Plaintiff Elliott Associates, L.P. ("Elliott") has moved for summary judgment under Rule 56, Fed. R. Civ. P. against the defendants the Republic of Peru ("Peru") and Banco de la Nacion ("Banco"). For the reasons set forth below, the motion is denied at this time.
Elliott commenced these actions on October 18, 1996, to recover on certain agreements, the actions were removed to this Court, Elliott's motion for an attachment was denied as an exercise of discretion on December 12, 1996, and Elliott's instant motion for summary judgment was heard and considered fully submitted on February 5, 1997.
Facts and Background
The complicated background to this controversy was set forth in the opinion of December 12, denying Elliott's motion for prejudgment attachments and will not be repeated, but rather adopted as if set forth fully here. See Elliott Associates, L.P. v. Republic of Peru, 948 F. Supp. 1203, 1204-07 (S.D.N.Y. 1996). Certain additional matters relevant to the determination of this motion are noted below.
In the action brought by Pravin Banker Associates, Ltd. ("Banker") against Peru, raising many of the same issues underlying this proceeding, on December 23, 1996, the Honorable John Martin denied Banker's motion for execution upon the funds intended for the payment of interest under the Brady Agreement.
Some discovery in this action has been undertaken, and the defendants seek further discovery, principally relating to the role of Michael Strauss ("Strauss"), counsel to Elliott, pointing out that Strauss has been involved in the following cases involving the collection of sovereign debt: Allied Bank Int'l v. Banco Credito Agricola de Cartago, 757 F.2d 516 (2d Cir. 1985) (Strauss' client was the only bank refusing to participate in the Costa Rican refinancing agreement), cert. dismissed, 473 U.S. 934, 87 L. Ed. 2d 706, 106 S. Ct. 30 (1985); Banque de Gestion Privee-SIB v. La Republica de Paraguay, 787 F. Supp. 53 (S.D.N.Y. 1992) (Paraguay sovereign debt); Weston Compagnie de Finance et D'Investissement, S.A. v. La Republica del Ecuador, 823 F. Supp. 1106 (S.D.N.Y. 1993) (Order of attachment for Ecuador sovereign debt); Water St. Bank & Trust Ltd. v. Congo, No. 94-CV-1894 (S.D.N.Y) (Congo sovereign debt); Water St. Bank & Trust Ltd. v. Republic of Ivory Coast, No. 94 Civ. 2376 (S.D.N.Y.) (Ivory Coast sovereign debt); Water St. Bank & Trust Ltd. v. Polish People's Republic, No. 94 Civ. 02428 (S.D.N.Y.) (Polish sovereign debt); Water St. Bank & Trust Ltd. v. Republic of Poland, No. 95 Civ. 00042 (S.D.N.Y.) (Polish sovereign debt); Water St. Bank & Trust Ltd. v. Republic of Panama, 1995 U.S. Dist. LEXIS 1444 (S.D.N.Y. Feb. 8, 1995) (Panama sovereign debt); Water St. Bank & Trust Ltd. v. Banco Central del Ecuador & Republic of Ecuador, No. 95 Civ. 5253 (S.D.N.Y.) (Ecuador sovereign debt); Elliott Assocs., L.P. v. Republic of Panama, 1996 U.S. Dist. LEXIS 11973 (S.D.N.Y. Aug. 20, 1996) (Elliott was the only creditor to opt out of Panama's Brady Agreement); L.N.C. Invs., Inc. v. Republic of Zaire, No. 96 CV 5281 (S.D.N.Y.) (Zaire sovereign debt). With the exception of Allied, the plaintiffs in these actions, like Elliott here, were claimed to be secondary market purchasers of sovereign debt.
In addition, the defendants points out the delay between the trades of the debt obligations at issue here (which apparently began on January 31, 1996) and the closings of the assignments on April 12 and 19, after the Pravin decision in the Court of Appeals; a change in the price of the January 31 trade on April 12; a consistent price even though the trade tickets are dated weeks apart; a trade ticket dated March 1, 1996, for the purchase of $ 6,124,752.23 in debt of Banco Popular which was not implemented, suggesting the existence of an option which could be exercised after the Pravin decision.
In view of Strauss's involvement in previous purchases of sovereign debt on the secondary market, Defendants contend he was well aware of the elements of the champerty defense. Moreover, Elliott knew that Peru sought to defend the closing of the Brady Agreement by refusing to negotiate with individual creditors, and the defendants infer from this that Elliott's demand letters and requests for negotiations were not in good faith, but rather a ploy to counter an anticipated defense of champerty.
The defendants also note that to date Elliott has advanced no strategy other than litigation that would meet its profit goals, particularly since, according to the defendants, the Brady Agreement options represent the maximum return available in the secondary market. Elliott's demand for full payment from the outset, its threat of litigation and its rejection of proposals to resell the debt back to its assignors are alleged to support the inference that litigation was the only strategy which would reap the profit Elliott was pursuing.
Champertous Intent is an Issue of Material Fact
Section 489 of the N.Y. Judiciary Law, which the defendants claim Elliott has violated, provides that:
... no corporation or association, directly or indirectly, shall solicit, buy or take assignment ... of a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon.
In order to prove champerty, the defendant must demonstrate that the plaintiff acquired the claim for the "sole" or "primary" purpose of bringing suit. Elliott Assocs., 948 F. Supp. 1203 at 1208 (citing C.I.B.C. Bank & Trust Co. v. Banco Central de Brasil, 886 F. Supp. 1105, 1110 n.6 (S.D.N.Y. 1995). Such a determination of champertous intent is "decidedly fact-specific." C.I.B.C., 886 F. Supp. at 1111; see also Sprung v. Jaffe, 3 N.Y.2d 539, 544, 169 N.Y.S.2d 456, 147 N.E.2d 6 (1957) ("The question of the intent and purpose of the purchaser or assignee is generally one of fact to be decided by the trier of the facts."). Moses v. McDivitt, 88 N.Y. 62, 65 (1892); Fairchild Hiller Corp. v. McDonnell Douglas Corp., 28 N.Y.2d 325, 330, 321 N.Y.S.2d 857, 270 N.E.2d 691 (1971). Summary judgment is "ordinarily inappropriate where an individual's intent and state of mind are implicated. Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir. 1985).
The purpose of Section 489 is to "prevent the resulting strife, discord and harassment which could result from permitting . . . corporations to purchase claims for the purpose of bringing actions thereon . . . ." Banque de Gestion Privee, 787 F. Supp. at 56 (citing Fairchild Hiller, 28 N.Y.2d 325 at 329 (1971). In response to constitutional challenges to similar statutes, the United States Supreme Court has upheld a state's "'compelling' interest in preventing those aspects of solicitation that involve fraud, undue influence, intimidation, overreaching, and other forms of 'vexatious conduct.'" Ohralik v. Ohio State Bar Ass'n, 436 U.S. 447, 462, 56 L. Ed. 2d 444, 98 S. Ct. 1912 (1978).
According to Elliott's Reply Brief at page 7:
Champerty -- which originated in a medieval distrust of lawyers and litigation -- is never applied to defeat enforcement by a creditor acting to protect its ownership interests in an asset. Instead, champerty may in some cases provide a defense where the plaintiff [as] a "front" with no economic interest of its own in the asset, pursues litigation on behalf of a "stranger," and acts at such party's direction.