Pamela Maslowski v. Prospect Funding Partners LLC, Prospect Funding Holdings LLC , 2017 Minn. App. LEXIS 26 ( 2017 )

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-0770
Pamela Maslowski,
Respondent,
vs.
Prospect Funding Partners LLC,
Defendant,
Prospect Funding Holdings LLC,
Appellant.
Filed February 13, 2017
Affirmed
Larkin, Judge
Hennepin County District Court
File No. 27-CV-15-15143
James R. Schwebel, James S. Ballentine, Matthew J. Barber, Schwebel, Goetz & Sieben,
P.A., Minneapolis, Minnesota (for respondent)
Daniel A. Beckman, Abigail A. Pettit, Gislason & Hunter LLP, Minneapolis, Minnesota
(for appellant)
Considered and decided by Hooten, Presiding Judge; Peterson, Judge; and Larkin,
Judge.
SYLLABUS
A district court does not abuse its discretion by refusing to enforce a forum-selection
clause that is inconsistent with Minnesota’s local interest against champerty.
OPINION
LARKIN, Judge
This appeal stems from an agreement in which appellant purchased an interest in
respondent’s Minnesota personal-injury lawsuit. Appellant sued respondent in New York,
seeking to enforce the agreement. Respondent sued appellant in Minnesota, seeking a
declaration that the agreement violates Minnesota’s policy against champerty and is
unenforceable. Appellant challenges the district court’s refusal to enforce a forum-
selection clause in the agreement, which requires the parties to bring any action relating to
the agreement in New York. Appellant also challenges the district court’s issuance of an
anti-suit injunction enjoining appellant from prosecuting its New York action. Because the
district court did not abuse its discretion by refusing to enforce the forum-selection clause
or by issuing the anti-suit injunction, we affirm.
FACTS
In March 2012, respondent Pamela Maslowski, a Minnesota resident, was injured
in a motor-vehicle accident. Maslowski sued to recover damages for the personal injuries
she sustained in the accident. While Maslowski’s personal-injury suit was pending, she
needed money for living expenses. In May 2014, Maslowski entered into an agreement
with appellant Prospect Funding Holdings LLC (Prospect), through its manager at its office
in Minnetonka,1 under which Prospect would provide Maslowski with $6,000 in exchange
1
Maslowski’s complaint alleges that Prospect is a Florida limited liability company with
its principal place of business in Florida. In its answer, Prospect claimed that it is a New
York limited liability company with its principal place of business in Minnesota. In later
filings, Prospect claimed that it is a New York entity with a New York office.
2
for an interest in her personal-injury action. The agreement provides that if Maslowski
recovers in the personal-injury action, Prospect is entitled to recover $6,000, a $1,425
processing fee, and 60% annual interest. The agreement further provides that if Maslowski
does not recover in the personal-injury suit, Prospect will recover nothing.
Under the agreement, the transaction is to be treated as a sale of Maslowski’s interest
in the personal-injury suit and not as a loan, Maslowski is prohibited from assigning any
other interest in the personal-injury action or the proceeds thereof without Prospect’s prior
written consent, and Maslowski is not permitted to hire a new attorney unless she first
notifies Prospect in writing and requires the new attorney to execute an “Attorney
Acknowledgement of the Irrevocable Letter of Direction.” The agreement defines breach
to include Maslowski’s termination of her attorney’s representation without notice to
Prospect, termination followed by a replacement attorney’s failure to execute an “Attorney
Acknowledgement of the Irrevocable Letter of Direction,” or Maslowski’s receipt of
additional advances without Prospect’s consent. In the event of a breach, Maslowski must
pay Prospect twice the purchase amount. All notices required under the agreement are to
be sent to Prospect’s Minnesota address.
The agreement includes a choice-of-law clause designating New York law as the
applicable law. The agreement also includes the following forum-selection clause:
THE PARTIES IRREVOCABLY AGREE THAT ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER
OR RESPECT, ARISING OUT OF OR RELATED TO THIS
AGREEMENT SHALL BE LITIGATED ONLY IN COURTS
HAVING SITUS IN NEW YORK COUNTY, NEW YORK.
EACH PARTY CONSENTS AND SUBMITS TO
PERSONAL JURISDICTION IN THE STATE OF NEW
3
YORK AND WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO TRANSFER THE VENUE OF ANY SUCH
ACTION OR PROCEEDING.
