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Posted: September 1, 2014

Court Cites Champerty Law in Denying Motion to Substitute Parties

On August 19, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Melcher v. Greenberg Traurig LLP, 2014 NY Slip Op. 51296(U), citing New York’s champerty law in denying a motion to substitute parties.

In Melcher, the 74 year-old plaintiff in a Judiciary Law §487 action moved to substitute “a limited liability company, LJBD Recovery LLC (LJBD) for himself as plaintiff” on the ground that “the substitution will avoid delay in prosecuting the case in the event of his death.” The court denied the motion, explaining:

The doctrine of champerty developed to prevent or curtail the commercialization of or trading in litigation. The champerty statutes are intended to prevent the strife, discord and harassment that would be likely to ensue from permitting attorneys and corporations to purchase claims for the purpose of bringing actions thereon. However, in New York, the prohibition of champerty has always been limited in scope and largely directed toward preventing attorneys from filing suit merely as a vehicle for obtaining costs. When an assignment was made after litigation had already begun, courts have allowed a transfer of claims, but prohibited the addition of new claims. The proposed substitution, if allowed, would prejudice the defendants by shifting the risks of litigation to a shell entity, making plaintiff less accessible to discovery, and allowing Melcher, a non-party, to continue to direct the litigation through his alter ego and to collect and retain all of the relevant information and documents. The plaintiff’s rationale for the substitution, to allow the litigation to continue seamlessly in the event of his death, ignores that he is the sole owner and manager of the proposed substitute plaintiff. Plaintiff provides no rationale for how litigation would continue more smoothly with the sole owner and manager of LJBD deceased, than it would with an administrator appointed for a deceased plaintiff. Accordingly, the court declines the invitation to allow the substitution.

(Internal quotations and citations omitted) (emphasis added).

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