Champerty

Champerty is a common law doctrine that historically prohibited a third party from maintaining another's lawsuit in exchange for a share of the proceeds, on the theory that it encouraged speculative litigation and corrupted the justice system. Most U.S. states have abolished or significantly limited champerty as a defense, though it remains a live issue in jurisdictions including New York (where it applies only in limited circumstances) and several international arbitration seats. Funders and counsel must assess champerty risk when structuring agreements, particularly where the funder acquires a financial interest large enough that a court might deem it to have taken control of the litigation. Properly structured funding agreements with robust non-interference clauses are the primary mechanism for mitigating champerty exposure.

Even in jurisdictions where champerty is largely abolished, funders build non-interference covenants into every agreement as a structural safeguard, because a court finding that a funder took effective control of the litigation can void the funding agreement or trigger claims the funder never anticipated. Funders operating internationally treat champerty exposure as a jurisdiction-by-jurisdiction diligence question, since offshore arbitration seats and a handful of U.S. states still apply the doctrine in ways that affect deal structuring.