Justinian Capital SPC, Appellant,v.WestLB AG,, et al., Respondents.

Brief

N.Y.September 14, 2016

To be Argued by: CHRISTOPHER M. PAPARELLA (Time Requested: 20 Minutes) APL-2015-00231 New York County Clerk’s Index No. 600975/10 Court of Appeals of the State of New York JUSTINIAN CAPITAL SPC for and on behalf of BLUE HERON SEGREGATED PORTFOLIO, Plaintiff-Appellant, – against – WESTLB AG, NEW YORK BRANCH, WESTLB ASSET MANAGEMENT (US) LLC and BRIGHTWATER CAPITAL MANAGEMENT LLC, Defendants-Respondents. BRIEF FOR DEFENDANTS-RESPONDENTS CHRISTOPHER M. PAPARELLA MARC A. WEINSTEIN SAVVAS A. FOUKAS SETH SCHULMAN-MARCUS HUGHES HUBBARD & REED LLP Attorneys for Defendants-Respondents One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 December 9, 2015 i CORPORATE DISCLOSURE STATEMENT WestLB AG, now known as Portigon AG, is a bank incorporated under German law, which is owned by the German State of North Rhine-Westphalia and by NRW.BANK (which is itself owned by the German State of North Rhine- Westphalia). WestLB AG’s subsidiaries are the following:  GOD Grundstücksverwaltungs GmbH;  Harrier Capital Management (Bermuda) Ltd.;  Portigon Europe (UK) Holdings Limited;  Portigon Finance Curaçao N.V.;  Portigon Financial Services GmbH;  Portigon International Services Limited;  Portigon Property Services Limited;  Portigon UK Limited;  Portigon Versorgungskasse GmbH;  Schloss Krickenbeck GmbH;  Treuhand-und Finanzierungsgesellschaft für Wohnungs-und Bauwirtschaft mit beschränkter Haftung, Treufinanz;  WestLB Asset Management (US) LLC; ii  West Treuhand-und Verwaltungsgesellschaft mbH;  WMB Leasing Seven Limited; and  WMB Leasing Ten Limited. WestLB AG’s affiliates are the following:  Garnet Real Estate LLC;  Indigo Holdco LLC;  Indigo Land Groveland LLC;  Indigo Land Majestic Bay LLC;  Indigo Land Mt. Dora Development LLC;  Indigo Land Northwood LLC;  Indigo Land Progresso Lofts, LLC;  Indigo Real Estate, LLC; and  WLB ASA Ethanol LLC. WestLB AG, New York Branch (now known as Portigon AG, New York Branch), is an unincorporated branch of WestLB AG and has no parent, subsidiaries, or affiliates. WestLB Asset Management (US) LLC is a wholly- owned subsidiary of WestLB AG and does not have any subsidiaries. Its affiliates are WestLB AG’s subsidiaries and affiliates. Brightwater Capital Management is an unincorporated division of WestLB AG and has no parent, subsidiaries, or affiliates. iii TABLE OF CONTENTS Page PRELIMINARY STATEMENT ............................................................................... 1 QUESTIONS PRESENTED ...................................................................................... 2 COUNTER-STATEMENT OF THE FACTS ........................................................... 3 The Base Purchase Price Is a Sham ................................................................. 3 Justinian Is Litigating Deutsche Pfandbriefbank’s Claims ............................. 6 This Litigation Was the Purpose of the Agreement ........................................ 9 Deutsche Pfandbriefbank Was Unwilling to Sue WestLB Directly ............. 10 Justinian’s Allegations of Misconduct by WestLB Are Specious ................ 12 ARGUMENT ........................................................................................................... 13 I. THE CHAMPERTY STATUTE’S SAFE HARBOR DOES NOT EXTEND TO A SHAM PURCHASE PRICE. ......................... 13 A. The Safe Harbor Does Not Protect a Sham. ............................. 14 B. The Safe Harbor Is for Buyers Who Actually Pay. .................. 15 II. THE AGREEMENT IS CHAMPERTOUS. ....................................... 17 CONCLUSION ........................................................................................................ 23 iv TABLE OF AUTHORITIES Page(s) CASES American Optical Co. v. Curtiss, 56 F.R.D. 26 (S.D.N.Y. 1971) ..................... 20, 21 Bank Hapoalim B.M. v. WestLB AG, New York Branch, Index No. 603458/2009 (Sup. Ct. N.Y. County Sept. 24, 2012), aff’d, 121 A.D.3d 531 (1st Dep’t 2014), leave to appeal denied, 24 N.Y.3d 914 (2015) ......... 13, 16 Bennett v. Supreme Enforcement Corp., 275 N.Y. 502 (1937) ............................... 19 BSC Assocs., LLC v. Leidos, Inc., 91 F. Supp. 3d 319 (N.D.N.Y. 2015) ................ 20 Chartis Specialty Ins. Co. v. Queen Anne HS, LLC, 867 F. Supp. 2d 1111 (W.D. Wa. 2012) ................................................................................................. 15 Ehrlich v. Rebco Ins. Exch., Ltd., 225 A.D.2d 75 (1st Dep’t 1996) .................. 18, 20 Fairchild Hiller Corp. v. McDonnell Douglas Corp., 28 N.Y.2d 325 (1971) ........ 21 Frank H. Zindle, Inc. v. Friedman’s Express, Inc., 258 A.D. 636 (1st Dep’t 1940) ............................................................................................................. 