assignment of a cause of action precedent

Assignment of claims

An untraditional approach to combining the claims of plaintiffs; how it differs from class actions, joinder, consolidation, relation and coordination

A large class of plaintiffs engages you to bring a common action against a defendant or set of defendants. As counsel, you resolve to combine the plaintiffs’ various claims into a single lawsuit. In this article, we touch on some of the traditional approaches, such as a class action, joinder, consolidation, relation, and coordination. To that list, we add as an approach the assignment of claims, a procedural vehicle validated by the United States Supreme Court, but not typically employed to combine the claims of numerous plaintiffs.

Class actions

In Hansberry v. Lee (1940) 311 U.S. 32, the United States Supreme Court explained that “[t]he class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Courts are not infrequently called upon to proceed with causes in which the number of those interested in the litigation is so great as to make difficult or impossible the joinder of all because some are not within the jurisdiction or because their whereabouts is unknown or where if all were made parties to the suit its continued abatement by the death of some would prevent or unduly delay a decree. In such cases where the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation of the issues in which all have a common interest, the court will proceed to a decree.” ( Id. at pp. 41-42.)

In California’s state courts, class actions are authorized by Code of Civil Procedure section 382, which applies when the issue is “‘one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” ( Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 968; see also, e.g., Cal. Rules of Court, rules 3.760-3.771.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” ( Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.) “The community of interest requirement involves three factors: ‘(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’” ( Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; see Civ. Code, § 1750 et seq. [Consumers Legal Remedies Act]; cf. Fed. Rules Civ.Proc., rule 23(a) [prerequisites for federal class action].)

Parties, acting as co-plaintiffs, can also obtain economies of scale by joining their claims in a single lawsuit. Under California’s permissive joinder statute, Code of Civil Procedure section 378 (section 378), individuals may join in one action as plaintiffs if the following conditions are met:

(a)(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

This strategy of joining multiple persons in one action has been referred to as a “mass action” in some decisions involving numerous plaintiffs. (See Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1113; Petersen v. Bank of America Corp . (2014) 232 Cal.App.4th 238, 240 ( Petersen ); cf. 28 U.S.C. § 1332(d)(11)(B) [federal definition of “mass action”].)

In Petersen , for example, 965 plaintiffs who borrowed money from Countrywide Financial Corporation in the mid-2000’s banded together and filed a single lawsuit against Countrywide and related entities. ( Petersen , supra , 232 Cal.App.4th at pp.  242-243.) The plaintiffs alleged Countrywide had developed a strategy to increase its profits by misrepresenting the loan terms and using captive real estate appraisers to provide dishonest appraisals that inflated home prices and induced borrowers to take loans Countrywide knew they could not afford. ( Id. at p. 241.) The plaintiffs alleged Countrywide had no intent to keep these loans, but to bundle and sell them on the secondary market to unsuspecting investors who would bear the risk the borrowers could not repay. ( Id. at pp. 241, 245.) Countrywide and the related defendants demurred on the ground of misjoinder of the plaintiffs in violation of section 378. The trial court sustained the demurrer without leave to amend and dismissed all plaintiffs except the one whose name appeared first in the caption. ( Id . at p. 247.) The Court of Appeal reversed and remanded for further proceedings. ( Id . at p. 256.)

Petersen resolved two questions. First, it concluded the operative pleading alleged wrongs arising out of “‘the same . . . series of transactions’” that would entail litigation of at least one common question of law or fact. ( Petersen, supra, 232 Cal.App.4th at p. 241.) The appellate court noted the individual damages among the 965 plaintiffs would vary widely, but the question of liability provided a basis for joining the claims in a single action. ( Id. at p. 253.) Second, the appellate court concluded “California’s procedures governing permissive joinder are up to the task of managing mass actions like this one.” ( Id. at p. 242.)

Consolidation

Code of Civil Procedure section 1048, subdivision (a) provides that, “[w]hen actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (See also Fed. Rules Civ.Proc., rule 42.)

There are two types of consolidation. The first is a consolidation for purposes of trial only, when the actions remain otherwise separate. The second is a complete consolidation or consolidation for all purposes, when the actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment. ( Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147 ( Hamilton ).)

Consolidation is designed to promote trial convenience and economy by avoiding duplication of procedure, particularly in the proof of issues common to the various actions. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleadings, § 341, p. 470.) Unless all parties in the involved cases stipulate, consolidation requires a written, noticed motion (Cal. Rules of Court, rule 3.350(a); Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 514), and is subject to the trial court’s discretion. ( Hamilton, supra, 22 Cal.4th at p. 1147.)

In a procedure somewhat similar to consolidation, under California Rules of Court, rule 3.300(a), a pending civil action may be related to other civil actions (whether still pending or already resolved by dismissal or judgment) if the matters “[a]rise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact” or “[a]re likely for other reasons to require substantial duplication of judicial resources if heard by different judges.” ( Id. , rule 3.300(a)(2), (4).) An order to relate cases may be made only after service of a notice on all parties that identifies the potentially related cases. No written motion is required. ( Id ., rule 3.300(h)(1).) The Judicial Council provides a standard form for this purpose. When a trial court agrees the cases listed in the notice are related, all are typically assigned to the trial judge in whose department the first case was filed. ( Id ., rule 3.300(h)(1)(A).)

Related cases are not consolidated cases. Related cases maintain their separate identities but are heard by the same trial judge. Consolidated cases, in contrast, essentially merge and proceed under a single case number.

Coordination

Under Code of Civil Procedure section 404, the Chairperson of the Judicial Council is authorized to coordinate actions filed in different courts that share common questions of fact or law. (See Cal. Rules of Court, rule 3.500 et seq.) The principles underlying coordination are similar to those that govern consolidation of actions filed in a single court. (See Pesses v. Superior Court (1980) 107 Cal.App.3d 117, 123; see also 28 U.S.C. § 1407 [complex and multidistrict litigation].)

Thus, for example, in McGhan Med. Corp. v. Superior Court (1992) 11 Cal.App.4th 804 ( McGhan ), the plaintiffs petitioned for coordination of 300 to 600 breast implant cases pending in 20 different counties. Coordination was denied because the motion judge found that common questions did not predominate “in that the cases involve[d] different implants, different designs, different warnings, different defendants, different theories of defect, different modes of failure, and different injuries.” ( Id. at p. 808.) Among other factors, the trial court concluded that it was impractical to send hundreds of cases to a single county and that the benefits of coordination could be best achieved by voluntary cooperation among the judges in the counties where the cases were pending. ( Id. at p. 808, fn. 2.)

The Court of Appeal reversed in an interlocutory proceeding, ruling the trial court had misconceived the requirements of a coordinated proceeding. ( McGhan, supra, 11 Cal.App.4th at p. 811.) As the appellate court explained, Code of Civil Procedure section 404.7 gives the Judicial Council great flexibility and broad discretion over the procedure in coordinated actions. ( Id. at p. 812.) Thus, on balance, the coordinating judge would be better off confronting the coordination drawbacks (including difficulties arising from unique cases, discovery difficulties, multiple trials, the necessity of travel, and occasional delay) because the likely benefits (efficient discovery and motion practice) were so much greater. ( Id. at pp. 812-814.)

Civil Code section 954 states “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “thing in action” means “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) California’s Supreme Court has summarized these provisions by stating: “A cause of action is transferable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. . . .” ( Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The enactment of Civil Code sections 953 and 954 lifted many restrictions on assignability of causes of action. ( Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464; AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 244 Cal.App.4th 883, 891 ( AMCO ).)

Thus, California’s statutes establish the general rule that causes of action are assignable. ( AMCO, supra , 244 Cal.App.4th at pp. 891-892.) This general rule of assignability applies to causes of action arising out of a wrong involving injury to personal or real property. ( Time Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1009; see also, e.g., Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1381 [“‘assignability of things [in action] is now the rule; nonassignability, the exception. . .’”].)

