Vol. 8, No.

1 Spring 1999
Specter of Champerty Haunts Loan Purchasers
Two recent New York decisions, one in federal district court and the other in state
court, highlight the potential danger in purchasing loan assets and debt paper with
the intent and purpose to sue to recover the underlying debt.
In a case decided in the Southern District of New York, a federal judge precluded an
assignee holding over $20 million in foreign Peruvian debt from recovering on the
ground that the debt was purchased with the intent and purpose to sue. In that case,
Elliott Associates, L.P., brought an action to recover $20.6 million owing on foreign
debt instruments it had acquired by way of assignment in the secondary capital
market. The defendants included the Republic of Peru (as guarantor) and Banco de
la Nacion (as borrower). Both defendants conceded the validity of the debt and their
defaults but denied that Elliott was a valid holder. Instead, they argued that the
assignments, which were obtained from Swiss Bank Corporation and ING Bank,
N.V., were void because Elliott committed champerty in purchasing the debt in
violation of Section 489 of the New York Judiciary Law.
The court found that Elliott's purpose and intent were determined from Elliott's
investment strategy, the resumes of individuals assembled for the Peruvian debt
project (some of whom were familiar with allegations of champerty from other
matters and were experts on suing to recover debt), delays in closing the Peruvian
debt trades until certain litigation risks were clarified by the Second Circuit Court of
Appeals in a related matter, the absence of credible alternative recovery
mechanisms and Elliott's conduct subsequent to the purchases.
The court clearly had trouble applying the literal wording of New York's Judiciary
Law provisions. Section 489 makes unlawful the purchase of debt Awith the intent
and for the purpose of bringing an action or proceeding thereon. The court noted that
Elliott's position was Astrong as a matter of policy in the world of commerce. Peru
borrowed billions of dollars from commercial banks in exchange for the obligation to
repay the principal with interest. Peru spent the borrowed funds and now refuses to
pay an assignee of the debt. Failure to enforce a bargain between sophisticated
parties such as Peru and their lenders would, according to Elliott, undermine
reasonable expectations about contract law, the terra firma upon which
contemporary transactions are based . . . . Cast in this light, '489 seems to fit
uncomfortably with current sensibilities - - a relic of Medieval English legal concerns
about the perversion of judicial process given effect of the common law doctrine of
champerty.
Nevertheless, the court noted that its role was Anot to make policy assessments but
to interpret Section 489 in accordance with its text, history and precedent. The court
noted that Section 489 was re-enacted by the New York Legislature as recently as
1965. Citing earlier New York Court of Appeals= precedent, the court noted that a
mere intent to bring a suit on a claim does not constitute the offense of champerty;
rather, Athe purchase must be made for the very purpose of bringing such suit, and
this implies an exclusion of any other purpose. The court found that Elliott intended
to collect 100% of the debt Anot by negotiating, participating in a debt-for-equities
swap, trading, or going along with [a certain workout plan], but rather by suing.
Having reached this conclusion, and after presenting a thorough review and analysis
of the history of champerty law both in England and in New York, the court was
Acompelled to conclude that Elliott's purpose here violated the statute, that AElliott
formed the intent to sue Peru before it decided to purchase the debt and that its
Asole or primary purpose was to bring the lawsuit. As a result, the debt instruments
were held unenforceable.
Elliott Associates, L.P. v. The Republic of Peru, 12 F. Supp. 2d 328 (S.D.N.Y. 1998).
A second decision by the New York Supreme Court reached the opposite result
concerning a foreclosure on a mortgage that the plaintiff had acquired from Barclays
Bank after it merged with Bank of New York. The state court noted that A[m]erely
purchasing matters and then instituting legal action for the collection of a legitimate
 debt does not constitute Champerty under Judiciary Law 489. Our Courts have
construed this Section of the law very narrowly. Part of what saved the plaintiff in this
case, was testimony that when it purchased a particular loan in a pool along with 133
other similar loans, not all the matters went to litigation. The court did not find that
the plaintiff-purchaser had bought the subject loan solely for the purpose of bringing
the lawsuit.
Hamilton Capital Holdings Corp. v. Malang, N.Y.L.J., Nov. 9, 1998 (p. 33 col. 1, Sup.
Ct., Westchester Cty.).
Loan Purchasers in the secondary market should take note of these decisions and
carefully guard against any factual finding that the acquisition of any debt paper was
motivated solely by a desire to sue on the debt, as opposed to at least considering
other possible alternative through negotiation or discounted payoffs. Having a paper
trail that lends support to such other possible recovery options would preclude any
factual finding that would be necessary to support a champerty defense. Obviously,
a finding of champerty can have disastrous results, as in the Elliott case, because it
invalidates the claim in its entirety.
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Vol. 8, No. 2 Fall 1999

Second Circuit Reverses Draconian Champerty Decision
The Second Circuit has just reversed the draconian ruling late last year by U.S.
District Judge Robert Sweet in Elliot Associates L.P. v. Republic of Peru [see
Lender's Alert, Spring 1999, p. 4], which dismissed a suit by Elliot Associates, a New
York hedge fund, to collect on $20.7 million in Peruvian debt that it had purchased
for $11.4 million in 1996. Judge Sweet found that Elliot purchased the Peruvian debt
with the primary intent of suing for payment in full. Concluding that this violated
Section 489 of the New York Judiciary Law (the champerty statute), Judge Sweet
dismissed the suit.
Section 489 of the Judiciary Law is the codification of the ancient rule of champerty
which prohibits the purchase of lawsuits. The New York Legislature, through Section
489, sought to prohibit persons from acquiring claims and then commencing a
lawsuit to recover not only the debt, but additional legal fees and legal costs incurred
in collecting the debt. Simply put, this rule was initially established to prevent abusive
litigation.
In its reversal, the Second Circuit concluded that the District Court had
misunderstood clear precedent from the New York Court of Appeals concerning
cases where suit was brought against a debtor that was only Aincidental and
contingent to the primary goal of purchasing the underlying debt and having it paid.
Citing a key New York Court of Appeals decision from 1882 (Moses v. McDivitt, 88
N.Y. 62), the Court set forth in detail the legislative intent behind Section 489. That
intent made it clear that there was a distinction between purchasing an obligation
simply to sue as opposed to acquiring debt by assignment where bringing suit on the
claim was incidental to the purpose for which the debt was acquired; i.e., to get paid
in full.
In this case, the Court found that the creditor, after engaging in initial attempts to
 negotiate a payoff, had to bring suit to achieve its primary goal of getting paid in full.
The Court found that the suit was also "contingent" because, had the Debtors
agreed to [the creditor's] request for the money that the District Court found . . . was
owed under the Letter Agreements and the Guaranty, then there would have been
no lawsuit.
In issuing its decision, the Court also noted there were Acompeting policy interests
at stake [including] New York's interests as a global financial center in a context of
interpreting Section 489. Significantly, the Court emphasized that A[r]ather than
furthering the reconciled goal of voluntary creditor participation and the enforcement
of valid debts, the District Court's interpretation of Section 489 effectively forces
creditors . . . to participate in an involuntary >cram-down= procedure and makes the
debt instruments unenforceable in the courts once the Bank Advisory Committee has
reached an agreement and principle in the Brady negotiations. The referenced Brady
negotiations refers to the federal government's Brady Plan, which incorporates IMF
foreign debt resolution procedures and fosters a strong United States interest in the
continuing enforceability of foreign debts owed to United States lenders. Because
the debt in this case involved foreign debt guarantees and liabilities, the Court found
that this foreign policy would have been prejudiced by the District Court's decision.
So harsh was the District Court's original ruling, that the New York legislature
promptly introduced legislation to amend Section 489 to protect secondary debt
holders. The pending legislation, which recently passed in the New York State
Senate and is expected to pass in the New York State Assembly in early 2000,
would amend Section 489 of the Judiciary Law to permit the assignment, purchase
or transfer of assets for consideration in an aggregate amount of at least $500,000,
regardless of whether the purchaser, assignee or transferee acted with the sole
intent to bring an action or proceeding to collect the debt at the time of such
purchase, assignment or transfer. The amendment to Section 489 is being proposed
because the current financial marketplace recognizes the legitimacy of the purchase
and sale of debt obligations. The ability to collect on these debt obligations without
the fear of a defense of champerty is essential to the fluidity of commerce in the
financial markets. The outcome of this legislation is now unclear in light of the
Second Circuit's ruling, but would still appear to be a prudent course to take to
alleviate any lingering uncertainty in the secondary debt market.
