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Champerty is the process of promoting or supporting a lawsuit filed by another person to obtain a share of the proceeds. A common example of this process occurs when an attorney enters into a contract with a plaintiff to carry out and pay the costs of litigation in exchange for a certain percentage of the recovery amount. In some U.S. states, champerty is illegal, with courts holding that contracts with the attorney compensation contingent on success are champertous. Some courts have even decided that champerty exists if someone who is not a party to the suit contractually claims any percentage of the award even if he does not pay for the suit. Similar to champerty, maintenance is the encouragement and support of another person's lawsuit for the personal gain of the intermeddler, but not for a share of the award.
Public policy has dictated that both champerty and maintenance are illegal for two reasons. First, the operation of an orderly judicial system relies on the suppression of excess litigation. Excess litigation overcrowds court dockets and leads to lawsuit abuse. Champerty and maintenance tend to incite litigation, thereby working against this societal interest. In addition, champerty and maintenance allow individuals who are not personally harmed by the defendant to profit from a lawsuit, potentially subverting the underlying motivation of the litigation. A person found guilty of champerty or maintenance may be required to pay damages to the parties in the lawsuit and to face disciplinary hearings, which, for attorneys, could lead to disbarment.
Litigation finance companies provide plaintiffs with the funds for litigation through high-interest cash advances, with interest rates at times exceeding 36 percent annually. Because plaintiffs who do not prevail in their cases are not required to repay the cash advances, the financing is not technically a loan, making the litigation finance companies exempt from state usury laws. Although such arrangements are champertous, many courts allow the controversial practice. Critics of litigation finance companies accuse them of using litigation as simply another form of business and they worry that the usurious rates take advantage of customers. Proponents, however, argue that the finance companies provide a constructive societal service, allowing poverty-stricken plaintiffs that would normally have difficulty gaining access to the courts to receive a measure of justice.
Most states have replaced laws regulating champertous activity with the civil charges such as abuse of process and malicious prosecution. Both of these charges deal with the misuse of the judicial process and 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 was established in a prior case, claims malice, inadequate investigation, or the absence of probable cause to file the suit and damages resulting from the suit.
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