Although the assignment of claims on behalf of others to an assignee, or group of assignees, is not unique, it has not typically been used as a procedural vehicle for combining the claims of numerous plaintiffs. But, that’s not to say it can’t be done.

In fact, the United States Supreme Court has sanctioned such an approach. In Sprint Communications Co., L.P. v. APCC Services, Inc. (2008) 554 U.S. 269 ( Sprint ), approximately 1,400 payphone operators assigned legal title to their claims for amounts due from Sprint, AT&T, and other long-distance carriers to a group of collection firms described as “aggregators.” ( Id. at p. 272.) The legal issue presented to the United States Supreme Court was whether the assignees had standing to pursue the claims in federal court even though they had promised to remit the proceeds of the litigation to the assignor. ( Id . at p. 271.) The Court concluded the assignees had standing.

In support of its conclusion, the Court recognized the long-standing right to assign lawsuits:

. . . [C]ourts have long found ways to allow assignees to bring suit; that where assignment is at issue, courts — both before and after the founding — have always permitted the party with legal title alone to bring suit; and that there is a strong tradition specifically of suits by assignees for collection. We find this history and precedent ‘well nigh conclusive’ in respect to the issue before us: Lawsuits by assignees, including assignees for collection only, are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’

( Sprint , supra , 554 U.S . at p. 285.)

On this basis, the Court concluded:

Petitioners have not offered any convincing reason why we should depart from the historical tradition of suits by assignees, including assignees for collection. In any event, we find that the assignees before us satisfy the Article III standing requirements articulated in more modern decisions of this Court.

( Sprint , supra , 554 U.S at pp. 285-286.)

The Court also considered the argument that the aggregators were attempting to circumvent the class-action requirements of Federal Rule of Civil Procedure 23. ( Sprint, supra, 554 U.S. at pp. 290-291.) The Court rejected this argument as a barrier to aggregation by assignment on the grounds that (1) class actions were permissive, not mandatory, and (2) “class actions constitute but one of several methods for bringing about aggregation of claims, i.e., they are but one of several methods by which multiple similarly situated parties get similar claims resolved at one time and in one federal forum. [Citations.]” ( Id. at p. 291.)

Granted, Sprint arose in the context of Article III, a “prudential standing” analysis. However, in reaching its decision that assignees had standing, the Court relied significantly on three California state decisions addressing assignment of rights under California law. (See Sprint, supra, 554 U.S. at pp. 294-296.)

Under California law, assignment of claims is not a panacea. Not all claims can be assigned. In California, assignment is not allowed for tort causes of action based on “wrongs done to the person, the reputation or the feelings of an injured party,” including “causes of action for slander, assault and battery, negligent personal injuries, seduction, breach of marriage promise, and malicious prosecution.” ( AMCO, supra , 244 Cal.App.4th at p. 892 [exceptions to assignment also include “legal malpractice claims and certain types of fraud claims”].) Other assignments are statutorily prohibited. (See, e.g., Civ. Code, § 2985.1 [regulating assignment of real property sales contracts]; Gov. Code, § 8880.325 [state lottery prizes not assignable].)

Likewise, because a right of action cannot be split, a partial assignment will require the joinder of the partial assignor as an indispensable party. (See, e.g., Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 [“[W]here . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs . . . ”]; 4 Witkin, Cal. Procedure, supra, Pleadings, § 131(2), p. 198 [“If the assignor has made only a partial assignment, the assignor remains beneficially interested in the claim and the assignee cannot sue alone”].)

That said, California’s rules of law regarding standing and assignments do not prohibit an assignee’s aggregation of a large number of claims against a single defendant or multiple defendants into a single lawsuit. To the contrary, no limitations or conditions on this type of aggregation of assigned claims is imposed from other rules of law, such as California’s compulsory joinder statute. (See Sprint , supra , 554 U.S. at p. 292 [to address practical problems that might arise because aggregators, not payphone operators, were suing, district “court might grant a motion to join the payphone operators to the case as ‘required’ parties” under Fed. Rules Civ.Proc., rule 19].)

There are many procedural approaches to evaluate when seeking to combine the claims of multiple plaintiffs. Class actions and joinders are more traditional methods that trial counsel rely on to bring claims together. Although a largely unexplored procedural approach, assignment appears to be an expedient way of combining the claims of numerous plaintiffs. It avoids the legal requirements imposed for class actions and joinders, and it sidesteps a trial judge’s discretion regarding whether to consolidate, relate, or coordinate actions. Indeed, under the right circumstances, an assignment of claims might provide a means of bypassing class action waivers in arbitration agreements. Perhaps an assignment of claims should be added to the mix of considerations when deciding how to bring a case involving numerous plaintiffs with similar claims against a common defendant or set of defendants.

Judith Posner

Judith Posner is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Gerald Serlin

Gerald Serlin is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

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Assignment of a claim or cause of action | Practical Law

Assignment of a claim or cause of action

Practical law uk practice note 1-522-7861  (approx. 32 pages).

Constitutional Remedies: In One Era and Out the Other

• Richard H. Fallon , Story Professor of Law, Harvard Law School
• See full issue

Introduction

“It is a settled and invariable principle,” Chief Justice Marshall once wrote, “that every right, when withheld, must have a remedy.” 1 Not quite. Although some view the idea of a substantive constitutional right without a remedy as oxymoronic, 2 rights to remedies have always had a precarious constitutional status, which the Supreme Court has lately subjected to multifaceted subversion. The rubric of rights to constitutional remedies encompasses diverse elements, including (1) the jurisdiction of a court to hear a claim, (2) the existence of a cause of action, 3 and (3) the availability of judicial relief. But the complex interrelationships among these elements should not obscure the practical and conceptual dependence of constitutional rights on mechanisms for their enforcement. 4

The recent decision in Whole Woman’s Health v. Jackson 5 exemplifies the Supreme Court’s accelerating attenuation of the relationship between substantive constitutional rights and rights to remedies. Jackson arose from Texas’s attempt to defeat suits for injunctions against an antiabortion law. In a ruling that epitomizes a sea change in the law of constitutional remedies, the Court, with Justice Gorsuch writing for the majority, 6 allowed Texas largely to succeed in its ambition, even as the majority assumed that the Constitution guaranteed rights of abortion access. (That assumption proved evanescent when, six months after its decision in Jackson , the Court overruled Roe v. Wade 7 in Dobbs v. Jackson Women’s Health Organization . 8 )

Legal and even constitutional barriers to the enforcement of rights are familiar in some contexts. Sovereign immunity normally bars unconsented suits against both the federal government and the states, including for constitutional violations. 9 When sovereign immunity is combined with the “official immunity” of government officers such as police and prosecutors, there are many cases in which victims of past constitutional violations receive no financial compensation. 10 By contrast, in cases of ongoing constitutional violations, such as school segregation or threats to enforce unconstitutional statutes, courts, for well over one hundred years, have much more routinely issued injunctions necessary to make constitutional rights meaningful in practice. 11 The Supreme Court’s decision in the Jackson case marked a break in that pattern.