Elliott Associates, L.P. v. Banco de la Nacion, N.Y.L.J., Nov. 10, 1999, p.32, col. 5.
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UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT
August Term, 1998
(Argued: May 5, 1999 Decided: October 20, 1999 )
Docket Nos. 98-9268, 98-9319
 ---------------------------------------
ELLIOTT ASSOCIATES, L.P.,
Plaintiff-Appellant,
v.
BANCO DE LA NACION
and THE REPUBLIC OF PERU,
Defendants-Appellees.
---------------------------------------
Before: MCLAUGHLIN, LEVAL, and MICHEL**, Circuit Judges.
Appeal from two judgments entered in the United States District Court for the Southern District of New
York (Sweet, J.), dismissing with prejudice plaintiff-appellant's complaints seeking damages for the non-
payment of certain debt by defendants-appellees.
The judgments are reversed.
OTTO G. OBERMAIER, New York City (Brian S. Rosen, Eli Gottesdiener, Steven
Shebar, Ross Morrison, Richard A. Simon, Daniel C. Richman, Weil, Gotshal &
Manges, New York City), for Plaintiff- Appellant.
MARK A. CYMROT, Washington, D.C. (Peder A. Garske, Mark I. Bailen, Barbra
M. Kolton, Baker & Hostetler, Washington, D.C.), for Defendants- Appellees.
THOMAS MOERS MAYER and PHILIP BENTLEY, Kramer Levin Naftalis &
Frankel LLP, New York City, for Amici Curiae Angelo, Gordon & Co., L.P., The
Baupost Group LLC, Contrarian Capital Management, LLC, Franklin Mutual
Advisers, Inc. and Van Eck Associates Corporation.
NANCY JACKLIN, Clifford Chance, New York City, and PAUL SALTZMAN and
SARAH M. STARKWEATHER, The Bond Market Association, New York City
(Jayne S. Robinson and K. Ann McDonald, Robinson, Murphy & McDonald, New
York City, of counsel), for Amicus Curiae The Bond Market Association.
JEFFREY T. KRAUS and JEFFREY P. DEJONG, Altheimer & Gray, Chicago,
Illinois, for Amicus Curiae The Commercial Law League of America.
DANFORTH NEWCOMB and RICHARD A. LINGG, Shearman & Sterling, New
York City (Michael M. Chamberlin, Aviva Werner, Emerging Markets Traders
Association, New York City, of counsel), for Amicus Curiae Emerging Markets
Traders Association.
STEVEN J. BLAUNER, Milbank, Tweed, Hadley & McCloy, New York City, for
Amicus Curiae Loan Syndications & Trading Association, Inc.
MICHEL, Circuit Judge:
Plaintiff-Appellant Elliott Associates, L.P. ("Elliott") appeals from the amended final judgments entered by
the United States District Court for the Southern District of New York on September 3 and 15, 1998. The
district court, after a bench trial, dismissed with prejudice Elliott's complaints seeking damages for the
non-payment of certain debt by Defendants-Appellees The Republic of Peru ("Peru") and Banco de la
Nacion ("Nacion") (together, the "Debtors") because it found that Elliott had purchased the debt in
violation of Section 489 of the New York Judiciary Law ("Section 489"). See Elliott Assocs. v. Republic of
Peru, 12 F. Supp. 2d 328 (S.D.N.Y. 1998). Because, contrary to the district court's interpretation, the
pertinent case law demonstrates that Section 489 does not preclude relief in lawsuits, such as Elliott's,
seeking primarily to collect on lawful debts and only filed absent satisfaction, we reverse the judgments of
the district court.
BACKGROUND
Elliott is an investment fund with its principal offices located in New York City. Elliott was founded by Paul
Singer in 1977 and he remains its sole general partner. One of the primary types of instruments that Elliott
invests in is the securities of "distressed" debtors, that is, debtors that have defaulted on their payments
to creditors. Singer testified that he invests in debt when he believes that the true or "fundamental" value
of the debt is greater than the value accorded by the market. Elliott characterizes its approach to its
investments as "activist." Thus, despite sometimes accepting the terms offered to other creditors, Elliott
explains that it frequently engages in direct negotiations with the debtor and argues that, as a result, it has
occasionally received a greater return than other creditors.
In August or September of 1995, Singer was approached by Jay Newman to discuss investing in
distressed foreign sovereign debt. Newman, an independent consultant, had worked in the emerging
market debt field at major brokerage houses Lehman Brothers, Dillon Read, and Morgan Stanley, as well
as managing his own offshore fund, the Percheron Fund. The secondary market for such debt first
developed in the early 1980s when the original lender banks began selling the non-performing debt of
countries that had ceased servicing their external debt to other investors, including brokerage firms, in
order to reduce the banks' exposure and to permit them to lend additional funds to developing countries.
The Debtors submitted evidence at trial that, from 1993 onwards, Newman had acted with attorney
Michael Straus to solicit investors and provide advice to offshore fund Water Street Bank & Trust
Company, Ltd. ("Water Street"). The Debtors alleged that, at Water Street, Newman and Straus
purchased the sovereign debt of Poland, Ecuador, Ivory Coast, Panama, and Congo, and filed lawsuits
seeking full payment of the debt with Straus acting as the trial counsel. The Debtors' contention at trial in
the instant case was that Newman and Straus moved to Elliott from Water Street because it was a good
"substitute plaintiff" in that it specialized in the purchase of distressed assets, had funds available to
invest, and, unlike Water Street, which had refused in discovery to disclose the names of its individual
investors, was unconcerned about exposing the identity of its principals.
I.
At Newman's recommendation, in October 1995, Elliott purchased approximately $28.75 million (principal
amount) of Panamanian sovereign debt for approximately $17.5 million. In July 1996, Elliott brought suit
against Panama seeking full payment of the debt. Elliott obtained a judgment and attachment order and,
with interest included, ultimately received over $57 million in payment.
At the time of Elliott's purchase of Panamanian debt, Panama was finalizing its Brady Plan debt
restructuring program. The term "Brady Plan" derives from a March 1989 speech by Nicholas Brady, then
Secretary of the United States Treasury, urging commercial lenders to forgive some of the debt that they
were owed by less developed countries, restructure what remained, and continue to grant those countries
additional loans. See generally, Ross P. Buckley, The Facilitation of the Brady Plan: Emerging Markets
Debt Trading From 1989 to 1993, 21 Fordham Int'l L.J. 1802 (1998). Brady Plans contemplate that, in
return for such voluntary partial debt forgiveness, the less developed country will submit to an economic
austerity program supervised and monitored by the International Monetary Fund (the "IMF"). The purpose
of implementing Brady Plans is to avoid the recurrence of debt defaults by less developed countries that
have occurred from 1982 onwards. Typically, the terms of a Brady Plan are negotiated with the debtor
country by an ad hoc committee of the nation's largest institutional creditors, generally known as the
"Bank Advisory Committee." The members of the Bank Advisory Committee commit to restructuring the
debt that they hold on the agreed terms and those terms are also offered to other creditors. However,
while the members of the Bank Advisory Committee usually agree to be bound by the negotiated terms,
the other creditors are under no such obligation to accept those terms.
In January 1996, Newman recommended that Elliott purchase Peruvian sovereign debt. Newman testified
at trial that he believed that Peruvian sovereign debt was a good investment because of the sweeping
economic reforms implemented by President Alberto Fujimori following his election in November 1990 in
the wake of a severe six-year recession. Newman testified that he viewed Peru's Brady Plan, announced
in October 1995, as undervaluing Peru's outstanding debt. In particular, Newman contended that the
large commercial bank creditors that made up the Bank Advisory Committee had institutional incentives to
accept reduced terms for the debt they held, such as the desire to make additional loans and to operate
domestically within the country, and that he believed that the Bank Advisory Committee had not been
privy to all material financial information, including Peru's rumored repurchase of a significant proportion
of its debt.
Between January and March 1996, Elliott purchased from international banks ING Bank, N.V. ("ING") and
Swiss Bank Corporation ("Swiss Bank") approximately $20.7 million (in principal amount) of the working
capital debt of Nacion and Banco Popular del Peru ("Popular"), a bankrupt Peruvian bank. The debt was
sold under a series of twenty-three letter agreements (the "Letter Agreements"). Elliott paid approximately
$11.4 million for these debt obligations and all of the debt was guaranteed by Peru pursuant to a written
guaranty dated May 31, 1983 (the "Guaranty"). Under their express terms, both the Letter Agreements
and the Guaranty were governed by New York law. In connection with this transaction, Elliott executed
two separate assignment agreements with ING and Swiss Bank, dated March 29, 1996, and April 19,
1996, respectively.