Maslowski’s complaint in the underlying action seeks a declaration that
Maslowski’s agreement with Prospect is void because it is champertous,2 “against
Minnesota policy,” “intended to evade Minnesota law,” and unconscionable. The
complaint lists Prospect and Prospect Funding Partners LLC, an entity which “originates,
services, administers and monitors claims” on behalf of Prospect, as defendants.3 On July
7, 2015, Maslowski unsuccessfully attempted to serve the complaint on Prospect at its
Minnesota office.
On July 10, Prospect filed a complaint in New York against Maslowski,
Maslowski’s Minnesota counsel, and counsel’s law firm, claiming breach of contract,
unjust enrichment, promissory estoppel, breach of the duty of good faith and fair dealing,
negligent misrepresentation, money had and received, and anticipatory breach. Prospect’s
complaint included the following allegations: (1) Maslowski’s personal-injury case was
going to settle; (2) Prospect notified Maslowski that $14,108 was due to Prospect if the
case settled and payment was made on or before September 22, 2015; (3) Maslowski’s
attorney informed Prospect that the funding agreement is unenforceable; (4) Maslowski
failed to remit any payment in accordance with the agreement; and (5) Maslowski and her
attorney indicated they would not comply with the terms of the agreement.
2
“Champerty” is defined on page nine of this opinion.
3
Prospect Funding Partners LLC is not a party to this appeal.
4
On August 6, Maslowski served her complaint in the Minnesota action against
Prospect on Prospect through the Minnesota Secretary of State. On August 26, Prospect
moved the Minnesota district court to dismiss Maslowski’s action, asserting that she
brought her action “in an improper jurisdiction in violation of a mandatory forum[-]
selection clause in the agreement,” that “a case based on the same dispute was already
pending in New York when the complaint in the present case was served,” and that under
“the principles of comity, in particular the ‘first to file’ rule, New York is the proper forum
to adjudicate this dispute.”
In September, Maslowski, her Minnesota counsel, and counsel’s law firm moved to
dismiss Prospect’s New York action on forum non conveniens grounds and because the
New York court lacked personal jurisdiction over Maslowski’s lawyer and his law firm.
The New York Supreme Court, New York County, granted the motion to dismiss as to
Maslowski’s lawyer and his law firm, but the court denied the motion to dismiss as to
Maslowski, reasoning that Maslowski is contractually bound to have her dispute with
Prospect decided in a New York forum. On November 19, Maslowski moved the
Minnesota district court to enjoin Prospect from prosecuting its New York action until final
judgment is entered in the Minnesota action.
On December 21, the Minnesota district court denied Prospect’s motion to dismiss
the Minnesota action. The district court reasoned that “Minnesota courts have stated and
reaffirmed that they will not enforce champertous agreements” and that another district
court recently held a “contract that is substantially identical to the Agreement in this case,
having been drafted by [Prospect], to be unenforceable.” The district court noted, “When
5
Maslowski entered into the agreement that underlies this lawsuit with [Prospect] . . .
[Prospect] had changed the forum-selection and choice-of-law clauses in their form
agreement from Minnesota to New York.” The district court reasoned that Prospect “chose
a sort of ‘end-around’ play, by using the same contract form as before, but stating that it
would be governed by New York law, and subject to suit only in the New York court
system.”
The district court explained:
If this court were to enforce the forum selection clause
as [Prospect] request[s], and if thereafter a New York court,
applying New York law, were to decide that champertous
contracts are permissible and enforceable in Minnesota, that
would effectively reverse a line of precedent that has been
established in Minnesota ever since 1897, and reaffirmed by
Minnesota’s appellate court as recently as 2003, without any
Minnesota court having any say in the matter. If the Minnesota
Supreme Court’s ruling that champertous contracts are
unenforceable in this state is to be reversed, it should be by an
affirmative decision of the Minnesota Supreme Court, and not
by a corporate decision to select a different state’s law to
govern such contracts in this state.
The district court concluded that “the outcome of the dispute between the parties in
this case will be felt within this State, and not anywhere in New York” and that enforcing
the forum-selection clause “would result in the contravention of a strong Minnesota public
policy that its courts should decide whether champertous agreements may be enforced
within this state.” Prospect requested reconsideration.