19, 20 Hospital Credit Exch., Inc. v. Shapiro, 186 Misc. 658 (Mun. Ct. N.Y. County 1946) ...................................................................................................... 20 Justinian Capital SPC v. WestLB AG, 128 A.D.3d 553 (1st Dep’t 2015) ........passim Justinian Capital SPC v. WestLB AG, New York Branch, 43 Misc. 3d 598 (Sup. Ct. N.Y. County 2014) .......................................................................passim Justinian Capital SPC v. WestLB AG, New York Branch, 37 Misc. 3d 518 (Sup. Ct. N.Y. County 2012) .............................................................................. 13 Long v. Adirondack Park Agency, 76 N.Y.2d 416 (1990) ....................................... 14 Long v. State, 7 N.Y.3d 269 (2006) ......................................................................... 14 People v. Santi, 3 N.Y.3d 234 (2004) ................................................................ 14, 15 TABLE OF AUTHORITIES (Continued) Page(s) v Refac Int’l, Ltd. v. Lotus Dev. Corp., 131 F.R.D. 56 (S.D.N.Y. 1990) ................... 20 Tompkins County Support Collection Unit ex rel. Chamberlin v. Chamberlin, 99 N.Y.2d 328 (2003) .............................................................. 15, 16 Trust for the Certificate Holders of the Merrill Lynch Mortg. Invs., Inc. Mortg. Pass-Through Certificates, Series 1991-C1 v. Love Funding Corp., 13 N.Y.3d 190 (2009) ........................................................................ 18, 22 Vollmer v. Automobile Fire Ins. Co. of Hartford, Conn., 207 A.D. 67 (3d Dep’t 1923) ......................................................................................................... 15 Wightman v. Catlin, 113 App. Div. 24 (2d Dep’t 1906) ......................................... 22 STATUTES AND RULES CPLR 5501 ............................................................................................................... 21 N.Y. Const. Art. 6, § 3 ............................................................................................. 21 N.Y. Judiciary Law § 489 .................................................................................passim PRELIMINARY STATEMENT The Base Purchase Price in Justinian’s Agreement with Deutsche Pfandbriefbank is a sham designed to feign compliance with the safe harbor provision of New York’s champerty statute. Payment of the Base Purchase Price was “due” more than five years ago, on September 1, 2010, yet Justinian has never paid it and Deutsche Pfandbriefbank has never demanded it. Deutsche Pfandbriefbank knew when it signed the Agreement that Justinian was a shell company with no funds to pay the Base Purchase Price. Deutsche Pfandbriefbank agreed it would have no remedy for non-payment. Justinian’s failure to pay is not a default or even a breach of the Agreement. And even if it were, Deutsche Pfandbriefbank’s recourse is limited to the Blue Heron notes, a remedy that, if utilized, would destroy the whole purpose of the Agreement. WestLB submits that, in such circumstances, the Appellate Division correctly held the Agreement was not within the champerty statute’s safe harbor. The Appellate Division was also correct in finding that the Agreement violated the champerty statute because the purpose of the Agreement was to enable Justinian to pursue this litigation for Deutsche Pfandbriefbank. Deutsche Pfandbriefbank owns 85% of Justinian’s claims. Deutsche Pfandbriefbank has a first priority security interest in the Blue Heron notes, which are held in a bank lockbox for the benefit of Deutsche Pfandbriefbank and may not be removed, 2 transferred, or encumbered by Justinian without Deutsche Pfandbriefbank’s consent. Any proceeds Justinian obtains from WestLB are also subject to Deutsche Pfandbriefbank’s security interest and must be deposited in the bank lockbox. Justinian has paid nothing for the Blue Heron notes. Deutsche Pfandbriefbank hired Justinian to be its fig leaf in exchange for a contingent fee of 15% of any proceeds recovered from WestLB because Deutsche Pfandbriefbank feared that if it sued WestLB directly, the German government, which was supporting both banks and owned part of WestLB, would cut off Deutsche Pfandbriefbank’s government funding. New York courts have repeatedly held this kind of “hunting license” arrangement to be champertous. QUESTIONS PRESENTED (1) In affirming the Supreme Court’s decision below, did the Appellate Division correctly hold that New York Judiciary Law section 489(2)’s safe harbor provision does not protect an assignment with a sham purchase price that was never paid? Yes. The Appellate Division correctly held that an agreement with an unpaid sham “purchase price” is not within the champerty statute’s safe harbor. (2) In affirming the Supreme Court’s decision below, did the Appellate Division correctly hold that