IKB Int'l S.A. v. Stanley

207 N.Y.S.3d 488

225 A.D.3d 542

IKB INTERNATIONAL S.A. etc., et al., Plaintiffs–Respondents–Appellants,

v.Morgan STANLEY et al., Defendants–Appellants–Respondents.

Supreme Court, Appellate Division, First Department, New York.

Entered: March 26, 2024

David Polk & Wardwell LLP, New York (James P. Rouhandeh of counsel), for appellants–respondents.

McFerrin–Clancy LLC, New York (John J.D. McFerrin–Clancy of counsel), for respondents-appellants.

Manzanet–Daniels, J.P., Moulton, Scarpulla, Pitt–Burke, O’Neill Levy, JJ.

Order, Supreme Court, New York County (Melissa Crane, J.), entered on or about March 1, 2023, which, to the extent appealed from as limited by the briefs, denied, in part, defendants’ motion for summary judgment and held that (1) the relevant assignment of litigation claims was not champertous and (2) the applicable statute of limitations was that of New York and Luxembourg, rendering plaintiffs’ claims timely, and granted defendants’ motion for summary judgment dismissing the fraud and aiding and abetting fraud claims relating to purported misrepresentations about adherence to originator underwriting guidelines, unanimously affirmed, without costs.

[1] Defendants contend that they were entitled to summary judgment on their affirmative defense that the relevant assignment of litigation claims was void as champertous. While the question of an assignee’s intent and purpose as to the transfer of a claim is often factual, here, the court correctly dismissed the defense on summary judgment (see Fundo de Recuperação de Ativos–Fundo de Investimentos em Direitos Creditόrios Não Padronizados v. Ceagro Agrícola LTDA, 210 A.D.3d 585, 585–586, 180 N.Y.S.3d 4 [1st Dept. 2022]).

The doctrine of champerty is codified in New York within Judiciary Law § 489 (see Ehrlich v. Rebco Ins. Exch., Inc., 225 A.D.2d 75, 77, 649 N.Y.S.2d 672 [1st Dept. 1996], lv dismissed 89 N.Y.2d 1029, 658 N.Y.S.2d 244, 680 N.E.2d 618 [1997]). 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" (28 N.Y.3d 160, 166, 43 N.Y.S.3d 218, 65 N.E.3d 1253 [2016] [internal quotation marks omitted]).

[2, 3] 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 (see e.g. Trust for Certificate Holders of Merrill Lynch Mtge. Invs., Inc. Mtge. Pass–Through Certificates, Series 1999–C1 v. Love Funding Corp., 13 N.Y.3d 190, 200–201, 890 N.Y.S.2d 377, 918 N.E.2d 889 [2009]). 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" (Justinian, 28 N.Y.3d at 167, 43 N.Y.S.3d 218, 65 N.E.3d 1253 [internal quotation marks omitted]).

[4] The court also correctly found that champerty only prohibits the acquisition of a cause of action by a "stranger" to the underlying dispute (Richbell Info. Servs., Inc. v. Jupiter Partners, 280 A.D.2d 208, 216, 723 N.Y.S.2d 134 [1st Dept. 2001]). 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.

[5] The court correctly determined that it was not bound to apply the ruling in IKB Intl. S.A. v. Bank of Am. Corp. [In re Countrywide Fin. Corp. Martgage–Backed Sec. Litig.] (2015 WL 1650851, 2015 U.S. Dist. LEXIS 49465 [C.D. Cal., Feb. 23, 2015, No. 12–CV–06151–MRP (MANx)] (the Countrywide action) to this action under collateral estoppel principles, because the issues raised in the Countrywide action are not "identical" to the issues raised in this action (see Simmons v. Trans Express Inc., 37 N.Y.3d 107, 112, 148 N.Y.S.3d 178, 170 N.E.3d 733 [2021]). According to defendants, plaintiffs are collaterally estopped from claiming reliance on representations regarding collateral characteristics, such as loan-to-value ratios, because the California District Court found in the Countrywide action that plaintiffs and their investment managers did not actually rely on any representations about those characteristics when purchasing RMBS certificates. However, the certificates at issue here are indisputably different from the ones in the Countrywide action, and were issued by different defendants, with different alleged misrepresentations and offering documents. Further, while it is undisputed that the investment managers in both cases were the same, the testimony did not establish that they had used the same exact methodology in coming to their purchase decisions in both cases.

[6] The court properly determined that plaintiffs’ claims were not time-barred. Defendants’ argument that the court improperly and prematurely determined the statute of limitations issue on summary judgment is unavailing. Defendants sought leave before the motion court to submit supplemental briefing to argue the statute of limitations as an additional ground for summary judgment, which necessarily turned on whether plaintiffs’ claims had accrued in Germany or elsewhere, and, if the German statute applied, whether the claims would be time-barred. The court was thus called upon to determine the limitations issue. Further, CPLR 3212(b) permits a court to...