On January 14, 2016, Maslowski moved for judgment on the pleadings in her
Minnesota action. On the same day, Prospect moved the New York Supreme Court to
enjoin Maslowski from prosecuting her Minnesota action. On January 27, the New York
6
Supreme Court granted Prospect’s motion to enjoin Maslowski, based on its earlier ruling
that Maslowski is bound by the forum-selection clause, but the New York Supreme Court
did not order Maslowski to withdraw motions pending before the Minnesota district court.
On March 4, the Minnesota district court denied Prospect’s request for
reconsideration, denied Maslowski’s motion for judgment on the pleadings, and granted
Maslowski’s motion to enjoin Prospect from prosecuting its New York action. As to the
injunction, the district court found that the Minnesota and New York actions involve
similar parties and similar issues, that resolution of the Minnesota action would dispose of
the New York action, and that “principles of comity and equity favor [the Minnesota]
forum, and not New York.” Prospect appeals.4
ISSUES
I. Did the district court abuse its discretion by refusing to enforce the forum-
selection clause in the parties’ agreement?
II. Did the district court abuse its discretion by issuing an anti-suit injunction?
4
Following oral argument in this case, the New York Supreme Court, Appellate Division,
reversed the New York Supreme Court’s denial of Maslowski’s motion to dismiss the New
York action and its order enjoining Maslowski from prosecuting the Minnesota action.
Prospect Funding Holdings LLC v. Maslowski, No. 2747-2748-2748A-2748B, 2017 WL
113078 (N.Y. App. Div. Jan. 12, 2017). The New York Supreme Court, Appellate
Division, found that “Maslowski demonstrated that the choice of forum provision in the
parties’ agreement is unreasonable and should not be enforced,” noting that “[e]very aspect
of the transaction at issue occurred in Minnesota, the parties, documents, and witnesses are
located in Minnesota, and defending this action in New York would be a substantial
hardship to Ms. Maslowski.” Id. Prospect moved for an order granting reargument of that
appeal or leave to appeal to the New York Court of Appeals. Prospect’s motion for
reargument or appeal to the New York Court of Appeals is currently pending.
7
ANALYSIS
I.
Prospect contends that the district court erred by failing to enforce the forum-
selection clause in the parties’ agreement. Whether to enforce a forum-selection clause is
within the discretion of the district court, and this court will affirm the district court’s ruling
unless it clearly abused its discretion. Personalized Mktg. Serv., Inc. v. Stotler & Co., 447
N.W.2d 447, 450 (Minn. App. 1989), review denied (Minn. Jan. 12, 1990). A district court
abuses its discretion when it misapplies the law. Minneapolis Grand, LLC v. Galt Funding
LLC, 791 N.W.2d 549, 556 (Minn. App. 2010).
In Hauenstein & Bermeister, Inc. v. Met-Fab Indus., Inc., the Minnesota Supreme
Court followed the United States Supreme Court’s approach and adopted the rule that
forum-selection clauses are “not per se invalid, but enforceable in the discretion of the court
if not unreasonable.” 320 N.W.2d 886, 888-90 (Minn. 1982). The supreme court held that
“when the parties to a contract agree that actions arising from that contract will be brought
in a particular forum, that agreement should be given effect unless it is shown by the party
seeking to avoid the agreement that to do so would be unfair or unreasonable.” Id. at 890.
The relevant issue is “whether a court should refrain from exercising the jurisdiction that
it admittedly possesses to give effect to the parties’ intentions as expressed in a forum
selection clause.” Id. at 889.
The supreme court explained that this approach “accords with ancient concepts of
freedom of contract and reflects an appreciation of the expanding horizons of American
business”; it also provides “a degree of certainty to business contracts by obviating
8
jurisdictional struggles and by allowing parties to tailor the dispute resolution mechanism
to their particular situation.” Id. (quotation omitted).
A forum-selection clause is unreasonable, and therefore unenforceable, if “(1) the
chosen forum is a seriously inconvenient place for trial; (2) the choice of forum agreement
is one of adhesion; and (3) the agreement is otherwise unreasonable.” Id. at 890. A forum-
selection clause is otherwise unreasonable if “enforcement of the forum selection clause
‘would contravene a strong public policy of the forum in which suit is brought, whether
declared by statute or by judicial decision.’” Id. at 891 (quoting M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 1916 (1972)).