Deutsche Pfandbriefbank’s assignment of its claims and Blue Heron notes to Justinian was champertous where Deutsche 3 Pfandbriefbank retained ownership of 85% of the claims and Justinian’s only interest was a 15% contingent fee? Yes. The Appellate Division correctly held that an assignment is champertous where its purpose is for the assignee to earn fees from enforcing the assignor’s rights rather than its own. COUNTER-STATEMENT OF THE FACTS The Base Purchase Price Is a Sham Justinian mischaracterizes the Appellate Division’s decision as finding that Justinian has a binding obligation to pay the $500,000 per note tranche Base Purchase Price. (Justinian Br. 4, 17.) In fact, the Appellate Division correctly found that the Base Purchase Price was a “mere recitation.” Justinian Capital SPC v. WestLB AG, 128 A.D.3d 553, 554 (1st Dep’t 2015) (“Justinian I”); (A8)1. The Base Purchase Price is a sham concocted by Justinian and Deutsche Pfandbriefbank to create the false impression that the Agreement was within the champerty statute’s safe harbor. Despite the fact that the Agreement states that the Base Purchase Price was “due” on September 1, 2010, Justinian has never paid it, and Deutsche Pfandbriefbank has never demanded it. Justinian I, 128 A.D.3d at 554; Justinian 1. References to “A” are to the Appendix. 4 Capital SPC v. WestLB AG, New York Branch, 43 Misc. 3d 598, 601 (Sup. Ct. N.Y. County 2014) (“Justinian II”); (A7, A16, A194 (Agreement § 1.1), A199 (Agreement § 3.1.2), A263, A267). Deutsche Pfandbriefbank knew when it signed the Agreement that Justinian was a shell company with no funds to pay the Base Purchase Price. Justinian I, 128 A.D.3d at 555; Justinian II, 43 Misc. 3d at 601; (A9, A16, A285, A398). Consistent with the bogus nature of the Base Purchase Price, Deutsche Pfandbriefbank stipulated that Justinian’s failure to pay was not an Event of Default under the Agreement. (Compare A199 (Agreement § 3.1.2), with A205 (Agreement § 9.1).) Justinian’s principal, Tom Lowe, testified that Justinian’s failure to pay the Base Purchase Price was not even a breach of the Agreement. (A267-68.) Even if Justinian’s failure to pay were a breach or default, Deutsche Pfandbriefbank had no remedy. Justinian is a shell company, and Deutsche Pfandbriefbank agreed to limit its recourse for a default or breach to the Blue Heron notes. Justinian I, 128 A.D.3d at 555; (A9, A198 (Agreement §§ 2.1, 2.2), A205-06 (Agreement § 10.1), A424-25, A460-61). This is not a viable remedy. If Deutsche Pfandbriefbank seizes the Blue Heron notes, Justinian would not be able to maintain this action and the entire purpose of the Agreement would be defeated. (See A198 (Agreement §§ 2.1, 2.2), A205-06 (Agreement § 10.1), A460-61.) Mr. Lowe conceded that Deutsche Pfandbriefbank would never attempt to exercise 5 its purported rights against Justinian because doing so “would cripple its ability to get anything” from this litigation. (A461.) The Base Purchase Price was not based on any assessment of the value of the Blue Heron notes. (A266; see A285.) It simply was the minimum amount provided in Judiciary Law section 489(2). In their correspondence and internal memoranda, Justinian and Deutsche Pfandbriefbank candidly acknowledged that the Base Purchase Price was a sham. Mr. Lowe confessed to Deutsche Pfandbriefbank’s chief negotiator, Tom Glynn, that “in reality” the Base Purchase Price would be paid only if there was a recovery from WestLB. (A383.) Mr. Lowe called it “a hurdle rate for us payable out of the recovery” and said it was only recited in the Agreement to “get into the safe harbour on NY champerty.” (Id.; see also A379-80.) Likewise, Deutsche Pfandbriefbank’s management reported internally that Justinian had no duty to pay the Base Purchase Price unless there were a recovery from WestLB. Mr. Glynn wrote to his colleagues that Justinian’s failure to pay the Base Purchase Price was not a “default event” and that Justinian’s failure to pay merely increased the amount of Deutsche Pfandbriefbank’s share of any recovery from WestLB. (A398; see A200-01 (Agreement § 5.2(b)).) Because there was no genuine obligation to pay the Base Purchase Price, Deutsche Pfandbriefbank’s accounting department determined not to include the Base Purchase Price as an 6 asset or receivable in the bank’s accounts, balance sheet, and profit or loss statements. (A397.) Justinian Is Litigating Deutsche Pfandbriefbank’s Claims Justinian’s argument that it is pursuing a legitimate claim based on its own rights is spurious. (See Justinian Br. 33-36.) Under the Agreement, Deutsche Pfandbriefbank owns 85% of any proceeds recovered by Justinian from WestLB. (A200-01 (Agreement § 5.2(b)).) Deutsche Pfandbriefbank’s 85% interest in the case is protected in a variety of ways. The Blue Heron notes are locked up in a Canadian Imperial Bank of Commerce account for Deutsche Pfandbriefbank’s benefit. Justinian II, 43 Misc. 3d at 607; (A23, A217-18 (Agreement, Schedule 1)). The Blue Heron notes may not be removed from the account without Deutsche Pfandbriefbank’s consent. (A199 (Agreement § 4.1), A217-18 (Agreement, Schedule 1)). Deutsche Pfandbriefbank has a perfected first priority security interest in the Blue Heron notes, as well as any proceeds recovered from WestLB. Justinian II, 43 Misc. 3d at 607; (A23, A203 (Agreement §§ 7.1-7.3)). Justinian may not transfer or encumber the Blue Heron notes without Deutsche Pfandbriefbank’s consent. (A199-200 (Agreement §§ 4.1-4.3), A203 (Agreement §§ 7.1-7.4), A217-18 (Agreement, Schedule 1).) 