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Champerty and maintenance, the promotion and support of lawsuits for personal gain, are illegal due to their potential to incite excessive litigation and allow non-litigants to profit. Litigation finance companies provide high-interest cash advances exempt from usury laws, with critics fearing exploitation of clients. Wanton activity laws have been replaced with civil charges for misuse of the judicial process and wrongful initiation of lawsuits.
Champerty is the process of promoting or supporting a lawsuit brought by another person to obtain a share of the proceeds. A common example of this process occurs when an attorney contracts with a plaintiff to execute and pay the costs of the litigation in exchange for a certain percentage of the recovery amount. In some U.S. states, champerty is illegal, with courts deeming contracts with attorney for success-contingent damages champertos. Some courts have even ruled that champerty exists if someone who isn’t a contractually litigant claims a percentage of the award even if they don’t pay for the lawsuit. Similar to champerty, upkeep is the encouragement and furthering of another person’s cause for the personal gain of the interlude, but not a share of the prize.
Public order has established that both the arrangement and maintenance are illegal for two reasons. First, the functioning of an orderly justice system relies on the suppression of excess litigation. Excessive litigation overcrowds court records and leads to abused lawsuits. Champerty and maintenance tend to incite litigation, thus working against this social interest. Additionally, champerty and retention allow individuals who have not been personally harmed by the defendant to profit from a lawsuit, potentially subverting the underlying motivation of the dispute. A person found guilty of champerty or maintenance may be required to compensate the litigants and face disciplinary hearings, which, for lawyers, could lead to disbarment.
Litigation finance companies provide plaintiffs with litigation funds through high-interest cash advances, with interest rates sometimes exceeding 36% per annum. Since plaintiffs who do not prevail in their lawsuits are not required to repay cash advances, the loan is not technically a loan, making litigation finance companies exempt from state usury laws. While such agreements are blatant, many courts allow the controversial practice. Critics of litigation finance firms accuse them of using litigation as simply another form of business and fear that usurious rates will take advantage of clients. Proponents, however, argue that financial firms provide a constructive social service, enabling poverty-stricken plaintiffs who would normally find it difficult to access the courts to receive a measure of justice.
Most states have replaced laws governing wanton activity with civil charges such as abuse of process and malicious prosecution. Both of these allegations involve the misuse of the judicial process and the wrongful initiation of lawsuits. An improper use of a criminal or civil procedure for a malicious reason constitutes an abuse of process. Malicious prosecution involves a case in which a former defendant, whose innocence has been established in a previous case, alleges willful misconduct, inadequate investigation, or the absence of probable cause to present the suit and damages resulting from the suit.
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