The district court determined that New York is not a seriously inconvenient place
for trial and that fact issues preclude a determination regarding whether the parties’ forum-
selection agreement is one of adhesion. But the district court refused to enforce the forum-
selection clause based on Minnesota’s strong public policy against champerty.
Minnesota follows the common-law rule prohibiting contracts for champerty.
Huber v. Johnson, 68 Minn. 74, 77-78, 70 N.W. 806, 807 (1897). This court has defined
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.’” Johnson v. Wright, 682 N.W.2d 671, 675 (Minn. App. 2004) (first alteration
in original) (quoting Black’s Law Dictionary 224 (7th ed. 1999)), review granted (Minn.
Oct. 19, 2004) and appeal dismissed (Minn. Jan. 10, 2005). This court has defined
maintenance, a similar concept, as “‘[a]ssistance in prosecuting or defending a lawsuit
given to a litigant by someone who has no bona fide interest in the case; meddling in
9
someone else’s litigation.’” Id. (alteration in original) (quoting Black’s Law Dictionary
965 (7th ed. 1999)).
“The general purpose of the law against champerty and maintenance” is to “prevent
officious intermeddlers from stirring up strife and contention by vexatious or speculative
litigation which would disturb the peace of society, lead to corrupt practices, and pervert
the remedial process of the law.” Huber, 68 Minn. at 78, 70 N.W. at 807. In other words,
the prohibition on champerty and maintenance is aimed at discouraging “intrusion for the
purpose of mere speculation in the troubles of others.” Hackett v. Hammel, 185 Minn. 387,
388, 241 N.W. 68, 69 (1932). In Johnson, this court was asked to re-evaluate Minnesota’s
position against champerty and maintenance. 682 N.W.2d at 679. We recognized that a
few states have abandoned or modified the champerty doctrine, but we refused to do so,
noting “the potential ill effects that a champertous agreement can have on the legal system.”
Id. at 679-80.
The district court reasoned that the agreement in this case could implicate the
concerns underlying Minnesota’s prohibition on champerty as follows: “a litigant with no
obligation to pay advances back has no incentive to settle, unless the amount recovered
would exceed her attorney’s fees plus the amount she would owe to the litigation funding
company” and the “rapid escalation of amounts owed to the litigation funding company
would lead to an equally rapid decline in the litigant’s willingness to consider settling for
anything less than a maximum recovery.” The district court further reasoned that “[t]he
outcome of the dispute between the parties in this case will be felt within this State, and
not anywhere in New York.” The district court concluded that upholding the forum-
10
selection clause “would result in the contravention of a strong Minnesota public policy that
its courts should decide whether champertous agreements may be enforced within this
state.”
Prospect argues that the district court abused its discretion primarily because
“[t]here is no case law outlining such a public policy in Minnesota, nor did the district court
rely on any in making this pronouncement.” Prospect further argues that “the types of
public policy in which courts have found forum[-]selection clauses to be unreasonable have
been limited to claims of” judicial economy and the prevention of multiple actions on
similar issues. See Interfund Corp. v. O’Byrne, 462 N.W.2d 86, 89 (Minn. App. 1990)
(“Judicial economy and the prevention of multiple actions on similar issues are policies
which can render a forum[-]selection clause patently unreasonable.”).
Whether the district court’s reasoning is a valid basis to refuse to enforce the parties’
forum-selection clause is an issue of first impression. Minnesota caselaw does not
expressly endorse the reasoning. However, in adopting the current rule on forum-selection
clauses in Hauenstein, the Minnesota Supreme Court did not suggest that the “otherwise
unreasonable” category of forum-selection clauses is as narrow as Prospect contends. In
setting forth three ways that forum-selection clauses may be unreasonable, the Minnesota
Supreme Court said, “[o]ther indications of unreasonableness in forum selection
agreements are sure to arise where for reasons other than those enumerated above, to
enforce the agreement would be unfair or unreasonable.” Hauenstein, 320 N.W.2d at 891.