7 Justinian must deposit any proceeds recovered from WestLB into the Canadian Imperial Bank of Commerce lockbox account and cannot remove them without Deutsche Pfandbriefbank’s consent. (A200-01 (Agreement § 5.2(b)), A219 (Agreement, Schedule 2).) Justinian’s law firm committed to Deutsche Pfandbriefbank to ensure that Justinian deposits any proceeds received from WestLB into the Canadian Imperial Bank of Commerce lockbox account. (A203 (Agreement § 7.4), A219 (Agreement, Schedule 2).) Deutsche Pfandbriefbank had the right to settle with WestLB for the first six months after purportedly selling its claims to Justinian. (A204 (Agreement § 8.6).) Justinian cannot settle with WestLB over Deutsche Pfandbriefbank’s objection without obtaining an opinion from its litigation counsel that the proposed settlement is reasonable. (A203-04 (Agreement §§ 8.1, 8.3, 8.4).) If Justinian receives such an opinion and proceeds with the settlement over Deutsche Pfandbriefbank’s objection, Deutsche Pfandbriefbank can sue Justinian for damages. (A464.) Justinian must notify Deutsche Pfandbriefbank if it changes law firms. (A203 (Agreement § 7.4).) Justinian may only use law firms listed in the National Law Journal top 250 or American Lawyer top 200. (Id.) By contrast, Justinian has paid nothing for the Blue Heron notes and associated rights. Justinian I, 128 A.D.3d at 554-55; Justinian II, 43 Misc. 3d at 8 601; (A7, A16, A263, A267). Justinian’s sole interest in this action is a 15% contingent fee that will be paid only if there is a recovery and only after its lawyers receive their 25% contingent fee and Deutsche Pfandbriefbank receives its 85% share of the proceeds. Justinian I, 128 A.D.3d at 553; (A7, A200-01 (Agreement § 5.2(b)), A263). The Agreement is consistent with the deceptive scheme Justinian had promoted to Deutsche Pfandbriefbank from the beginning. In a presentation Justinian developed for Deutsche Pfandbriefbank, it touted itself as a specialist in litigating for clients who did not wish to sue in their own names. (See A310-25.) Justinian offered to act as Deutsche Pfandbriefbank’s straw man by taking an assignment of the claims and suing WestLB in its own name in exchange for a modest contingent fee. Justinian I, 128 A.D.3d at 555-56; (A10, A271-72, A310- 25, A379-80). Justinian promised that, notwithstanding their assignment, Deutsche Pfandbriefbank would retain true ownership and control of its Blue Heron notes and claims and would receive the lion’s share of any recovery. See Justinian I, 128 A.D.3d at 555; (A10, A317, A379-80, A200-01 (Agreement § 5.2(b))). Justinian emphasized that Deutsche Pfandbriefbank would have the “benefit of complete confidentiality” and that Deutsche Pfandbriefbank’s “involvement need not be exposed by the strategy.” (A317.) Messrs. Lowe and Glynn explained in their depositions that by confidentiality they meant that Deutsche Pfandbriefbank would 9 not be the named plaintiff in the lawsuit against WestLB and its true interest in the case would not be disclosed. (See A452-54, A505, A512-13.) This Litigation Was the Purpose of the Agreement Justinian has made no claims against the Blue Heron entities which are the obligors on the notes, and Justinian has no expectation of any payment under the Blue Heron notes. (See A653-55.) The only purpose of the Agreement was to permit Justinian to sue WestLB on Deutsche Pfandbriefbank’s behalf. Justinian promised Deutsche Pfandbriefbank that it would immediately sue WestLB and, only then, would it invite WestLB to mediate its claims. (A377.) Indeed, Justinian sued WestLB only three days after the Agreement became effective, without ever engaging in any settlement discussions. (See A28-30, A190-91, A523-24.) Discovery did not reveal a single document in which Justinian or Deutsche Pfandbriefbank discussed any means of pursuing claims against WestLB other than through litigation. Justinian and Deutsche Pfandbriefbank discussed their arrangement solely as a means to sue WestLB. (E.g., A377.) Deutsche Pfandbriefbank received nothing of value under the Agreement aside from Justinian’s service as a proxy in