The Doctrines of Champerty and Maintenance are Alive and Well in Delaware

Champetry-v1-IBRC-v-Morrissey-2014-IEHC-527Charge Injection Technologies (“CIT”) filed suit against E.I. DuPont de Nemours and Co. (“DuPont”) in December 2007, alleging that DuPont wrongfully used and disclosed CIT’s proprietary and confidential technology.

Several years into litigation, CIT’s funds began to dry up, and, in an effort to continue the litigation, CIT enlisted the help of Burford Capital LLC, a UK company that provides litigation financing.  Initially, Burford declined the invitation, but after a series of events took a second look and decided to finance the litigation.  Both CIT’s and Burford’s Board of Directors approved the financing agreement, which was finalized on June 15, 2015.  Burford then entered into a Forward Purchase Agreement (the “FPA”) with Aloe Investments Limited where Aloe would provide financing in exchange for a percentage of any litigation proceeds and a security interest in CIT’s claim as collateral.

Following the FPA and financing agreement, DuPont filed a motion to dismiss, alleging that the agreements violated Delaware’s prohibition against champerty and maintenance.

The doctrines of champerty and maintenance originated in Medieval England.  Feudal lords and other wealthy individuals (champertors) would obtain a modern day assignment from a less well-off individual for the right to bring suit against one of the champertor’s personal or political opponents.  The champertors would finance and provide counsel (maintainers) and carry on the suit at their own risk.  The champertor would then share in any recovery, which was generally real property – through these efforts the champertors continued to grow wealthy at the expense of their countrymen. The defense of maintenance applies where a third-party intermeddler enters the suit to “stir up” litigation.

Kings were often the target of these efforts and due to that fact, along with a general disinclination toward litigation and third-party intermeddlers, laws against champerty and maintenance emerged.

CIT maintained that the doctrines of champerty and maintenance are dead in Delaware, but President Judge Jurden disagreed and concluded that absent a ruling from the Delaware Supreme Court holding otherwise, the doctrines continue to endure in Delaware.  Under Delaware law, champerty cannot be charged against an assignee where the assignee holds an interest – equitable, legal, or otherwise in the subject matter of the litigation, independent of the assignment.  DuPont argued that the FPA constituted champerty because it provided Burford, a disinterested third-party, with de facto control over the litigation.  CIT argued, and the Court agreed, that the FPA was not champertous because it did not give Burford any right either to direct, control, or settle CIT’s claims against DuPont, the FPA specifically states Aloe is not a party to the litigation, and CIT retains the unfettered right to settle the litigation at any time for any amount. The Court also held that these circumstances do not give rise to a defense of maintenance because Burford did not stir up litigation, control or force CIT to pursue litigation, or control the litigation for the purpose of continuing a frivolous or unwanted lawsuit.  Therefore, Nemours motion to dismiss was denied.

Read the full opinion here.

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