The supreme court provided the following example from M/S Bremen v. Zapata Off-Shore
Co: where enforcement “‘would contravene a strong public policy of the forum in which
11
suit is brought, whether declared by statute or by judicial decision.’” Id. (quoting Bremen,
407 U.S. at 15, 92 S. Ct. at 1916).
Bremen involved a forum-selection clause that designated the London Court of
Justice as the forum for any disputes arising under an international-towage contract. 407
U.S. at 2, 92 S. Ct. at 1909. The Supreme Court considered whether enforcement of the
forum-selection clause would contravene the public policy established in Bisso v. Inland
Waterways Corp., 349 U.S. 85, 75 S. Ct. 629 (1955). Id. at 15, 92 S. Ct. at 1916. Bisso
established a “judicial rule, based on public policy, invalidating contracts releasing towers
from all liability for their negligence.” 349 U.S. at 90, 75 S. Ct. at 632.
Bremen rejected the Bisso public-policy argument against enforcement of the
forum-selection clause. 407 U.S. at 15-16, 92 S. Ct. at 1916. However, it did so solely
because the Bisso policy was inapplicable to the facts in Bremen. The Supreme Court
explained that, “whatever the proper scope of the policy expressed in Bisso, it does not
reach this case. Bisso rested on considerations with respect to the towage business strictly
in American waters, and those considerations are not controlling in an international
commercial agreement.” Id. (footnote omitted). Moreover, the Supreme Court went on to
explain:
[The] selection of a remote forum to apply differing foreign
law to an essentially American controversy might contravene
an important public policy of the forum. For example, so long
as Bisso governs American courts with respect to the towage
business in American waters, it would quite arguably be
improper to permit an American tower to avoid that policy by
providing a foreign forum for resolution of his disputes with an
American towee.
12
Id. at 17, 92 S. Ct. at 1917.
The preceding example suggests that use of a forum-selection clause to avoid a
forum’s established substantive policy may render the clause unreasonable. Such is likely
the case here. It appears that the forum-selection clause in this case, in conjunction with
the choice-of-law provision, is an attempt to avoid Minnesota’s long-established policy
that agreements for champerty are unenforceable. The district court recognized that reality
in declining to enforce the forum-selection clause. The district court’s reasoning finds
support in Bremen and Hauenstein.
We now turn to a case that is factually similar to the case before us: Fountain v.
Oasis Legal Fin., LLC, 86 F. Supp. 3d 1037 (D. Minn. 2015).5 In Fountain, consumers
brought a putative class action in Minnesota state court against Oasis, alleging that Oasis
was an Illinois company that purchased legal-funding interests through purchase
agreements with Minnesota consumers who had personal-injury lawsuits pending in state
or federal court. 86 F. Supp. 3d at 1040-41. The consumers further alleged that the
purchase agreements constituted champerty and sought a declaration that the agreements
violated Minnesota public policy and were void and unenforceable. Id. at 1041. Oasis
removed the case to federal court and moved to dismiss based on a forum-selection clause
in the purchase agreements requiring any lawsuit stemming from the agreements to be
5
Although the case is not precedential, it is persuasive. See Sonenstahl v. L.E.L.S., Inc.,
372 N.W.2d 1, 4 (Minn. App. 1985) (noting that federal decisions may be persuasive where
Minnesota courts have not addressed a subject).
13
brought in state court in Cook County, Illinois. Id. at 1040-41. The agreements also
contained a choice-of-law provision selecting Minnesota law. Id. at 1040.
In determining whether to enforce the forum-selection clause, the Fountain court
noted that the Supreme Court had recently addressed the proper procedure for enforcing a
forum-selection clause in Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex.,
134 S. Ct. 568 (2013). Id. at 1043. The Fountain court noted that in Atl. Marine, the
Supreme Court affirmatively endorsed the forum non conveniens doctrine as a vehicle to
enforce a forum-selection clause that chooses a nonfederal forum and therefore applied that
doctrine. Id. at 1044.6
The Fountain court first considered whether the forum-selection clause was
enforceable and concluded that it was. Id. at 1044-45. The federal court rejected the
consumers’ argument that enforcing the forum-selection clause would contravene
Minnesota’s public policy against champerty. Id. at 1044. The federal court reasoned that
“what matters is not whether the contract as a whole violates public policy, but whether the
forum-selection clause itself violates public policy. Courts in this District have repeatedly
held that enforcement of a forum-selection clause does not violate Minnesota public
policy.” Id.7 Given the Minnesota Supreme Court’s recognition that “[o]ther indications
6
Because the issue is not briefed in this appeal, we do not consider whether Minnesota
should follow the federal approach in Atl. Marine.