exchange for the agreement to pay Justinian 15% of any proceeds received from WestLB. This is a New York litigation. (See A28-30, A209 (Agreement § 17.1).) Justinian is a Cayman Islands shell company run by an English-trained lawyer who resides in the Cayman 10 Islands. Justinian I, 128 A.D.3d at 554; (A7, A36 ¶ 13, A138, A420, A424). Apart from concealing Deutsche Pfandbriefbank’s role, Justinian was not in a position to provide Deutsche Pfandbriefbank with any service of value in this action. Deutsche Pfandbriefbank Was Unwilling to Sue WestLB Directly The evidence completely supports the Appellate Division’s finding that Deutsche Pfandbriefbank would not have sued WestLB directly. See Justinian I, 128 A.D.3d at 555-56; (A10-11). Deutsche Pfandbriefbank never wrote a demand letter, never hired a law firm to sue WestLB, never prepared a complaint, and never took any other steps to litigate its alleged claims. Indeed, by the time Deutsche Pfandbriefbank and Justinian signed the Agreement, the pertinent statutes of limitations were set to expire. (See A190-219, A521-22, A655-56.) Instead, Deutsche Pfandbriefbank agreed to pay Justinian, a shell company run by an English-trained lawyer, a contingent fee of 15% of any recovery to conceal its involvement in the claims against WestLB. Justinian I, 128 A.D.3d at 554; (A7, A36 ¶ 13, A138, A200-01 (Agreement § 5.2(b)), A310-25, A420, A424). Contrary to Justinian’s assertions, Deutsche Pfandbriefbank never obtained final approval from its board to sue WestLB directly. (Justinian Br. 30-31.) Deutsche Pfandbriefbank’s board initially authorized management to explore options, including a direct suit against WestLB, but when Mr. Glynn thereafter 11 sought final approval either to engage Justinian or to sue WestLB directly, Deutsche Pfandbriefbank’s board gave final approval only to using Justinian as a proxy. (See A305, A374, A515, A520, A558-72.) Deutsche Pfandbriefbank subcontracted this litigation to Justinian because it feared that if it sued WestLB in its own name, the German government, which was providing financial support to both banks and owned part of WestLB, might object and cut off Deutsche Pfandbriefbank’s financial support. Justinian I, 128 A.D.3d at 553; Justinian II, 43 Misc. 3d at 600; (A7, A15). Deutsche Pfandbriefbank also worried that suing WestLB directly would jeopardize its “future lines with non- German entities,” “[bring] unwanted” attention to Deutsche Pfandbriefbank, cause it to suffer reputational risk, and damage its relationship with WestLB. Justinian II, 43 Misc. 3d at 600; (A15, A327, A329, A351, A374). That Deutsche Pfandbriefbank would not have sued in its own name is also demonstrated by Justinian’s attempt to mask Deutsche Pfandbriefbank’s involvement. Justinian did not even mention Deutsche Pfandbriefbank’s name, let alone its 85% interest in this action, in the Complaint or subsequent court filings. See Justinian II, 43 Misc. 3d at 600-01; (A16, A31-105). Justinian misleadingly alleged that it was the “successor in interest” to the “original purchasers” of the Blue Heron notes and owned the Blue Heron notes “along with all attendant rights, claims, and/or causes of actions.” (A44 ¶ 33.) In subsequent court papers, 12 Justinian continued to insist that it had all right and title to the Blue Heron notes; it made no mention of Deutsche Pfandbriefbank’s 85% interest in the case, Deutsche Pfandbriefbank’s security interest in the Blue Heron notes, and Deutsche Pfandbriefbank’s other controls over the Blue Heron notes and claims. (See, e.g., A140; see generally A190-219 (Agreement).) Deutsche Pfandbriefbank’s true interest in this litigation only came to light in May 2011 when the Supreme Court ordered Justinian to produce the Agreement. (A169-72, A190-219.) Even then, Justinian continued its disinformation campaign. Justinian told the Supreme Court that it had acquired the Blue Heron notes for a purchase price of $500,000 per note tranche, without disclosing that it had not paid a penny of this purchase price and had no means to do so. (A190-91.) Justinian’s Allegations of Misconduct by WestLB Are Specious While not relevant to this appeal, Justinian’s allegations that WestLB engaged in misconduct designed to destroy the Blue Herons are not credible. (Justinian Br. 2, 6-9.) WestLB had a $2.2 billion investment in the Blue Heron senior Class A notes, which it lost when the vehicles collapsed. (See A41 ¶ 24, A42 ¶ 26.) WestLB’s investment in the Blue Herons was far greater than the $209 million that Deutsche Pfandbriefbank had invested in the subordinated Class B notes. (A32 ¶ 2, A38-39 ¶ 20, A41-42 ¶¶ 24-26.) It is inconceivable that WestLB would intentionally destroy its own $2.2 billion investment. 