Assignment of Claims for Purpose of Suing on Them to Recover Damages Not Champertous

On March 1, 2023, Justice Crane of the New York County Commercial Division issued a decision in IKB Intl. S.A. v. Morgan Stanley, 2023 NY Slip Op. 30614(U), holding that an assignment of claims for the purpose of suing on them to recover damages was not champertous, explaining:

The ancient doctrine of champerty is codified in New York within Judiciary Law § 489. Under Judiciary Law § 489, no corporation shall solicit, buy or take 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. However, for an assignment of a claim to be void for champerty, the assignee must have made the purchase for the very purpose of bringing such suit to the exclusion of any other purpose. Thus, while assignments for the primary purpose of obtaining costs or harassment are void as champertous, assignments are not champertous where the intent to bring a suit is merely incidental and contingent to other rights.

. . .

Defendants have also failed to establish that the sole purpose for the 2012 Assignment was to profit off of litigation, to the exclusion of all other purposes. An assignment is not champertous merely because the parties enter into the assignment for the purpose of collecting damages, by means of a lawsuit. Rather, there is a key distinction between acquiring a right in order to make money from litigating it [champertous] and acquiring a right in order to enforce it [not champertous]. Here, Plaintiffs have provided evidence that they are still entitled to 80% of the future cash flows under the 2008 loan agreement with Rio because the loan was not paid off entirely-even though it was paid down almost in its entirety. Therefore, regardless of whether or not the 2012 Assignment’s primary purpose was litigation, Defendants have not provided sufficient evidence to establish that the sole purpose, to the exclusion of all other purposes, was to profit off of litigation. As such, Defendants have failed to establish that the 2012 Assignment is void as champertous.

(Internal quotations and citations omitted) (emphasis added).

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