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Champerty Assignment Of Lease

Champerty and Heir Hunting Law Summary by Michael S. Ramage, J.D., Certified Genealogist® (Copyright, 2012):

In order to provide the reader with some insight into the  actual documentation that a typical “heir search” firm uses to lure unwitting “clients” on terms referred to as “on spec,”  excerpts of such documents will be set forth here.  Each of these documents is briefly described so that this type of firm is differentiated from an ethical forensic genealogist that takes these cases on an hourly fee basis.

The following factual scenario is taken from an actual estate administration case and the dates and quotations are real.  In the late fall of 2008, an international heir search firm (claiming to specialize in “forensic genealogy”) learned through one of its “runners” at a county probate office about a three-quarter million dollar intestate estate that had no known heirs (it just so happens that this search firm's free calendar is posted on the wall of this probate office).  The search firm does some preliminary research, finds a few possible heirs on one side of the family, and makes some exploratory calls to some of those possible heirs.  On 17 December 2008, the search firm sends a letter out to some of the potential heirs that states, in part:

Document 1: “We are currently working on a matter and our preliminary research indicates that you would have a financial interest in it.  This research is done at our own expense and we are compensated by heirs like you by way of agreements assigning us a percentage of their share of the estate assets.  There is absolutely no out-of-pocket expenses to you and no risk at any time.  [Emphasis in original.]

We are enclosing our agreement for your consideration.  If it meets with your approval, please sign and return it ...  Once we receive the agreement from you and other interested persons, we will then be in a position to divulge the full particulars to you.

It will be our obligation to compile all the necessary genealogical data in order to establish your relationship to the decedent.  We will also be pleased to suggest to you an attorney who concentrates in probate law, to represent your interest in this matter.  We would be totally responsible for the fees and costs of that attorney as stated in our enclosed agreement.  You would only be obligated to us when you ultimately are to receive your respective shares of these assets.

.....”

Enclosure:  Agreement for 25 % of the heirs portion of the estate.

Document 2.  23 January 2009 letter from search firm to potential heir acknowledging receipt of the fee agreement and stating the name, place and amount of the estate.  It also stated, in part, “We suggest the legal services of [name of lawyer] to represent your interests.  ...  If you would be interested in having him represent you, please sign the Acknowledgement of Disclosure form and return it to us.  The fees and costs of Attorney [surname] [emphasis in original] will be paid entirely by [us].  At any time, you may hire an attorney of your choice, but it will be at your own cost/expense.

.....”

Enclosures: Form to hire suggested lawyer; authorization for release of confidential information to search firm and lawyer; and a [poorly drafted] 18-point questionnaire about the decedent and heir.

Document 3:  29 January 2009 letter from law firm to heir asking for the heir's signing the second page of the letter to authorize the law firm to represent them in the matter.

Document 4:  6 March 2009 letter from the law firm to the heir, a second, repeat request (same as the last letter).

Document 5: 7 April 2009, the search firm signs off on an “Affidavit of Due Diligence” (with no citations or supporting documentation; many of the statements of “fact” turn out to be incorrect) that the search firm's lawyer sends to the law firm that is representing the estate.  This is followed by the search firm's entering its appearance on behalf of some of the heirs with promise of proofs of heirship, etc., etc.

-End of that case recitation-

In re Primus, 436 U.S. 412, 424 n. 15, 98 S.Ct. 1893, 1900 n. 15, 56 L.Ed.2d 417, 429 n. 15 (1978):

“Put simply, maintenance is helping another prosecute a suit; champerty is maintaining a suit in return for a financial interest in the outcome; and barratry is a continuing practice of maintenance or champerty.  See generally 4 W. Blackstone, Commentaries * 134-136; Zimroth, Group Legal Services and the Constitution, 76 Yale L.J. 966, 969-970 (1967); Radin, Maintenance by Champerty, 24 Calif.L.Rev. 48 (1935).”

Ames v. Hillside Coal & Iron Co., 314 Pa. 267, 171 A. 610, 612 (1934):

“… While there has been some relaxation in the application of the common-law doctrines of champerty and maintenance in this, as well as in other jurisdictions, champerty, repugnant to public policy, is still ground for denying the aid of the court. [Citations and footnotes omitted.]  …

“A bargain to endeavor to enforce a claim in consideration of a promise of a share of the proceeds, or of any other fee contingent on success, is illegal, if it is also part of the bargain that the party seeking to enforce the claim shall pay the expenses incident thereto” (Restatement, Contracts, § 542), unless such party (section 543) already has or reasonably believes he has an interest recognized by law in the claim. “An assignment of a claim * * * is not rendered illegal by the fact that * * * litigation is necessary for its collection; nor is such an assignment * * * rendered illegal by the further fact the assignee promises to endeavor to enforce the claim at his own expense and pay the assignor a share of the proceeds, unless the assignee gives no other substantial consideration.” Restatement, Contracts, § 547.

All the marks of champerty designated in these sections are to be found in Exhibit B. The plaintiff agreed to bear all the expenses incident to the litigation, though when the contract was made, he had no interest in the culm banks; the purported assignment of the remainder, if any, cannot bring him within the excepted class.  He gave nothing for the assignment, assumed no definite obligation to extract and pay for coal; he loses nothing, if not allowed to sue defendant on the alleged claim of another. There appears to be support for the following statement made in defendant's brief: "This is not the case of a person being in possession of a valuable property and having imposed upon him a duty to maintain his title. It is the case of a man attempting to use a court of chancery to ransack the records, accounts and transactions of a company, beginning with December 4, 1900, in order to discover whether the lessors had a reason for forfeiting the lease which they did not know of, in the hope that something might be found which would enable him, not a party to the original lease, to ask for cancellation in order that he might come into possession and share the benefits with the original lessors or their personal representatives."