The Peruvian sovereign debt purchased by Elliott was working capital debt, rather than syndicated bank
debt. Working capital debt does not involve an agent bank, but instead consists of direct loans between
single lenders and borrowers, whereas syndicated bank debt is debt syndicated by a lead bank, which
maintains books and records for all holders. Because the buyer has to rely upon the seller, rather than an
agent bank, to convey good title, working capital debt typically trades at a discount of several percentage
points from syndicated debt. The Debtors argued at trial that Elliott chose to purchase working capital
debt because it sold at a greater discount to value than syndicated debt and thus would have more value
in a lawsuit seeking full payment of the debt, despite being more difficult to trade on the secondary market
due to its illiquidity.
The district court found that the timing of Elliott's purchases of Peruvian debt and the closing of the
assignment agreements paralleled key events in Pravin Banker Assocs., Ltd. v. Banco Popular del Peru,
Civ. No. 93-0094 (S.D.N.Y.). See Elliott Assocs., 12 F. Supp. 2d at 336. Pravin Banker, an investment
fund, had filed suit on two 1983 letter agreements of Popular, which at that time was being liquidated
under Peru's IMF austerity plan. After eighteen months of stays, on August 24, 1995, the district court
entered summary judgment for Pravin Banker and, on January 19, 1996, the district court issued its
damages ruling. The Debtors argued at trial in the instant case that Elliott did not begin purchasing
Peruvian debt until the Pravin Banker decision in order that there would be no defense to a quick
judgment. In support of this, the Debtors elicited testimony from Singer and Newman that they had
followed and discussed the Pravin Banker case, although Newman claimed that Elliott's decision to
purchase Peruvian debt shortly after the damages ruling was "just a coincidence." The Debtors further
argued that Elliott avoided closing on the trades until after April 12, 1996, on which date a full stay
pending appeal was denied by this court in the Pravin Banker case. Pravin Banker Assocs Ltd. v. Banco
Popular del Peru, Order No. 96-7183 (2d Cir. Apr. 12, 1996). The Debtors supported this allegation by
contending that Elliott refused to close using standard Emerging Markets Traders Association forms, but
instead delayed by requesting provisions in the agreements that were not customary in the trade.
On May 1, 1996, Elliott delivered joint notices of the assignments to the Debtors' reconciliation agent,
Morgan Guaranty, to register the debt it had purchased in order that it could obtain its pro rata share of
the interest payments the Debtors had promised to make to all creditors. The following day, Elliott notified
Nacion, Popular, and Peru by letter that it was now one of their creditors and that it wished to initiate
discussions regarding repayment. Although a telephone conference call between counsel followed, no
negotiations on repayment terms occurred. Rather, the Debtors took the position that Elliott was not a
proper assignee because it was not a "financial institution" within the scope of the assignment provision of
the Letter Agreements and that Elliott should either transfer the debt to an eligible "financial institution" or
else participate in the Brady Plan with the other creditors. 1
On June 25, 1996, after a continued impasse in the parties' discussions, Elliott formally requested
repayment by sending the Debtors a notice of default. The Debtors pointed out at trial that this notice was
sent during the voting period on the Term Sheet of Peru's Brady Plan. The Debtors also noted that,
although the Brady Plan negotiations took place from January to June 1996, Elliott did not contact the
Bank Advisory Committee to express its views. Ultimately, Peru's Brady Plan was agreed upon by 180
commercial lenders and suppliers, and entailed, inter alia, an Exchange Agreement under which old
Peruvian commercial debt, including the 1983 Letter Agreements, would be exchanged for Brady bonds
and cash.
II.
On October 18, 1996, ten days before the Exchange Agreement was scheduled to be executed, Elliott
filed suit against the Debtors in New York Supreme Court and sought an ex parte order of prejudgment
attachment. The Debtors subsequently alleged at trial that the reason for Elliott filing suit at that time was
that the collateral for the Brady bonds was United States Treasury bonds, which were held at the Federal
Reserve Bank of New York, and thus made suitable assets for attachment. The Exchange Agreement
was finally executed on November 8, 1996.
Elliott's suit was subsequently removed to federal district court pursuant to the Foreign Sovereign
Immunities Act, 28 U.S.C. § 1441(d) (1994), where the district court denied Elliott's motion for
prejudgment attachment on December 27, 1996, and its motion for summary judgment on April 29, 1997.
After discovery, the case was tried in a bench trial from March 17 to March 25, 1998, and final argument
was heard on May 26, 1998.
On August 6, 1998, the district court issued its opinion dismissing Elliott's complaint on the ground that
Elliott's purchase of the Peruvian debt violated Section 489 of the New York Judiciary Law. The district
court found as a fact that "Elliott purchased the Peruvian debt with the intent and purpose to sue." Elliott
Assocs., 12 F. Supp. 2d at 332 (S.D.N.Y. 1998). The district court noted that Elliott had no familiarity with
purchasing sovereign debt until it met Newman, who together with Straus, had "a long history" in
purchasing sovereign debt and suing on it. Id. at 333-35. The district court further found that Elliott
intentionally "delayed closing its purchases of Peruvian debt until the Second Circuit had clarified the
litigation risks." Id. at 336. Moreover, the district court found that "Elliott did not seriously consider
alternatives to bringing an action," including holding and reselling the debt, participating in Peru's
privatization program, participating in the Brady Plan, or negotiating separately with the Debtors to obtain
terms more favorable than the Brady terms.Id. at 338. The district court found that "none of these
alternatives was realistically considered by Elliott when it purchased Peruvian debt" and that "[f]rom the
start, Elliott intended to sue and the testimony to the contrary was not credible."Id.With respect to the
letters sent by Elliott to the Debtors after purchasing the debt, the court found that these letters and the
other accompanying steps to negotiate "were pretextual and never demonstrated a good faith negotiating
position." Id. at 342.
After making its "Findings of Fact," the court set forth its "Conclusions of Law."Applying basic contract law
principles, the court first concluded that Nacion had breached the Letter Agreements by failing to pay
Elliott the amounts due and owing and that Peru had breached the Guaranty by not paying Elliott the
amounts due and owing under the Letter Agreements following Nacion's default. See id. at 344.
The court then turned to the Debtors' defense that Elliott's claim should be dismissed because the
assignments were in violation of Section 489 of the New York Judicial Law, which prohibits the purchase
of a claim "with the intent and for the purpose of bringing an action or proceeding thereon." The court
explained that while "Elliott's position is strong as a matter of policy in the world of commerce . . . the
Court's role here is not to make policy assessments -- to rank its preferences among contract, property,
and champerty doctrines." Id. at 345. The court noted the case law holding that the intent to sue must be
primary, not merely contingent or incidental. See id. at 345-46. Examining the legislative history, the court
explained that, while Section 489 was originally aimed at attorneys, subsequent revisions indicated an
intent to cover "corporations" and "associations." See id. at 349-50.Moreover, the court observed that
"[Section] 489's roots in the Medieval law of champerty and maintenance provides support for the
conclusion that, while not all assignments with the intent to bring suit thereon are barred, assignments
taken for the purpose, or motive, of stirring up litigation and profiting thereby are prohibited."Id. at 351.
The district court then rejected Elliott's arguments that the statute was only aimed at: (1) suits which have
the purpose of obtaining costs; or (2) suits where corporations engage in the unauthorized practice of law
by taking claims with the intent to sue on them pro se without hiring counsel. See id. at 351-54. The court
also rejected Elliott's argument that the statute does not apply when all right, title, and interest are
conveyed by the assignor. See id. at 354. Finally, the court rejected as without merit Elliott's arguments
that: (1) Elliott, as a limited partnership, is not an "association" within the meaning of the statute; (2) the
Debtors' interpretation of the statute would render it in violation of the Commerce Clause; and (3) the
Debtors lacked standing to raise the Section 489 defense because they were not parties to the
assignment agreement. See id. at 356 n.20.Consequently, because Elliott purchased the debt with the
intention to bring suit thereon, the court concluded that Elliott's contracts violated Section 489 and were
unenforceable. See id. at 356.
Turning to other arguments and defenses, although Section 3 of Peru's Guaranty provided that Peru shall
pay all guaranteed amounts "regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction," the court rejected Elliott's argument that this waived Peru's Section 489 defense, reasoning
that Section 489 is a penal law directed at the public interest that cannot be waived. See id. at 356-58.