7
The Supreme Court of Alabama recently cited this text from Fountain and concluded that
in Bremen, “the [Supreme] Court was saying that enforcement of the forum-selection
clause must contravene a state’s public policy, not that the clause should be held
unenforceable if enforcement of the contract that contains the clause would contravene a
state’s public policy.” Ex parte PT Sols. Holdings, LLC, No. 1150687, 2016 WL 6900685,
at *5 (Ala. Nov. 23, 2016).
14
of unreasonableness in forum[-]selection agreements are sure to arise,” Hauenstein, 320
N.W.2d at 891, and the United States Supreme Court’s recognition that “it would quite
arguably be improper” to permit a party to use a forum-selection clause to avoid a forum’s
judicial policy, Bremen, 407 U.S. at 17, 92 S. Ct. at 1917, we disagree with the federal
court’s conclusion that the only relevant public policy is the forum’s policy regarding
forum-selection clauses.
After concluding that the forum-selection clause was enforceable, the Fountain
court next considered whether it should be enforced, using a modified forum non
conveniens analysis set forth in Atl. Marine. Id. at 1046. In conducting that analysis, “the
plaintiff’s choice of forum merits no weight” and the court “should not consider arguments
about the parties’ private interests.” Atl. Marine, 134 S. Ct. at 581-82. The court may
consider only public-interest factors, which “may include ‘the administrative difficulties
flowing from court congestion; the local interest in having localized controversies decided
at home; [and] the interest in having the trial of a diversity case in a forum that is at home
with the law.’” Id. at 581 & n.6 (alteration in original) (quoting Piper Aircraft Co. v. Reyno,
454 U.S. 235, 241 n.6, 102 S. Ct. 252, 258 n.6 (1981)).
The parties in Fountain framed the relevant public-interest factor as follows:
“whether a Court in Minnesota has a localized interest in applying Minnesota’s prohibition
against champerty to the purchase agreements at issue here.” 86 F. Supp. 3d at 1046. The
consumers “contend[ed] that approximately 2,000 consumers in the putative class are
located in Minnesota and deserve[d] a chance to vindicate their rights in Minnesota based
on Minnesota law.” Id. Oasis countered that “the purchase agreements contain[ed] a
15
choice-of-law provision that require[ed] the application of Minnesota law and its strong
interest in prohibiting champerty, regardless of which court decide[d] the case.” Id.
The Fountain court concluded that the local public-interest factor did not weigh
against enforcing the forum-selection clause, given the parties’ choice of Minnesota law.
Id. The federal court reasoned that “[i]n the end, it [was] likely that an Illinois court
applying Illinois choice-of-law principles would enforce the choice-of-law provision and
analyze [the] claims under Minnesota law” and that “[e]nforcement of the forum-selection
clause would therefore not thwart Minnesota public policy against champerty, diminishing
any benefit to the public in keeping this case in this District.” Id.
The parties’ framing of the public-interest factor in Fountain is similar to the district
court’s reasoning here: Minnesota has a local interest in deciding whether the parties’
agreement is void under Minnesota’s policy against champerty. But unlike the
circumstances in Fountain, the choice-of-law provision in this case does not select
Minnesota law; it requires application of New York law. Although a New York statute
prohibits champerty, its prohibition is narrower than Minnesota’s common-law approach.
See N.Y. Jud. Law § 489 (McKinney 2016) (providing that no corporation or association
“shall solicit, buy or take an assignment of, or be in any manner interested in buying or
taking an assignment of a bond, promissory note, bill of exchange, book debt, or other thing
in action, or any claim or demand, with the intent and for the purpose of bringing an action
or proceeding thereon”); Maya Steinitz, Whose Claim is this Anyway? Third-Party
Litigation Funding, 95 Minn. L. Rev. 1268, 1289-90 (2011) (noting that Minnesota
represents those states that continue to “rigorously apply” champerty restrictions, whereas
16
New York represents those states that, while not abandoning the champerty doctrine, “have
taken a cautious approach to its application”).
Prospect notes that “both lower courts have declined to determine choice of law at
this time” and that Maslowski has the right to “argue for the application of Minnesota law
in [the New York] forum.” Prospect argues that the “record does not contain any evidence
that the New York court will improperly interpret Minnesota law should it determine that
Minnesota law applies, nor is it appropriate for the Minnesota court to make any such
assumption.” However, Prospect also argues, “When read together, the choice of law
clause and the choice of forum clause make clear that respondent agreed to submit to the
New York courts and New York Law.” Given the choice-of-law provision in this case—
and Prospect’s intent to enforce it—enforcement of the forum-selection clause could be the
first step in thwarting Minnesota’s policy against champerty. Unlike the circumstances in
Fountain, there is, therefore, a benefit to the public in keeping this case in Minnesota.