It is significant, in this inquiry, that plaintiff's assignors assume no obligation by their assignment; they disclaim warranty of title and quiet possession, and merely authorize plaintiff, at his expense, to litigate all possible causes of action that he might discover. Indeed, Exhibit B is not clear as to what rights assignors thought they had, nor does plaintiff's bill make it any clearer. Equity will not aid the parties to such a contract. Bispham, Equity (9th Ed.) § 166, page 285; Pomeroy's Equity Jurisprudence (4th Ed.), [613] vol. 3, § 1276, p. 3071.  …”

McIlwain’s Estate,27 Pa. D. & C. 619, 620 – 625, 1936 Pa. D. & C. LEXIS 287 (Phila. O.C., 1936):

“The facts appear from the following extracts from the adjudication of the … auditing judge. … Robert C. McIlwain died on May 26, 1935, intestate, and letters of administration were granted to accountant on June 3, 1935.  He left … Emma Moore McIlwain and Mary Elizabeth Gallagher, sisters, and Robert Gilbert McIlwain…, nephews…

Jacob L. Gwirtz, a genealogist, claimed the share of Emma Moore McIlwain, under the following assignment and letter of attorney:

“Estate of Robert G. McIlwain, Dec’d

“For and in consideration of J. L. Gwirtz, of the City and County of Philadelphia having invested his time and effort in investigation, and in further consideration of the said J. L. Gwirtz having found out and revealed to me the fact that there is a sum of money which may be due me, I, the undersigned, hereby agree to transfer, set over and assign and by these presents do hereby transfer, set over and assign unto the said J. L. Gwirtz, all right, [621] title and interest in and to fifty percent (50%) of the said fund.

“Witnesseth the hand and seal of the undersigned this 22nd day of June, A.D. 1935.

…..

“Know all men by these presents that I, the undersigned, do hereby irrevocably authorize and empower J. L. Gwirtz, or his attorney, to take any and all manner of actions for me and in my name which may be necessary in his opinion for the purpose of recovering any fund which he may find to be due me; fully authorizing him, the said J. L. Gwirtz, to receive, accept and endorse for collection any such fund received, hereby giving unto the said J. L. Gwirtz the sole and exclusive right to the handling of this matter in its entirety.”

…..

Mr. Gwirtz also claimed the shares of Mary Elizabeth Gallagher and Robert G. McIlwain under similar writings…  These assignments and letters of attorneys are attacked by assignors as champertous and, further, because they were obtained in bad faith, overreaching and unfair dealing.

In a letter dated July 10, 1935, to Joseph F. Gallagher, husband of one of the claimants, Mr. Gwirtz wrote:

“Confirming my promise and the promise made to you by Mr. Blank, please be advised that you will not be called upon to advance any money whatsoever in the above matter.  I pay Mr. Blank’s fee, all expenses of research, and costs of documents necessary to prove your wife’s relationship to the decedent.”

The transaction in the instant case has “all the marks of champerty”, as defined in Ames v. Hillside Coal & Iron Co., supra, to wit, an agreement to pay expenses, and an assignment without consideration other than services rendered and to be rendered in the enforcement of the claim.  Whether or not the assignments are to be set aside on the ground of champerty, “it becomes the duty of the courts”, as was said in Perry v. Dicken, supra, “to see that no improper advantage is taken either of the ignorance or necessities of those who enter into such contracts.”  The family of decedent were not in close contact with him because of his employment and residence in the Philadelphia General Hospital.  It is strange that no one in the hospital knew of a relative or friend to be notified in case of illness or death.  All of the family lived in Philadelphia, and it was inevitable, because of their proximity and close relationship, that sooner or later the news of death would be communicated to them.  Proof of kinship under such circumstances required little assistance from anyone, and no one could earn 50 percent of the estate for lending such assistance.  It is evident, from the testimony given of his interviews with the heirs, that the task to be performed was magnified beyond its due proportions, and that the assignments are void and of no effect.

No compensation can be awarded for services actually rendered, because if there be champerty, no recovery can be had.  Furthermore, the testimony shows no services upon which a value can be placed.  The claim of Jacob L. Gwirtz is dismissed.

Klein, J.—We are in accord with the findings of the learned auditing judge that the claim in dispute is champertous and therefore illegal.  Ames v. Hillside Coal & Iron Co., 314 Pa. 267 (1934). …

…..

… Three days after the issuance of letters, claimant called at the home of one of decedent’s sisters and, without disclosing the true situation, unsuccessfully attempted to procure her signature to an agreement engaging him on a contingent basis and assigning him one half of her share as compensation for his services.  He returned several weeks later and succeeded in obtaining her signature to the agreement by falsely representing that the State would take the whole estate unless she engaged him to protect her interest by having one of the family appointed administrator.  The testimony also discloses a complete lack of frankness and fairness in his dealings with the other members of the family.  No escheator having been appointed in this case, it was clearly the administrator’s duty to search for decedent’s next of kin.  The family, knowing of decedent’s death, would have received the proceeds of the estate in the natural course of administration.  The only service rendered by the genealogist was to attempt to deal himself into the distribution by fomenting unnecessary litigation.”

