An investment firm that agreed to buy distressed notes and hand over to the sellers most of the proceeds from litigation over the notes while keeping a share for itself may be engaged in champerty, a Manhattan commercial division judge has ruled, though she has ordered more discovery into the issue.
In an Aug. 15 ruling in Justinian Capital v. WestLB, 600975/10, Supreme Court Justice Shirley Kornreich (See Profile) ruled that if the plaintiff, Justinian Capital SPC, had bought distressed debt with the sole purpose of making mon-ey from litigation, the arrangement would be cham-perty under New York law. However, she said that there are “clearly questions of fact surrounding Justinian’s actual purpose and intent…that require further discovery to resolve.”
