Commercial Litigation Funding After Lawsuit Already Filed Found Legal in Illinois

Law Under a Magnifying Glass

Litigation funders doing business in Illinois may now breathe a sigh of relief. In a carefully drafted opinion resolving a discovery dispute involving communications with litigation funders, a Northern District of Illinois court lifted the curtain on champerty and maintenance in Illinois, revealing it to have been “narrowed to a filament.”  Miller v. Caterpillar, Case No. 10 C 3770, at p. 16 (N.D. Ill. Jan. 6, 2014).  The court found the straightforward commercial litigation funding in which the plaintiff had engaged was not at all what the legislature intended to prevent and fell squarely outside of the limited confines of this filament.

The Court explained that the Illinois statute being penal, must be strictly construed, and “nothing should be taken by intendment or implication beyond the obvious or literal meaning of the statute.”  Id. at 13.  The statute only criminalizes the maintenance of a lawsuit where it rises to the level of “officious intermeddling,” which is defined as volunteering one’s services when they are neither asked for nor needed.  This could not have been further from the reality in Miller v. Caterpillar, where the case was already ongoing long before any funders became involved.  The plaintiff initiated its lawsuit of its own accord.  When it found itself in dire need of funding because it was facing an indefatigable deep-pockets defendant, it was the plaintiff, who, again of its own accord, actively pursued litigation funders to assist it.  The funders, having been invited on the scene later in the game could not possibly been seen as stirring up the conflict, and, therefore, could not possibly have violated the statute.

The discussion arises in the context of the court’s determination that the deal documents for Miller’s litigation funding were not relevant to either the claims or the defenses of the action as required under Rule 26. Caterpillar argued the documents were necessary to show the funding agreement was illegal, suggesting that somehow could serve as a defense to Miller’s substantive trade secret claims. The court set the record straight: not only was the agreement perfectly legal, but even had it had been illegal, Caterpillar, not being a party to the agreement, would not have standing to raise the claim.  And even if Caterpillar sought to raise the champertous arrangement in its defense in equity, under unclean hands, it would be to no avail as any court performing the balancing of the equities would find the harm Caterpillar is alleged to have caused through trade secret theft is far more damaging on society than the allegedly champertous arrangement between Miller and its funder.

The court, hailing in a victory for commercial litigation funding, denied Caterpillar discovery of the deal documents because they were meant to support “a matter that is not and cannot be a defense.”