Re Estate of William Galvin Butler, Butler v. Cox, 29 Cal2d 419, 171 ALR 343, 345 - 346, 177 P2d 1947 (Cal. 1947):

“The decedent died intestate in San Francisco on March 16, 1942, leaving an estate of approximately $8,000.  On March 20, 1942, the public administrator petitioned for letters of administration.  On March 31, 1942, upon solicitation by respondent’s foreign agent, certain of appellants, brother and sister of the decedent residing in Ireland, executed powers of attorney and assignments of one-third of their interests in the estate to respondent, who conducts a business of “probate research” in Chicago.   …  Meanwhile, however, respondent had retained the services of local counsel, who on May 27, 1942, filed a notice of appearance on behalf of all appellants.  …

The invalidity of respondent’s claim stems from the nature of the agreements which he solicited from appellants, which agreements are typical of those used in his general practice of soliciting beneficiaries of decedent’s estate.  Operating from his principal office in the city of Chicago, respondent admittedly conducts his business in the following manner: by contacting and soliciting the heirs, securing their authorization to appear for them, and employing counsel to represent them under powers of attorney or assignment.  Thus, a non-lawyer acting for prospective beneficiaries under agreements providing for his paying “any and all expenses incident to doing of the things he is authorized to do by said power of attorney, including attorney’s fees and court costs,” respondent assumes complete control of litigation instituted on behalf of beneficiaries through attorneys hired by him and becomes a “middleman” intervening for profit in the conduct of legal proceedings.  Such procedure amounts to “commercial exploitation” of the legal profession and is contrary to public policy.” [Citations omitted.]

R. P. Davis, Annotation, “Heir-hunting,” 171 ALR 351, 351 & 358 (Lawyers Cooperative Publishing Co., 1947):

“The type of activity comprehended by the title of this annotation is usually operated through so-called “probate research” organizations which make a business of investigating probate or surrogate court records and notifying heirs of their interest in this particular estate, and also representing to such heirs that the organization has expended considerable time and money in making such investigation, and that the heirs would never have heard of their good fortune otherwise, in return for which they are advised to give the organization power of attorney to assume control of legal proceedings including employment of attorneys, necessary to establish the heirs’ interest in the estate.  For these services the heirs are expected to assign to the organization a certain percentage of the proceeds paid over to them by the administrator of the estate, in the event that their claims are successfully established.

…..

The courts apparently look with great disfavor on organizations of the probate research type and usually, for reasons indicated in the cases set out in this annotation, refused to enforce contracts in which the heirs agree to assign to such organizations a portion of their interest in the estate to compensate the organization for its “services.”  [Citations omitted.]

…..

It will also be noted from a review of the authorities herein that attorneys at law, engaged by organizations of the class above referred to, who participate in the splitting of fees with, or work on a salary basis for, such organizations, have received the severe condemnation of the court or have in some cases been suspended or disbarred from the practice of law…  [Citations omitted.]

…. [358]

On the other hand, in McIlwain’s Estate (1936) 27 Pa D & C 619, the claim of a so-called genealogist or professional heir-hunter was held to be champertous and therefore illegal, where it appeared that decedent and two surviving sisters and two surviving nephews all resided in Philadelphia, and that the genealogist procured some of these next of kin to sign a contract in which it was stipulated that in view of the fact that the genealogist had invested time and effort in investigation and had revealed to the next of kin that there was a sum of money which might be due to them they agreed to assign to him 50 per cent of the fund, and they also signed another contract with him by which they empowered him to take any and all manner of actions in their names which might be necessary in his opinion for the purpose of recovering any fund which he might find due for them, and which contract also fully authorized him to accept and indorse for collection any such funds received and also gave him the sole and exclusive right to the handling of the matter in its entirety. The court pointed out that the entire conduct of the so-called genealogist or professional heir-hunter was tainted with fraud and deceit and indicated a complete lack of frankness and fairness in his dealings …” 

 Frank G. Ingraham, “Heir Hunting – A Profession or a Racket?” 7 Vand. L. Rev. 104, 104 - 112 (1953-1954):

“The business or profession of “heir-hunting” or “heir-chasing” has a checkered and interesting history, having long been established on an international local basis as a lucrative means of livelihood.  “Probate searchers’ usually operate by investigating probate or surrogate courts records to uncover estates of substantial wealth whose probate or administration has been delayed because of inability to contact one or more of the missing heirs.  An investigator, usually unknown to the estate, locates the missing heir through court records and genealogical information collected by his staff, and at times through cooperation with foreign agents in the same business.  The missing person is hastily informed that he has a valid claim as an heir against an unsettled estate.  He is promised genealogical charts and other information with which he can establish his heirship if he will assign a portion of his inheritance to the probate searcher.  As a result of their frequent legal blunders, these investigations have constantly changed their pattern of procedure in order to come formally within the law.

….. [107]

… Participation by an attorney in the solicitation of a missing heir to establish his claim in an estate in consideration of a portion of his inheritance has been held to be a breach of the 35th Canon of Professional Ethics and sufficient grounds for disbarment.  This practice is analogous to the illegal solicitation known as “ambulance chasing.”

