Champerty Remains Viable Defense to Assignment of Malpractice Claim

Frank v. Tewinkle, Pa. Super. Ct., No. 1142 WDA 2011, 5/22/12.

Key Holding: Although Pennsylvania permits clients to assign malpractice claims, the common law doctrine of champerty remains a viable defense where the assignee has no valid interest in pursuing the cause of action.

Potential Impact: Indicates that even in the minority of jurisdictions that recognize assignment of malpractice claims the defense of champerty remains a brake on purely economic transfers of such actions.

By Samson Habte  

Although Pennsylvania permits assignment of malpractice claims, the common law doctrine of champerty is “still a viable defense to those claims,” the Pennsylvania Superior Court ruled May 22 (Frank v. Tewinkle, Pa. Super. Ct., No. 1142 WDA 2011, 5/22/12).

Public policy concerns behind champerty--which aims to discourage the “repugnant” practice of “profiteering and speculating” in litigation--still preclude litigants from pursuing claims that they acquire for purely economic motives, Judge Judith F. Olson explained.

“While there has been some relaxation in the application of the common law doctrine of champerty and maintenance in this, as well as other jurisdictions,” Olson wrote, “we reiterate our Court's holding that 'champerty … is still ground for denying aid of the court.'”

'You Got Robbed.'

The court upheld the dismissal of two lawsuits brought by Alan Frank, a former Pennsylvania lawyer who paid three individuals a small sum of money in exchange for the assignment of any claims those individuals may have had against personal injury attorneys who represented them in past cases.

“[T]he defense of champerty can apply to assignments of breach of contract claims against attorneys”
Judge Judith F. Olson

Frank solicited claim assignments through an advertisement for Overcharge Recovery Co., which told personal injury plaintiffs that they “got robbed” if their lawyers collected more than 25 percent of their verdicts or settlements, according to the opinion.

Arthur Voorhis and Kenneth and Alexis Plonski responded to the advertisement and subsequently entered into a contract whereby they assigned Frank the “right, title and interest in any and all claims” they might have against their former personal injury attorneys. They were paid $250 for their assignments.

The opinion noted that Frank also entered purportedly separate agreements in which Voorhis and the Plonskis would receive between 25 and 33 percent of proceeds Frank recovered in the forthcoming lawsuits against their former attorneys. In exchange for those payments, Voorhis and Plonskis promised to provide Frank with “information, cooperation and assistance” in his prosecution of the actions.

Following those transactions, Frank initiated lawsuits against Voorhis's former attorneys, Laurie Tewinkle and Anthony Sciarrino, and against the Plonskis' former attorneys, James Stuczynski and Bruce Bernard. The complaints alleged that the attorneys “breached their contract[s] with their clients by making unauthorized disbursements from settlements for attorney fees,” according to the court.

Clearly Champertous.

A trial judge threw out Frank's lawsuits against the personal injury attorneys. In an order that granted preliminary objections filed by the defendants, the judge found as a matter of law that the assignments underlying Frank's lawsuits were champertous.

Because the underlying agreements were champertous, Frank was not a “real party of interest,” the judge ruled, and thus he had no standing to bring the lawsuits under Pennsylvania civil procedure rules.

The superior court rejected Frank's appeal and upheld the order dismissing his lawsuits.

Olson wrote that the court “agree[s] with the trial court's determination that, under Pennsylvania law, champerty remains a valid defense, that the defense of champerty can apply to assignments of breach of contract claims against attorneys, and that the assignments in the instant matter are, indeed, champertous and therefore invalid.”

No Legitimate Interest.

Olson noted that assignments are champertous if three elements are met: “the party involved: (1) has no legitimate interest in the suit, but for the agreement; (2) expends his own money in prosecuting the suit; and (3) is entitled by the bargain to share in the proceeds of the suit.”

Addressing the first element, the court stated that Frank had “no legitimate interest” in the lawsuits he brought against the clients' lawyers. He acquired the assignments “by paying cash for them,” Olson said, and “nothing in the record indicat[es] that Appellant had any direct interest in the underlying suits.”

The court rejected Frank's reliance on Hedlund Mfg. v. Weiser, Stapler & Spivak, 539 A.2d 357 (Pa. 1988), in which the Pennsylvania Supreme Court ruled that a plaintiff had a legitimate interest in a malpractice claim it was assigned.

The plaintiff in that case was a manufacturing company that acquired an inventor's claim against a law firm that allegedly mishandled his patent claim for a “manure spreader.” The manufacturing company purchased the inventor's business--including the right to license the spreader--while the patent was pending, the court explained. The patent was subsequently rejected, at which point the inventor assigned to the manufacturing company any “causes of action … arising out of the mishandling of the patent application.”

“[U]nlike the assignments in this matter, the assignment in Hedlund was not champertous,” Olson said. The Hedlund assignee “was not a stranger to the litigation” because, in purchasing the inventor's company, it paid a price “that reflected [its] interest in the viable patent for [the] manure spreader.”

Accordingly, the manufacturer was “directly affected by and had a significant interest in” the underlying claim, Olson said. Frank, by contrast, was not affected by the alleged malpractice underlying the claims against the lawyers who had represented Voorhis and the Plonskis. “Indeed, Appellant was and still remains a 'stranger' to those lawsuits,” Olson wrote.

'Exclusive Total Ownership' Argument Rejected.

Frank also maintained that his assignments were not champertous because he obtained “exclusive total ownership” of the acquired claims, while typical champerty cases involve partial assignments. He argued in a court filing that champerty protects defendants from exposure to the risk of duplicative liability caused by partial transfers--a risk that did not exist here, he said, because Voorhis and the Plonskis gave him 100 percent ownership of their claims.

“According to Appellant,” Olson wrote, “[w]hen an irrevocable transfer of exclusive total ownership of a cause of action occurs in exchange for valuable consideration, the activity is not champertous.”

That argument fails for several reasons, the court found. “First, the public policy concerns upon which champerty is based are not solved by an 'irrevocable transfer of exclusive total ownership,'” Olson said. “Champerty seeks to prohibit profiteering and speculating in litigation. Such repugnant actions are not eliminated by an exclusive assignment.”

Furthermore, “the record indicates that Appellant overstates the 'exclusive' nature of the assignments in this matter,” the court said. Olson pointed to the purportedly “separate” agreement in which Voorhis and the Plonskis were promised, in exchange for their “cooperation services,” a percentage of the amounts recovered in Frank's lawsuits against their former lawyers. This express language refuted Frank's claim that the assignments granted him “exclusive total ownership” of the causes of action, the court found.

Patrick M. Carey of Marshall, Dennehey, Warner, Coleman & Groggin, Philadelphia, represented Tewinkle and Sciarrino. Counsel for Stuczynski and Bernard were James R. Schadel and Gregory J. Norton of Weinheimer, Schadel & Haber, Pittsburgh.

Frank appeared pro se.

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