Senate approves measure to limit so-called 'vulture fund' litigation over sovereign debt, 36-22

The New York State Senate on June 3 passed legislation intended to deter opportunistic litigation by certain investors in sovereign and other sovereign-related debt, voting 36 in favor and 22 opposed.

The bill, sponsored by Senator Liz Krueger and carried on the floor as calendar 1474 (senate print 14777), would restore a champerty-style defense in New York courts that backers say will limit litigation brought by investors who bought distressed sovereign debt primarily to sue. Senator Krueger told colleagues the change is meant to “deter wasteful disruptive litigation in the courts of New York State brought by investors seeking to game the sovereign crisis resolution process for their own personal profit.”

Supporters said the measure will protect orderly debt markets and New Yorkers’ financial interests. Krueger said high-profile cases involving Argentina and other sovereigns had produced “intensive disruptive litigation” that absorbed years of court time and threatened market stability. “This bill complements the decisions that were made then,” she said, and aims to “protect New Yorkers and New York investors.”

Opponents warned the change could drive business and legal work out of New York to other states and raise economic risks for the state. Senator James Martin, who spoke at length in opposition, said the bill “is irresponsible. It's a mistake,” arguing it could undermine New York’s longstanding role as a venue for global finance and harm state revenues. Martin said the financial industry “accounts for nearly 20% of revenues to our state” and warned that jurisdictions such as Texas are moving to attract business if New York’s legal framework shifts.

Senator Mike Walzick, another opponent, said the proposal would be “a sharp departure” from precedent and could “force a portion of the financial sector out of state.” Supporters countered that the bill merely restores a doctrine that governed New York law for more than a century and leaves final determinations to judges: Krueger noted the text requires a court finding of bad faith or prior history of abusive litigation before a plaintiff would be denied recovery.

Senator Gustavo Rivera, explaining his affirmative vote, said the bill targets “predatory bad actors” and does not impair legitimate lending: “What it does is it creates a situation where we know that there's bad predatory actors whose purpose is to lend money to put countries in bad situations so that they get more money back than they should through the courts, that's what this does.”

The measure was reported as taking effect immediately. The roll call showed 36 ayes and 22 nays; the Senate clerk later announced, “The bill is passed.”

Supporters and opponents urged close attention to downstream effects; sponsors said the law will protect orderly markets, while opponents said it risks sending revenue and legal work to other jurisdictions. The Senate adopted the bill after extended floor debate; implementation details and any subsequent court challenges would determine how the change affects sovereign-debt litigation going forward.