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Maslowski v. Prospect Funding Partners LLC

Supreme Court of Minnesota

June 3, 2020, Filed

A18-1906

Opinion

HUDSON, Justice.

This appeal arises from a contract between appellant Prospect Funding Holdings LLC and respondent Pamela Maslowski whereby appellant purchased an interest in respondent's personal injury suit. When respondent settled her suit and did not abide by the terms of the contract, appellant sued respondent to enforce the contract. Both the district court and the court of appeals held that appellant could not enforce the contract because it violated Minnesota's common law prohibition against champerty. We reverse and remand to the district court for further proceedings consistent with this opinion.

FACTS

Appellant Prospect Funding Partners LLC ("Prospect") is a litigation financing company.1 Respondent Pamela Maslowski is a Minnesota resident who was injured in a car accident in Woodbury in 2012. Following the accident, she retained [*2]  Schwebel, Goetz & Sieben, P.A. to represent her concerning a possible claim against both the driver and owner of the other car involved in the accident.

While her personal injury claim was pending, Maslowski contacted Prospect regarding the company's litigation financing services because she needed money to pay her living expenses. On May 21, 2014, Prospect and Maslowski executed a "Sale and Repurchase Agreement." Maslowski was the "seller" and Prospect was the "purchaser" under the contract. Maslowski sold to Prospect the right to receive a portion of the proceeds of any settlement that she received from her personal injury suit. As consideration for the sale, Maslowski received $6,000 from Prospect that was essentially a cash advance on her prospective settlement. Under the contract's fee schedule, the amount Maslowski owed to Prospect increased by 30 percent every 6 months, starting from a baseline of the $6,000 plus fees, with a cap at $25,245.00. But if Maslowski did not receive a settlement, she owed Prospect nothing. The contract also provided that Maslowski's obligation to Prospect would not [*3]  exceed the amount of her settlement. Maslowski's attorney in the personal injury suit discussed the contract with her and signed the last page of the agreement certifying that he had reviewed the terms with Maslowski and acknowledged the payment directions in the event of a settlement.

On June 22, 2015, Prospect contacted Maslowski to inform her that she would owe Prospect $14,108.00 if her personal injury claim settled and she made payment to Prospect before September 22, 2015. Maslowski's attorney then informed Prospect that he believed that the litigation financing agreement between Maslowski and Prospect was unenforceable.

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2020 Minn. LEXIS 322 *

Pamela Maslowski, Respondent, vs. Prospect Funding Partners LLC, et al., Appellants, and Prospect Funding Holdings (NY) LLC, defendant and third-party plaintiff, Appellant, vs. James Schwebel, third-party defendant, et al., Respondents.

Prior History:  [*1] Court of Appeals.

Disposition: Reversed and remanded.

CORE TERMS

champerty, financing, settlement, contingency, champertous, lawsuit, common-law

Legal Ethics, Client Relations, Attorney Fees, Fee Agreements, Governments, Courts, Common Law, Civil Procedure, Sanctions, Baseless Filings, Frivolous Lawsuits, Legal Services Marketing, Advertising, Professional Conduct, Frivolous Claims & Conduct, Contingency Fees