The Texas Heartbeat Act, 12 also known as S.B. 8, combined three elements. First, in defiance of Roe and Planned Parenthood of Southeastern Pennsylvania v. Casey , 13 S.B. 8 purported to ban abortion as soon as fetal cardiac activity could be detected. 14 Second, to avoid preenforcement suits, S.B. 8 removed prosecutorial responsibility from the state’s Attorney General and other executive officials. 15 Instead, it authorized private citizens to bring civil actions against anyone who performed or abetted abortions. 16 Because private citizens can rarely violate the Constitution under the “state action doctrine,” 17 Texas hoped to leave those who wished to procure, abet, or perform abortions with no one to sue. The strictures of standing doctrine also posed obstacles to suits against all potential private enforcers of the Heartbeat Act. 18 Third, S.B. 8 subjected anyone who performed, aided, or abetted abortions to potentially draconian, multiple penalties. 19

Unwilling to perform abortions prohibited by S.B. 8 without the protection of a court order, Texas abortion providers quickly sought federal injunctions against the statute’s enforcement. 20 In Jackson , the Supreme Court framed the question before it as whether the challengers had adequately stated claims for relief against a private Texas citizen, the state’s Attorney General, a state judge, a court clerk, and various officials responsible for medical licensing. 21 The Court’s majority ruled that the plaintiffs lacked standing to sue the private defendant and the Texas Attorney General, 22 and that sovereign immunity barred suit against Texas judges and clerks, 23 but it found that medical licensing officials retained a role in enforcing S.B. 8’s substantive prohibitions and were therefore suable for injunctions under a legal theory long associated with Ex parte Young . 24

The ensuing headline was that the challengers had a federal right to challenge S.B. 8 via a suit against Texas “licensing officials.” 25 But the Texas Supreme Court — which is the ultimate authority on the meaning of Texas law 26  — subsequently held that those officials had no authority to enforce S.B. 8. 27 With that ruling, the plaintiffs’ hope for an injunction dissolved. It seems doubtful, moreover, that an injunction solely against licensing officials would have emboldened Texas abortion providers to violate S.B. 8. Under doctrines of claim and issue preclusion and precedent, a lower federal court’s decision to award such an injunction would probably not have bound the private parties that S.B. 8 empowered to bring suits for damages and other civil penalties. 28 The threat of private actions to enforce S.B. 8 in the Texas state courts, including ones brought after an anticipated overruling of Roe and Casey , would thus have remained.

In response to Justice Sotomayor’s dissenting protest that the Supreme Court should not permit Texas to evade suits for effectual injunctive relief against a statute that was plainly unconstitutional under Roe and Casey , 29 Justice Gorsuch emphasized that the state had not wholly insulated S.B. 8 from challenge. 30 Apart from the suit against licensing officials that the Court believed to be available, Justice Gorsuch noted that S.B. 8 might be challengeable in preenforcement suits for injunctions in Texas state court 31  — though he did not appear to condition the Court’s upholding of S.B. 8 on that uncertain possibility. 32 In any event, Justice Gorsuch wrote, any parties who were sued for violating S.B. 8 could assert their constitutional rights as defenses in the actions against them. 33

The right of defendants to argue that a statute being enforced against them violates the Constitution is indeed an important, constitutionally mandated component of the relationship between substantive constitutional rights and rights to remedies. Under the Constitution’s Supremacy Clause, courts must entertain properly presented constitutional defenses. 34 But reliance on that safeguard requires violating a statute and taking one’s chances that a constitutional argument will prevail. That can be a risky strategy in lots of contexts and was especially risky for the plaintiffs in Jackson because of the prospect that the Supreme Court might overrule Roe and Casey . It was to alleviate the chilling effects of threatened criminal and civil enforcement actions that the modern law of constitutional remedies had evolved to allow suits for injunctions as the norm. 35

The case- and abortion-transcending significance of Jackson lies in the Supreme Court majority’s treatment of that norm. On the most plausible reading, Jackson holds that there is no right to sue for an injunction against the enforcement of a statute even when it creates, and is designed to create, a chilling effect on the exercise of constitutional rights — at least, that is, when the right holders could, in theory, assert their rights as a defense against an enforcement action. If so, Jackson possesses enormous consequence. In addition to inviting other states to replicate Texas’s strategy in efforts to chill the exercise of constitutional rights, 36 Jackson pairs with the Supreme Court’s 2015 decision in Armstrong v. Exceptional Child Center, Inc. 37  — which held that the Supremacy Clause does not directly create a federal right to sue to enjoin the enforcement of unconstitutional state statutes 38  — to raise questions about whether parties ever have a constitutional right to equitable relief. If no constitutional mandate underlies the traditional practices of courts of equity in enjoining constitutional violations, then causes of action to sue for injunctions apparently exist only insofar as states choose to grant them as a matter of state law and Congress chooses to tolerate them as a matter of federal law.

For some parties who rely on injunctions to vindicate their substantive rights, moreover, defense against an enforcement action is not even a theoretical alternative. Consider, for example, someone who is subjected to unconstitutional prayer in a public school, or who is denied welfare benefits or fired from a job for unconstitutional reasons, or even the plaintiffs in Brown v. Board of Education , 39 who experienced racial segregation. Does the Constitution guarantee none of them rights to sue for injunctions or other remedies adequate to enforce their substantive rights? At the current time, most would-be plaintiffs who believe that state officials have violated their constitutional rights have statutory rights to sue for injunctions under 42 U.S.C. § 1983. 40

But what would happen if Congress took away statutory rights to sue to enjoin enforcement of unconstitutional statutes? Would there be a constitutionally mandated right to an injunction or other efficacious remedies?

Thirty years ago, I would have answered confidently that the answer to this question was yes. Closer to the present but prior to Armstrong and now Jackson , I still would have thought that the affirmative argument would likely convince a majority of the Justices. But now the argument that there is a constitutional right to effective injunctive relief against ongoing constitutional violations, even when there is no opportunity to vindicate substantive constitutional rights through a defense against an enforcement action, confronts gathering precedent-based headwinds.

In the view of some, it may be an ample response that Congress is unlikely, as a political matter, to preclude effective injunctive remedies for states’ ongoing violations of constitutional norms such as those barring segregation in public education, 41 school prayer, 42 or employment discrimination. 43 Viewing political developments as significantly unpredictable, I am less sanguine. But whatever one’s political prognostications, Jackson provides a reminder that major gaps can exist — sometimes because legislative bodies wish to create them — between constitutional rights and the remedies that would be necessary to enforce those rights in practice. Jackson thus provides an occasion for considering broad questions both about where the law of constitutional remedies currently stands and about how it is likely to change in the near future. Although much of my analysis takes Jackson as its point of departure, this Article highlights Jackson ’s connection to other recent doctrinal developments, including the Supreme Court’s decision in the same Term to make suits for damages against federal officials who violate constitutional rights nearly impossible to prosecute successfully. 44 Looking back at the 1971 decision in Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics , 45 which had first recognized a right of plaintiffs to sue federal officials for damages, 46 the Court indicated in Egbert v. Boule 47 that “if we were called to decide Bivens today, we would decline to discover any implied causes of action in the Constitution.” 48

In addressing questions about the present state and likely future of the law of constitutional remedies, this Article relies on two assumptions. First, we cannot understand what substantive constitutional rights are, or what it means to have a substantive right, without attention to the extent — if any — of available and possibly constitutionally guaranteed remedies. Second, we cannot understand the current law defining the relationship between substantive constitutional rights and rights of access to courts to vindicate them without understanding the historical and constitutional background from which the current law developed and, in increasingly important respects, from which the current law now deviates.

Against the background of those premises, this Article advances a single, central argument that combines empirical and normative aspects: shaping the right-remedy relationship is a crucial lawmaking function that has historically been shared between Congress and the courts, especially the Supreme Court. Contrary to some of the Court’s critics, the relationship between rights and remedies is not conceptually determinate. 49 One cannot deduce entitlements to particular remedies directly from the concept of a right without reliance on other premises and consideration of multiple contingent factors. 50 At the same time, contrary to some originalist-textualist debunkers of the law of constitutional remedies as it existed prior to cases such as Armstrong and Jackson , 51 nothing in the Constitution’s history or tradition mandates that the Supreme Court must leave the provision of remedies that are necessary to the effective enforcement of substantive rights entirely to Congress. Nor is Congress’s authority to grant or withhold remedies for constitutional violations, sometimes including damages and injunctions, wholly unconstrained. If we have entered an era in which a majority of the Justices believe otherwise, the situation is, in my view, a deeply regrettable one, which will cheapen what it means to have a constitutional right. 52 Rights that exist in name will increasingly fall vulnerable to flouting in the absence of political commitments to enforcing them. We also risk erosion of the rule-of-law ideal that the government and its officials should be accountable for their violations of law in actions before the courts. 53 Although some of my concerns and theses in this Article are familiar, my aim is to achieve a relatively panoptic perspective on historical trends and normative themes in the law of constitutional remedies, to bring criticisms of the Supreme Court’s restrictions of available remedies up to date, and to forecast likely future developments — a number of which I find alarming.

