Optimal Strategic U.S. Equity Ltd. v. SPV OSUS Ltd., Index No. 653693/2014, 03/06/17 (Scarpulla, J.)

Assignment of Contract Rights; Third-Party Claims; Integration; Summary Judgment

By: Christine A. Kowlessar | Staff Writer

Plaintiff, a trading company, invested all its assets with a corporation that later collapsed. In its liquidation settlement with the corporation’s trustee, Plaintiff’s claim against the corporation was permitted to remain at a reduced amount (“Allowed Claim”). Restricted by a court order that permitted claims to be assigned to a third party in their entirety, Plaintiff created a “special purpose vehicle” (“SPV”) allowing investors to purchase the Allowed Claim.  Plaintiff assigned the Allowed Claim and certain other rights (“Assignment of Claim”) to the SPV. Upon a board change in SPV, an investigation of Plaintiff’s third-party service providers was launched. Plaintiff refused to provide any documents for the investigation and brought an action against SPV (“Defendant”), seeking a declaration stating that claims against any third-party servicer were not transferred under the Assignment of Claim. In its answer, Defendant asserted five counterclaims. First, Defendant alleged that Plaintiff breached the Assignment by refusing to acknowledge the rights transferred to Defendant to bring forth claims against third parties, withholding documents, and instituting the declaratory judgment action. The second and third claims alleged that Plaintiff breached the covenant of good faith and fair dealing and expressed warranties. The fourth and fifth claims alleged that Plaintiff committed fraud and made negligent misrepresentations.

Pursuant to CPLR § 3212, Plaintiff moved for summary judgment on its claim for a declaration and Defendant cross-moved for summary judgment. In its motion, Plaintiff asserted that service provider claims were not assigned to SPV within the scope of the Assignment of Claim and that SPV’s rights to service provider claims were not valid under Plaintiff’s account relationship with the liquidated corporation. Plaintiff argued that claims against third-party servicers do not arise “out of or in connection with the Purchased Claim” or “out of the Assignor’s investment in Debtor.” Plaintiff maintained that its contractual relationships were separate entities, and the contracts between Plaintiff and the servicers do not concern the corporation’s liquidation. Plaintiff further argued that other documents created during SPV’s formation must be considered to fully understand the meaning of the Assignment of Claim.

Defendant conversely argued that the Assignment did include the right to pursue claims against third parties, even if unrelated to the liquidation proceeding. Defendant also argued that potential claims against servicers could function as sources for recovery of the full value of the Allowed Claim.

The Court dismissed, without prejudice, the second, third, fourth, and fifth counterclaims, and granted partial summary judgment to Defendant on its first counterclaim. The Court held that potential claims against third-party servicers for any acts or omissions in connection with Plaintiff’s investment are included in the rights transferred to SPV in the Assignment of Claim.

First, the Court found that the Assignment of Claim was a complete and integrated contract, with unambiguous language. Some language indicates that tort claims against third parties may be upheld only if they are connected in some way to the Allowed Claim. Therefore, potential claims against third-party servicers could not arise under that portion. Second, the Court found broader language in the Assignment that includes all aspects of Plaintiff’s investment. Thus, SPV was assigned the right to pursue claims against the third-party service providers. Additionally, the Court held that the Assignment did not mention any holding back of funds by the servicers and there was evidence that the claims against these servicers would be of value to Plaintiff’s investors.

Optimal Strategic U.S. Equity Ltd. v. SPV OSUS Ltd., Index No. 653693/2014, 03/06/17 (Scarpulla, J.).

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