Finally, although not necessary to its disposition, the court rejected Nacion's argument that it was
excused from performance due to impossibility as a result of a Peruvian government decree purportedly
removing Nacion as a debtor under the Letter Agreements. See id. at 358-60.
The district court entered its judgment dismissing Elliott's complaint on August 26, 1998. Amended
judgments were then issued on September 3 and 15, 1998. Elliott timely filed its notices of appeal on
September 18 and 24, 1998. After briefing from the parties, as well as the filing of five amicus curiae
briefs, this appeal was submitted for our decision following oral argument on May 5, 1999. We have
jurisdiction to decide this appeal under 28 U.S.C. § 1291 (1994).
DISCUSSION
I.
A.
As an initial matter, while in agreement that the district court's findings of fact are reviewed for clear error,
see Fed. R. Civ. P. 52(a), the parties dispute the appropriate level of deference to be given to the district
court's interpretation of Section 489 of the New York Judiciary Law. The Debtors urge that we follow this
court's statement in Ewing v. Ruml, 892 F.2d 168 (2d Cir. 1989), that "[where] the interpretation of state
law is made by a district judge sitting in that state, it is entitled to great weight and should not be reversed
unless it is clearly wrong." Id. at 171. Both Ewing and the other case relied upon by the Debtors for this
proposition, Lomartira v. American Auto. Ins. Co., 371 F.2d 550 (2d Cir. 1967), were decided before the
Supreme Court's decision in Salve Regina College v. Russell, 499 U.S. 225 (1991), which resolved a split
among the Circuits on this very issue. In Salve Regina College, the Supreme Court expressly held that "a
court of appeals should review de novo a district court's determination of state law." Id. at 231.
Subsequent appeals decided by this Circuit have thus accorded no deference to district court
interpretations of state law, nor will we. See, e.g., Pahuta v. Massey-Ferguson, Inc., 170 F.3d 125, 132
(2d Cir. 1999) (reviewing de novo New York district court's determination of New York law of strict product
liability for design defects); McCarthy v. Olin Corp., 119 F.3d 148, 153 (2d Cir. 1997) ("We determine de
novo what the law of New York is."); Sutera v. Go Jokir, Inc., 86 F.3d 298, 301 (2d Cir. 1996) (stating that
"no deference to the district court's determination of New York law" was due); In re Males, 999 F.2d 607,
609 (2d Cir. 1993) ("[I]n our de novo review we are not required to give deference to the district court's
interpretation of the state law.").
In determining the law of the State of New York, "we will consider not only state statutes but also state
decisional law." Bank of New York v. Amoco Oil Co., 35 F.3d 643, 650 (2d Cir. 1994). "In making this
determination, we afford the greatest weight to decisions of the New York Court of Appeals." McCarthy,
119 F.3d at 153. "Where the law of the state is uncertain or ambiguous, we will carefully predict how the
highest court of the state would resolve the uncertainty or ambiguity." Bank of N.Y., 35 F.3d at 650.
"Where the high court has not spoken, the best indicators of how it would decide are often the decisions
of lower state courts." In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831, 850 (2d Cir. 1992). Indeed,
"a federal court is free to consider all of the resources to which the highest court of the state could look,
including decisions in other jurisdictions on the same or analogous issues." Leon's Bakery, Inc. v. Grinnell
Corp., 990 F.2d 44, 48 (2d Cir. 1993).
B.
Besides arguing for reversal, Elliott has moved for the alternative relief of certifying the issue of the
interpretation of Section 489 to the New York Court of Appeals pursuant to Second Circuit Rule § 0.27.
See also New York Court of Appeals Rule 500.17 (permitting that court to accept and decide such
certified questions). This court has explained that "issues of state law are not to be routinely certified to
the highest court[] of New York . . . simply because a certification procedure is available. The procedure
must not be a device for shifting the burdens of this Court to those whose burdens are at least as great."
Kidney v. Kolmar Lab., Inc., 808 F.2d 955, 957 (2d Cir. 1987). "Because it is our job to predict how the
forum state's highest court would decide the issues before us, we will not certify questions of law where
sufficient precedents exist for us to make this determination." McCarthy, 119 F.3d at 154. In the instant
appeal, as discussed post, we conclude that there is sufficient case law for us to determine that Elliott's
conduct, as found to have occurred by the district court, was not proscribed by Section 489 of the New
York Judiciary Law. Accordingly, we deny Elliott's alternative motion for certification as moot in light of our
disposition.
II.
A.
The pivotal issue upon which this appeal necessarily turns is whether, within the meaning of Section 489
of the New York Judiciary Law, Elliott's purchase of Peruvian sovereign debt was "with the intent and for
the purpose of bringing an action or proceeding thereon," thereby rendering the purchase a violation of
law. Because the proper interpretation of Section 489 is at the heart of our decision, we quote it in its
entirety below:
§ 489. Purchase of claims by corporations or collection agencies
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 of, 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; provided however, that bills receivable,
notes receivable, bills of exchange, judgments or other things in action may be
solicited, bought, or assignment thereof taken, from any executor, administrator,
assignee for the benefit of creditors, trustee or receiver in bankruptcy, or any
other person or persons in charge of the administration, settlement or
compromise of any estate, through court actions, proceedings or otherwise.
Nothing herein contained shall affect any assignment heretofore or hereafter
taken by any moneyed corporation authorized to do business in the state of New
York or its nominee pursuant to a subrogation agreement or a salvage operation,
or by any corporation organized for religious, benevolent or charitable purposes.
Any corporation or association violating the provisions of this section shall be
liable to a fine of not more than five thousand dollars; any person or co-
partnership, violating the provisions of this section, and any officer, trustee,
director, agent or employee of any person, co-partnership, corporation or
association violating this section who, directly or indirectly, engages or assists in
such violation, is guilty of a misdemeanor.
N.Y. Jud. § 489 (McKinney 1983) (emphasis added).
In interpreting Section 489, we are guided by the principle that we "look first to the plain language of a
statute and interpret it by its ordinary, common meaning." Luyando v. Grinker, 8 F.3d 948, 950 (2d Cir.
1993). "If the statutory terms are unambiguous, our review generally ends and the statute is construed
according to the plain meaning of its words." Greenery Rehabilitation Group, Inc. v. Hammon, 150 F.3d
226, 231 (2d Cir. 1998). "Legislative history and other tools of interpretation may be relied upon only if the
terms of the statute are ambiguous." Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2d Cir. 1999). Indeed,
"[w]here the language is ambiguous, we focus upon the broader context and primary purpose of the
statute." Castellano v. City of New York, 142 F.3d 58, 67 (2d Cir. 1998) (internal quotation marks
omitted). At all times, we are cognizant of the Supreme Court's admonition that "[s]tatutes should be
interpreted to avoid untenable distinctions and unreasonable results whenever possible." American
Tobacco Co. v. Patterson, 456 U.S. 63, 71 (1982); see also Dougherty v. Carver Fed. Sav. Bank, 112
F.3d 613, 624 (2d Cir. 1997) (declining to interpret statute allowing thirty days to petition to terminate or
set aside a published plan to convert a federal savings association from mutual to stock form as
prohibiting a later-filed securities fraud action because such an interpretation "departs dramatically from
the '1-and-3-year' statutes of limitations normally applicable to private securities actions," because there
was an "absence of evidence in the legislative history suggesting such purpose," and "[b]ecause,
whenever possible, statutes should be interpreted to avoid unreasonable results").
B.
Parsing the plain language of Section 489 offers little helpful guidance as to the intended scope of the
provision. The statutory language simply provides that certain types of people or entities are prohibited
from soliciting, buying or taking by assignment, particular types of debt instruments "with the intent and for
the purpose of bringing an action or proceeding thereon." On its face, this statutory command might
appear to be remarkably broad in scope, forbidding essentially all "secondary" transactions in debt
instruments where the purchaser had an intent to enforce the debt obligation through litigation. However,
ambiguity resides in the term "with the intent and for the purpose of bringing an action or proceeding
thereon." The nature of the proscribed intent and purpose is unclear. After reviewing the pertinent New
York state decisions interpreting Section 489, we are convinced that, if the New York Court of Appeals,
not us, were hearing this appeal, it would rule that the acquisition of a debt with intent to bring suit against
the debtor is not a violation of the statute where, as here, the primary purpose of the suit is the collection
of the debt acquired. Consequently we must reverse the judgment of the district court.
C.