This Article unfolds as follows. Part I traces the emergence of what I call the traditional law of constitutional remedies from the Founding era through the latter part of the twentieth century. It also offers a brief normative defense, rooted in the ideal of the rule of law, of the doctrine that developed during this period. Part II identifies the beginnings of a revisionary movement in the late twentieth century, partly but not entirely driven by the Supreme Court’s increasing (but never complete) commitment to originalist and textualist interpretive methodologies. Part III examines the reasoning of the Court’s recent decision in Whole Woman’s Health v. Jackson . Part IV probes the likely implications of Jackson and other recent decisions for a number of important, looming issues concerning the relationship of substantive rights to constitutional remedies. Jackson , I suggest, is unlikely to mark the culmination of the Court’s project in making the availability of remedies for constitutional violations less a matter of constitutional right than a subject for political judgment and limitation both by state legislatures — as in Jackson  — and by Congress. Part V considers and rejects the suggestion, offered by the Court in Jackson , that its recent decisions restricting constitutional remedies reflect a stance of disciplined restraint and deference to Congress under the separation of powers. The Court, Part V argues, retains and sometimes aggressively employs a variety of nondeferential levers to shape the law of constitutional remedies to its preferences. Part VI concludes with reflections on constitutional change and likely developments in the long-term future.

^ Marbury v. Madison, 5 U.S. (1 Cranch) 137, 147 (1803) (citing 3 William Blackstone, Commentaries *109).

^ See, e.g ., Michael Coenen, Right-Remedy Equilibration and the Asymmetric Entrenchment of Legal Entitlements , 61 B.C. L. Rev . 129, 139 (2020) (defining “legal entitlement” to mean “remedy made available in response to a particular violation of a substantive right” (emphasis omitted)); Daryl J. Levinson, Rights Essentialism and Remedial Equilibration , 99 Colum. L. Rev . 857, 914 (1999) (“[R]ights and remedies operate as part of a single package.”).

^ Henry Paul Monaghan, A Cause of Action, Anyone?: Federal Equity and the Preemption of State Law , 91 Notre Dame L. Rev . 1807, 1809 (2016). According to Professors Samuel Bray and Paul Miller, traditional equity did not have causes of action even though appeals to courts exercising equitable jurisdiction “needed to connect” their prayers for relief to “some recurring pattern of equitable intervention.” Samuel L. Bray & Paul B. Miller, Getting Into Equity , 97 Notre Dame L. Rev . 1763, 1764 (2022). In this Article, I shall not dispute that historical claim, which the authors appear to base principally but not exclusively on private actions seeking relief from the inequities that would result if private law were applied strictly. Id . at 1778. In this Article, I am concerned exclusively with “causes of action” as that term is used in modern public law cases in which a plaintiff asks a federal court to provide a remedy for the violation of federal law.

^ See, e.g ., Levinson, supra note 2, at 858 (describing rights and remedies as “inextricably intertwined” and noting that rights rely on remedies “for their scope, shape, and very existence”).

^ 142 S. Ct. 522 (2021).

^ Justice Gorsuch’s opinion was joined in full by Justices Alito, Kavanaugh, and Barrett, and was joined in all but Part II.C by Justice Thomas. Chief Justice Roberts wrote an opinion concurring in the judgment in part and dissenting in part in which Justices Breyer, Sotomayor, and Kagan joined, id . at 543 (Roberts, C.J., concurring in the judgment in part and dissenting in part), and Justice Sotomayor filed an opinion concurring in the judgment in part and dissenting in part in which Justices Breyer and Kagan joined, id . at 545 (Sotomayor, J., concurring in the judgment in part and dissenting in part).

^ 410 U.S. 113 (1973), overruled by Dobbs v. Jackson Women’s Health Org., 142 S. Ct. 2228 (2022).

^ 142 S. Ct. 2228.

^ See generally Richard H. Fallon, Jr., John F. Manning, Daniel J. Meltzer & David L. Shapiro, Hart & Wechsler’s The Federal Courts and the Federal System 877–83, 895–922 (7th ed. 2015) [hereinafter Hart & Wechsler ] (discussing sovereign immunity).

^ The doctrine of official immunity frequently operates as a barrier to suits for damages against governmental officials when the officials are sued in their individual capacities. See id . at 1030–60 (discussing official immunity).

^ The federal judicial practice of issuing injunctions against ongoing violations of the Constitution by government officials is often traced to Ex parte Young , 209 U.S. 123 (1908). See, e.g ., Va. Off. for Prot. & Advoc. v. Stewart, 563 U.S. 247, 254 (2011); Frew ex rel . Frew v. Hawkins, 540 U.S. 431, 437 (2004). On the emergence of federal injunctions as a routine rather than extraordinary constitutional remedy, see, for example, Pamela S. Karlan, The Irony of Immunity: The Eleventh Amendment, Irreparable Injury, and Section 1983 , 53 Stan. L. Rev . 1311, 1327–30 (2001); and James E. Pfander & Jacob P. Wentzel, The Common Law Origins of Ex parte Young, 72 Stan. L. Rev . 1269, 1329–33 (2020). See also Douglas Laycock, The Death of the Irreparable Injury Rule , 103 Harv. L. Rev . 687, 692 (1990) (“Injunctions are routine . . . .”).

^ 2021 Tex. Sess. Law Serv. ch. 62 (West) (codified at Tex. Health & Safety Code Ann . §§ 171.201–.212 (West 2021)).

^ 505 U.S. 833 (1992), overruled by Dobbs , 142 S. Ct. 2228.

^ Tex. Health & Safety Code Ann . § 171.204(a) (West 2021).

^ Id . § 171.207(a) (“[T]he requirements of this subchapter shall be enforced exclusively through . . . private civil actions . . . .”).

^ Id . § 171.208(a).

^ See, e.g ., The Civil Rights Cases, 109 U.S. 3, 13 (1883) (“[U]ntil some State law has been passed, or some State action through its officers or agents has been taken, . . . no legislation of the United States under [the Fourteenth Amendment], nor any proceeding under such legislation, can be called into activity[,] for the prohibitions of the amendment are against State laws and acts done under State authority.”); Jackson v. Metro. Edison Co., 419 U.S. 345, 350–51 (1974) (setting out distinction between “private” and “State” action for purposes of the Fourteenth Amendment).

^ To establish standing, a plaintiff must establish (1) “injury in fact” that is (2) causally connected to the conduct challenged by the plaintiff’s lawsuit and (3) is likely redressable by a favorable judicial decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). In the case of a future, threatened injury such as being sued to enforce an allegedly unconstitutional statute, the harm-causing action must be “certainly impending” or at least substantially likely. Compare Clapper v. Amnesty Int’l USA, 568 U.S. 398, 409 (2013) (enforcement must be “certainly impending” (emphasis omitted) (quoting Lujan , 504 U.S. at 565 n.2; Whitmore v. Arkansas, 495 U.S. 149, 158 (1990))), with Susan B. Anthony List v. Driehaus, 573 U.S. 149, 164 (2014) (risk must be “substantial”). Under this formula, it may be difficult to establish that any particular private citizen is sufficiently likely to bring an enforcement action against any particular plaintiff to be causally responsible for the plaintiff’s injury and to show that an injunction against particular defendants would remedy the injury.