….. [109]

Elements of Champerty:

Heir-hunting often contains the earmarks of champerty and maintenance.  Champerty has been defined as “the unlawful maintenance of a suit in consideration of some bargain to have a part of the thing in dispute or some profit from it.”  [fn. 40. McIlwain’s Estate, 27 Pa. D. & C. 619, 623 (1936); …]

….. [112]

Only when none of the illegal elements has been adequately impressed upon the court will the contract be held valid.  The conclusion is obvious, however, that the professional heir-hunters seek only to operate within the bare periphery of legality.  With few exceptions, heir-hunting, though possibly a legitimate profession when properly pursued, will be hounded by the bar and frowned upon by the bench.”

Sullivan v. Committee of Admissions, 395 F.2d 954, 945 - 957 (D.C. Ct. App. 1968):

“The appeal arises in part out of the activities of the American Archives Association and its pattern of relations with some members of the legal profession; the fact pattern in this case is fairly representative of similar occurrences in this jurisdiction.

American Archives Association is what is commonly called a "missing heir finder" notwithstanding its pretentious name. As such it located the 14 heirs of Margaret Delano Gage before any of them had counsel, and secured assignments from the 12 paternal heirs, providing that each would pay Archives forty per cent (40%) of any amounts said heirs might receive from the proceeds of the estate. As is Archives' usual practice the name of the estate was not disclosed until Archives had exhausted its efforts to induce all of the heirs to give assignments to it.        

The remaining facts are developed in a stipulation entered into by Appellant and the Committee in the District Court.

1. The Respondent was retained by the American Archives Association to represent its interests under assignments which it had secured from non-resident and previously unknown heirs of Margaret Delano Gage, deceased. * * * (Emphasis added.)

2. Shortly after Respondent’s employment by American Archives Association, Respondent was asked by American Archives Association if he had any objection to its acquainting its assignors with the fact that Respondent was representing the interest of American Archives Association or to its telling such assignors that if any of them should desire to avail themselves of Respondent’s services in the matter, Respondent would be willing to represent them also and without charge. Respondent stated to American Archives Association that he had no objection to its so doing. Thereafter, the Association wrote to each of its assignors (being 12 of the 14 heirs at law and next of kin of the decedent) so advising them. * * * (Emphasis added.)

3. A form of authorization * * * was transmitted by American Archives Association to each of its assignors * * * by which such heir, if he chose to do so, could authorize the Respondent to represent him in the collection of his share of the estate. All twelve of the heirs from whom American Archives Association had received assignments did sign such authorizations and Respondent undertook their representation also. At the time Respondent undertook to represent the heirs, each heir knew that Respondent also represented the interest of American Archives Association. * * * (Emphasis added.)

4. At the time of his retainer by the American Archives Association, the Respondent knew that in similar cases, for many years, and right up to the time of his retainer in the Gage matter, other reputable attorneys practicing in the District of Columbia, known personally to him, had represented and been retained by both the American Archives Association and the heirs who had made assignments of portions of their interests to it.

5. Respondent undertook his representation of American Archives Association and the heirs in good faith. After the Respondent was advised by the Grievance Subcommittee that it questioned whether Respondent’s representation of American Archives Association and the paternal heirs was in conformity with the canons of ethics as to solicitation and as to conflict of interest, Respondent continued to represent the paternal heirs and the American Archives Association. Respondent advised the Grievance Subcommittee as to his reasons for so continuing, and that according to his understanding of the law in this jurisdiction there was no conflict of interest and no solicitation; that if a conflict should arise he would promptly suggest to his clients the need for separate representation; and because of his understanding of his duties and obligations to his clients he did not feel that he could or should withdraw.

…..

We need not deal separately with each finding and conclusion of the District Court to reach the heart of the matter. The essence of the case is embraced in the following portion of its opinion:

That the Bar itself has never taken formal action is regrettable since the Court has been informed by the Committee on Admissions and Grievances that the matter of the particular Association and its relationship with counsel in this jurisdiction over the years in different cases has been discussed. 

It is the view of the Court, and we so hold, that such relationship partakes of the nature of champerty, amounts to the solicitation of professional employment, permits the intervention of a lay agency between attorney and client, foments litigation and intrudes upon the duty requiring counsel to use his best efforts to restrain and prevent the client from doing things which the lawyer himself ought not to do.

We are not disposed, however, to enter any formal order of censure against the respondent while others similarly situated remain untouched in the wings because the question has hitherto not been formally raised.

Nevertheless this result is not to be taken as leading either to the conclusion or to the inference that the Court subscribes to the attenuated form of reasoning which presumes to assert that what has been done in the past by others under similar arrangements with the same Association, or indeed with any other organization, corporate or otherwise, or with any lay individual, can be done with impunity because the question of its propriety has never been formally raised. Such past conduct does not clothe the fault itself in the habiliments of professional rectitude. Nor is good faith or the lack of bad faith an exculpatory circumstance.        

The record abundantly supports the view of the District Court panel of judges: The case arises against a background of an inherently champertous undertaking by the Association; the solicitation thereafter by the Association of a lawyer-client relationship between the heirs and a lawyer of the Association's choice is plainly forbidden solicitation of professional work. It is equally clear that an undertaking of representation of the heir, by a lawyer already committed to represent the interests of

[395 F.2d 957]

the "heir finder" creates not a potential but an actual and present conflict of interest. Among other things, the first obligation of a lawyer acting truly and wholly in the interests of the heir might well be to advise his heir-client (a) that the contingent fee contract between the "heir finder" and the heir was void; (b) that he, the lawyer, already represented and owed primary duties to the "heir finder"; (c) that in all but rare instances where a contest over heirship existed, the heirs might not need either a lawyer or the Archives Association, and that a contingent fee might be inappropriate; (d) that at most the services of a lawyer, barring a challenge to the heir's rights, would be minimal and that representation should be for a fee measured by the time necessarily devoted to collection of heir's claims. Here, however, the prime duty of Appellant arose out of a prior contract with the "heir-finder" to "represent its interests under assignments which it had secured from" the very same heir. This prior contract with the "heir-finder" would tend to silence any urge to give such advice to the new client.