The predecessor statute to Section 489 of the New York Judiciary Law was enacted at least as early as
1813. However, its origins are even more archaic. New York courts have recognized that "§ 489 [is] the
statutory codification of the ancient doctrine of champerty." Ehrlich v. Rebco Ins. Exch., Ltd., 649
N.Y.S.2d 672, 674, 225 A.D.2d 75, 77 (1st Dep't 1996); see also Fairchild Hiller Corp. v. McDonnell
Douglas Corp., 28 N.Y.2d 325, 329, 270 N.E.2d 691, 693, 321 N.Y.S.2d 857, 860 (1971) (describing
Section 489 and its predecessors as "declaring the practice of champerty and maintenance to be illegal").
Commentators have traced the doctrine of champerty, and its doctrinal near-cousins of maintenance and
barratry, back to Greek and Roman law, through the English law of the Middle Ages, and into the
statutory or common law of many of the states. See generally, Susan Lorde Martin, Syndicated Lawsuits:
Illegal Champerty or New Business Opportunity?, 30 Am. Bus. L.J. 485, 486-89 (1992); Max Radin,
Maintenance by Champerty, 24 Cal. L. Rev. 48, 48-66 (1936). As explained by the Supreme Court, "[p]ut
simply, maintenance is helping another prosecute a suit; champerty is maintaining a suit in return for a
financial interest in the outcome; and barratry is a continuing practice of maintenance or champerty." In re
Primus, 436 U.S. 412, 424 n.15 (1978).
While New York courts have not been unwilling to characterize Section 489 as a champerty statute, it is
apparent that they have consistently interpreted the statute as proscribing something narrower than
merely "maintaining a suit in return for a financial interest in the outcome." Indeed, far from prohibiting the
taking of a financial interest in the outcome of a lawsuit, payment of attorneys by fees contingent upon the
outcome of litigation is expressly permissible in New York by statute and court rule. See N.Y. Jud. Law §
474-a (McKinney 1986) (setting forth maximum permissible contingent fees in medical, dental, or podiatric
malpractice claims); N.Y. Comp. Codes R. & Regs. tit. 22. § 603.7 (1999) (setting forth maximum
permissible contingent fees in personal injury, wrongful death, and certain other claims).
A strong indication of the limited scope of the statute is provided by several early New York cases
discussing Section 489's predecessor statutes. In Baldwin v. Latson, 2 Barb. Ch. 306 (N.Y. Ch. 1847), the
Court of Chancery rejected the argument that the statute was violated when an attorney purchased a
bond and mortgage and brought a foreclosure suit thereupon. The court reasoned that the statute was
intended to curtail the practice of attorneys filing suit merely to obtain costs, which at that time included
attorney fees. As the court explained, "[t]he object of the statute was to prevent attorneys and solicitors
from purchasing debts, or other things in action, for the purpose of obtaining costs from a prosecution
thereof, and was never intended to prevent the purchase for the honest purpose of protecting some other
important right of the assignee." Id. at 308.
The statute was also at issue in Mann v. Fairchild, 14 Barbour 548 (Sup. Ct. Kings Gen. Term 1853). In
what would appear to be a reference to the scourge of attorneys using such debt instruments to obtain
costs, as described in Baldwin, the Mann court stated that "[t]he main object of the statute in question was
to prevent litigation by prohibiting the purchase of choses in action by those whose pecuniary interests
might be peculiarly advanced by instituting suits upon them, and who, in consequence of their position,
might conduct such suits upon unequal terms." Id. at 554.
An even clearer indiction of the limited purpose of the statute is provided by the opinions of the two
justices writing in Goodell v. The People, 5 Parker Crim. R. 206 (Sup. Ct. Broome Gen. Term 1862), a
case concerning whether the statute covered the situation where an attorney purchased a promissory
note with the intent or purpose to bring suit in the justices' court, in which tribunal costs were not granted
to the prevailing party. In discussing the purpose of the statute, Justice Campbell wrote:
That the law of 1818, and previous laws on the subject, were intended to reach a
class of men who make a practice, either directly or indirectly, of buying small
 notes of fifty dollars and upwards, and then prosecuting them in courts of record,
in the old common pleas, or in the Supreme Court, and make the defendants pay
large bills of costs, even when the suit was undefended, there can be, I think, no
doubt. Hence, it was entitled an act to prevent abuses, and to regulate costs. The
law was aimed at attorneys in courts of record, who were the parties receiving
the costs, and who thus oppressed debtors by unexpected and unnecessary
prosecutions.
Id. at 207 (emphasis in original). Justice Parker, writing separately, agreed that the statute was intended
to prevent attorneys from buying debts as an expedient vehicle for obtaining costs. As he explained:
The purchasing of debts by attorneys, with the intent to bring suits upon them in
justices' courts, does not seem to me to be within the mischief which the statute
was intended to guard against. No costs being allowed to an attorney in a
justice's court, he has no object in buying debts to sue in that court, and I can see
neither opportunity nor temptation for him to advance his pecuniary interests by
so doing. As he has no temptation to litigate, as a party, in justices' courts, no
litigation is induced by his freedom from restraint in that direction . . . .
Id. at 211.
The seminal New York Court of Appeals case of Moses v. McDivitt, 88 N.Y. 62 (1882), confirmed that the
mischief Section 489 was intended to remedy did not include the acquisition of debt with the motive of
collecting it, notwithstanding that litigation might be a necessary step in the process. "Although decided
[over] 100 years ago, [Moses] still remains good law." 1015 Gerard Realty Corp. v. A & S Improvements
Corp., 457 N.Y.S.2d 821, 822, 91 A.D.2d 927, 928, (1st Dep't 1983); see also Fairchild Hiller, 28 N.Y.2d
at 330, 270 N.E.2d at 693, 321 N.Y.S.2d at 860 (citing Moses with approval). In Moses, the plaintiff, an
attorney, had purchased an assignment of a bond and mortgage that had been executed by the
defendant and brought suit for collection of the debt. As a defense, the defendant alleged that the
plaintiff's purchase was in violation of the then-in-force predecessor statute to Section 489 because it was
a purchase by an attorney of a chose in action "with the intent and for the purpose of bringing any suit
thereon." Moses, 88 N.Y. at 62. In particular, the defendant produced evidence that the purpose of the
plaintiff's purchase was
to compel the defendant, as a condition of the extension of the time of payment,
to assign to him certain stock in a publishing company in which he was
interested, in order that the plaintiff might thereby control an election of directors
of the company, which was about to take place, or to elect plaintiff president of
the company at such election.
Id. at 66-67. The trial judge charged the jury, as paraphrased by the Court of Appeals:
that if the plaintiff purchased the bond simply for the purpose of obtaining the
control of the stock, and not for the purpose of bringing suit upon it, he had not
violated the statute; but that, if they found that he had bought it with the intention
of bringing suit upon it, then, whatever else there might be about it, or however
necessary he might have considered it that he should thus fortify himself, he
violated the statute... . [Moreover,] if his intention in buying it was to use it to
compel the defendant to do a particular thing, as to assign stock for instance, and
if he would not comply with his wishes to sue [on] it, that would be a violation of
the statute.
Id. at 67. The Court of Appeals reversed, explaining that:
 a mere intent to bring a suit on a claim purchased does not constitute the
offense; the purchase must be made for the very purpose of bringing such suit,
and this implies an exclusion of any other purpose. As the law now stands, an
attorney is not prohibited from . . . purchasing bonds . . . 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 on his part 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. To constitute the offense
the primary purpose of the purchase must be to enable him to bring a suit, and
the intent to bring a suit must not be merely incidental and contingent. The object
of the statute . . . was to prevent attorneys, etc., from purchasing things in action
for the purpose of obtaining costs by the prosecution thereof, and it was not
intended to prevent a purchase for the purpose of protecting some other right of
the assignee.
Id. at 65 (emphasis added). Consequently, even though the "primary purpose" of the plaintiff was to
induce the defendant to assign his stock, the court concluded that:
[t]his purpose, whether honest or reprehensible, was not within the prohibition of
the statute. The intent to sue upon the bond was secondary and contingent ....
Under these circumstances it cannot be said that the purpose of the purchase of
the bond was to bring a suit upon it. This purpose did not enter into the purchase
any more than it would have done had the plaintiff bought the bond as an
investment, but with the intention of collecting it by suit if compelled to resort to
that means for obtaining payment. The real question upon which the case turned
was, whether the main and primary purpose of the purchase was to bring a suit
and make costs, or whether the intention to sue was only secondary and
contingent, and the suit was to be resorted to only for the protection of the rights
of the plaintiff, in case the primary purpose of the purchase should be frustrated.
