Senate passes measure reviving champerty defense for some sovereign-debt suits after heated debate

The New York State Senate on Wednesday approved legislation (Senate print 14 77, calendar 14 74) that revives a champerty-style defense in New York courts for certain suits over sovereign debt, clearing the bill by a 36-22 vote.

Supporters said the change aims to stop a handful of investors who buy distressed sovereign debt primarily to pursue litigation and profits in New York courts rather than to recover a legitimate investment. "Since we changed our law and got rid of the Champerty law, we have seen only a small number of companies, but significant companies, bringing court cases in New York state to basically get back underwater investments that they made knowing they were underwater," Sponsor Senator Krueger said on the floor.

The debate turned sharply partisan and technical. The bill’s sponsor and backers said courts — not the statute alone — will still decide case by case whether an investor acted in bad faith. "This bill complements the decisions that were made then, but the bill is required because these behaviors do continue by a very small number of investment companies," Krueger told colleagues, arguing the measure preserves orderly debt markets and protects holders of legitimate New York-issued debt.

Opponents called the change dangerous for New York’s financial ecosystem. "New York State has been the single largest repository of sovereign debt in the entire world," said Senator Martins, who urged rejection. "The idea that we would turn our backs as the preeminent place because of our laws and the stability of our laws is wrong." Senator Walzick said the financial sector contributes nearly $20,000,000,000 a year to state revenue and warned the bill could encourage creditors or market participants to move their business to other jurisdictions such as Texas.

Senator Rivera, speaking for supporters of the bill, framed the issue as stopping "predatory bad actors" who lend with an eye to litigation rather than repayment: "In certain instances, bad actors and financial institutions lend money with the purpose of suing," he said.

The measure drew attention to a 2004 statutory change and to recent developments in other states. Sponsor Krueger and others referenced litigation against countries such as Argentina and Peru to illustrate what they called disruptive, long-running suits by holdout creditors. Questions from senators during debate also noted that Texas enacted a law (Senate Bill 1239 in Texas) that some view as a potential competing venue for sovereign-debt litigation.

The bill does not eliminate a creditor’s right to sue automatically; it creates a legal defense a court may apply where the facts show an investor purchased debt with a primary intent to litigate and extract disproportionate recovery. Senators on both sides said the courts will still assess intent and previous conduct to decide whether the defense applies.

After debate closed, the roll call showed 36 ayes and 22 nays; presiding officers announced the bill passed. The Senate’s action sends the bill on to the next step in state procedure.

Votes and formal outcomes announced on the floor matched the roll call tally; the legislative record lists the senators who voted in the negative during the announcement of the results.