agreements refer to plaintiff's right to initiate and conclude any negotiation or settlement on the Debt, as well as its right to initiate and conclude any action. (Pritchard Aff. Ex. 4 at 2) Moreover, the option agreements enable plaintiff to purchase the Debt outright within a 90-day period. Therefore, those agreements do not place plaintiff in the position of either suing on the Debt within the specified 90-day period, or retransferring it to the assignor. Consequently, neither the option nor the sharing agreements give rise to the inference that plaintiff acquired the Debt with the sole intention of suing on it.
Second, defendants claim that in the process of soliciting these assignments, Olivier Cizeron, a manager of plaintiff responsible for workouts and credit assessment, control, and management (Cizeron Dep. at 18-19), "made clear to the Assignors BGP's intent to bring suit against Paraguay and the Central Bank." (Def. Mem. at 15) However, the only support defendants have for this assertion is that Cizeron "admits that he informed [the Assignors] that BGP 'was ready, if necessary, to bring lawsuit' against Paraguay and the Central Bank in order to obtain payment." (Id. (quoting Cizeron Dep. at 134)) In fact, what Cizeron said was that he told the assignors "that he was expecting to receive payment on those notes but [he] was ready, if necessary, to bring lawsuit." However, even if Cizeron had not qualified his answer as he did, his statement that plaintiff was ready if necessary to sue is insufficient to establish champerty. This second argument too fails to create an inference of champerty because § 489 does not prohibit an assignee from forming an intent to sue if necessary to enforce rights acquired pursuant to the assignment. As stated above, the sharing agreements at hand authorize plaintiff to negotiate and/or settle as well as to initiate an action. Because contracts are construed to memorialize the intent of the parties at the time of contracting, see, e.g., Corbin, Corbin on Contracts § 538 (1952), the express language of the sharing agreements shows that plaintiff intended to resort to suit only if necessary. Simply being "ready if necessary" to sue if negotiations or settlement attempts failed, does not indicate that plaintiff's sole intent and purpose in acquiring the Debt was to bring suit. To the contrary, it demonstrates that plaintiff intended to sue only if forced to by defendants' refusal to settle its obligations. For over a century, New York courts have recognized that the law does not prohibit
discounting or purchasing bonds and mortgages and notes, or other choses in action, either for investment or for profit, or for the protection of other interests, and such purchase is not made illegal by the existence of the intent . . . at the time of the purchase, which must always exist in the case of such purchases, to bring suit upon them if necessary for their collection.
Moses, 88 N.Y. at 65. To find otherwise would permit defendants to create a champerty defense by refusing to honor their loan obligations. Section 489 does not compel such a perverse result.
Third, defendants claim that the course of events shows plaintiff "intended from the beginning to bring suit against defendants as soon as it collected a critical mass of assignments . . . ." (Id.) Defendants would like me to infer from the fact that plaintiff sought an order of attachment two weeks after it had executed the first assignment, by which point it had amassed assignments totalling approximately $ 20 million, that plaintiff's sole intent in acquiring the Debt was to bring suit on it. However, as discussed above, the express language of the sharing agreements indicates that plaintiff's intent to sue was merely incidental to its intent, in defendants' own words, to "profit by 'acquiring' LDC Debt at a deep discount and attempting to recover one hundred cents on the dollar . . ." (Def. Mem. at 16). Apparently, plaintiff intended to achieve this end in any of three ways -- negotiating, settling, or suing -- only one of which involved suing defendants. Defendants have offered no "solid circumstantial evidence," Clements, 835 F.2d at 1005, to call this conclusion into doubt.
The inference of champerty from the fact of this lawsuit is further attenuated by plaintiff's sale of two pieces of the Debt. First, in September 1991, plaintiff began negotiations with Societe Generale for the purchase of $ 3,021,548 face value worth of Hospital Agreement credits for 40% of face value. In October 1991, once plaintiff had an agreement in principal with Societe Generale, plaintiff began negotiations with Credit Commercial de France ("CCF") for the sale of those Hospital Agreement credits. Plaintiff ultimately effected both transactions, earning a 7% profit that amounted to $ 290,000. (See Douin Aff. PP18, 19) Second, on September 17, 1991, plaintiff agreed to purchase $ 3,579,905.32 face value worth of the Debt for 40% of face value from CCF; plaintiff and CCF entered an option agreement regarding this debt. In late September, CCF decided it did not wish to sell those pieces of debt. Plaintiff agreed to reverse the executory sales contract for 5% of the face value, earning $ 178,995,27 on this transaction. (Id. P22-23) Both of these transactions evidence plaintiff's profit motive with regard to the Debt. Defendants cannot argue that an inference of champerty arises from a course of conduct -- plaintiff's acquisition of the Debt and subsequent litigation -- and then exclude from its analysis the part of that same course of conduct that contradicts the inference: plaintiff's acquisition of and profit from a portion of the Debt without resort to litigation.
Defendants' only response to these transactions is that plaintiff acquired the first set of credits without a sharing agreement and that "there is convincing evidence concerning BGP's intent that points in the opposite direction [of a profit motive]." (Def. Rep. Mem. at 12) However, contrary to defendants' claim, the sharing agreements do not create an inference of champerty. Defendants appear to argue that the sharing agreements not only show that plaintiff's sole intention in soliciting the Debt was to sue on it, see supra pp. 6-7, but also that they prevent plaintiff from being the real party in interest with respect to the Debt. (Def. Mem. at 8-15, 24-27) However, plaintiff is the real party in interest under the sharing agreements because it is entitled to a percentage of profits on the Debt, not simply a flat management fee. Cf. Frank H. Zindle, Inc. v. Friedman's Express, Inc., 258 A.D. 636, 17 N.Y.S.2d 594, 594 (1st Dep't 1940) (finding plaintiff was not real party in interest because "its only interest in the assignment was to bring a suit thereon and to earn a fee from the proceeds in the event that the prosecution of the suit was successful"). Second, plaintiff is the real party in interest because the sharing agreements give plaintiff complete discretion to initiate and conclude any negotiation, settlement, or action on the Debt. (Pritchard Aff. Ex. 4 at 2) In addition, the sharing agreements coexisted with the option agreements, which gave plaintiff the right to purchase the Debt within a 90-day period for the dollar amount named in the relevant assignment. Moreover, the New York Court of Appeals has found that a sharing agreement between private parties on a cause of action does not violate § 489. See Fairchild Hiller, 28 N.Y.2d at 330.
Accordingly, plaintiff's motion for partial summary judgment is granted. Plaintiff is to settle a judgment as to Counts One and Four on ten days' notice.
Dated: New York, New York
February 24, 1992
Michael B. Mukasey,
U.S. District Judge