Id. at 67-68 (emphasis added).
The continuing vitality of the distinction drawn in Moses between cases involving an impermissible
"primary" purpose of bringing suit and those where the intent to sue is merely "secondary and contingent"
is confirmed by the post-Moses case law. There are only two Court of Appeals cases decided after Moses
discussing the interpretation of Section 489 or any of its predecessors. 2 In Sprung v. Jaffe, 3 N.Y.2d 539,
147 N.E.2d 6, 169 N.Y.S.2d 456 (1957), the Court of Appeals reversed the grant of summary judgment to
the plaintiff assignee of a debt instrument on the grounds that the debtor's defense that the assignee had
violated a predecessor statute to Section 489 was not a "sham or frivolous" and presented a genuine
factual dispute, with respect to the intent and purpose of the assignee, that required resolution by the trier
of fact. Id. at 543, 147 N.E.2d at 9, 169 N.Y.S2d at 459. Nevertheless, the Sprung court did not say that
the plaintiff, an attorney who purchased a $3,000 debt for one dollar and subsequently brought suit, had
violated the statute; rather, it found that fact-finding at trial was necessary since, for the purpose of
summary judgment, he had failed to provide sufficient proof of a purpose for acquiring the debt other than
bringing suit. Id. at 545, 147 N.E.2d at 9, 169 N.Y.S.2d at 460. In so ruling, the Court of Appeals cited to
Moses and reiterated its central holding that "the statute is violated only if the primary purpose of the
purchase or taking by assignment of the thing in action is to enable the attorney to commence a suit
thereon. The statute does not embrace a case where some other purpose induced the purchase, and the
intent to sue was merely incidental and contingent." Id., 3 N.Y.2d at 544, 147 N.E.2d at 8-9, 169 N.Y.S.2d
at 460.
The Moses approach was again followed in Fairchild Hiller Corp. v. McDonnell Douglas Corp., 28 N.Y.2d
325, 270 N.E.2d 691, 321 N.Y.S.2d 857 (1971), the most recent Court of Appeals case addressing
Section 489. In Fairchild Hiller, the Court of Appeals affirmed the dismissal of a debtor's affirmative
defense that an agreement between two corporations to split the proceeds of any recovery on the
disputed claim was in violation of Section 489. The court cited Moses and explained that "[w]e have
consistently held that in order to fall within the statutory prohibition, the assignment must be made for the
very purpose of bringing suit and this implies an exclusion of any other purpose." Id., 28 N.Y.2d at 330,
270 N.E.2d at 693, 321 N.Y.S.2d at 860. Because in Fairchild Hiller the claim was assigned as "an
incidental part of a substantial commercial transaction," specifically, the acquisition of a corporation's
entire assets, the Court of Appeals concluded that the assignment was not prohibited by Section 489. See
id., 28 N.Y.2d at 330, 270 N.E.2d at 693, 321 N.Y.S.2d at 860-61. Thus, both Sprung and Fairchild Hiller
demonstrate that the principles set forth in Moses continue to be followed by the New York Court of
Appeals.
That Moses remains the law of New York is further evidenced by the decisions of the Appellate Division
interpreting Section 489 and its predecessors. In Ehrlich v. Rebco Insurance Exchange, Ltd., 225 A.D.2d
75, 649 N.Y.S.2d 672 (1st Dep't 1996), the Appellate Division, First Department, citing and quoting Moses
and Fairchild Hiller, held that an assignment in which the assignee was bound to bring suit on the claim
as part of the consideration for the assignment was in violation of Section 489. See id. at 77-78, 649
N.Y.S.2d at 674. Because the contract under which the debt is acquired requires the purchaser or
assignee to sue, the purchaser or assignee is being paid to sue and relinquishes any right to consider
whether the suit is in his interest. Thus, as the district court correctly stated, in cases involving an
obligation to sue, such as Ehrlich, retention of an interest by the assignor is not "necessary to fall within
the statutory compass." Elliott, 12 F. Supp.2d at 354. Rather, the critical factors that bring such cases
within Moses are the absence of any purpose for the assignment except bringing legal action and the
non-discretionary obligation to bring suit. See Ehrlich, 225 A.D.2d at 78, 649 N.Y.S.2d at 674. See also
Refac Int'l, Ltd. v. Lotus Dev. Corp., 131 F.R.D. 56 (S.D.N.Y. 1990) (holding that Section 489 was violated
when a party entered into a patent license agreement in exchange for, inter alia, an obligation to sue at
least two alleged infringers within a month of the agreement's effective date).
In Limpar Realty Corp. v. Uswiss Realty Holding, Inc., 492 N.Y.S.2d 754, 112 A.D.2d 834 (1st Dep't 1985)
(mem.), the Appellate Division, First Department, also examined Section 489. In that case, it rejected the
debtor's argument that the assignee's acquisition of a note, mortgage and guarantee followed by the
commencement of foreclosure proceedings twenty-seven days later without affording the debtor an
opportunity to cure constituted a violation of Section 489. The court reasoned that the debtor could have
cured the default at any time during the previous eighteen months, but chose not to do so. See id., 112
A.D.2d at 836, 492 N.Y.S.2d at 755. Noting the prohibition in Moses against such acquisitions for the
"primary purpose" of bringing suit, the Limpar court concluded that that was not the assignee's primary
purpose, finding a "legitimate business purpose" evidenced by the acquisition of other real estate on the
same city block by the real estate developer on whose behalf the assignee was acting, which negated the
inference of acquisition merely to bring suit. Id. at 836, 492 N.Y.S.2d at 756. In addition the court
reasoned that the commencement of foreclosure proceedings less than a month after the acquisitions
was not determinative since the debtor had the opportunity to cure the default before the assignment. See
id. at 836, 492 N.Y.S.2d at 755. The district court distinguished Limpar on the grounds that in Limpar
"there was no contention that the prior debtholder had reached an agreement in principle to settle the
dispute," whereas in the instant case Peru's Brady Plan was essentially finalized. Elliott Assocs., 12 F.
Supp. 2d at 355. We do not find the district court's distinction compelling. First, Limpar makes no such
distinction between on-going and settled or almost settled disputes. Second, Peru's Brady Plan was not
binding on all creditors, such as Elliott, that were not members of the Bank Advisory Committee. Thus,
given that the Brady system purposefully does not create such a binding obligation, there was no
settlement and, consequently, unlike the district court, we do not condemn Elliott merely because "[i]ts
purpose was to stand apart from the lenders who had agreed to the Brady restructuring, and to use
judicial process to compel full payment." Id. at 356.
Other First Department cases are similarly consistent with Moses and its progeny. See, e.g., 1015 Gerard
Realty Corp., 457 N.Y.S.2d at 822, 91 A.D.2d at 928, 822 (1st Dep't 1983) (mem.) (citing to Moses and
holding that an attorney's acquisition of a mortgage in default was not in violation of Section 489 because
"[a]lthough always present was the intent to bring suit, if necessary, that was not the primary intent.");
Prudential Oil Corp. v. Phillips Petroleum Corp., 69 A.D.2d 763, 415 N.Y.S.2d 217 (1st Dep't 1979)
(affirming dismissal of Section 489 defense on the grounds that the assignment was made as part of a
corporate restructuring, as permitted by Fairchild Hiller, and not for the purpose of bringing suit). The First
Department most recently addressed Section 489 in Bluebird Partners, L.P. v. First Fidelity Bank, N.A.,
686 N.Y.S.2d 5 (1st Dep't 1999) (mem.). It affirmed the dismissal of the claim on the acquired debt
because the "plaintiff's 'primary purpose' in purchasing [certain debt] certificates was the maintenance of
this litigation . . . ." Id. at 6 (citation omitted). This very short memorandum opinion omits any explanation
offered by the plaintiff for its purchase of the debt certificates. The court found, however, that the record
left "no doubt that the plaintiff's 'primary purpose' in purchasing those certificates was the maintenance of
[the] litigation." Id. It can be inferred from this finding that, unlike the present case, the debt in Bluebird
was not acquired for the purpose of collecting it.
