Maslowski V Prospect Funding Partners LLC - Minn CT App
Maslowski V Prospect Funding Partners LLC - Minn CT App
(2019)
A18-1906
| FACTS
Filed July 8, 2019
| Respondent Pamela Maslowski was injured
Review Granted in Part in a car accident in March 2012 and
September 25, 2019 retained respondents James Schwebel and
the law firm Schwebel Goetz & Sieben,
Hennepin County District Court, File No. 27- P.A. (collectively, Schwebel) to commence
CV-15-15143 a personal-injury action on her behalf.
Two years later, Maslowski entered into a
litigation-funding agreement (agreement) with
appellants Prospect Funding Partners LLC and to avoid Minnesota law, which broadly
Prospect Funding Holdings LLC (collectively, defines and prohibits champertous agreements.
Prospect), which do business in both New York Maslowski, 890 N.W.2d at 769. A New York
and Minnesota. 1 court likewise concluded that Minnesota is the
proper forum to resolve disputes arising under
Under the terms of the agreement, Maslowski the agreement and dismissed the New York
sold to Prospect an interest in her personal- action. See Prospect Funding Holdings LLC v.
injury action for $6,000. In the event Maslowski, 146 A.D.3d 535, 535 (N.Y. App.
Maslowski recovers damages, Prospect is Div. 2017) (stating that “[e]very aspect of the
entitled to receive $6,000, a $1,425 processing transaction at issue occurred in Minnesota, the
fee, and 60% annual interest based on parties, documents, and witnesses are located
a set schedule, for a total “repurchase” in Minnesota, and defending this action in New
amount not to exceed $25,245. The agreement York would be a substantial hardship to Ms.
contains a forum-selection clause stating that Maslowski”). Prospect then asserted contract
disputes arising under the agreement shall and tort-related counterclaims arising out of
be tried in New York and a choice-of- Maslowski's failure to make payments under
law provision stating that the agreement the agreement and third-party claims against
“shall be governed, construed and enforced Schwebel for advising Maslowski to breach the
in accordance with the laws of the state of agreement.
New York.” And the agreement requires all
payments and notices to be sent to Prospect's *2 The district court granted Schwebel's
Minnetonka address; Prospect's manager used and Maslowski's motions to dismiss and
the same Minnesota address when signing Maslowski's motion for judgment on the
the agreement. Schwebel signed a mandatory pleadings. The court concluded that Prospect's
“Attorney Acknowledgement” and “Letter of third-party complaint and counterclaims failed
Direction” related to the agreement. to state claims upon which relief could
be granted. The district court declined
After settling her personal-injury action in to enforce the agreement's choice-of-law
July 2015, Maslowski brought this action provision, concluding that it was drafted to
in Minnesota seeking a declaration that evade Minnesota law, and determined the
the agreement is invalid because it is agreement is “unenforceable and void” because
it violates Minnesota's prohibition against
champertous 2 and unconscionable. Prospect
initiated a breach-of-contract action in New champerty and maintenance. 3 But the district
York. Prospect moved to dismiss the Minnesota court denied Maslowski and Schwebel's joint
action based on the forum-selection clause. motion for $197,836.27 in attorney fees under
The district court denied the motion and Minn. Stat. § 555.10 (2018).
granted Maslowski's motion to enjoin Prospect
from pursuing the New York action. This Prospect appeals. Maslowski and Schwebel
court affirmed, holding that the forum-selection filed a related appeal challenging the denial of
clause is unenforceable because it attempts their attorney-fee motion.
