Assignment of Claims Regarding Defaulted Bonds Not Champertous

On December 28, 2023, Justice Crane of the New York County Commercial Division issued a decision in Cortlandt St. Recovery Corp. v. Hellas Telecommunications II, S.C.A., 2023 NY Slip Op. 34553(U), holding that the assignment of claims regarding defaulted bonds was not champertous, explaining:

The non-parties claim the assignment to Cortlandt is champertous and therefore void, because the primary purpose of the assignment was to allow Cortlandt to sue.on the notes. The champerty doctrine is codified in Judiciary Law § 489(1 ), that states in relevant part:

No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly, itself or by 9r 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 . . . .

Thus, champerty is a limited doctrine. It does not apply when the purpose of an assignment is the collection of a legitimate claim. It merely prohibits the purchase of securities or claims with the primary purpose of bringing a lawsuit.

Here, there is evidence in the record that Cortlandt obtained an assignment after Hellas II defaulted on the notes as a recovery corporation for the express purpose of enforcing the bonds. Cortlandt’s acquisition of these debt instruments for the purpose of enforcing them after the default by Hellas II is not champerty. Plaintiff argues the original noteholders made the assignments not to litigate, but instead to assert creditors’ claims in the UK insolvency proceedings.

Plaintiff points to the Sudwarts Witness Statement which states that because of the uncertain implications of a dissolution of Hellas II on the rights of Hellas II creditors to register their claims before the expiry of the statute of limitations, the Hellas II creditors concluded that they should file their proof of claims as soon as possible in the UK insolvency proceedings. Cortlandt was therefore created and utilized to facilitate that process, including by the bondholders assigning their rights to the newly formed company.

Certainly, filing claims in bankruptcy on behalf of creditors is not litigation. Here, more than likely we simply have investors attempting to recover notes purchased after a default, with an apparent plan to seek that recovery from other possibly responsible parties later.

Although the underlying noteholders remain anonymous, Hellas II is not crying champerty. Moreover, the nonparties have not even tried to intervene in this case. Considering the very same’ notes are before another court in Cortlandt II, this court sees no reason to prolong this case any further. Should the nonparties here who are actual defendants in Cortlandt II truly believe the assignments were made with a champertous purpose, they can raise their concern in that lawsuit.

(Internal Quotations and citations omitted).

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