The Second Department has similarly been consistent in adhering to the interpretation of Section 489 set
forth in Moses. See, e.g., G.G.F. Dev. Corp. v. Andreadis, 251 A.D.2d 624, 624, 676 N.Y.S.2d 488, 488
(2d Dep't 1998) (mem.) (affirming the grant of summary judgment rejecting the debtor's Section 489
defense in a foreclosure action on the grounds that the mortgage was acquired "as a sound and
legitimate business investment" and foreclosure proceedings were not instituted until five months after the
assignment); Grid Realty Corp. v. Gialousakis, 129 A.D.2d 768, 514 N.Y.S.2d 760 (2d Dep't 1987) (mem.)
(affirming the dismissal of a Section 489 affirmative defense on the grounds that the primary purpose of
the mortgage assignment was not to bring suit); Concord Landscapers, Inc. v. Pincus, 41 A.D.2d 759, 341
N.Y.S.2d 538 (2d Dep't 1973) (citing and applying Moses in reversing the trial court's finding of a Section
489 violation). Older Second Department cases likewise relied upon Moses to set forth a consistent
interpretation of the predecessor statutes to Section 489. See, e.g., Wightman v. Catlin, 113 A.D. 24, 29,
98 N.Y.S. 1071, 1073 (2d Dep't 1906) (relying upon Moses and explaining that "[t]he evil against which
the statute was directed was the purchase of claims for the sole purpose of making costs and annoying
persons who would not be sued under other circumstances . . . . It was only the abuse of purchasing with
the intent and for the purpose of bringing the action that the attorney might be benefited by the costs
which his own action had produced which the Legislature prohibited."); Van Dewater v. Gear, 21 A.D.
201, 203-04, 47 N.Y.S. 503, 505 (2d Dep't 1897) (citing Moses and explaining that, to violate the statute,
"[t]here must exist an intent to obtain title for the purpose of commencing an action").
Although offering fewer precedents on the issue than the Appellate Divisions of the other two
Departments, the Appellate Divisions of the Third and Fourth Departments have also been consistent in
interpreting Section 489 and its predecessors in conformity with Moses. Thus, for example in Beers v.
Washbond, 86 A.D. 582, 584, 83 N.Y.S. 993, 994 (3d Dep't 1903), the Appellate Division, Third
Department, explained that "[t]he object of the statutory provision against champerty has been repeatedly
stated to be the prevention of oppression by unnecessary litigation which would follow from the right of an
attorney to purchase a claim for the sole purpose of enforcing it in the courts and getting costs therefrom."
More recently, the Appellate Division, Fourth Department, citing Moses, held the assignment of a claim for
damage to construction machinery not to violate Section 489 where the assignment was made, not for
purposes of bringing suit, but in connection with a subrogation agreement with the claimant's insurer. See
Williams Paving Co., Inc. v. United States Fidelity & Guar. Co., 413 N.Y.S.2d 73, 74, 67 A.D.2d 827, 828
(4th Dep't 1979) (mem.). Thus, there would appear to be a general uniformity of precedent among the
Appellate Divisions of New York's four judicial Departments with respect to the interpretation of Section
489.
D.
The cases, spread over more than a century, are not always entirely clear or plainly consistent. Thus the
district court found some basis for its construction of the coverage of Section 489 to include Elliott's
purchase of the Peruvian debt. We do not agree, however, with this interpretation. Furthermore, in light of
the case law surveyed above, we do not agree with the district court that Moses in conjunction with later
New York case law "provides little guidance for construing the statute's proper scope." Elliott Assocs., 12
F. Supp. 2d at 345. To the contrary, New York courts have stated that Moses "undoubtedly correctly
states the objects and limitations of the statute." Wightman v. Catlin, 113 A.D. 24, 27, 98 N.Y.S. 1071,
1073 (2d Dep't 1906); see also 1015 Gerard Realty, 91 A.D.2d at 928, 457 N.Y.S.2d at 822 (describing
Moses as "[t]he leading case interpreting the champerty statute"). As Moses itself makes plain, violation
of Section 489 turns on whether "the primary purpose of the purchase [was] . . . to bring a suit," or
whether "the intent to bring a suit [was] . . . merely incidental and contingent." Moses, 88 N.Y. at 65. The
district court reasoned that here "Elliott intended to collect 100% of the debt not by negotiating,
participating in a debt-for-equity swap, trading, or going along with the Brady Plan, but rather by suing.
Unlike Moses, the intent Peru established was the intent to sue, and that intent was not contingent or
incidental." Elliott Assocs., 12 F. Supp. 2d at 346. We believe the district court misunderstood Moses. The
Moses court made clear that where the debt instrument is acquired for the primary purpose of enforcing it,
with intent to resort to litigation to the extent necessary to accomplish the enforcement, the intent to
litigate is "merely incidental and contingent" and does not violate the statute. Indeed, the Moses court
made precisely this point when it explained that "[t]he object of the statute .. . was to prevent attorneys,
etc., from purchasing things in action for the purpose of obtaining costs by the prosecution thereof, and it
was not intended to prevent a purchase for the purpose of protecting some other right of the assignee."
88 N.Y. at 65. Elsewhere, the Court of Appeals in Moses specifically stated that conduct not prohibited by
the statute included where "the plaintiff bought the bond as an investment, but with the intention of
collecting it by suit if compelled to resort to that means for obtaining payment." Id. at 67. While Moses
does not set forth a complete taxonomy of conduct prohibited by Section 489 (and neither do we), it
plainly sets forth certain conduct that is not made unlawful by Section 489.
Even accepting as correct the facts as found by the district court, we see no meaningful distinction
between Elliott's conduct and the conduct Moses expressly states to be outside of the scope of the
statute. Here, the district court found that Elliott was the lawful assignee of Nacion's Letter Agreements,
that Peru had guaranteed those Letter Agreements, and that both Peru and Nacion are liable to Elliott as
a result of Nacion's failure to pay the amounts due and owing under the Letter Agreements. See Elliott
Assocs., 12 F. Supp. 2d at 344. Far from being a trivial claim that might serve, for example, as the
illegitimate vehicle for the recovery of attorney fees, the district court expressly found that "Elliott has
suffered damages in excess of $7,000,000 as a result [of the breach]." Id.
In purchasing the Peruvian debt the district court found that Elliott's principal aim was to obtain full
payment. As it expressly found, "Elliott's primary goal in investing in Peruvian debt was to be paid in full."
Id. at 339. Moreover, the district court found that if the Debtors did not pay in full, it was Elliott's intent to
sue for such payment. Thus, the district court quotes twice the statement of Singer, Elliott's president, that
"Peru would either . . . pay us in full or be sued." Id. at 335, 339. The district court reasoned that Elliott's
"investment strategy .. . to be paid in full or sue .. . equated to an intent to sue because [it] knew Peru
would not, under the circumstances, pay in full." Id. at 343. We cannot agree with the district court's
equating of Elliott's intent to be paid in full, if necessary by suing, with the primary intent to sue prohibited
by Section 489 as delineated by Moses and the related case law.
First, any intent on Elliott's part to bring suit against the Debtors was "incidental and contingent" as those
terms are used in Moses and the New York case law. It was "incidental" because, as the district court
acknowledges, Elliott's "primary goal" in purchasing the debt was to be paid in full. That Elliott had to bring
suit to achieve that "primary goal" was therefore "incidental" to its achievement. Elliott's suit was also
"contingent" because, had the Debtors agreed to Elliott's request for the money that the district court
found Elliott was owed under the Letter Agreements and the Guaranty, then there would have been no
lawsuit. Elliott's intent to file suit was therefore contingent on the Debtors' refusal of that demand.
Although the district court found that Elliott "knew Peru would not, under the circumstances, pay in full,"
id. at 343, this does not make Elliott's intent to file suit any less contingent. As acknowledged by counsel
at oral argument, the Debtors could have paid but chose not to pay in order to avoid jeopardizing Peru's
Brady Plan.
Second, Moses specifically states that conduct not proscribed by the statute includes where "the plaintiff
bought the bond as an investment, but with the intention of collecting it by suit if compelled to resort to
that means for obtaining payment." Moses, 88 N.Y. at 67. Indeed, Moses categorically declares that
purchase of debt obligations "is not made illegal by the existence of the intent on [the purchaser's] part 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." Id. at 65. As found by the district court, this was Elliott's intent here.
Indeed, the district court characterizes Elliott's intent as "to be paid in full or sue." Elliott Assocs., 12 F.
