Doctrine of Champerty
What is the doctrine of champerty ?
The doctrine of champerty developed to prevent or curtail the commercialization of or trading in litigation. Merrill Lynch Mortgage Investors, Inc. v. Love Funding Corp., 13 N.Y.3d 190, 198, 918 N.E.2d 889, 890 N.Y.S.2d 377 (2009).
The doctrine is currently codified in Judiciary Law 488-89.
In pertinent part, Judiciary Law 489(1) provides "No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, ...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...."
Judiciary Law 488(1) applies a similar proscription to attorneys.
The statutes are directed at preventing the strife, discord, and harassment that would be likely to ensue from permitting attorneys or corporations to purchase claims for the purpose of bringing litigation.
The statutes, however, have been limited in scope to prevent attorneys from filing suit as a vehicle for obtaining costs. Merrill Lynch, 13 N.Y.3d at 199.
In Merrill Lynch, the Court of Appeals distinguished between one who acquires a right in order to make money from litigating it and one who acquires a right in order to enforce it. Id. at 201.
Accordingly, the champerty statute does not apply when the purpose of an assignment is the collection of a legitimate claim. Id.
The Merrill Lynch court further concluded that where the assignee has a pre-existing proprietary interest in a loan, champerty does not apply because the assignee is seeking to enforce a legitimate claim.