STATE OF MINNESOTA IN SUPREME COURT

March 30, 2017

Pamela Maslowski, Respondent, v. Prospect Funding Partners LLC, Defendant, and

Response opposing petition for review of decision of court of appeals Appellate Case No.: A16-0770 Court of Appeals Decision: February 13, 2017

Prospect Funding Holdings LLC, Petitioner.

Statement of Issues 1.

Did the district court abuse its discretion by refusing to enforce a

forum-selection clause where enforcing the clause would contravene Minnesota’s strong public policy that its courts should decide whether champertous agreements may be enforced in Minnesota? No. ADD001-18;1 see also ADD024-38, ADD039-45. 2.

Did the district court abuse its discretion when it granted an anti-

suit injunction by applying the facts to apposite law and equitable considerations? No. ADD018-23; see also ADD045-55.

Petitioner includes three non-precedential cases in its addendum. ADD058-88. Apparently, Petitioner does not rely on them because they are not cited in the petition or table of contents for the addendum. In any event, this Court, like the Court of Appeals, should give them no clout. 1

Review Is Not Warranted The issues of this case are important and stretch state-wide. However, review is not necessary because the Court of Appeals correctly relied on Minnesota and United States Supreme Court precedent, and correctly ruled on the issues in a published opinion so these issues are not likely to recur. Review is not necessary to clarify the law. The Court of Appeals followed Hauenstein2 and the cases it relies upon as Minnesota courts have for decades. The Court of Appeals also declined to follow and distinguished Fountain,3 which is not binding on the state courts of Minnesota.4 There are no published Minnesota appellate court opinions following Fountain so no confusion exists about the status of Minnesota law. This is the first time a Minnesota court has held that this particular strong public policy is a sufficient basis not to enforce a forum-selection clause. However, the rule in Hauenstein is not new. Minnesota’s policy not to enforce champertous agreements is no spring chicken either. See e.g. Huber v. Johnson, 68 Minn. 74, 77, 70 N.W. 806, 806-07 (1897). Minnesota’s public policy that its courts, applying its policies, should decide whether champertous agreements are enforceable in Minnesota is nearly as old as Huber. See Holland v. Sheehan, 122 N.W. 1, 1-3

Hauenstein & Bermeister, Inc. v. Met-Fab Indus., Inc., 320 N.W.2d 886 (Minn. 1982). 3 Fountain, et al. v. Oasis Legal Finc., LLC, 86 F.Supp.3d 1037 (D.Minn. 2015). 4 See e.g. Walsh v. U.S. Bank, N.A., 851 N.W.2d 598, 603 (Minn. 2014) (“declin[ing] to engraft the plausibility standard from Twombly and Iqbal onto our traditional interpretation of Minn. R. Civ. 8.01”). 2

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(Minn. 1909). The lower courts did not abuse their discretion by refusing to enforce this forum-selection clause and granting the injunction. Review is not warranted. Statement of the Case The Parties, the personal injury claim, and the agreement Respondent Maslowski is a Minnesota resident who was injured in car crash in March 2012. ADD002. To recover personal injury damages, Maslowski commenced a lawsuit. Id. Maslowski needed money for living expenses while her personal injury lawsuit was pending. Id. Petitioner is a litigation funding financier that enters into cash-advance agreements with Minnesotans from its Minnetonka office.5 See ADD002-3. Its form agreement provides that it purchases an interest in personal injury plaintiffs’ lawsuits and if a plaintiff does not recover, Petitioner is not entitled to any repayment. RADD. 1, RADD. 9. If a plaintiff does recover, she must repay Petitioner according to the agreement. RADD. 1, RADD. 9. The form agreement used to have forum-selection and choice-of-law clauses designating Minnesota. RADD. 14. However, on May 5, 2014, a Minnesota district court refused to enforce the agreement because it is champertous. RADD. 18-31. Petitioner did not appeal that decision. ADD034. Maslowski and Petitioner entered into an agreement on May 21, 2014. ADD002-3. In light of the holding that its agreement is champertous under

Petitioner claims it has an office in New York, but a picture is worth a thousand words. Compare RADD. 33 and 34 with RADD. 35. 5

