Litigation Cost Sharing Agreements in Minnesota

What Is a Litigation Cost Sharing Agreement?

A litigation cost sharing agreement is a written contract in which two or more parties aligned in the same case agree who pays which shared expenses, in what proportion, and on what terms. Because no Minnesota statute addresses it, a court reads it like any other contract, so the words the parties sign set the rules.

The usual users are companies sued together by the same plaintiff (a manufacturer, its distributor, and an installer, for example), co-owners suing a former business partner, or affiliated companies caught in the same dispute. Each company can keep its own lawyer, in which case the agreement covers only what the group shares.

A cost sharing agreement differs from third-party litigation funding, where an outside investor pays a party’s costs in exchange for part of any recovery. In Maslowski v. Prospect Funding Partners LLC, 944 N.W.2d 235 (Minn. 2020), the Minnesota Supreme Court held that “Minnesota’s common law prohibition against champerty is abolished.” The same opinion noted that “district courts may still scrutinize litigation financing agreements to determine whether equity allows their enforcement.” Co-parties splitting their own expenses are paying for their own defense or claims, which is the arrangement this page covers.

What Costs Can Co-Parties Share in a Lawsuit?

Co-parties can share any expense that benefits all of them. Each company’s own lawyer stays that company’s own expense unless the parties agree otherwise or one lawyer represents several of them, a choice with its own rules covered below. The shared categories that come up in business cases include:

• Experts on a common issue, such as a damages expert answering the plaintiff’s lost-profits claim against every defendant.
• Electronic discovery, including one vendor, one review database, and one set of search terms and processing charges.
• Deposition costs, such as court reporter and transcript fees for depositions every party attends.
• Joint motions and briefs, where one lawyer drafts and the others review and sign on.
• Mediators, jury consultants, and trial technology used for the group.

Costs that serve only one party should stay with that party: its own lawyer, an expert on its own defenses, and any work on a claim against another member of the group. Before you agree to a share, a realistic budget for what a business lawsuit costs helps you judge whether the savings justify the coordination.

When one company pays the lawyer who represents another (a parent paying for a subsidiary’s lawyer, or a larger co-defendant covering a smaller one), Minn. R. Prof. Conduct 1.8(f) applies. “A lawyer shall not accept compensation for representing a client from one other than the client unless” the client gives informed consent or the payment is impliedly authorized, “there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship,” and client information stays protected under Rule 1.6. The rule’s comment lists “a co-client (such as a corporation sued along with one or more of its employees)” among typical payers. The paying company pays part of the bill, and under the rule that payment cannot come with interference in the lawyer’s independent professional judgment. The same rule governs a defense paid by a liability insurer, discussed with an insurer’s duty to defend.

How Should Co-Parties Divide the Shared Costs?

Co-parties can divide shared costs equally, by each party’s exposure in the case, or by different percentages for different cost categories. Each method works if the agreement states it precisely and keeps the cost formula separate from any question of fault.

1. Equal shares. Simple to administer and easy to audit. An equal split can feel unfair when one defendant faces most of the claimed damages.
2. Shares weighted by exposure. Each party pays in proportion to the damages claimed against it, or to an agreed estimate. This tracks risk more closely, and the percentages should be fixed in the agreement or tied to a stated formula so they are not renegotiated every month.
3. Category splits. Discovery costs split equally, while an expert who mainly helps two defendants is paid by those two. This fits cases where the parties’ needs diverge.

The cost formula should be kept separate from fault. Under Minn. Stat. § 604.02 subd. 1, “When two or more persons are severally liable, contributions to awards shall be in proportion to the percentage of fault attributable to each, except that the following persons are jointly and severally liable for the whole award.” The listed exceptions include “a person whose fault is greater than 50 percent,” “two or more persons who act in a common scheme or plan that results in injury,” a person who commits an intentional tort, and liability under certain environmental and public-health laws. The section applies to “claims arising from events that occur on or after August 1, 2003.” The statute works through percentages of fault, so it matters in cases where fault is apportioned, such as negligence claims. For product-liability claims, subdivision 3 adds that a person whose fault is less than the claimant’s is liable to the claimant only for the portion of the judgment matching its own percentage of fault.

A co-party’s finances matter beyond its cost share. Under § 604.02 subd. 2, on a motion that must be made within the time limit the subdivision sets after judgment is entered, “the court shall determine whether all or part of a party’s equitable share of the obligation is uncollectible from that party and shall reallocate any uncollectible amount among the other parties, including a claimant at fault, according to their respective percentages of fault.” The subdivision adds that “A party whose liability is reallocated is nonetheless subject to contribution and to any continuing liability to the claimant on the judgment.” In Staab v. Diocese of St. Cloud, 853 N.W.2d 713 (Minn. 2014), the Minnesota Supreme Court held “that a party who is severally liable under Minn.Stat. § 604.02, subd. 1, cannot be required to contribute more than that party’s equitable share of the total damages award through the reallocation-of-damages provision in Minn.Stat. § 604.02, subd. 2.”