^ S.B. 8 provides for “statutory damages in an amount of not less than $10,000 for each abortion that the defendant performed or induced” in violation of the statute, plus fees and attorney’s costs. Tex. Health & Safety Code Ann . § 171.208(b) (West 2021). A party cannot be held liable more than once for the same violation. Id . § 171.208(c). S.B. 8 also bars defenses based on (inter alia) “non-mutual issue preclusion or non-mutual claim preclusion,” id . § 171.208(e)(5), and allows for venue in the county of residence of any private S.B. 8 plaintiff, id . § 171.210(a)(4).

^ See Whole Woman’s Health v. Jackson, 142 S. Ct. 522, 530 (2021).

^ See id . at 531–35.

^ Id . at 534–35.

^ Id . at 531–34.

^ 209 U.S. 123 (1908); Jackson , 142 S. Ct. at 535–36.

^ E.g ., Adam Liptak, Supreme Court Allows Challenge to Texas Abortion Law but Leaves It in Effect , N.Y. Times (Dec. 10, 2021), https://www.nytimes.com/2021/12/10/us/politics/texas-abortion-supreme-court.html [ https://perma.cc/37E6-QN44 ] (“The Supreme Court ruled on Friday that abortion providers in Texas can challenge a state law banning most abortions after six weeks, allowing them to sue at least some state officials in federal court despite the procedural hurdles imposed by the law’s unusual structure.”).

^ See, e.g ., Albertson v. Millard, 345 U.S. 242, 244 (1953) (per curiam) (“The construction given to a state statute by the state courts is binding upon federal courts.”).

^ Whole Woman’s Health v. Jackson, 642 S.W.3d 569, 574 (Tex. 2022).

^ See infra notes 293–95 and accompanying text.

^ Jackson , 142 S. Ct. at 545 (Sotomayor, J., concurring in the judgment in part and dissenting in part).

^ Id . at 537–38 (majority opinion).

^ Id . at 537.

^ See id . (characterizing the discussion of alternative remedies available to potentially injured parties as a “detour”).

^ Id . at 537–38; id . at 530 n.1 (“[A]pplicable federal constitutional defenses always stand fully available when properly asserted.” (citing U.S. Const . art. VI)).

^ See U.S. Const . art. VI, cl. 2.

^ See supra note 11 and accompanying text.

^ In California, for example, the state legislature has recently enacted S.B. 1327, which creates a private right of action, unenforceable by state officials, against any person who manufactures, imports, or sells assault weapons within the state, with damages of at least $10,000 for each violation. 2022 Cal. Legis. Serv. ch. 146 (West) (to be codified at Cal. Bus. & Prof. Code §§ 22949.60–.71 and Cal. Civ. Proc. Code § 1021.11); see also Hannah Wiley, Newsom Signs Gun Law Modeled After Texas Abortion Ban, Setting Up Supreme Court Fight , L.A. Times (July 22, 2022, 11:23 AM), https://www.latimes.com/california/story/2022-07-22/newsom-signs-gun-bill-modeled-after-texas-abortion-ban-setting-up [ https://perma.cc/5DC3-TEJM ] (discussing the bill’s passage).

^ 575 U.S. 320 (2015).

^ Id . at 327.

^ 347 U.S. 483 (1954).

^ Section 1983 provides the following: Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State . . . subjects, or causes to be subjected, any citizen of the United States . . . to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress . . . . 42 U.S.C. § 1983.

^ See, e.g. , Brown , 347 U.S. at 495.

^ See, e.g ., Engel v. Vitale, 370 U.S. 421, 424 (1962).

^ See, e.g ., Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 283–84 (1986) (plurality opinion).

^ See Egbert v. Boule, 142 S. Ct. 1793, 1809 (2022).

^ 403 U.S. 388 (1971).

^ See id . at 397.

^ 142 S. Ct. 1793.

^ Id . at 1809 (citing Ziglar v. Abbasi, 137 S. Ct. 1843, 1856–57 (2017)).

^ Cf., e.g ., Susan Bandes, Reinventing Bivens : The Self-Executing Constitution , 68 S. Cal. L. Rev . 289, 293–94 (1995) (arguing, based on the principle that “the judiciary has a duty to enforce the Constitution,” that “the Court must ensure that each individual before it receives an adequate remedy for the violation of constitutional rights,” id . at 293 (footnote omitted)); Martin H. Redish, Constitutional Remedies as Constitutional Law , 62 B.C. L. Rev . 1865, 1875 (2021) (“[C]onstitutional remedies . . . must be solely the province of the judiciary to maintain the power of judicial review . . . .”).

^ For the classic development of this thesis, see Henry M. Hart, Jr., The Power of Congress to Limit the Jurisdiction of Federal Courts: An Exercise in Dialectic , 66 Harv. L. Rev . 1362, 1366 (1953).

^ See John Harrison, Jurisdiction, Congressional Power, and Constitutional Remedies , 86 Geo. L.J . 2513, 2522 (1998) (arguing that the only constitutionally necessary remedy for violations of the Fourteenth Amendment is judicial nullification of invalid enactments).

^ For a partly parallel historical account of the judicial role in defining the relationship between constitutional rights and remedies, which also identifies a turn from prior patterns in recent decades, see Aziz Z. Huq, The Collapse of Constitutional Remedies 5–9 (2021).

^ See, e.g ., Gerald J. Postema, Law’s Rule: Reflexivity, Mutual Accountability, and the Rule of Law , in Bentham’s Theory of Law and Public Opinion 7, 39 (Xiaobo Zhai & Michael Quinn eds., 2014).

• Civil Rights
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• Separation of Powers
• Stare Decisis
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March 10, 2023

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Champerty and Assignment of Causes of Action

• public policy
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McCool Controls and Engineering Ltd v Honeywell Control Systems Limited [2024] IESC 5.

McCool Controls and Engineering Limited ( Company ) was the original plaintiff in proceedings against Honeywell Control Systems Ltd ( Honeywell ) for alleged breaches of an agreement between the parties.  The proceedings were commenced in 2005.  Mr McCool was the managing director and majority shareholder of the Company, and he brought an application to substitute him for the Company as the plaintiff in the proceedings, where the Company could no longer afford legal representation.  The application was based on an assignment entered into between the Company and Mr McCool, whereby the Company assigned the cause of action to him for the nominal consideration of €1 ( First Assignment ).  The First Assignment contained a clause allowing Mr McCool to reassign any or all the rights transferred ( onward transmission clause ).

Honeywell successfully applied to have the substitution order discharged. The High Court (Noonan J) found that the assignment was invalid and an abuse of process as it amounted to an impermissible attempt to circumvent the rule in Battle (as discussed in our article here ).  The assignment was also found to savour of champerty (meaning it is conducive to carrying out champerty) because it expressly provided for the onward transfer of the cause of action to a disinterested third party.  Mr McCool appealed the decision to the Court of Appeal ( COA ).

Despite the pending appeal, Mr McCool brought a second application to the High Court to be substituted as plaintiff.  This application was grounded on a second assignment executed by the Company in favour of Mr McCool ( Second Assignment ).  The Second Assignment was similar to the First Assignment, save that it omitted the onward transmission clause.   Simons J refused this application on the basis that the matter was already decided by the High Court in 2018.  Mr McCool also appealed this refusal to the COA.

The COA in 2022, dismissed both appeals upholding the findings of the High Court.  The COA found that the First Assignment savoured of champerty because Mr McCool did not have a pre-existing legitimate interest in the transaction giving rise to the claim.  Only the Company, which had entered the agreement with Honeywell, held that interest.

Mr McCool sought and obtained leave from the Supreme Court to appeal on the narrow grounds of whether an assignee of its interest in litigation by a corporate body can pursue the action by being substituted as a plaintiff in place of the company, irrespective of the purpose of the assignment.