13 Justinian asserted nearly identical claims against WestLB in a related action concerning other investment vehicles called Harrier and Kestrel that were dismissed with prejudice on the merits. See Bank Hapoalim B.M. v. WestLB AG, New York Branch, Index No. 603458/2009 (“Bank Hapoalim”) (Sup. Ct. N.Y. County Sept. 24, 2012) (NYSCEF Doc. No. 117), aff’d, 121 A.D.3d 531 (1st Dep’t 2014), leave to appeal denied, 24 N.Y.3d 914 (2015). WestLB moved to dismiss Justinian’s claims in this action on the same grounds as in Bank Hapoalim. That motion was held in abeyance by the Supreme Court below when it dismissed this action on champerty grounds. See Justinian Capital SPC v. WestLB AG, New York Branch, 37 Misc. 3d 518, 519 (Sup. Ct. N.Y. County 2012). ARGUMENT I. THE CHAMPERTY STATUTE’S SAFE HARBOR DOES NOT EXTEND TO A SHAM PURCHASE PRICE. The champerty statute’s “safe harbor,” which the New York State Legislature adopted in 2004, provides in relevant part: [T]he provisions of subdivision one shall not apply to any assignment, purchase or transfer hereafter made of one or more bonds . . . or other things in action, or any claims or demands, if such assignment, purchaser or transfer included bonds . . . issued by or enforceable against the same obligor (whether or not also issued by or enforceable against any other obligors), having an aggregate purchase price of at least five hundred thousand dollars . . . . N.Y. Judiciary Law § 489(2) (emphasis added). 14 Justinian’s argument that merely reciting a $500,000 purchase price puts an agreement in the safe harbor has no support in Judiciary Law section 489(2), its legislative history, or common sense. The Appellate Division correctly found that Justinian’s interpretation would produce an absurd result because it would “effectively do away with [the prohibition against] champerty in New York.” Justinian I, 128 A.D.3d at 554; (A8). A. The Safe Harbor Does Not Protect a Sham. Justinian’s argument that the champerty statute’s safe harbor is “clear on its face” (Justinian Br. 21-22 n.8) and can be satisfied by merely reciting a $500,000 sham purchase price provision conflicts with the principle that a statute should be given a “sensible and practical over-all construction, which is consistent with and furthers its scheme and purpose . . . especially when an opposite interpretation would lead to an absurd result that would frustrate the statutory purpose.” Long v. Adirondack Park Agency, 76 N.Y.2d 416, 420, 422 (1990) (citations omitted) (rejecting interpretation of statute “[r]ead in vacuum-like isolation with absolute literalness” as “contrary to” the statute’s “purpose and intent”). It is fundamental that statutes should be interpreted “to avoid objectionable, unreasonable or absurd consequences.” Long v. State, 7 N.Y.3d 269, 273 (2006); see People v. Santi, 3 N.Y.3d 234, 242-44 (2004) (citations omitted) (rejecting “a fair and literal meaning 15 of the [statutory] text” as “ignor[ing] the legislative intent underlying the statute’s enactment” and producing an unreasonable result). Justinian’s reliance on Vollmer v. Automobile Fire Insurance Co. of Hartford, Connecticut, 207 A.D. 67 (3d Dep’t 1923), and Chartis Specialty Insurance Co. v. Queen Anne HS, LLC, 867 F. Supp. 2d 1111 (W.D. Wa. 2012), is misplaced. (Justinian Br. 22-23.) These cases involved the interpretation of insurance policies and promissory notes embodying genuine obligations to pay. Vollmer, 207 A.D. at 69; Chartis, 867 F. Supp. 2d at 1118. Neither case concerned the champerty statute. Neither case involved a sham purchase price. B. The Safe Harbor Is for Buyers Who Actually Pay. In interpreting and construing a statute, this Court has stated that it will “first look to its plain language, as that represents the most compelling evidence of the Legislature’s intent.” Tompkins County Support Collection Unit ex rel. Chamberlin v. Chamberlin, 99 N.Y.2d 328, 335 (2003). But even if the statute’s language is clear, the legislative history must not be ignored. This Court has repeatedly held that its “primary consideration . . . is to ascertain and give meaning to the intent of the Legislature.” Santi, 3 N.Y.3d at 243 (citation omitted) (“Legislative intent drives judicial interpretations in matters of statutory construction.”); Tompkins, 99 N.Y.2d at 335-36 (supporting its interpretation of 16 statute through analysis of its unambiguous, plain language, and legislative history). The legislative history of the safe harbor provision shows that the Legislature intended to provide a safe harbor only to bona fide purchasers of distressed debt who actually pay at least $500,000 for assets and related claims. The bill jacket for the safe harbor amendment repeatedly used the word payment. Among other things, the bill jacket stated that “[b]uyers [are not inclined to] invest large sums of money on claims for the purpose of [then] spending more money on legal fees [opposing