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Minnesota law, Petitioner changed its choice-of-law and forum-selection clauses to designate New York instead of Minnesota. ADD002-4; RADD. 6-7. In all other respects, the Maslowski agreement is substantially identical to the earlier agreement. ADD024-35; compare RADD. 1-8 with RADD. 9-17. Maslowski commences this action while Petitioner proceeds in New York Maslowski commenced this Minnesota action seeking a declaration that the agreement is void because it is champertous. ADD004. Meanwhile, Petitioner commenced a New York action alleging contract, quasi-contract, and tort claims. See ADD019-21. Petitioner moved to dismiss Maslowski’s Minnesota action based on the forum-selection clause and equitable principles. ADD005. Shortly thereafter, Maslowski moved to dismiss Petitioner’s New York action under forum non conveniens. Id. The New York court denied Maslowski’s motion to dismiss. Id. While Petitioner’s motion to dismiss was pending in Minnesota, Maslowski moved the Minnesota court to enjoin Petitioner from further litigating in New York. Id. The Minnesota district court denied Petitioner’s motion to dismiss because: 

Minnesota recognizes a strong public policy not to enforce champertous agreements



Minnesota courts reaffirmed that strong policy recognized in 1897 as recently as 2004



A Minnesota district court recently refused to enforce one of Petitioner’s substantially identical agreements because it is champertous

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

Petitioner attempted an “end-around” Minnesota’s public policy against champerty via its choice-of-law and forum-selection clauses



Enforcing the forum-selection clause would effectively overturn Minnesota precedent dating back to 1897 without giving any Minnesota court a say



Enforcing the forum-selection clause would contravene Minnesota’s strong public policy that its courts should decide whether champertous agreements may be enforced in Minnesota

ADD005-6. Petitioner requested reconsideration. ADD006. Maslowski moved for judgment on the pleadings in her Minnesota action the same day Petitioner moved in New York to enjoin Maslowski from further litigating her Minnesota action. ADD006-7. The New York court granted Petitioner’s injunction. ADD006-7. The Minnesota district court denied Petitioner’s request for reconsideration and Maslowski’s motion for judgment on the pleadings, but granted Maslowski’s motion to enjoin Petitioner from further litigating the New York action. ADD007. In the injunction memorandum and order, the Minnesota district court found its action and the New York action have similar parties and issues, resolving the Minnesota action would dispose of the New York action, and principles of equity and comity favor Minnesota as the forum. ADD007.

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Petitioner and Maslowski appeal Petitioner appealed to the Minnesota Court of Appeals and Maslowski appealed to the New York Appellate Division. The New York Appellate Division reversed the lower court and dismissed Maslowski noting “[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.” ADD007 n.4. Petitioner moved for reargument or appeal to the New York Court of Appeals. Id. The New York Appellate Division denied that motion. RADD. 32. The Minnesota Court of Appeals held that the district court did not abuse its discretion in refusing to enforce the forum-selection clause because enforcing the clause is inconsistent with Minnesota’s local interest against champerty. ADD001. The Court of Appeals recognized that the Hauenstein rule, which relies on M/S Bremen, is broad enough to include Minnesota’s strong public policy that its courts should decide whether champertous agreements are enforceable in Minnesota. ADD008-18. The Court of Appeals held that the district court did not abuse its discretion by granting the injunction. ADD018-23. Recognizing that the district court correctly applied the three-part substantial-similarity test and principles of equity and comity, the Court of Appeals affirmed the district court. ADD018-23.

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Argument “Minnesota, as the justice-administering state, advances its governmental interest by providing access to its courts for its citizens and by considering its sociolegal policies as expressed by its legislature and courts.” Myers v. GEICO, 225 N.W.2d 238, 243 (Minn. 1974). Minnesota has a strong public policy in opening its courts to its citizens and applying its policies to those disputes. Id. Since 1897, Minnesota courts have consistently held that champertous agreements are not enforceable because they violate Minnesota public policy. Johnson v. Huber, 70 N.W. 806, 807-08 (Minn. 1897); Holland v. Sheehan, 122 N.W. 1, 2-3 (Minn. 1909); Hackett v. Hammel, 241 N.W. 68, 69 (Minn. 1932); Johnson v. Wright, 682 N.W.2d 671, 675-80 (Minn. App. 2004); review granted (Minn. Oct. 19, 2004) and appeal dismissed (Minn. Jan. 10, 2005); RADD. 18-31; ADD001-023. The Holland court recognized Minnesota’s strong public policy of having its courts apply its public policy to determine whether champertous agreements are enforceable in Minnesota. See Holland v. Sheehan, 122 N.W. 1, 1-3 (Minn. 1909). The Court explained that “[t]he term ‘public policy,’ as applied to this subject, is comprehensive, and covers a wide range, whether evidenced by the trend of legislation, judicial decisions, or the principles of the common law.” Id. at 3. Public policy “embraces all acts or contracts which tend clearly to injure the public health, the public morals, confidence in the purity of the administration of the law, or to undermine that sense of security for individual rights, whether personal

