Old law and modern lawsuits

Champerty is one of those ancient and obscure legal concepts that date from the Middle Ages and just beg, in my opinion at least, to be investigated and explicated.

The basic problem that rules against champerty address is the buying and selling of legal claims.  At it’s most egregious, champerty involves someone making a frivolous claim, usually in tort, and selling that claim to a legal speculator.  In this way the claimant gets a swift and certain profit, while the speculator steps in to gamble on a bigger return as a result of the lawsuit.  The broadest definition of champerty is simply “maintaining a lawsuit in return for a financial interest in its outcome.” (definition from Cohen & Schwarz, Champerty and Claims Trading, 11 Am. Bankr. Inst. L. Rev. 197, 197 (2003))

Over time the rules against champerty have evolved and often become subsumed into other kinds of regulation.  The rules that limit lawyers’ contingency fees are one example of the evolution of champerty prohibitions.  The underlying ethical concern, which is that courts will be clogged with poorly-justified lawsuits simply to serve external and purely financial interests, spans a wide range of legal fields and activities.

I ran across the word, dimly remembered from law school, in a motion to dismiss one of the lawsuits brought by Righthaven over Internet reposting of news articles.  It has come out recently that Righthaven appears not to hold any of the rights under copyright in some of these cases, having purchased nothing but the “right” to bring a lawsuit.  Defendants have leapt at this evidence, claiming the the cases should be dismissed as mere “sham and champerty.”  But it is not those copyright cases that I began to consider in the context of champerty; it is the lawsuit brought by publishers against Georgia State University over electronic reserves, which is being partially funded by the Copyright Clearance Center.

I want to be clear that this arrangement, where the Copyright Clearance Center bears some of the costs of prosecuting the litigation, is not precisely the kind of thing champerty rules were intended to prevent.  In the GSU case, the rights holders are themselves the plaintiffs, and, since no damages are being sought, there can be no suggestion that CCC has purchased a stake in any recovery.

Nevertheless, and in spite of its own protestations, the CCC does have a financial stake in the outcome of the suit, which goes to trial in a few days.  A ruling that narrows fair use even further than the interpretation of it that GSU and many other universities are already using would drive many more transactions to the CCC and greatly increase their revenue.  Essentially, CCC is financing an aggressive marketing strategy by paying 50% of the litigation costs in this case.  They did not buy a stake, but they certainly have a stake.

When the Association of Research Libraries wrote a letter to the CCC expressing disappointment over the decision to help underwrite the lawsuit, CCC’s reply emphasized that no damages were being sought and maintained that their participation had the simple goal of “clarifying” fair use.  This strikes me as disingenuous.  There are more efficient ways to clarify fair use than litigation, and the CCC has a definite financial interest in the case even absent any request for damages.  CCC’s aim here is not to clarify fair use but to narrow it dramatically, to their direct and immediate profit.

As I have said, this is not champerty per se.  But it does raise some of the same ethical issues that under gird the old prohibitions.  Suppose, for example, that one of the reasons that this case has not settled is that the plaintiffs are not subject to the normal financial concerns that accompany litigation.  With an interested and supportive “angel” absorbing half the costs, it may be a smart gamble for plaintiffs to move forward even with a weak case rather than negotiate and settle on a reasonable “clarification” of fair use.

When, in the footnote to an earlier ruling, Judge Orinda Evans revealed (to many of us, for the first time) this financial arrangement between the plaintiffs and the CCC, it seemed the the judge was somewhat uncomfortable with the situation.  The more I think about, the more I believe she should be.