We recognize that the current rule favors enforcement of forum-selection clauses
and that there are important reasons to honor such agreements. See Hauenstein, 320
N.W.2d at 889. But in this particular case, the decision whether the parties’ agreement
violates Minnesota’s policy against champerty has the potential to expose personal-injury
actions in Minnesota to the negative effects of champerty. Given that potential, Minnesota
has a strong local interest in applying its prohibition against champerty in this case.
In sum, the district court did not abuse its discretion by refusing to enforce the
forum-selection clause in the parties’ agreement based on Minnesota’s local interest against
champerty. The district court’s decision finds support in United States Supreme Court and
17
Minnesota Supreme Court precedent. We therefore affirm the district court’s refusal to
enforce the forum-selection clause.
II.
Prospect contends that the district court abused its discretion by enjoining it from
prosecuting its New York action. “It has long been the law in Minnesota that a court may
enjoin a party over whom it has in personam jurisdiction from pursuing similar litigation
in another court.” First State Ins. Co. v. Minn. Mining & Mfg. Co., 535 N.W.2d 684, 687
(Minn. App. 1995), review denied (Minn. Oct. 13, 1995); see Hawkins v. Ireland, 64 Minn.
339, 344, 67 N.W. 73, 75 (1896) (stating that Minnesota courts may restrain its citizens
from pursuing actions in other state courts “whenever the facts of the case make such
restraint necessary to enable the court to do justice, and prevent one citizen from obtaining
an inequitable advantage over other citizens”); Freick v. Hinkly, 122 Minn. 24, 26, 141
N.W. 1096, 1096 (1913).
Historically, Minnesota courts considered principles of comity and equity when
determining whether to issue an anti-suit injunction. See, e.g., Doerr v. Warner, 247 Minn.
98, 109-10, 76 N.W.2d 505, 514 (1956) (upholding anti-suit injunction partly because
trustee acted in “calculated and systematic” manner to deprive Minnesota court of
jurisdiction and because Minnesota court was first to acquire jurisdiction). Currently, this
court applies a three-part substantial-similarity test that assesses (1) the similarity of the
parties; (2) the similarity of the issues; and (3) the capacity of one action to dispose of the
action to be enjoined. First State, 535 N.W.2d at 687. The decision whether to grant such
18
an injunction is left to the district court’s discretion and will be upheld absent a clear abuse
of that discretion. Id.The district court concluded that the New York and Minnesota actions involve
similar parties. Prospect concedes that this part of the test is satisfied. As to the similarity
of the issues, the district court acknowledged that Prospect made additional claims against
Maslowski in the New York action that are not included in the Minnesota action. Despite
these additional claims, the district court determined that because the “‘paramount and
threshold’ issue in both actions is the enforceability of the subject agreement” and Prospect
can raise all of its claims against Maslowski in Minnesota in subsequent pleadings, the
issues in both cases are substantially similar. Based on the similar parties and the
paramount and threshold enforceability issue, the district court concluded that resolution
of this action would dispose of the New York action and that “an injunction is necessary
to protect the jurisdiction of the Minnesota courts to decide whether agreements like the
subject agreement are champertous and unenforceable in Minnesota.”
Prospect argues that the district court erred by finding that the two actions involve
similar issues because the “claims in the New York Action are distinct, and include not
only additional contract claims, but quasi contract claims and tort claims.” This court has
previously upheld a district court’s finding of an identity of issues where two actions shared
a “‘paramount and threshold’ issue of insurance coverage” and additional tort claims
“stem[med] from the central contract action and could still be raised in Minnesota in
subsequent pleadings.” Id. at 687, 689. Because the paramount and threshold issue in both
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actions here is the enforceability of the funding agreement, the district court did not err by
determining that the two actions involve similar issues.
Prospect further argues that because “there are many additional elements raised in
the New York Action which have no bearing on the Minnesota Action,” resolution of the
Minnesota action would not dispose of the New York action. But all of Prospect’s New
York claims are directly related to enforceability of the funding agreement. And, as the
district court noted, Prospect can raise claims related to that central issue in subsequent
pleadings in the Minnesota action. The district court therefore did not err by concluding
that the third part of the substantial-similarity test is satisfied.