Product-liability claims carry a separate reallocation rule in subdivision 3: “In the case of a claim arising from the manufacture, sale, use or consumption of a product, an amount uncollectible from any person in the chain of manufacture and distribution shall be reallocated among all other persons in the chain of manufacture and distribution but not among the claimant or others at fault who are not in the chain of manufacture or distribution of the product.” An insolvent co-defendant can leave you paying part of its share of the judgment if you are jointly and severally liable under subdivision 1, or are in the chain of manufacture and distribution in a product case, so in those cases its ability to pay is worth checking before you sign.

How Does the Common-Interest Doctrine Protect Shared Information?

The common-interest doctrine lets lawyers for separately represented co-parties share privileged communications and work product without waiving that protection, when six conditions are met. The Minnesota Supreme Court recognized the doctrine in Energy Policy Advocates v. Ellison, 980 N.W.2d 146 (Minn. 2022), holding that it “applies to prevent the waiver of the attorney-client privilege and the work-product doctrine.”

The privilege being protected comes from Minn. Stat. § 595.02 subd. 1(b): “An attorney cannot, without the consent of the attorney’s client, be examined as to any communication made by the client to the attorney or the attorney’s advice given thereon in the course of professional duty.” For how that privilege works for a company’s officers and employees, see attorney-client privilege inside a Minnesota company.

The court held that “in Minnesota, the common-interest doctrine applies when (1) two or more parties, (2) represented by separate lawyers, (3) have a common legal interest (4) in a litigated or non-litigated matter, (5) the parties agree to exchange information concerning the matter,” and (6) they make an otherwise privileged communication in furtherance of formulating a joint legal strategy. The case arose from a records request to the Attorney General’s Office under the Data Practices Act, but the court stated the test for Minnesota generally. Three limits matter for co-parties:

• The interest must be legal. “But a purely commercial, political, or policy interest is insufficient for the common-interest doctrine to apply.” I suggest keeping pricing, customer, and other business discussions out of the shared channel, because those topics risk being treated as a purely commercial interest.
• Each party needs its own lawyer. Co-parties sharing one lawyer are governed by the joint-representation rules in the next section.
• The burden is on the party claiming protection. The court held that “the party asserting the protection of the common-interest doctrine has the burden of proving its application.”

For these reasons, a cost sharing agreement should recite the parties’ common legal interest, record their agreement to exchange information, limit shared material to legal strategy, and require each party to mark shared documents and return or destroy them at the end. The same care applies to the documents each company must keep under its legal hold notices.

In federal court, Fed. R. Evid. 501 provides that “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” For federal claims, federal privilege law applies, and the Minnesota court noted that “Among the federal courts applying the common-interest doctrine is the Eighth Circuit, which has appellate jurisdiction over federal district courts in Minnesota.”

What Changes When Co-Parties Share One Lawyer?

One lawyer can represent several co-parties only if the lawyer reasonably believes the representation of each will be competent and diligent, each gives informed consent confirmed in writing, and none asserts a claim against another in the case. Sharing one lawyer can cut costs further, but the parties lose privilege protection against each other, as explained below.

The comment to Minn. R. Prof. Conduct 1.7 explains that “simultaneous representation of parties whose interests in litigation may conflict, such as coplaintiffs or codefendants, is governed by paragraph (a)(2),” which addresses a significant risk that one client’s representation will be materially limited by the lawyer’s duties to another. The same comment lists sources of conflict: differing testimony, incompatible positions toward the other side, and “substantially different possibilities of settlement.” The rule itself, Rule 1.7(b), requires that “the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client,” and sets two more conditions co-parties should check:

• No claims against each other. The representation may not involve “the assertion of a claim by one client against another client represented by the lawyer in the same litigation.” If one co-defendant has a cross-claim against another, a shared lawyer is not available.
• Written consent. Rule 1.7(b) requires that “each affected client gives informed consent, confirmed in writing.”

Confidentiality works differently with one lawyer. The rule’s comment, which guides interpretation without being the rule itself, states that “the prevailing rule is that, as between commonly represented clients, the privilege does not attach,” and continues: “Hence, it must be assumed that if litigation eventuates between the clients, the privilege will not protect any such communications, and the clients should be so advised.”

Settlement has its own rule. Under Minn. R. Prof. Conduct 1.8(g), “A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients unless each client gives informed consent in a writing signed by the client.” The disclosure must include “the existence and nature of all the claims involved and of the participation of each person in the settlement.” A group sharing one lawyer should expect that each member’s signed consent is needed before that lawyer takes part in a group settlement.

What Happens When One Co-Defendant Settles or Withdraws?

When one co-defendant settles, its obligations under the cost sharing agreement end only as the agreement provides, so the agreement should say what the settling party owes, what it keeps, and how the remaining parties redivide the costs. In Minnesota tort cases, a co-defendant may settle through a Pierringer release.

Frey v. Snelgrove, 269 N.W.2d 918 (Minn. 1978) was a personal-injury case in which two defendants settled during trial. The Minnesota Supreme Court stated: “The use of a so-called Pierringer release is in accord with Minnesota practice and our law of comparative negligence in tort actions.” Under that release, the plaintiff releases the settling defendants for their share of fault, keeps its claims against the others, and agrees to protect the settling defendants against the others’ contribution claims. The court explained the effect on the defendants who stay: “By the terms of this type of release the nonsettling defendant will never be required to pay more than his fair share as determined by the jury’s finding of comparative negligence.”

