New York State Supreme Court Finds Litigation By Proxy Impermissible Under Ancient Champerty Doctrine

The New York State Supreme Court last week dismissed a lawsuit at the summary judgment stage in a rare instance of a U.S. court dismissing a case on the grounds of champerty.¹ The doctrine of champerty was "developed hundreds of years ago to prevent or curtail the commercialization of or trading in litigation."² Although champerty has been repealed in many states, New York continues to embrace the doctrine.³ The case, captioned Justinian Capital SPC v. WestLB AG, is an important one because it brings greater clarity to an obscure legal doctrine and the circumstances under which participants in the distressed debt market cannot transfer litigation rights.

BACKGROUND OF THE CASE

The case arose out of an investment by non-party bank, Deutsche Pfandbriefbank AG ("DPAG"), in two special purpose companies that were sponsored and managed by the defendants, WestLB AG and WestLB Asset Management (US) LLC (collectively, "WestLB").⁴ DPAG had purchased two series of mortgage