These propositions are so clear and plain that it is difficult to see why lawyers needed to await the action of the Committee on Admissions and Grievances and the decision of the District Court. However, it appears that repetition of this pattern of conduct had dulled the perception and professional sensibilities of some members of the bar to the point the District Court felt that in fairness to this Appellant he be warned rather than disciplined.

…..

        SUPPLEMENTAL OPINION ON REHEARING

        PER CURIAM:

A major premise of our opinion, issued March 3, 1967, was that a conflict of interest is present when a lawyer representing an heir-finding association claiming rights in an estate as assignee of the heirs also represents those heirs. The question of conflict arises because the assignment, procured from the heirs as “payment” for divulging information about their possible inheritance, may well be unenforceable, and a lawyer acting as counsel for the heirs may well have an affirmative duty to advise them of that possibility.

Appellant's petition for rehearing calls to our attention that the District Court did not make any finding with respect to conflict of interest, and did not set forth any conclusion that there had been a violation of Canon 6, although that was one of the charges in the complaint. As the supposition of conflict of interest was a significant basis for our opinion, we have reconsidered the decision of March 3, 1967, vacate the order of affirmance, and remand to the District Court for such further proceedings as may be required.” [Citations omitted.]

The facts and charges lodged in the Pennsylvania Disciplinary Board’s action in Office of Disciplinary Counsel v. Jeffrey E. Piccola, 85 DB 2012, are very similar to those in Sullivan v. Committee of Admissions, supra.

In Keen Estate, 56 Pa. D.&C.2d 470 (Phila. O.C. 1972), an heir searcher hired by an executor presumed to be on a contingency fee agreement refused to disclose the name and address of a beneficiary until such beneficiary signed the fee agreement.

Atkinson Estate, 20 Pa.D.&C. 3d 700, 2 Fid Rep. 2d 79, 7 Phila. Rptr. 106, 1981 WL 2473 (Phila. O.C. 1981), aff’d 321 Pa. Super. 595, 468 A.2d 841 (1983):

[703] “Very early in the administration,” the administrator called Herbert U. Davis, an heir searcher, advised him of the Atkinson estate, particularly that there were no known or locatable heirs, and requested his assistance in locating an heir.  …

Counsel stated he did not “retain” Mr. Davis.  He testified that he attempted to engage Mr. Davis and pay a fee for services, but when Mr. Davis declined, counsel “started him on a search” which he (Davis) preferred to do on his own. “(I)f he were successful, he would make appropriate arrangements with any heir or heirs.”  …

[704]…, Mr. and Mrs. Allen met with Mr. Davis at the Tampa airport for two or three hours.  According to Mrs. Allen, Davis told Allen that he was not sure Allen was the heir, that there could be others, and additional work had to be done.  Davis said, “I am willing to represent you if you want me to, and I will make a contract with you.  If you are willing to sign a contract, I will do this work for you and I won’t charge you one penny, but if I do, then I get paid so much from the estate.”  The amount of the inheritance had not been discussed.  Mr. Davis displayed a part of a family chart.  Mr. Allen recalled, “Mr. Davis tried to talk me into this thing … So he finally said, ‘Well, there is some money involved here.”  I said, “How much?”  ‘It looks like six figures.”  I said, “Give me the paper.  I’ll sign it.’”

[705] Earlier, Davis told Mr. Allen that “(i)f I didn’t sign, that was it.”  Mr. Allen believed that if he did not sign, Davis would not have told him the name of the person from who he would inherit.  …

The “agreement,” dated February 20, 1978, reads as follows:

In consideration of the agreement of Gwirtz-Davis Genealogical Service, a corporation, to provide me with information with respect to certain assets in which I may have an interest, arising from the above source, and in consideration of your agreement to continue your efforts and investigation to determine the extent thereof through genealogical research, I, for myself, and my heirs, executors, administrators and assigns, herewith and hereby assign and grant to you an undivided twenty-five (25%) interest in every portion of the said property or assets to which I may be entitled, and I hereby agree to cooperate fully with you in this matter.

It is understood that in the event I receive nothing from the abovementioned property and assets, I shall not be under any obligation to you under this agreement.

I understand that you are not undertaking to do any legal work whatsoever, and that I am to employ an attorney of my own choice to represent my interest in this matter, whose fee shall be paid by me.

…..[706]

With respect to his selection of counsel, Mr. Allen testified that Davis asked, “Don’t you think you should have an attorney?”  Allen agreed he should, whereupon Davis “wrote three names down on a piece of paper”, from which Allen selected Mr. John Meigs, as in a “lottery.”

…..[707]

On his return home, Mr. Allen telephoned Mr. Meigs and later wrote to him.  Mr. Meigs agreed to take this case.  Mr. Allen arranged to pay his counsel “(f)ive percent of what I received,” and he “would receive nothing” in the event Allen did not receive anything.