For the parties still in the case, a settlement changes the arithmetic of the cost split. The agreement should address:

• Costs already incurred. The settling party should pay its share of everything invoiced or committed through the settlement date.
• Shared work product. The remaining parties should keep the right to use experts, databases, and briefs the group paid for.
• Continued cooperation. The settling party’s witnesses and documents may still matter, so the agreement can require reasonable cooperation after settlement.
• Privileged material. The settling party should return or destroy shared privileged material, and remain bound by the confidentiality terms.
• Redivision. The agreement should state the new percentages for the remaining parties, or the formula that produces them.

A voluntary withdrawal without settlement deserves the same terms, plus a written notice period so the others can budget for the change.

Who Keeps Recovered Costs and Disbursements?

A party that wins in Minnesota district court can recover its reasonable disbursements and a small statutory cost award, so the agreement should say who applies for them and how any recovery is divided. Under Minn. Stat. § 549.04 subd. 1, “the prevailing party . . . shall be allowed reasonable disbursements paid or incurred.” Statutory costs are fixed by § 549.02 subd. 1: “To defendant: Upon discontinuance or dismissal or when judgment is rendered in the defendant’s favor on the merits, $200.” For a plaintiff, the same subdivision provides: “To plaintiff: (1) Upon a judgment in the plaintiff’s favor of $100 or more in an action for the recovery of money only, $200.” Neither section provides for attorney fees; whether fees shift is covered in whether a win reimburses your legal fees.

Recovery requires an application. Under Minn. R. Civ. P. 54.04(a), “Costs and disbursements shall be allowed as provided by law,” and under 54.04(b), “A party seeking to recover costs and disbursements must serve and file a detailed application for taxation of costs and disbursements with the court administrator, substantially in the form as published by the state court administrator.” The rule adds that “The application must be signed under oath or penalty of perjury pursuant to Minnesota Statutes, section 358.116,” and it must be served and filed by the deadline Rule 54.04(b) sets after entry of a final judgment as to the party seeking costs and disbursements. Rule 54.04(c) then sets a deadline after service of the application. By that deadline, any other party may “file written objections to the award of any costs or disbursements sought by any other party, specifying the grounds for each objection.” When several co-parties paid one vendor, I suggest deciding in advance which lawyer prepares the application and how the shared invoices are presented, because the application must be detailed, signed under oath or penalty of perjury, and able to withstand an objection.

I suggest dividing any recovery in proportion to what each party actually paid, because that returns money to whoever spent it. The agreement should also address the reverse: if costs and disbursements are taxed against the group, the same formula, or a different one the parties choose, should decide who pays them. In federal court, 28 U.S.C. § 1920 lists the costs a federal judge or clerk may tax.

What Terms Should a Cost Sharing Agreement Include?

A cost sharing agreement should name the parties and the case, define the shared costs, fix the split, and set rules for payment, default, withdrawal, settlement, privilege, and disputes. Each term below answers a question that otherwise gets answered mid-case, when the parties have the least patience for it.

1. Parties and scope. The agreement should identify each party, the case by court and file number, and whether related cases are included.
2. Shared cost categories. It should list what is shared and what each party pays alone.
3. The split. It should state the percentages or formula, and when and how they change.
4. Budget approval. Shared costs above a stated amount should need advance approval by all parties, or by a stated majority.
5. Invoicing and payment. One lawyer or vendor should invoice the group, with a stated payment period and a right to see supporting detail.
6. Default. The agreement should define a missed payment, suspend access to shared work during default, and allow recovery of the unpaid amount.
7. Withdrawal and settlement. It should require notice, payment through the exit date, and the terms in the section above.
8. Common interest and confidentiality. It should recite the common legal interest, the agreement to exchange information, and the handling of shared material at the end.
9. No admission and no waiver. It should state that no payment admits fault or liability, and that each party keeps its cross-claims and its rights to contribution and indemnity. Contract indemnity rights work differently from fault allocation, as explained with indemnification clauses in Minnesota contracts.
10. Separate representation. Each party should acknowledge that the other parties’ lawyers do not represent it.
11. Disputes about the agreement. A short mediation or arbitration clause keeps a billing dispute out of the main case.
12. Termination. The agreement should end at final judgment, settlement by all parties, or written agreement, with the confidentiality terms surviving.

Next Steps for Your Company

A cost sharing agreement works best when it is signed before the first shared invoice and before any privileged material changes hands, because the common-interest doctrine depends on proof that the parties agreed to exchange information for a joint legal strategy. The split itself is a business decision; the terms on privilege, settlement, and fault are where the Minnesota rules described above do the work. For how this fits into a larger case, see business litigation in Minnesota.

If you would like me to analyze a proposed cost sharing or common-interest agreement and tell you which terms leave your company exposed, email [email protected] with a brief description of the case and the parties involved. Please wait to send confidential case documents until I have confirmed there is no conflict of interest with the other parties.