Assignment of a bare cause of action

An assignment of a chose of action, such as a cause of action in litigation, is not enforceable under Irish law if it “savours of” maintenance or champerty.  “Savours of”, as explained by Murray J, means that the assignment offends the same public policy as maintenance and champerty. Champerty means an agreement to fund or support litigation in which the party providing that support has no legitimate interest, in return for some share in the proceeds of that litigation.  Maintenance occurs when a person supports litigation in which they have no legitimate interest.  Both are torts and offences under Irish law.

Assignments of bare causes of action have traditionally been regarded as commercialising litigation and therefore offensive.  Such assignments formed the subject of the seminal Supreme Court decision of SPV Osus v HSBC International Trust Services (Irl) Ltd [2018] IESC 44, (discussed in our article here )  which is authority for the position under Irish law that the assignment of a bare cause of action is unenforceable unless the assignee had a genuine commercial interest in the assignment.

Although leave to appeal in this case was restricted to a very narrow point around the rule in Battle, Mr Justice Hogan and Mr Justice Murray nonetheless considered the public policy behind the tort of champerty as applied to the assignment of a cause of action. Hogan J found it impossible to avoid considering the question of whether the First Assignment was champertous.

Murray J after reviewing existing authorities on the assignment of a cause of action/ right to litigate, summarised the relevant rules concerning assignments of bare causes of action as follows:

• Such an assignment is prima facie champertous and therefore unenforceable unless the assignee has a genuine commercial interest in the claim that pre-existed the assignment and was independent of it (e.g. through their shareholding or debt);
• However, the extent of the shareholding or debt cannot be so small that it renders their interest insubstantial.
• There should be a reasonable proportion between the percentage share of the proceeds of the claim taken by the assignee and their pre-existing commercial interest in the claim.

Hogan J referring to the comments of O’Donnell J in SPV Osus , and disagreeing with the findings of the COA, concluded that the First Assignment was not champertous because Mr McCool had a clear personal interest in the outcome of the proceedings. As the principal shareholder in the Company, he had a legitimate interest in receiving the assignment of the cause of action.  There was no question of him “investing in litigation”.

Whilst the validity of the assignment and the public policy issues regarding maintenance and champerty did not form part of the appeal to the Supreme Court, the comments of Murray and Hogan JJ are a welcome clarification of the principles that a court may apply in testing the validity of an assignment of a cause of action.

Notably, Hogan J applied a broader interpretation of the findings in SPV Osus than the COA had, in circumstances where Mr McCool and the Company had a shared mutual interest in the proceedings.  This might suggest a growing tolerance by the courts of assignments of a right to litigate/ bare cause of action.  It certainly shows that the law is continuing to develop in this area.

Regarding insolvent companies, and applying Murray J’s findings, such companies may face difficulties in establishing a pre-existing interest of sufficient substance to successfully stand over an assignment of a cause of action to their shareholders or creditors. However, in practice, large, interested creditors of insolvent companies often fund a liquidator to bring proceedings against third parties.  The extent of their debt will most likely be of sufficient substance to take the assignment outside the rules against maintenance and champerty.

We will continue to monitor developments in this area.  Should you wish to discuss this article or maintenance and champerty in general, please contact Ruairi Rynn , Paul Convery  or Barbara Galvin .

To read more about maintenance and champerty please see our previous William Fry articles here .

Contributed by Gail Nohilly

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Assignment of a claim or cause of action

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• Substantive Law
• 1 Scope of this note
• Effect of contractual prohibition on assignment
• 3 At what stage may a claim be assigned?
• 4 To whom can a cause of action be assigned?
• Legal assignment or equitable assignment?
• Requirements for a legal assignment
• Requirements for an equitable assignment
• Effect of consideration
• No loss occurring to assignee before assignment of claim
• General principles
• Exceptions to the rules on maintenance and champerty
• Security for costs
• Costs incurred by the assignor before the assignment
• Who is liable for costs awarded in favour of the defendant?
• Assignment of benefit and burden of solicitors' retainer
• When might an office-holder assign a claim?
• Who may assign a claim in insolvency?
• Claims capable of assignment by an office-holder
• Claims not capable of assignment by an office-holder
• Assignment of claims to an office-holder
• Potential liability of office-holder
• 10 Drafting an assignment of a cause of action
• Legal assignment
• Equitable assignment
• Assigning proceedings that have been commenced
• Counterclaims where a claim has been assigned

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9 Assigning ‘Bare’ Causes of Action: Proving a Genuine Commercial Interest

• Published: July 2023
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The requirement of proving that the assignee had a genuine commercial interest in the subject matter of the transaction applies particularly to where the assignor has sought to assign a cause of action, or a ‘bare right to litigate’. This approach flows from the analysis undertaken in Trendtex Trading Corp v Credit Suisse and has operated as a considerable brake upon the validity of assignments . It means that, where the assignment is challenged, the court must hunt for the ‘something more’, some genuine commercial interest over and above the assignee’s right in acquiring the cause of action and the profits that will accompany that assignment. Case law analysis reveals that several relationships between assignor and assignee have pointed to a genuine commercial interest on the assignee’s part; these are considered in this chapter. Various circumstances which show a close identity of interest between the assignor and the assignee have also proven to be important in upholding the validity of assignments. Both the categories of relationships and the identities of interest sufficient to justify an assignment are not closed but are constantly evolving. The chapter also considers the other side of the coin, viz , those matters which tend to denounce any genuine commercial interest that renders the assignment champertous. Before that, however, those things which are not assignable causes of action (causes of action that have not accrued at all, or causes of action that have been compromised) are discussed, for those are not champertous so much as ineffective.

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When Assigning the Right to Pursue Relief, Always Remember to Assign Title to, Or Ownership in, The Claim

• Posted on: Oct 4 2016

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.

BACKGROUND :

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, inter alia , 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.

Citations omitted.

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.

The Takeaway

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

cause of action

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A cause of action is a set of predefined factual elements that allow for a legal remedy . The factual elements needed for a specific cause of action can come from a constitution , statute , judicial precedent , or administrative regulation .

For instance, in New York, the “cause of action” necessary for conversion are 1) the existence of the plaintiff’s possessory right or interest in the item and 2) defendant’s dominion over that item or interference with it in derogation of plaintiff’s rights (stated through case law - see Colavito v New York Organ Donor Network, Inc. ). Likewise, in California, the elements for conversion are also dictated through case law . In the California Supreme Court case Lee v. Hanley , the court states that the elements of conversion are (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrong act or disposition of plaintiff’s property rights; and (3) damages suffered by plaintiff.

See  Claim  and  Civil procedure .

[Last updated in July of 2022 by the Wex Definitions Team ]

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Assignability of Causes of Action – A Divergence between the Federal and State Jurisdictions

A brief history

As a general proposition, a purported assignment of a cause of action that savours of maintenance will be void. A bare right of litigation, for example a right to recover damages in tort, has traditionally been considered not to be assignable either at law or in equity. 2 The cases have sometimes drawn a distinction between a so-called “personal right to litigate” as against an “impersonal right” in the nature of a proprietary right. 3 However, the distinction between so-called “personal rights” and “impersonal rights” is often elusive.

Historically, the courts have been reluctant to condone assignments of causes of action generally. Parker J in Glegg v. Bromley 4 observed:

“Equity on the grounds of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare rights were legal or equitable. I have looked at a good many authorities on that point, and I am satisfied that the real reason why equity did not allow the assignment of a bare right of action, whether legal or equitable, was on the grounds that it savoured of or was likely to lead to maintenance.”

The trial was heard by Fullagar J in the High Court. His Honour held that if there had been a tortious taking of the wool by the Commonwealth, the growers’ rights of action in tort against the Commonwealth could not be assigned at law or in equity to Mr Poulton. However, his Honour’s conclusions in that regard were obiter , given that his Honour found that the relevant regulations were valid and thus there had been no tort committed.