Supp. 2d at 343. This is precisely the intent that the Court of Appeals in Moses determined to be clearly
not prohibited by the statute. Thus, here, Elliott possessed "a legitimate business purpose . . . [because
Section 489] is 'violated only if the primary purpose of taking the assignment was to commence a suit' and
not 'where some other purpose induced the purchase, and the intent to sue was merely incidental and
contingent.'" Limpar, 112 A.D.2d at 836-37, 492 N.Y.S.2d at 756 (quoting Goldstein v. Thirlex Realty, Inc.,
91 Misc.2d 851, 853, 398 N.Y.S.2d 791, 793 (N.Y. Sup. Ct. 1977)). Like that of the plaintiff in Limpar,
Elliott's primary purpose in acquiring the debt was a "legitimate business purpose," id. at 836, 492
N.Y.S.2d at 756, -- in this case: turning a profit, rather than a collateral purpose prohibited by Section 489,
as construed.
As is often the case in complex and well-argued appeals such as this, there are competing policy
interests at stake. However, in Pravin Banker Associates, Ltd. v. Banco Popular del Peru, 109 F.3d 850
(2d Cir. 1997), another appeal involving an enforcement action on Peruvian sovereign debt, this court set
forth and reconciled those differing interests. Although the Pravin Banker analysis was made in the
context of a comity determination and so examined the interests of the United States rather than New
York, those interests are equally applicable to New York's interests as a global financial center in the
context of interpreting Section 489. As the court reasoned:
First, the United States encourages participation in, and advocates the success
of, IMF foreign debt resolution procedures under the Brady Plan. Second, the
United States has a strong interest in ensuring the enforceability of valid debts
under the principles of contract law, and in particular, the continuing
enforceability of foreign debts owed to United States lenders. This second
interest limits the first so that, although the United States advocates negotiations
to effect debt reduction and continued lending to defaulting foreign sovereigns, it
maintains that creditor participation in such negotiations should be on a strictly
voluntary basis. It also requires that debts remain enforceable throughout the
negotiations.
Id. at 855 (citations omitted). The district court's statutory interpretation here would appear to be
inconsistent with this analysis. Rather than furthering the reconciled goal of voluntary creditor participation
and the enforcement of valid debts, the district court's interpretation of Section 489 effectively forces
creditors such as Elliott to participate in an involuntary "cram-down" procedure and makes the debt
instruments unenforceable in the courts once the Bank Advisory Committee has reached an "agreement
in principle" in the Brady negotiations. Undermining the voluntary nature of Brady Plan participation and
rendering otherwise valid debts unenforceable cannot be considered to be in New York's interest, as
made plain by this court in Pravin Banker.
Given the mandate that "whenever possible, statutes should be interpreted to avoid unreasonable
results," Dougherty v. Carter Fed. Sav. Bank, 112 F.3d 613, 624 (2d Cir. 1997), we also take note of the
unreasonable results that might ensue were we to accept the district court's interpretation of Section 489.
While the district court's rule might benefit the Debtors in the short run, the long term effect would be to
cause significant harm to Peru and other developing nations and their institutions seeking to borrow
capital in New York. The district court's interpretation would mean that holders of debt instruments would
have substantial difficulty selling those instruments if payment were not voluntarily forthcoming. This
would therefore add significantly to the risk of making loans to developing nations with poor credit ratings.
The additional risk would naturally be reflected in higher borrowing costs to such nations. It could even
make loans to some of them unobtainable in New York. A well-developed market of secondary
purchasers of defaulted sovereign debt would thereby be disrupted and perhaps destroyed even though
its existence provides incentives for primary lenders to continue to lend to high-risk countries.
The interpretation posited by the district court would also create "a perverse result" because it "would
permit defendants to create a champerty defense by refusing to honor their loan obligations." Banque de
Gestion Privee-SIB v. La Republica de Paraguay, 787 F. Supp. 53, 57 (S.D.N.Y. 1992). An obligor could
simply declare unwillingness to pay, thereby making it plain that no payment would be received without
suit. Under such circumstances, prospective purchasers would not be able to acquire the debt
instruments without opening themselves up to the defense that their purchase or assignment necessarily
was made "with the intent and for the purpose of bringing an action or proceeding thereon," as barred by
Section 489. The risk that a debtor might seek to manufacture such a defense by making such a public
pronouncement could be expected to add significantly to the cost of borrowing in New York.
Although all debt purchases would be affected by the district court's expansive reading of Section 489,
high-risk debt purchases would be particularly affected because of the increased likelihood of non-
payment in such transactions leading to the likely necessity of legal action to obtain payment. As ably
pointed out by Elliott and the various amici curiae, such increased risks could be expected to increase the
costs of trading in high-risk debt under New York law and thereby encourage potential parties to such
transactions to conduct their business elsewhere. Moreover, the increased risks are particularly onerous
because they premise the validity of the transaction on no more than the buyer's subjective intent, which
intent is not always readily ascertainable by the seller, and can only be conclusively resolved by ex post
facto litigation. While the Debtors argue that the district court's interpretation of Limpar creates an "on-
going dispute safe harbor" that would limit these effects, as explained above we do not find this
interpretation of Limpar compelling and, in any event, such a safe harbor would not eliminate the
enhanced risks but merely reduce them.
E.
Elliott has also raised three other grounds for reversing the district court's judgments. First, that, as a
limited partnership, it is not an entity covered by Section 489; second, that the district court's fact findings
were clearly erroneous; and, third, that Peru's Guaranty was erroneously misinterpreted not to be a
permissible waiver of its Section 489 defense. Because we reverse the district court for the reason that it
erroneously interpreted Section 489, we need not reach any of these issues. Consequently, we neither
express nor imply any view as to any of these issues.
CONCLUSION
We hold that, in light of the pertinent New York precedent and compelling policy considerations, the
district court erroneously interpreted Section 489 of the New York Judiciary Law. In particular, we hold
that Section 489 is not violated when, as here, the accused party's "primary goal" is found to be
satisfaction of a valid debt and its intent is only to sue absent full performance. Given that,
notwithstanding the Section 489 issue, the district court found the Letter Agreements and Guaranty to
have been breached by the Debtors, we remand only for the purpose of calculating damages more
accurately than the approximate figures given in the district court's opinion and the possible resolution of
other attendant damages-related issues.
Accordingly, the judgments of the district court are reversed and the case is remanded.
---- Begin EndNotes ----
*_ The Honorable Paul R. Michel, Circuit Judge of the United States Court of Appeals for the Federal
Circuit, sitting by designation.
1 The Debtors' arguments regarding the interpretation of the "financial institutions" clause in the
assignment provision of the Letter Agreements had previously been rejected by the district court in Pravin
Banker, which ruling was subsequently affirmed by this court. See Pravin Banker Assocs., Ltd. v. Banco
Popular del Peru, 109 F.3d 850, 856 (2d Cir. 1997).
2 In Wetmore v. Hegeman, 88 N.Y. 69 (1882), an appeal decided the same day as Moses, the Court of
Appeals, citing to Moses, reiterated that "[t]he aim of the statute was to prevent attorneys from purchasing
claims for the express purpose of instituting suits thereon and thus oppressing debtors and making
costs." Id. at 73.

Otto G. Obermaier
Articles quoting this attorney [email protected]
Partner
New York Office
(212) 310-8843 Otto Obermaier, member of the New York and District of Columbia Bars for
39 years, has litigated complex matters in many of the nation's trial courts. He
Litigation Department has tried the longest civil case in the history of the Federal District Court in
San Francisco and the longest criminal case in the history of the Federal Court
Practice Areas in Brooklyn.
Litigation
He served as United States Attorney for the Southern District of New York by
Education appointment of President Bush from 1989 until February, 1993. Later that
Georgetown University Law Center year he joined Weil, Gotshal & Manges LLP.
(LL.B., 1960)
Manhattan College (B.E.E., 1957; He has written and lectured extensively. His 102 articles have appeared in
LL.D., with honors, 1997) The New York Times, The Wall Street Journal and Barrons, as well as
numerous legal publications such as The New York Law Journal, National
Law Journal and The Legal Times of Washington. He is a co-author of White
Collar Crime: Business and Regulatory Offenses, originally published in 1990
 and updated twice annually since then. He has appeared as a lecturer at 59
continuing legal education seminars.

Before becoming U.S. Attorney, he was in private practice for 19 years with
his own firms. His prior government experience includes serving as Chief
Trial Counsel, New York Regional Office, U.S. Securities and Exchange
Commission; an Assistant U.S. Attorney for the Southern District of New
York; law clerk to a Federal District judge, and Assistant Patent Examiner in
the United States Patent Office.

He is a Fellow of the American College of Trial Lawyers, a Life Fellow of the

American Bar Foundation and a member of the American Law Institute.
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