champerty defenses]” (A411), that the safe harbor protected purchasers of assets that “had paid, in the aggregate, at least five hundred thousand dollars ($500,000) in connection with transactions for such claims” (Id. (emphasis added)), and that “so long as the transfers of bonds and causes of action involved, in the aggregate, the payment of more than $500,000, the transfer . . . would be subject to the safe harbor.” (Id. (emphasis added).) Former Assemblywoman Susan V. John sponsored the safe harbor provision. Ms. John averred in an affirmation Justinian submitted in Bank Hapoalim that “[t]he Legislature intended to provide clear protection for transactions where a purchaser pays at least $500,000 in a single transaction or a series of transactions for the assignment or transfer of financial instruments and causes of action.” (A406 ¶ 9.) Ms. John explained that the champerty statute 17 “does not apply to sophisticated commercial transactions where the purchaser is paying at least half a million dollars in the aggregate for claims.” (A406 ¶ 10.) Justinian itself recognized that the safe harbor provision requires actual payment. Justinian pushed Deutsche Pfandbriefbank to enter into a phony loan transaction to make it look like the Base Purchase Price had been paid. (See A378- 80.) Justinian’s scheme involved having Deutsche Pfandbriefbank mark its books to show a loan to Justinian of $1 million and simultaneous payment by Justinian of the $1 million Base Purchase Price. (A379-80.) Deutsche Pfandbriefbank, however, declined Justinian’s proposal.2 (A378.) II. THE AGREEMENT IS CHAMPERTOUS. Judiciary Law section 489(1) defines champerty as follows: No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly, itself or by or through its officers, agents or employees, shall solicit, buy or take an assignment, or be in any manner interested in buying or taking an 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 . . . . 2. The single law journal cited by Justinian does not contain any evidence of an adverse impact on any financial market as a result of the Appellate Division’s decision and the Supreme Court’s decision. (See Justinian Br. 19.) In fact, dismissal of Justinian’s claims on champerty grounds will not affect the distressed debt market. Investors who actually pay at least $500,000 for distressed debt will continue to be protected against champerty claims, as the safe harbor provision intends. 18 Id. (emphasis added). In Trust for the Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1991-C1 v. Love Funding Corp., this Court held that the test of whether a transaction is champertous under Judiciary Law section 489(1) involves distinguishing “between one who acquires a right in order to make money from litigating it and one who acquires a right in order to enforce it.” 13 N.Y.3d 190, 200 (2009). The Court held that there is a critical difference “between acquiring a thing in action in order to obtain costs [which is champertous] and acquiring it in order to protect an independent right of the assignee [which is not champertous].” Id. at 199 (citation omitted). See also Ehrlich v. Rebco Ins. Exch., Ltd., 225 A.D.2d 75, 77 n.* (1st Dep’t 1996) (internal quotations and citations omitted) (“A champertous agreement is one in which a person without interest in another’s litigation undertakes to carry on the litigation at his own expense, in whole or in part, in consideration of receiving, in the event of success, a part of the proceeds of the litigation.”). The Appellate Division correctly held that under Love Funding the Agreement was champertous. See Justinian I, 128 A.D.3d at 555; (A10). The evidence supports the Appellate Division’s finding that “[t]here is every indication that [Justinian] entered into the [Agreement] with the intent of pursuing litigation on [Deutsche Pfandbriefbank’s] behalf in exchange for a fee.” Id. The evidence 19 also supports the Appellate Division’s finding that Deutsche Pfandbriefbank had subcontracted this litigation to Justinian to conceal Deutsche Pfandbriefbank’s involvement. Justinian I, 128 A.D.3d at 554, 556; (A7, A11, A327, A329, A351, A374). It is clear that Justinian is not pursuing a legitimate claim of its own in this litigation (see Justinian Br. 33-36) and that its only role in this case is to be Deutsche Pfandbriefbank’s front. Justinian has paid nothing for the Blue Heron notes and is using contingent fee counsel. Justinian I, 128 A.D.3d at 553; (A7, A200-01 (Agreement § 5.2(b)), A263, A267). Justinian’s only interest in this case is its 15% contingent fee. Justinian I, 128 A.D.3d at 555; (A10, A200-01 (Agreement § 5.2(b))). For over seventy years, New York courts have held that transactions like the one between Justinian and Deutsche Pfandbriefbank violate New York’s champerty statute. In Bennett v. Supreme Enforcement Corp., this Court found champertous an assignment by a parent corporation to a subsidiary of claims, mortgages, and confessions of judgments where the subsidiary brought suit in its own name and was required to remit any proceeds recovered to the parent. 