Litigation funding raises issues of champerty, an arcane law dating back to feudalism that many states have abolished. Essentially champerty laws prohibit the buying and selling of lawsuits. Recently in New York, a case raised issues of champerty not in the context of litigation funding, but in the context of the assignment of claims in connection with the distressed debt and secondary loan market.
New York Judiciary Law Section 489(1) states in part that “no corporation or association … shall solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of … any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon.” A statutory safe harbor became effective in August 2004 to allow litigation rights to transfer from the creditor to the buyer of the debt.
