Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff [must have] ‘alleged such a personal stake in the outcome of the controversy’ as to warrant [its] invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on [its] behalf.” Id. at 498–99 (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)).
To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id. Finally, a favorable resolution of the case is “likely” to redress the injury. Id. at 561.
When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e., a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)).
To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests [the assignor’s] intention to transfer at least title or ownership, i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id.
On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l., 2016 NY Slip Op. 06051.
Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions.
The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, interalia, SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes.
The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l., 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014).
The Motion Court’s Ruling
As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch, No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds. The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide (i.e., Cortlandt could not prove that it had an interest in the outcome of the litigation).
The Motion Court “concur[red] with” Judge Oeken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.” In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation:
New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “[t]he existence of an injury in fact—an actual legal stake in the matter being adjudicated.”
Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected.
Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions.
Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding:
The [IAS] court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims.
Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim.
Tagged with: Business Law
On April 13, 2016, Justice Singh of the New York County Commercial Division issued a decision in Inverventure 77 Hudson LLC v. Falcon Real Estate Investment Co., 2016 NY Slip Op. 30712(U), allowed the assignee of the named plaintiff’s claims to substitute in an action for the assignor.
In Inverventure 77 Hudson LLC, the plaintiffs sued the defendants, “alleging gross fraud in the management of real estate properties.” The defendants moved to dismiss alleging, among other things, that the plaintiffs lacked standing because they had been dissolved prior to bringing the action. The court granted the motion to dismiss. The assignee of the named plaintiffs moved to substitute in as plaintiff. The court granted the motion, explaining:
Choses in action, such as claims for breach of contract and breach of fiduciary duty, are freely assignable. While, generally speaking, an assignee stands in the shoes of the assignor, the plain language of an assignment determines its breadth and scope.
Pursuant to CPLR 1018, a court in its discretion may direct that an assignee be substituted as a party when a cause of action has been assigned. The purported assignee must prove the fact of the assignment. Substitution of a party is properly granted where the substitution would not result in surprise or prejudice to
defendants. In the event of the assignment of a cause of action or interest in litigation, the court may, in its discretion, direct that the assignee be substituted as a party.
. . .
New York courts take a practical approach to determine the real party in interest. As Professor Siegel noted in New York Practice:
Under section 210 of the old Civil Practice Act every action was required to be prosecuted in the name of the real party in interest, except in enumerated circumstances. The successor provision, CPLR 1004, omits that statement as obvious on the one hand (who else would bring the action?), misleading on the other (does it require in a trust case, for example, that the beneficiaries rather than the trustee bring suit?), and an inept statement of substantive law in any event.
. . . We thus have an acknowledgment that the questions of who may bring suit and against whom it may be brought are really questions of substantive rather than procedural law and must be answered as such. Who owns the cause of action? Whose right has been interfered with? Who interfered with it?
Here, it is crucial to note that the relief Pinnacle seeks is identical to the relief sought by Briarpark.
. . .
Defendants’ final contention is that substitution would be futile because any claims by Pinnacle are time-barred; the relation-back doctrine does not apply; and CPLR 204(b) does not toll the statute of limitations. The Court of Appeals summarized the raison d’etre of the statute of limitations in Flanagan v. Mount Eden Gen. Hosp., 24 N.Y.2d 427 (1969). The Court wrote:
At common law there was no fixed time for the bringing of an action. Personal actions were merely confined to the joint lifetimes of the parties. The Statute of Limitations was enacted to afford protection to defendants against defending stale claims after a reasonable period of time had elapsed during which a person of ordinary diligence would bring an action. The statutes embody an important policy of giving repose to human affairs.
Here, it is hard to discern how the purpose of the statue of limitations would be served if the court were to find that Pinnacle’s claims were time-barred based on the hypertechnical legal arguments of the defendants. It is important to note that defendants will suffer no legal prejudice or surprise if Pinnacle is substituted as a plaintiff, for no new cause of action is being asserted. Under such circumstances, defendants’ arguments miss the mark.
(Internal quotations and citations omitted).