, Inc.], 525 S.W.2d 819, 825 (Mo. App. W.D. 1975). Maintenance of litigation requires proof that a non-party to a suit maintains or assists either party, with money or otherwise, in prosecuting or defending the suit. Id. at 823.

[Macke Laundry Serv. Ltd. v. Jetz Serv.], 931 S.W.2d 166 (Mo. App. W.D. 1996).