275 N.Y. 502, 502 (1937). Similarly, the Appellate Division held in Frank H. Zindle, Inc. v. Friedman’s Express, Inc. that the champerty statute barred an assignment in which the assignee commenced suit in its own name but was required to remit most of the proceeds from any recovery to its assignor in exchange for a fee. 258 20 A.D. 636, 637 (1st Dep’t 1940). See also Hospital Credit Exch., Inc. v. Shapiro, 186 Misc. 658, 663 (Mun. Ct. N.Y. County 1946) (same). The Southern District of New York in Refac International, Ltd. v. Lotus Development Corp. applied New York law in finding an assignment champertous in which the assignee agreed to commence an action in its own name on the assignor’s behalf in exchange for a 5% interest in a patent and a split in any proceeds recovered. 131 F.R.D. 56, 58 (S.D.N.Y. 1990). The assignor retained a 95% interest in the patent and “substantial rights and controls to direct” the litigation. Id. at 57. The court characterized the assignment as a “hunting license” and stated that the plaintiff “was not the real party in interest” but merely a “surrogate plaintiff” granted an interest in the patent “simply for the purpose of pursuing litigation on [the licensor’s] behalf” while attempting to shield the licensor’s role. Id. at 58. See also Ehrlich, 225 A.D.2d at 76, 78 (assignment champertous where assignee was required to pursue legal remedies including litigation to collect an amount owed to the assignor); BSC Assocs., LLC v. Leidos, Inc., 91 F. Supp. 3d 319, 329 (N.D.N.Y. 2015) (assignment champertous under New York law where assignee “was formed as a shell corporation to permit the [owner of the assignee and assignor] to litigate [the] action”); American Optical Co. v. Curtiss, 56 F.R.D. 26, 30-32 (S.D.N.Y. 1971) (assignment champertous 21 under New York law where it required the assignee, a stranger to the underlying dispute, to commence litigation on the assignor’s behalf). Cases in which assignees acquired assets or claims in order to pursue their own independent rights through litigation have no application to the proxy arrangement between Justinian and Deutsche Pfandbriefbank. Unlike Justinian, the assignees in those cases acquired an asset or claim outright, acquired a claim to protect a pre-existing interest, or took the claim as part of a larger business transaction. (See Justinian Br. 30 n.12, 33-34, 36 n.20, 44.) Justinian’s reliance on the so-called “real party in interest” doctrine, which addresses whether a party has standing to sue (Justinian Br. 42-44), is likewise misplaced. Champerty and the real party in interest doctrine are distinct legal doctrines and are analyzed separately. See, e.g., Fairchild Hiller Corp. v. McDonnell Douglas Corp., 28 N.Y.2d 325, 329-31 (1971). Finally, the evidence overwhelmingly supports the factual findings made by the Appellate Division and Supreme Court that Deutsche Pfandbriefbank was not willing to sue in its own name for fear of the consequences to its relationship with the German government, and thus, those factual findings should not be disturbed. See CPLR 5501(b); N.Y. Const. Art. 6, § 3(a); Justinian I, 128 A.D.3d at 554, 556; Justinian II, 43 Misc. 3d at 603; (A7, A11, A19, A327, A329, A374). Justinian’s arguments to the contrary are groundless. (Justinian Br. 29-33.) 22 Deutsche Pfandbriefbank’s unwillingness to sue in its own name is demonstrated by, among other things, the fact that it did not sue in its own name, did not take any meaningful steps to do so, repeatedly expressed its unwillingness to sue in its own name, and elected to pay a shell company a 15% contingent fee to conceal its role in this case. See Justinian I, 128 A.D.3d at 555; (A9, A28-106, A200-01 (Agreement § 5.2(b)), A310-25, A327, A329, A374, A310-25). Moreover, Judiciary Law section 489 does not require a showing that the champertous transaction caused litigation that would not otherwise have occurred. Neither Love Funding nor any other champerty case has turned on this question. Justinian is confusing the historical rationale for the champerty statute with the statutory requirements. See Love Funding, 13 N.Y.3d at 201 (quoting Wightman v. Catlin, 113 App. Div. 24, 28 (2d Dep’t 1906)). CONCLUSION For the foregoing reasons, the Appellate Division's decision and order should be affirmed. Dated: New York, New York December 9, 2015 HUGHES HUBBARD & REED LLP By: f1r,' . ~ rJa__ Christopher M. aparella Marc A. Weinstein Savvas A. Foukas Seth Schulman-Marcus One Battery Park Plaza New York, New York 10004 (212) 837-6000 Attorneys for Defendants-Respondents 23