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Maslowski v. Prospect Funding Partners LLC

Court of Appeals of Minnesota

February 13, 2017

Pamela Maslowski, Respondent,
Prospect Funding Partners LLC, Defendant, Prospect Funding Holdings LLC, Appellant.

         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.


         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.


          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.


         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 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:


         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.

         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 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 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]


         I. Did the district court abuse its discretion by refusing to enforce the forum-selection clause ...

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