An appeal to the Full Court constituted by Williams, Webb and Kitto JJ was dismissed. At page 602, the Full Court said:

“. . . If it were true that the Commonwealth were guilty of conversion of the [growers’] wool, it would be the [growers] alone who could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to well established principle, the right was incapable of assignment either at law or in equity . . . ”.

Modern developments

In 1981, the House of Lords in Trendtex Trading Corporation v. Credit Suisse 6 liberalised the hitherto relatively strict rules against assignment of causes of action. Roskill LJ delivered the leading judgment. His Honour re-stated that it is a fundamental principle of English law that one cannot assign a bare right to litigate. However, if the assignment is of a property right or interest, or if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his or her own benefit, there is no reason why the agreement should be struck down as an assignment of a bare cause of action, or as savouring of maintenance. 7

Trendtex was a decision relating to the assignment of a contractual cause of action. In Giles v. Thompson, 8 the House of Lords extended the application of the Trendtex principle to tortious causes of action. The House of Lords determined that the question was whether there had been “wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse.” 9

Australian cases post- Trendtex

There is a division in the cases that have been decided in Australia since the House of Lords decision in Trendtex as to whether the Trendtex approach is to be preferred over the stricter approach set out in the dicta of the four judges of the High Court in Poulton . Decisions that support the adoption of the Trendtex principle in Australia are largely decisions in the State Supreme Courts. 10 In contrast, a number of single judges of the Federal Court have declined to apply the Trendtex approach and, instead, have expressed the view that the dicta in Poulton ought to be followed until the High Court determines otherwise, 11 although two recent Federal Court decisions suggest that Court may also be moving towards adoption of the Trendtex approach. 12

The Federal Court decisions have generally reflected the view that it is not open to courts of first instance to depart from the considered statements of the High Court in Poulton and that, in consequence, bare rights of action in tort should be regarded as incapable of assignment, whether or not the tort is of a personal kind. This view is reflected in the observations of the authors of Equity: Doctrines and Remedies (4 th Ed, 2002) at [6-480] that “. . . it is not easy for courts below the High Court legitimately to depart from the considered dicta of three [sic] High Court justices”. In fact, the dicta in Poulton are those of four High Court justices when one includes Fullagar J, who delivered the first instance decision.

The High Court considered in some detail the history of maintenance and champerty. At para [73], Gummow, Hayne and Crennan JJ said:

“Assignment of a chose in action ‘made with the improper purpose of stirring up litigation’ would raise questions of maintenance and champerty. But the mere assignment of the proceeds of litigation would not. If the assignment stipulated that the assignee should participate in the litigation, the assignment was lawful only ‘if he have some legal interest (independent of that acquired by the assignment itself) in the property in dispute; but that where his interest is generated only by the assignment itself, such a stipulation would be improper’”. 14

Commencing at para [79] of the joint judgment, the Court referred in detail to the decision in Trendtex , without apparent approval or disapproval of the approach of the House of Lords. Gleeson CJ concurred in the reasons of Gummow, Hayne and Crennan JJ on this public policy point. Their Honours concluded that the fact that Firmstones had sought out retailers with claims and had control of the litigation and that they hoped to profit from the litigation was not sufficient to warrant condemnation of the arrangements as being contrary to public policy or as leading to any abuse of process. 15 Callinan and Heydon JJ dissented on this point and found that the arrangements did constitute an abuse of process.

The Full Court of the Federal Court in Deloitte Touche Tohmatsu v. J P Morgan Portfolio Services Ltd, 16   found the issue, like that in Fostif , was whether a litigation funding agreement constituted an abuse of process. Once again, there was no assignment of any cause of action to the litigation funder. Tamberlin and Jacobson JJ (Rares J dissenting), held that it was not an abuse of process and that the litigation funder did have a genuine commercial interest in the enforcement of the claim. Both Fostif and Trendtex were cited in support. Rares J noted that it was common ground between the parties that the causes of action in question “ were not capable of assignment to [the litigation funder]”. 17

Of the exceptions to the more restrictive approach of the Federal Court to this question are two recent cases. The first was that of Finkelstein J in TS&B Retail Systems Pty Ltd v 3 Fold Resources Pty Ltd & Ors. 18   In obiter , his Honour said:

“In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd . . .  It may be that the debate is now over for the High Court in Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd . . .  seems to have approved Trendtex . . .  In any event, my own view is that the logic of Lord Roskill’s view [in Trendtex] is inescapable. That is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee”.

The second recent case in the Federal Court is Tosich v Tasman Investment Management Ltd 19 where Gyles J, having noted the divergence in the cases as to the application of Trendtex , expressed his view that the approach of the High Court in Fostif supported the reasoning of Finkelstein J in TS&B Retail.  

However, Heerey J as recently as October 2007 expressed a contrary view that the decision of the High Court in Poulton retains its authority, and that Trendtex is not good law in Australia. 20 Although the decision of Heerey J was appealed, the appeal was determined without reference to this point. 21

Assignment of contractual causes of action

The issue that then arises is as to whether a right to sue for unliquidated damages for breach of contract is capable of assignment. Meagher, Gummow and Lehane give a somewhat abbreviated answer in the negative, 25 and refer to cases such as  Torkington v. Magee 26 and County Hotel Co v. London and Northwestern Railways. 27 Likewise, Cheshire & Fifoot’s Law of Contract suggests that a bare right to litigate for a past breach of contract is generally not assignable, 28 although there is a suggestion that there may be exceptions to this proposition as set out in Trendtex .

If the Trendtex principle is applied, then bare rights to litigate for unliquidated damages for breach of contract may be assignable provided either:

(a)    they are annexed to a right of property;  or

(b)    the assignee has a genuine and substantial, or genuine commercial, interest in the enforcement of the cause of action.

Poulton dealt with the assignability of tortious causes of action. There is no High Court authority directly on the issue as to whether contractual causes of action may be assigned. The position so far as contractual causes of action were concerned was summarised by McDougall J in Rickard Constructions v. Rickard Hails Moretti Pty Ltd, 29 in the following terms:

“In relation to contractual causes of action, I find the distinction between liquidated and unliquidated claims difficult to follow. I have already noted that a debt is assignable even if it is overdue. As is pointed out in Meagher, Gummow and Lehane at 281 [6-480], where the debt is overdue, ‘there has been a breach of the contract to pay and . . . in fact, all that is assigned is the right to sue to recover the debt. The case of an overdue debt merely points up the problem inherent in the distinctions drawn in this breach [sic] of the law: for what is a debt but a right to sue to recover a sum certain? In what other sense is a debt to be regarded as property?’ I do not think that a rule based on public policy which encourages illogical distinctions of this sort should be applied unless there is no alternative. I do not regard the obiter statements in Poulton, limited as they are to an assignment of bare causes of action in tort, as providing a compelling reason to accept such illogical distinctions and their consequences”.

Accordingly, his Honour found that, in principle, an assignment of a cause of action in contract to recover unliquidated damages should be accepted where the assignee has a sufficient interest to support the assignment.

Assignment of causes of action in tort

A right to sue in tort is never itself property: it is a bare right of action. 30 The position of the assignability of causes of action in tort (at least non-personal causes of action) remains somewhat in a state of flux. Notwithstanding the High Court’s liberalisation of the law concerning maintenance and champerty in Fostif , the High Court has not expressly overruled the earlier strong dicta of four judges of the Court in Poulton . However, there is a sense that the march of the law is generally heading away from the strict approach exemplified by Poulton and towards a more general acceptance of the approach adopted by the House of Lords in Trendtex . 