In April 1979, after the court hearing at which Mr. Davis had testified to establish Mr. Allen’s relationship to decedent, Mr. Meigs telephoned Mr. Allen relative to what became Court Exhibit 2, an affidavit dated April 16, 1979, reading in relevant part as follows:

1.                  I am the first cousin of the decedent…  I had not seen Harold Atkinson for over half a century and had totally lost track of him…

2.                   I entered into a contract with Gwirtz-Davis … and I have determined that the contract is fair and reasonable …I object to any efforts by any Court to take up the matter of my arrangements with Gwirtz-Davis.  I consider these arrangements to be my private business….

….. [708]

…  There was no conversation between Allen and John Meigs with respect to the subject matter of the affidavit before Meigs’ telephone call.  Allen had nothing to do with its preparation. …

….. [709]

Davis acknowledged that he had a contingent fee agreement with Mr. Allen for his compensation.  He stated he had no agreement-regarding fees with the administrator or his counsel. …

….. [711]

The courts in England and in the United States have long looked with disfavor upon the evils inherent in heir hunting.  This activity is conducted by heir searchers or genealogists who have learned that unknown or missing heirs may exist in an estate in process of administration, and endeavor to locate an heir by exploration of genealogical information and public records.  The expectant heir, in due course, is informed that he has a claim against the unsettled estate and is promised or provided with genealogical and other essential information by which his claim may be established, on condition that he contracts with the heir hunter to agree to pay a substantial portion of his inheritance to the genealogist.

Risking a finding of unauthorized practice, champerty or solicitation, these heir hunters have constantly adapted and changed their patters of operation in order to avoid such hazards.  [Citations omitted.]

…..

... Further, counsel [for the estate] “started him on his search,” and Davis agreed that if Davis was successful, he would make appropriate arrangements [713]  with any heir or heirs.  This was so, notwithstanding it was the duty of the administrator to search for and locate heirs, [citations omitted], and to report in writing to the court, detailing his investigation and the relevant facts: [citations omitted].

Obviously, the administrator, in the few days following his appointment and before delegating the search function to Mr. Davis, made no such search or report pursuant to local rule. …

….. [715]

The Pennsylvania courts have refused to enforce contracts where there is a lack of good faith, fairness and frankness on the part of the heir hunter: McIlwain’s Estate, supra.  Similarly, where the courts have found champerty, they have refused enforcement of the contract’s terms.  Thus, in the matter of Ames v. Hillside Coal & Iron Co., 314 Pa. 267, 272, 171 Atl. 610 (1934), the court said: “While there has been some relaxation in the application of the common law doctrines of champerty and maintenance in this, as well as other jurisdictions, champerty, repugnant to public policy, is still ground for denying the aid of the court. …”

[716]  Champerty has been defined as “the unlawful maintenance of a suit in consideration for some bargain to have a part of the thing in dispute or some profit out of (the litigation).” [Citation omitted.]  An agreement by a stranger to defray the expenses of a suit in which he has no interest or to give substantial support and aid thereto in consideration of a share of the recovery of the proceeds thereof is condemned by the court as champertous: [Citations omitted.]

There can be no question that all of the expenses of the search for an heir of Harold Atkinson and of preparing and presenting evidence of kinship of Franklin A. Allen to the orphans’ court, were initially to be borne by Davis, whose sole vehicle for recovery of the expenses was the agreement of February 20, 1978: that is, by Allen’s granting to Davis of “an undivided twenty-five (25%) percent interest in every portion of the said property or assets to which I (Allen) may be entitled.”  Such a bargain to share in the proceeds contingent on the success of the litigation is illegal, if it is also part of the bargain that the party seeking to enforce the claim shall pay the expenses incident thereto: Ames v. Hillside Coal & Iron Co., supra, at 272; McIlwain’s Estate, supra, at 622.

As indicated, courts of equity have sought to protect expectant heirs from sophisticated and overreaching contracting third parties.  The rule has been:

“… [I]n every such conveyance or contract with an heir, reversioner, or expectant, a presumption of invalidity arises from the transaction itself, and the [717] burden rests upon the purchaser or other party claiming the benefit of the contract to show affirmatively its perfect fairness, and that a full and adequate consideration was paid. …” 3 Pomeroy, Equity Jurisprudence §953a (5th ed. 1941).

Questionable activity by Mr. Davis continued in his meeting with Mr. and Mrs. Allen on February 20.  Here, inquiry should be made as to the good faith or unconscionability of Mr. Davis’ conduct, the relative position of the parties in the bargaining process, the nature of the contract, and the manner in which the contract clauses were brought to the attention of Mr. Allen.

It is clear that Davis, having knowledge that Allen appeared to be the only heir of Harold Atkinson, withheld that information from Allen until Allen signed the letter in which he agreed to assign to Davis “an undivided (sic) twenty-five (25%) percent interest” in the property to which Allen might be entitled (Trustee’s Exhibit 3).  Davis told Allen, when they met at the Tampa airport, that, if he did not sign the contingent fee contract, “that was it.”  Nevertheless, Davis waved the “six figures” at Allen, in effect saying that if Allen did not sign, he would not disclose any information.  Allen understood that he would not be told the name of the person from whom he might have inherited if he did not sign.

