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Trust for the Certificate Holders of the Merrill Lynch Mortg. Investors v. Love Funding Corp.

Court of Appeals of New York

September 9, 2009, Argued; October 15, 2009, Decided

No. 123

Opinion

 [***378]  [**890]  [*195]  Pigott, J.

The United States Court of Appeals for the Second Circuit has certified [**891]  [***379]  to us questions relating to Judiciary Law § 489, New York's champerty statute. We hold that ] a corporation or association that takes an assignment of a claim does not violate Judiciary Law § 489 (1) if its purpose is to collect damages, by means of a lawsuit, for losses on a debt instrument in which it holds a preexisting proprietary interest.

  I.

Love Funding Corporation (Love Funding), a commercial mortgage-banking corporation,  [****2] entered into a Mortgage Loan Purchase Agreement (the Love MLPA) with Paine Webber Real Estate Securities Inc. (Paine Webber) on April 23, 1999. Under the Love MLPA, Love Funding originated mortgage loans, evaluating the borrowers and performing due diligence, while Paine Webber provided financing and was ultimately assigned the loans for securitization. Love Funding received a fee of 1% of the principal amount of each loan.

In the Love MLPA, Love Funding represented that the loans were not in default. Love Funding further promised that in the event it breached any representation or warranty, and upon prompt written notice, it would cure the breach or, at Paine Webber's option, repurchase the affected mortgage loan. Significantly, in section 9.14 (a) of the Love MLPA, Love Funding agreed to indemnify Paine Webber "from and against all demands, claims or asserted claims, liabilities or asserted liabilities, costs and expenses, including reasonable attorneys' fees, incurred . . . in any way arising from or related to any breach."

In July 1999, Love Funding made a $6.4 million loan to Cyrus II Partnership, secured by a mortgage on an apartment complex, the Arlington Apartments, in Harvey,  [****3] Louisiana (Arlington Loan). The loan was assigned to Paine Webber under the Love MLPA. As consideration, Love Funding received its 1% fee.

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13 N.Y.3d 190 *; 918 N.E.2d 889 **; 890 N.Y.S.2d 377 ***; 2009 N.Y. LEXIS 3862 ****; 2009 NY Slip Op 7323

 [1]  Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1, by and through ORIX Capital Markets, LLC, as Master Servicer and Special Servicer, Appellant, v Love Funding Corporation, Respondent.

Prior History: Proceeding, pursuant to NY Constitution, article VI, § 3 (b) (9) and Rules of the Court of Appeals (22 NYCRR) § 500.27, to review questions certified to the New York State Court of Appeals by the United States Court of Appeals for the Second Circuit. The following questions were certified by the United States Court of Appeals and accepted by the New York State Court of Appeals: "1. Is it sufficient as a matter of law to find that a party accepted a challenged assignment with the 'primary' intent proscribed by New York Judiciary Law § 489 (1), or must there be a finding of 'sole' intent? 2. As a matter of law, does a party commit champerty when it 'buys a lawsuit' that it could not otherwise have pursued if its purpose is thereby to collect damages for losses on a debt instrument in which it holds a pre-existing proprietary interest? 3. (a) As a matter of law, does a party commit champerty when, as the holder of a defaulted debt obligation, it acquires the right to pursue a lawsuit against a third party in order to collect more damages through that litigation than it had demanded in settlement from the assignor? (b) Is the answer to question 3 (a) affected by the fact that the challenged assignment enabled the assignee to exercise the assignor's indemnification rights for reasonable costs and attorneys' fees?"

Trust for the Certificate Holders of the Merrill Lynch Mortg. Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1 v. Love Funding Corp., 556 F3d 100, 2009 U.S. App. LEXIS 7643 (2d Cir. N.Y., 2009)

Disposition:  [****1] Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.27 of the Rules of Practice of the New York State Court of Appeals, and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified questions answered in accordance with the opinion herein.

CORE TERMS

champerty, costs, certified question, rights, settlement, Mortgage, demanded, default, lawsuit, loans, primary purpose, questions, acquire, damages, matter of law, mortgage loan, indemnification, certificates, warranties, answered, assigned, breached

Business & Corporate Law, Corporations, General Overview, Legal Ethics, Client Relations, Attorney Fees, Fee Agreements, Business & Corporate Compliance, Contracts Law, Contract Conditions & Provisions, Indemnity Clauses, Directors & Officers, Management Duties & Liabilities, Indemnification & Reimbursement