Kolberg-Pioneer, 823 N.W.2d at 672. “A and Minnesota law make a difference in this
conflict exists if the choice of one forum's law case. Under New York law, the agreement is
over the other will determine the outcome of valid because Prospect did not enter into it
with intent to bring an action. Under Minnesota
the case.” Nodak Mut. Ins. Co. v. Am. Family
law, the agreement is not valid because it
Mut. Ins. Co., 604 N.W.2d 91, 94 (Minn. 2000).
permits Prospect to receive part of Maslowski's
Both threshold requirements are met here.
judgment proceeds. See id. at 678 (holding
First, a true conflict exists between Minnesota that agreement assigning to lender a percentage
and New York champerty law. As we explained of borrower's tort recovery is champertous).
in Maslowski, New York has a statute that
generally prohibits champerty but defines the Second, the parties agree and the record
concept much more narrowly than Minnesota demonstrates that there is no constitutional
law does. 890 N.W.2d at 766. The New York impediment to the application of either state's
statute provides that an association may not laws. See Jepson v. Gen. Cas. Co. of Wis.,
“solicit, buy or take an assignment of, or 513 N.W.2d 467, 469 (Minn. 1994) (“[F]or
be in any manner interested in buying or a State's substantive law to be selected in a
taking ... any claim or demand, with the intent constitutionally permissible manner, that State
and for the purpose of bringing an action or must have a significant contact or significant
proceeding thereon.” N.Y. Jud. Law § 489 aggregation of contacts, creating state interests,
(McKinney 2018). In other words, it is the such that choice of its law is neither
stranger's intent to sue that makes an agreement arbitrary nor fundamentally unfair.” (alteration
champertous in New York. Bluebird Partners, in original) (quotation omitted)).
L.P. v. First Fid. Bank, NA, 731 N.E.2d 581, 587
(N.Y. 2000). In contrast, Minnesota common
law prohibits champerty and maintenance. C. The five-factor choice-of-law test
favors application of Minnesota law.
Johnson v. Wright, 682 N.W.2d 671, 675-76
When faced with a true conflict between the
(Minn. App. 2004), review granted (Minn. Oct.
substantive law of two states, we employ
19, 2004), and appeal dismissed (Minn. Jan.
a five-step analysis to decide what law to
10, 2005). Champerty in Minnesota is “[a]n
apply, considering the “(1) predictability of
agreement between a stranger to a lawsuit and
result; (2) maintenance of interstate order; (3)
a litigant by which the stranger pursues the
simplification of judicial task; (4) advancement
litigant['s] claims as consideration for receiving
of the forum's governmental interests; and
part of any judgment proceeds.” Id. at (5) application of the better rule of law.”
675 (alteration in original). Maintenance is Schumacher v. Schumacher, 676 N.W.2d 685,
“[a]ssistance in prosecuting or defending a
690 (Minn. App. 2004); see Jepson, 513
lawsuit given to a litigant by someone who
has no bona fide interest in the case; meddling N.W.2d at 470. 4
in someone else's litigation.” Id. (alteration in
original). The distinctions between New York *4 The first factor, predictability of results,
seeks to avoid forum shopping and preserves
“the parties' justified contractual expectations.” Accordingly, this factor favors application of
Nodak Mut. Ins., 604 N.W.2d at 94. Minnesota law.
Several facts indicate the parties should
have expected Minnesota law to govern The third factor, simplification of judicial task,
their agreement. The agreement originated is not implicated because the district court
in Minnesota. Maslowski, Schwebel, and could easily apply the laws of either state.
Prospect's manager signed the agreement in
Minnesota. While Prospect may have its The fourth factor, the interest of the forum,
principal place of business in New York, it also concerns which state's law “would most
has a business presence in this state, including effectively advance a significant interest of the
an office in Minnetonka. The agreement was forum state.” Medtronic, Inc. v. Advanced
to be fully performed in Minnesota. Given Bionics Corp., 630 N.W.2d 438, 455 (Minn.
