First Department Clarifies Limits of Champerty Claims

On March 26, 2024, the First Department issued a decision in IKB Intl. S.A. v. Morgan Stanley, 2024 NY Slip Op. 01675, clarifying the limits of champerty claims, explaining:

The 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 any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon. In Justinian Capital SPC v WestLB AG, N.Y. Branch, the Court of Appeals explained that to constitute the offense of champerty the primary purpose of the purchase must be to enable one to bring suit, and the intent to bring a suit must not be merely incidental or contingent.

On appeal, defendants essentially contend that any assignment of litigation claims — even when fashioned to protect an independent litigation right of the assignee — must necessarily be void. This is not the law. Rather, the champerty doctrine is intended to prevent opportunistic parties from profiting from litigation claims that otherwise would not have been brought — not preventing the assignment of legitimate claims to a party holding a beneficial interest in those claims to enforce its own rights. The critical distinction is between acquiring a thing in action in order to obtain costs and acquiring it in order to protect an independent right of the assignee.

The court also correctly found that champerty only prohibits the acquisition of a cause of action by a stranger to the underlying dispute. The evidence establishes that plaintiff IKB Deutsche Industriebank A.G. had an independent interest in pursuing the claims, and was not a stranger to the action. IKB A.G. owns 100% of plaintiff IKB International, S.A., the original purchaser of the assets, and was the assignor’s junior lender beginning in November 2008. Defendants’ reading of Justinian does not compel a different result.

(Internal quotations and citations omitted).

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