Significant facts indicate that the relative bargaining positions of the contracting parties were grossly unequal.    Allen was, on February 20, 1978, an aged, ailing and crippled man with no knowledge whatever of a possible inheritance.  He was not even aware, until after the contract proffered by Davis was signed, who the decedent was.  Davis, [718], on the other hand, knew all the facts, the parties, the procedures. …

….. [720]

Davis’ conduct is also unacceptable with respect to his actions in the designation of counsel for Mr. Allen.  …

Davis’ part in the selection of Allen’s nominal counsel is reflected in the bizarre drafting and execution of the affidavit of April 16, 1979.

…..

It is not surprising that Mr. Meigs’ senior associate and co-counsel stated “that Mr. Allen has somewhat completed disavowed the affidavit,” apologized for it and requested permission to withdraw [721] it.  But the affidavit speaks dramatically of the relationship of Davis, Allen, and Allen’s counsel.  This court finds that counsel’s retainer was at the instance of Mr. Davis and that Mr. Meigs ambiguously, at least, represented Mr. Davis in this matter.

That Davis was in control is evident in that here and in each estate presently under review by this court in which Davis recommended counsel to the putative heir, counsel’s contingent fee for legal services amounted to five percent of the recovery, although Davis’ compensation ranged from 25 percent to 40 percent.  [Citations omitted.]  In none of these cases did Davis, before asking the possible heir to execute the contract, ask him whether he had counsel.  Although Davis never undertook to pay counsel for the heir, in those estates where Davis’ share was in excess of 25 percent he reduced his own compensation by five percent where the heir accepted counsel suggested by Davis.

The primary, if not the only role of counsel for the heir was to call Mr. Davis as a witness to introduce proof of kinship.

Attorneys who are recommended by Davis obviously serve two masters.  Since their own compensation hinges on the validity of the contract between Davis and putative heirs, it can scarcely be anticipated that counsel so retained would question the validity of the contract.  [Fn. 10. Counsel should be mindful that “… especially in the civil context, it is highly desirable that lawyers be forced to think through the moral implications of the legal work that they are being asked to handle.” Kauffman, Book Review, The Moral Foundations of Professional Ethics, 9 Harv. L. Rev. 1504, 1510 (1981).] [722]

Independent counsel would have examined all aspects of the agreement to insure its fairness to the client.  But Allen’s counsel made no effort to obtain a copy of the agreement.  …

In arguing in a manner that indicated advocacy of Davis rather than Allen, counsel treated the agreement as a fait accompli: As noted above, Mr. Davis had entered into a contract with the claimant before Mr. Meigs or his office became involved.  Thus, compensation had already been agreed upon before claimant secured a lawyer and by the time counsel was retained, any question of payment on Mr. Davis’ contact had already been concluded.

….. [724]

With the existing record, this court would be remiss if it did not question the contract which includes this assignment.  Can it be anticipated that prospective heirs whom Davis finds and with whom he negotiates would raise objections?  Most have lost contact with the deceased relative, if indeed they ever knew him or her at all.  Virtually all are “laughing heirs” who consider these inheritances windfalls.  In the instant case, the Atkinson and Allen families were estranged. …

….. [726]

We find impropriety in Mr. Davis’ role as the key figure who utilized his position as heir hunter to solicit the client, to promote the employment of counsel to represent him, to assume controlling influence in the litigation, to testify in furtherance of the individual represented by him and to create the scheme and letter contract for sharing in the estate of Harold Atkinson.  It is conduct reflecting dissemblance and lack of fairness and frankness in dealing with the putative heir.  It reflects, moreover, self-seeking and profiteering on the part of the heir hunter, and is contrary to the policy of probate courts to “protect beneficiaries of estates from imposition or unnecessary expense.”  [Citations omitted.]

….. [728]

This court will not accept the agreement or enforce it as an assignment.  Nevertheless, the court recognizes that Mr. Davis expertly compiled and presented extensive evidence tending to establish that Franklin A. Allen was the sole surviving heir of Harold Atkinson entitled to inherit under the intestate laws. …

However, the compensation to Davis, pursuant to the contingent fee agreement, appears to be unreasonable, if not unconscionable. …

Allan Friedman, “Heir-Hunting Agreements: Recommendations for the Extension of Probate Court Jurisdiction,” 6 Conn. Prob. L.J. 87, 94 (1991-1992):

“Most heir-hunters help the heir to recover the property because they will collect their fees only when heirs succeed in recovering their inheritances.  They often pay for all expenses, such as attorney’s fees and court costs, incurred in the recovery process.  Under the common law doctrine of champerty such practices are illegal and therefore any agreements containing such terms are void.  In jurisdictions that have adopted the common law doctrine of champerty, [fn. 55. … Estate of Atkinson, 7 Phila. 106 (Orphans’ Ct. 1981); McIlwain’s Estate, 27 Pa. D. & C. 619 (1936)] an heir-hunter must refrain from paying the costs of litigation or risk having the court invalidate the contract.”

The following cases, like Ames v. Hillside Coal & Iron Co., supra, make it exceedingly clear that fraud, misrepresentation or the like, are not elements of champerty that has only three clearly stated elements in the Commonwealth of Pennsylvania:

1)                  Clark v. Cambria County Board of Assessment Appeals, 747 A.2d 1242, 1246-1247 (Pa. Cmwlth. Ct. 2000), reconsideration and reargument denied (April 13, 2000), and appeal denied, 568 Pa. 740, 798 A.2d 1292 (2002) (“In order for there to be champerty, three elements must be met. Belfonte. First, the party involved must be one who has no legitimate interest in the suit. Id. Second, the party must expend his own money in prosecuting the suit. Id. Third, the party must be entitled by the bargain to a share in the proceeds of the suit. Id. … The common law doctrine against champerty and maintenance continues to be a viable doctrine in Pennsylvania and can be raised as a defense. [Citations omitted.]

