Opinion ID: 1464318
Heading Depth: 1
Heading Rank: 3

Heading: The New York Court of Appeals' Decision Effectively Rejects the District Court's Finding of Champerty

Text: New York's statutory prohibition against champerty states, in pertinent part: [N]o corporation or association, directly or indirectly, itself or by or through its officers, agents or employees, 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.... N.Y. Judiciary Law § 489(1). The district court found that the challenged assignment violated this statute because the Trust's primary purpose in accepting the Assignment was to buy a lawsuit against Love Funding. Trust v. Love Funding, 499 F.Supp.2d at 322. In answering our second certified question, however, the New York Court of Appeals clarified that such an intent to sue is insufficient, by itself, to violate the statute. As the Court of Appeals explained, New York's champerty statute does not apply when the purpose of an assignment is the collection of a legitimate claim. Trust v. Love Funding, 13 N.Y.3d at 201, 890 N.Y.S.2d at 383, 918 N.E.2d 889. Thus, if a party acquires a debt instrument for the purpose of enforcing it, that is not champerty simply because the party intends to do so by litigation. Id. at 200, 890 N.Y.S.2d at 382, 918 N.E.2d 889. Applying these principles to this case, the Court of Appeals concluded that if, as a matter of fact, the Trust's purpose in taking assignment of UBS's rights under the Love MLPA was to enforce its rights, then, as a matter of law, given that the Trust had a preexisting proprietary interest in the loan, it did not violate Judiciary Law § 489(1). Id. at 202, 890 N.Y.S.2d at 383, 918 N.E.2d 889. This effectively rejects the district court's finding of champerty.