Prohibition of Third-Party Cause-of-Action Purchases in Bankruptcy under Mississippi’s Champerty Statute

Introduction

This commentary examines Crabtree v. Allstate Property and Casualty Insurance Company, a May 15, 2025 decision of the Mississippi Supreme Court responding to a certified question from the Fifth Circuit. At issue was whether Mississippi’s champerty statute, Miss. Code Ann. § 97-9-11 (Rev. 2020), “allow[s] a creditor in bankruptcy to engage a disinterested third party to purchase a cause of action from a debtor.” The case arises from a tragic automobile accident involving Casey Cotton and Caleb and Adriane Crabtree, followed by Cotton’s bankruptcy and the Crabtrees’ effort as unsecured creditors to monetize Cotton’s potential bad-faith claim against his insurer, Allstate. When the Crabtrees engaged Court Properties, LLC to pay $10,000 for the bad-faith claim (with interest and repayment contingent on recovery), Allstate defended on grounds of champerty. The Fifth Circuit then sought state-law guidance. The Mississippi Supreme Court held that the plain text of § 97-9-11 prohibits such third-party purchases of a cause of action in bankruptcy proceedings.

Summary of the Judgment

The Mississippi Supreme Court answered the certified question in the negative. It ruled that § 97-9-11’s prohibition on “soliciting or accepting any…thing of value as an inducement…to prosecute further any proceeding” unambiguously bars a disinterested third party from purchasing a debtor’s cause of action at the behest of an unsecured creditor in bankruptcy. The Court emphasized:

Section 97-9-11 outlaws champertous transactions—i.e., arrangements that induce litigation by a stranger to the claim.
Section 97-9-23’s exception for “real parties in interest” (who have a substantive legal right to a claim) does not rescue a truly disinterested purchaser.
The Court limited its role to declaring the rule of state law, without resolving factual disputes (e.g., whether Court Properties was truly disinterested).

Accordingly, the certified question—“Does § 97-9-11 allow a creditor in bankruptcy to engage a disinterested third party to purchase a cause of action from a debtor?”—was answered: No.

Analysis

Precedents Cited

The Court drew principally on two lines of authority:

Sneed v. Ford Motor Co. (1999): Defined champerty as a stranger’s bargain to pursue another’s claim for a share of proceeds, and maintenance as officious intermeddling “to prosecute or defend” litigation. The Court of Appeals had found that a policy-limit settlement plus expense-funding by an insurer did not constitute champerty because the insurer had a “real and substantial interest” in allocating responsibility among tortfeasors.
Miss. Code Ann. §§ 97-9-15 & 97-9-17: Affidavit statutes requiring litigants and their attorneys to swear they have not offered or accepted any valuable consideration as an inducement to litigate—underscoring that inducement is the linchpin of champerty.
State ex rel. Carr v. Cabana Terrace, Inc. (1963) and Calhoun County v. Cooner (1928): Early decisions articulating the elements of officious intermeddling and the distinction between champertous bargains and permissible alliances among real parties in interest.

Legal Reasoning

The Court’s reasoning unfolded in three steps:

Plain‐Language Analysis: § 97-9-11 criminalizes any promise, offer or acceptance of “any…thing of value…as an inducement…to commence or prosecute further” litigation. The “inducement” element is essential: absent it, no champerty.
Exception for Real Parties in Interest: Under § 97-9-23, only those with a substantive legal right to a claim—“real parties in interest”—may employ counsel on a contingent basis. A disinterested third party, by definition lacking any pre-existing legal stake, falls outside this exception and thus cannot legitimately purchase the claim.
Limitation of Scope: As a certified‐question response, the Court confined itself to declaring state law, not applying it to the actual record. It did not decide whether Court Properties was disinterested or if the assignment was void, leaving those factual determinations to the Fifth Circuit.

Impact

This decision clarifies Mississippi law in several respects:

It reinforces § 97-9-11 as a substantive ban on third-party trafficking in causes of action, even where a bankruptcy creditor seeks to monetize a debtor’s potential claims.
It underscores the importance of the “inducement” element and the “real party in interest” exception, providing guidance to litigants and trustees structuring bankruptcy-era settlements.
It may chill certain third-party funding arrangements in personal-injury and other litigation, prompting parties to ensure that funders have a cognizable legal interest or risk voiding the transaction as champertous.
It invites reconsideration of litigation-funding models and assignment structures in Mississippi—particularly for claims carried in bankruptcy estates.

Complex Concepts Simplified

Champerty vs. Maintenance: Champerty is a subset of maintenance; both prohibit a stranger from meddling in a lawsuit for profit. Maintenance is “officious intermeddling” by someone who has no right to the litigation; champerty adds a profit-sharing component.
“Inducement” Element: Key to champerty is that the third party’s payment or promise must act as an inducement—“but for” that payment, the lawsuit would not proceed or would be abandoned.
Real Party in Interest: A person with an independent legal right to enforce the claim. Insurers, trustees or codefendants who stand to bear liability are “real parties” and may fund or settle claims without running afoul of the ban.
Certified Question Procedure: When a federal appellate court confronts an unclear state-law issue, it may “certify” a question to the state’s highest court, which answers the legal question without resolving underlying facts.

Conclusion

Crabtree v. Allstate establishes that Mississippi’s champerty statute, § 97-9-11, unambiguously prohibits a bankruptcy creditor from employing a truly disinterested third party to purchase a debtor’s cause of action. By reading the statute’s plain text and reinforcing the “real party in interest” exception, the Supreme Court of Mississippi has drawn a bright line against third-party trafficking in claims lacking any original stake in the litigation. The decision will guide trustees, creditors, funders and insurers in structuring bankruptcy-era settlements and underscore the continuing vitality of Mississippi’s historic ban on champerty and maintenance.