2)                  Brandywine Heights Area School District v. Berks County Board Of Assessment Appeals, 821 A.2d 1262, 1265 (Pa. Cmwlth. Ct. 2003) (“In order to establish a prima facie case of champerty, three elements must exist. Those elements are: 1) the party involved must be one who has no legitimate interest in the suit; 2) the party must expend its own money in prosecuting the suit; and 3) the party must be entitled by the bargain to share in the proceeds of the suit. [Citations omitted.] Additionally, "[t]he activity of champerty has long been considered repugnant to public policy against profiteering and speculating in litigation and grounds for denying the aid of the court."” [Citation omitted.]).

3)                  Fleetwood Area School District v. Berks County Board Of Assessment Appeals, 821 A.2d 1268 (Pa. Cmwlth. Ct. 2003).

4)                  Frank v. Tewinkle, 2012 PA Super 104, page 12 (Pa. Super. 2012) (“Therefore, in summary, we agree 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.”)

In re Donald T. Jones, Deceased, 442 Pa. Super 463, 660 A.2d 76 (1995):

“COUNSEL: … Jeffrey E. Piccola, Harrisburg, for Strader, Hatfield and Munley, participating parties.

….. [467]

N4  FRI [Fiduciary Research, Inc., now known as Kemp & Associates, Inc.] had previously sent the following unsolicited letter dated May 22, 1990 to appellees, the additional heirs:

In the context of litigation funded by third parties the courts have taken an increasingly liberal approach to the principles of champerty and maintenance (the ancient rules against "trafficking" in litigation). However, a recent Court of Appeal judgment illustrates that these principles still have teeth, particularly where claims are assigned: Jennifer Simpson (as assignee of Alan Catchpole) v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149.

The court followed the House of Lords decision in Trendtex Trading Corp v Credit Suisse (1982) AC 679 HL which established that the assignment of a cause of action will be void as against public policy where the assignee does not have a "sufficient interest" to justify pursuit of the proceedings for his own benefit. That principle applies whether, as in Trendtex, the assignee is aiming to profit from the litigation or, as in this case, the assignee wishes to pursue the litigation as part of a personal campaign, however honourably motivated.

Background

The issue arose in the context of a personal injury claim. Briefly, Mrs Simpson's late husband had contracted MRSA while a patient at a hospital operated by the defendant NHS trust. Although the infection had not contributed to his death, Mrs Simpson believed that the hospital had failed to implement proper infection control procedures. Another patient, Mr Catchpole, issued proceedings against the defendant after contracting MRSA in the same hospital. He assigned his claim to Mrs Simpson for consideration of £1 and Mrs Simpson pursued the claim in her own name and for her own benefit.

The defendant applied to strike out the action on the grounds that Mrs Simpson had no legitimate interest in the claim and therefore the assignment was void as contrary to public policy. The Court of Appeal upheld the lower courts' decision to strike out the claim.

Decision

Following Trendtex, the law will not recognise, on the grounds of public policy, the assignment of a bare right to litigate, i.e. where the assignee does not have an interest sufficient to justify pursuit of proceedings for his own benefit. The court recognised that Mrs Simpson had "honourable motives" in pursuing the claim, essentially to highlight the hospital's failings, but this was not the sort of interest the law recognised as sufficient to support an assignment of what would otherwise be a bare right of action. It was not in the public interest to encourage litigation whose principal object was not to obtain a remedy for a legal wrong, but to pursue a different kind of object.

The court commented that if Mrs Simpson's real concern was to enable Mr Catchpole to obtain compensation she could have taken steps to allow him to pursue the case in his own name.

Contrast with third party litigation funding

It seems clear that if Mrs Simpson had merely funded litigation brought in Mr Catchpole's name, rather than taking an assignment of the claim, the defendant would have had no basis for complaint. Even if she had done so in return for a share of the proceeds, it is likely that the courts would have upheld the agreement. The case law in recent years suggests that the English courts are taking a more relaxed attitude to such funding arrangements, and commercial third party funding has been endorsed by reports from the Civil Justice Council and in Lord Justice Jackson's wide-ranging review of civil litigation costs.

On the current state of the law, third parties are allowed to fund litigation in exchange for a share of the proceeds and the agreement will generally be enforceable so long as it does not have other features that render it objectionable as a matter of public policy. One such feature appears to be if the funder exercises excessive "control" over the litigation (see Arkin v Borchard Lines Ltd and others [2005] EWCA Civ 655), although it is not entirely clear what would amount to excessive control such that a funding arrangement would be found to be champertous.

It may be that one reason the courts are less tolerant of the assignment of claims, as opposed to third party funding, is that an assignee will have the conduct of the litigation in place of the original claimant, whereas the claimant retains control in the context of third party funding. (Note however that where a party takes an assignment of claims vested in an insolvent company, there is no difficulty regarding champerty and maintenance. This is due to the statutory power for insolvency practitioners to sell the company property, which includes causes of action.)

Lord Justice Jackson has recommended that third party funders should be regulated, initially by way of a voluntary code of conduct, and that so long as third party funders comply with the relevant system of regulation then their funding agreements should not be overturned on grounds of champerty. A code of conduct is expected to be agreed by the end of this year.

Filed under Funding

Tagged as Champerty