Minnesota's demonstrated “strong local interest App. 2001) (quotation omitted). Minnesota has
in applying its prohibition against champerty,” a strong interest in compensating tort victims
Prospect's claimed reliance on the agreement's and in protecting Minnesota's judicial system
choice-of-law provision was not justified. and litigants from the deleterious effects of
Maslowski, 890 N.W.2d at 767. This factor champerty and maintenance. Prospect argues
favors application of Minnesota law. See that these interests are not implicated because
Jepson, 513 N.W.2d at 471 (applying North Minnesota has no interest in “policing the
Dakota law where insurance policy was issued actions of foreign entities operating primarily
there, and other circumstances tied to that in foreign jurisdictions.” We disagree. The
state suggested “what the parties' reasonable agreement, by its terms, was to be performed in
expectations should have been at the time of Minnesota and involves parties who reside or
contract”). are present here. See Maslowski, 890 N.W.2d
at 767 (finding a strong Minnesota interest in
The second factor, maintenance of interstate prohibiting champerty because of its “potential
order, addresses whether applying Minnesota to expose personal-injury actions in Minnesota
law would “manifest disrespect” for New York to” its “negative effects”).
or “impede the interstate movement of people
and goods.” Schumacher, 676 N.W.2d at 690. The fifth factor, which state has the better
Again, the transaction occurred in Minnesota, rule of law, includes consideration of which
and all of the parties were represented here, rule makes “good socio-economic sense for
resided here, or had a business presence the time when the court speaks.” Jepson,
here. In the words of the district court, 513 N.W.2d at 473 (quotation omitted). We
“choosing to import another state's more lenient agree with the district court's cogent assessment
standard would subvert the interest of the that champertous agreements have untoward
Minnesota courts.” It would also encourage economic effects on the legal system that
forum shopping, which would demonstrate can provide both improper incentives and
disrespect for Minnesota law. See id. at 691. disincentives to pursue and settle litigation. As
the district court stated in its order granting potential recovery in their
Maslowski's and Schebel's motions to dismiss, case, after repayment of their
loan and payment of their
attorney[ ] fees.
the high interest rates
charged in champertous
agreeements may both over- *5 By prohibiting such conduct, Minnesota
incentivize and discourage has a better rule of law.
victims from settling their
cases. These agreements In sum, the five choice-of-law factors favor
may over-incentivize the application of Minnesota law to the agreement.
settlement of claims, by
encouraging victims to settle
sooner and for a smaller II. The agreement is void under Minnesota
amount than they may law.
otherwise be entitled to, A contract may be void as against public policy
in order to reduce the if “it is injurious to the interests of the public
interest they would have to or contravenes some established interest of
pay the litigation funding society.” Isles Wellness, Inc. v. Progressive
company out of the ultimate N. Ins. Co., 725 N.W.2d 90, 93 (Minn. 2006)
proceeds of their action. (quotation omitted). Whether a contract is void
Champertous agreements is a question of law that we review de novo.
may also discourage the Id. at 92.
settlement of claims, because
litigants will be less likely As noted above, Minnesota law prohibits
to settle their claims as the champerty and maintenance for public policy
interest they owe on their reasons. These prohibitions are designed “to
funding skyrockets, and the prevent officious intermeddlers from stirring
amount they would receive up strife and contention by vexatious or
from a settlement, after speculative litigation which would disturb the
payment to the litigation peace of society, lead to corrupt practices,
funding company, plummets and pervert the remedial process of the law.”
toward zero. In the end, Maslowski, 890 N.W.2d at 763 (quotation
litigants may be stripped of omitted). In modern vernacular, the law against
much of the compensation champerty and maintenance aims to prevent
for their injuries, as the an outsider's intrusion into a lawsuit solely for
interest on their loan speculative gain. Id.
increases the amount owed
under their champertous As we held in the prior appeal, the agreement
agreement beyond any meets Minnesota's definitions of champerty
selling all of its property, and further authorized Excavating, Inc. v. Wausau Ins. Cos., 521
the trust company to “employ counsel ... in N.W.2d 379, 384 (Minn. App. 1994) (declining
the discharge of its duties and ... pay to to award attorney fees absent “specific
legislative authorization” in a declaratory-
them reasonable compensation.” 260 N.W. at
judgment action brought to determine whether
230. After the trust company was faced with
an insurer had properly cancelled a workers'
litigation regarding purported mismanagement
compensation policy), review denied (Minn.