In addition to arguing that the district court erred in its application of the substantial-
similarity test, Prospect argues that “[c]omity and equity support deference to the New
York court, and the district court abused its discretion by refusing to defer to the first-filed
action.” As to comity, Prospect relies on the “first-filed rule,” which provides:
Where two actions between the same parties, on the
same subject, and to test the same rights, are brought in
different courts having concurrent jurisdiction, the court which
first acquires jurisdiction, its power being adequate to the
administration of complete justice, retains its jurisdiction and
may dispose of the whole controversy, and no court of
coordinate power is at liberty to interfere with its action. This
rule rests upon comity and the necessity of avoiding conflict in
the execution of judgments by independent courts . . . .
State ex rel. Minn. Nat’l Bank of Duluth v. Dist. Ct., 195 Minn. 169, 173, 262 N.W. 155,
157 (1935) (quotation omitted).
However, this general rule does not apply when the same cause of action is pending
before courts which do not share concurrent jurisdiction, such as courts of different states.
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St. Paul Surplus Lines Ins. Co. v. Mentor Corp., 503 N.W.2d 511, 515 (Minn. App. 1993).
In such circumstances, the actions may proceed independently of each other and the rules
of res judicata will generally be applied with regard to the first suit to be concluded. Id.Because the Minnesota and New York courts do not have concurrent jurisdiction, the
district court did not abuse its discretion by refusing to defer to the New York action under
the first-filed rule.
As to comity and equity in general, the district court noted that it fundamentally
disagrees with the New York Supreme Court regarding the enforceability of the forum-
selection clause.8 The district court also noted that Maslowski is a Minnesota resident, the
underlying personal-injury claim arose in Minnesota and is venued in a Minnesota court,
the case “raises significant issues regarding whether Minnesota’s long-standing prohibition
against champerty and maintenance is violated by the terms of the subject agreement,” and,
if the funding agreement is champertous and enforced by a New York court, the effects of
its enforcement will be felt within Minnesota’s legal system. The district court explained:
Enforcement of this agreement by a non-Minnesota court
would encourage [Prospect] and other companies that sell pre-
settlement funding products to take pains to avoid any
possibility of review by Minnesota courts, while continuing to
sell such products in Minnesota, thus depriving the Minnesota
courts of their authority to determine what constitutes
champerty for purposes of such agreements as they affect
Minnesota lawsuits.
8
As we noted above, the New York Supreme Court, Appellate Division, reversed the New
York Supreme Court’s ruling that the forum-selection clause is enforceable.
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When weighing the equities, the district court found that Prospect “acted ‘in a calculated
and systematic manner’ to deprive the Minnesota courts of their jurisdiction to determine
whether pre-settlement funding contracts affecting Minnesota lawsuits are champertous.”
Prospect assigns error to the district court’s findings regarding its actions and
motivation. However, Prospect cannot dispute—and indeed argues—that the purpose of
its forum-selection clause and choice-of-law provision is to ensure application of New
York law instead of Minnesota law. One of Minnesota’s earliest cases regarding anti-suit
injunctions states:
[T]o justify enjoining the prosecution of a foreign suit begun
before any proceedings were taken in the home courts, it must
appear that the foreign suit will result in evading the effect of
some local law, or in securing some other inequitable
advantage, or in imposing some inequitable disadvantage.
Freick, 122 Minn. at 24, 141 N.W. at 1096 (emphasis added).
Because equity supports an anti-suit injunction when a party attempts to evade the
effects of Minnesota law and Prospect admittedly attempts to avoid Minnesota’s law
against champerty, we need not determine whether the district court erred in finding that
Prospect otherwise acted in bad faith. The district court’s well-reasoned analysis assures
us that the district court did not err in concluding that equitable principles favor maintaining
the suit in Minnesota.
DECISION
The district court did not abuse its discretion by refusing to enforce the forum-
selection clause in the parties’ agreement based on Minnesota’s local interest against
champerty. In addition, the district court properly applied the substantial-similarity test, as
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well as principles of comity and equity, and did not abuse its discretion by issuing an anti-
suit injunction enjoining Prospect from prosecuting its New York action against
Maslowski.
Affirmed.
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