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liberty or private property, which every citizen has the right to feel.” Id. at 2 (internal quotation marks omitted). After comparing Minnesota’s public policy not to enforce champertous agreements with other states’ policies, the Court rejected the invitation to have Minnesota courts apply other states’ inconsistent public policies. Id. at 2-3. The Court did so because Minnesota “[p]ublic policy requires of courts of equity protection from unjust and unconscionable bargains, though no statutory authority be granted by legislation.” Id. at 2-3. Minnesota has a strong public policy of Minnesota courts, applying Minnesota public policy, to decide whether champertous agreements are enforceable in Minnesota. Id. at 2-3. The lower courts did not abuse their discretion by applying this public policy and refusing to enforce the forum-selection clause. Petitioner asks this Court to endorse its attempted end-around Minnesota public policy through its forum-selection and choice-of-law clauses. The lower courts correctly rejected this attempt because: 

the agreement is substantively identical to Petitioner’s champertous form-agreement;



Minnesota has strong public policies against champerty and for its courts deciding whether champertous agreements are enforceable in Minnesota; and



enforcing the forum-selection clause, under the facts of this case, would contravene these strong Minnesota public policies

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The lower courts correctly applied Minnesota forum-selection clause law. Hauenstein requires a forum to consider whether enforcing a forum-selection clause would contravene a strong public policy of the forum. To do this, the forum must consider what effect enforcing the clause will have on the forum’s strong public policies. If enforcing the clause would contravene one of the forum’s strong public policies, the forum has discretion not to enforce the clause. In order for a forum to determine what effect enforcing the clause would have on one of its strong public policies, depending on the facts of the case, the forum must consider the substance of the agreement and how the substance of the agreement effects the forum’s strong public policy. The lower courts did just that. They recognzied: Petitioner does business with Minnesotans from its Minnesota office. It has forum-selection and choice-oflaw clauses in its form agreement designating New York. Petitioner claims the purpose of these clauses is to ensure New York law applies to this agreement. The lower courts recognized that under the facts of this case and the differences in Minnesota and New York champerty public policies, enforcing the forum selection clause would contravene Minnesota’s strong public policy that its courts should decide whether champertous agreements may be enforced in Minnesota. The lower courts did not abuse their discretion in granting and affirming the anti-suit injunction. They correctly considered the equities and applied the law, holding that the paramount and threshold issue of whether the agreement is enforceable will resolve all of the claims in both actions. ADD018-23. The lower

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courts did not speculate about Petitioner’s motives because Petitioner clearly claims that the purpose of its forum-selection and choice-of-law clauses is to ensure New York law applies to this agreement instead of Minnesota. ADD022. Conclusion For the foregoing reasons, Maslowski respectfully requests the petition for further review be denied. SCHWEBEL, GOETZ & SIEBEN, P.A. Dated: March 30, 2017

By: /s/ Matthew J. Barber James R. Schwebel (#98267) James S. Ballentine (#209739) Matthew J. Barber (#397240) ATTORNEYS FOR THE RESPONDENT 5120 IDS Center 80 South Eighth Street Minneapolis, MN 55402-2246 Telephone: 612-377-7777 Fax: 612-333-6311 Email: [email protected] [email protected] [email protected]

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Certification of Brief Length I hereby certify that this brief conforms to the requirements of Minn. R. Civ. App. P. 117, subd. 3. The length of this brief is 1,972 words, excluding the caption, signature block, and addendum. This brief was prepared using Microsoft Word 2016. SCHWEBEL, GOETZ & SIEBEN, P.A. Dated: March 30, 2017

By: /s/ Matthew J. Barber Matthew J. Barber (#397240) ATTORNEYS FOR THE RESPONDENT 5120 IDS Center 80 South Eighth Street Minneapolis, MN 55402-2246 Phone: (612) 377-7777 Email: [email protected] Fax: 612-333-6311