of the trust, the supreme court concluded that
Oct. 27, 1994).
the trust company was entitled “to recover
reasonable attorneys' fees paid by it in the
We are mindful of the lengthy and costly efforts
conduct of its defense” because “it would be
Maslowski and Schwebel undertook to obtain a
inequitable and unfair if necessary fees paid to
judicial declaration that the agreement is void.
counsel by the trustee were disallowed.” Id. at
But we are constrained to follow supreme court
229, 231. Andrist turned on the fact that the
precedent. See State v. Curtis, 921 N.W.2d 342,
will permitted the trust company to retain an
346 (Minn. 2018) (“The court of appeals is
attorney in defense of the trust and the fact that
bound by supreme court precedent ....”). And
the fees were incurred only in defending against
there is no precedent for awarding attorney
the petitioners' unmeritorious claims.
fees under the circumstances of this case. We
observe no error or abuse of discretion in the
More importantly, Maslowski and Schwebel's
district court's denial of the requested attorney
argument ignores our supreme court's more
fees.
recent jurisprudence, which holds that the
declaratory-judgment act does not provide a
Affirmed.
statutory basis for attorney fees. See Garrick
v. Northland Ins. Co., 469 N.W.2d 709,
714 (Minn. 1991) (rejecting argument that All Citations
declaratory-judgment act entitled insured to
recover attorney fees in action seeking first- Not Reported in N.W. Rptr., 2019 WL 3000747
party insurance benefits); see also Sazama
Footnotes
1 Throughout the history of this litigation, the relationships and dealings between the
various Prospect entities have been unclear. Because the precise nature of their
relationships is unnecessary to our decision, we refer to them as one entity.
2 As more fully discussed below, Minnesota defines champerty as “[a]n agreement
between a stranger to a lawsuit and a litigant by which the stranger pursues the
litigant['s] claims as consideration for receiving part of any judgment proceeds.”
Maslowski v. Prospect Funding Partners LLC, 890 N.W.2d 756, 763 (Minn. App.
2017) (alterations in original) (quotation omitted), review denied (Minn. May 16,
2017).
3 The district court took judicial notice of adjudicative facts from (1) this court's opinion
in Maslowski, (2) the New York appellate court decision, and (3) a Minnesota district
court order in Prospect Funding Partners LLC & Prospect Funding Holdings LLC v.
Deanna Williams, No. 27-CV-13-8745 (Minn. Dist. Ct. May 5, 2014). [Opinion not
available on Westlaw.] In the Williams order, which was issued before Maslowski
entered into the agreement with Prospect, the district court voided a “nearly
identical” agreement based on Minnesota's champerty and maintenance laws. The
Williams agreement selected Minnesota as the governing law. Here, the district
court concluded that Prospect's admissions that it drafted both the forum-selection
and choice-of-law provisions to avoid Minnesota champerty law, coupled with the
fact Prospect drafted the agreement “so closely on the heels of the summary
judgment ruling in Williams,” demonstrated that selection of New York law was “no
coincidence.”
4 Maslowski argues that we need not analyze the five choice-of-law factors because
Prospect did not argue in the district court that the analysis favors application of New
York law. We disagree. Even if Prospect did not specifically make this argument, the
general issue was presented and the district court applied the five-factor analysis.
5 Review of other statutory remedies shows the legislature distinguishes costs from
attorney fees. See, e.g., Minn. Stat. §§ 8.31, subd. 3a (permitting parties to
recover attorney fees and costs for violations of laws the attorney general is
authorized to enforce), 181.75, subd. 4 (including attorney fees and costs as
separate remedies for violation of the polygraph statute), 363A.33, subd. 7 (including
attorney fees and costs allowed for violation of the Minnesota Human Rights Act)
(2018).
End of Document © 2020 Thomson Reuters. No claim to original U.S. Government Works.