Nevertheless, the position of the majority of the Federal Court cases is exemplified generally by the approach Rares J in Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd 31 where it was said:

“New Boston argued that I should not follow the decision of the High Court in Poulton . . . which denied that a right of action in tort was assignable at all. It was suggested that this was the old view of the law. New Boston argued that I should follow what was said by Debelle J in South Australian Management Corp v. Sheahan . . . namely that the decision could be explained as relating to an assignment of a claim in tort where the assignee had no genuine commercial interest. However, in Garcia v. National Australia Bank Ltd (1998) 194 CLR 395 . . . at [17] Gaudron, McHugh, Gummow and Hayne JJ made it clear that the doctrine of precedent in Australia binds me to follow the decisions of the High Court unless and until that court decides that the time is right for a change in the law. I propose to do that. There is no basis to read down the considered judgment of Williams, Webb and Kitto JJ in Poulton . . . that a right of action in tort is incapable of assignment at law or in equity. I am of opinion that Debelle J was wrong not to have applied this binding authority”.

This approach seems to have been generally reflected in the Federal Court decisions (with the exception of the decisions of Finkelstein J in T S & B Retail Systems Pty Ltd 32 and Gyles J in Tosich v Tasman Investment Management Ltd 33 ). However, the almost universal approach of the State Supreme Courts has been to apply the Trendtex doctrine and to conclude that a cause of action in tort may be assigned (at least not a personal cause of action) provided that the assignee has the necessary interest in the litigation. 34

There remains some question as to whether causes of action for personal torts (such as damages for personal injury, defamation or false imprisonment) may ever be capable of being assigned. 35

Assignment of causes of action in equity

A bare right to sue in equity has traditionally been considered not able to be assigned. 36 However, one must question the appropriateness of maintaining a distinction between equitable causes of action and contractual or tortious claims. Indeed, it may be that the courts are moving towards a position that even equitable causes of action may be assigned provided that the assignee has the necessary interest in the outcome of the litigation.

Nevertheless, this matter has not been the subject of much judicial consideration in recent times. 

Assignability of statutory causes of action

Whether a statutory cause of action is assignable will turn on the terms of the statute. To take but one example, there has been frequent litigation concerning the assignability of causes of action under sections 82 or 87 of the Trade Practices Act 1974. It is well established that causes of action for recovery of damages under either of those sections are not capable of assignment. 37 A cause of action under the corresponding provisions of the Fair Trading Act of the States is also not able to be assigned. 38

The necessary interest to support an assignment

It is clear that, even if Trendtex is good law in Australia, any assignee must have more than a mere personal interest in profiting from the proceedings. Cohen J in Monk v. Australia & New Zealand Banking Group Ltd 39 said:

“In my opinion [the interest claimed by the plaintiff] is not a genuine commercial interest in the way that the phrase has been used in the judgments. Examples may be given from the facts in the various cases concerned. For instance it was held that there was such an interest where the assignee was already a substantial creditor of the assignor with a right to enforce the debt (Trendtex, re Timothy’s) or where the assignee was the sole shareholder who was a guarantor of the overdraft of the assignor (re Daley) or where the assignee was a debenture holder with an interest in protecting the value of its security (First City Corporation)”.

Lindgren J in National Mutual Property Services (Australia) Pty Ltd v. Citibank Savings Limited 40 said:

“. . . The genuine commercial interest referred to in Trendtex is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment”.

These reasons were approved by Heerey J in Salfinger v. Nuigini Mining (Australia)Pty Ltd. 41

Mere personal interest of the assignee will therefore be insufficient. General commercial advantage will also be an insufficient ground to found an assignment. The assignee must have some commercial interest which the assignment may in some way protect.

The issue of the assignability of causes of action is an area of the law that has been in a state of some flux for many years. Notwithstanding this, it is somewhat surprising that there is little direct High Court or intermediate Appellate Court authority on the issues that have been explored in this paper.

There has been a clear divergence between the general approach of the Federal Court (preferring to adopt the approach in Poulton and eschewing the Trendtex approach) and that of the State Supreme Courts which have instead embraced the Trendtex position. There is a suggestion in some of the most recent Federal Court cases that that jurisdiction may be moving towards embracing Trendtex as good law, although this is certainly not a uniform phenomenon.

The effect of the divergence is that particular care should be taken when determining which court to proceed in if reliance is to be placed upon an assignment of causes of action, whether in contract, tort, or equitable causes of action. The Federal Court has shown a much more marked reluctance to uphold assignments of causes of action generally.

The inconsistencies between the various single court decisions will ultimately have to be resolved by a decision of the High Court. Given the decision in Fostif , where a rather more liberal view of the law of maintenance and champerty was expressed in the majority decision, one might expect that the Trendtex approach will ultimately prevail. However, until the High Court has given that pronouncement, practitioners should be alive to the differing approaches by the courts in this complex area of the law.

Matthew Brady

• The writer acknowledges the assistance obtained from the research of Mr G Gibson QC and Mr D O’Brien of counsel in the preparation of this paper – however all errors are the writer’s alone.
• See, Cheshire & Fifoot’s Law of Contract, 9 th ed, 2008, para [8.7]. 
• See, T S & B Retail Systems Pty Ltd v. 3 Fold Resources Pty Ltd & Ors (2007) 158 FCR 444 at 465. 
• [1912] 2 KB 474 at 489-490.
• [1953] 89 CLR 540. 
• [1982] AC 679. 
• At 696 – 697; 703. 
• [1994] 1 AC 142.
• At p 164 per Mustill LJ, with whom the other members of the House agreed. 
• See, Re Timothy’s Pty Ltd and The Companies Act [1981] 2 NSWLR 706; Monk v. Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148; South Australian Management Corporation v. Shehan (1995) 16 ACSR 45 (Debelle J); Beatty v. Brashs Pty Ltd   [1998] 2 VR 201 (Smith J);  Singleton v. Freehill Hollingdale & Page   [2000] SASC 278 (Olsson J); Vangale Pty Ltd (In Liquidation) v. Kumagai Gumi Co Ltd   [2002] QSC 137 (Mullins J); Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd (2005) 220 ALR 267 (McDougall J); Scholle Industries Pty Ltd v AEP Industries (NZ) Ltd [2007] SASC 322 (Withers J). In New Zealand see First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (Gault J). McMurdo J in BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141 at [76] and Beech J in Corporate Systems Publishing v Lingard (No 4) [2008] WASC 21 at [53] — [58] noted the diverge in the authorities but did not express a preference.
• See, Park  v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 (Davies J); All State Life Insurance Co v. Australia & New Zealand Banking Group Ltd (FCA, Beaumont J, No G381 of 1994, 7 November 1994, unreported, BC 9400129); National Mutual Property Services (Aust) Pty Ltd v. Citibank Savings Ltd (1995) 132 ALR 514 (Lindgren J); Chapman v. Luminis (No 4) (2001) 123 FCR 62 (von Doussa J); Deloitte Touche Tohmatsu v. Cridlands Pty Ltd   (2003) 134 FCR 474 (Selway J); Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (2007) 236 ALR 720 (Rares J); Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 (Heerey J).
• See TS&B Retail Systems Pty Ltd v 3-Fold Resources (2007) 229 ALR; Tosich v Tasman Investment Management [2008] FCA 377
• (2006) 229 CLR 386 
• Footnotes omitted. 
• See, [88]. 
• (2007) 158 FCR 417.
• At para [134]. 
• [2007] FCA 151.
• [2008] FCA 377 at [29]-[33].
• Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [119]. 
• [2008] FCAFC 103
• See Comfort v. Betts [1891] 1 QB 737; Fitzroy v. Cave (1905) 2 KB 364;  County Hotel and Wine Co v. London & Northwestern Railway Co [1918] 2 KB 251; Re Daley;  Ex parte: National Australia Bank Ltd (1992) 37 FCR 390 at 394-5.
• Torkington v. Magee [1902] 2 KB 427.
• Rickard Constructions v. Rickard Hails Moretti Pty Ltd (supra) at 281; Camdex International Ltd v. Bank of Zambia [1998] 2 QB 22; Re Kenneth Wright Distributors Pty Ltd (In Liquidation); W J Vine Pty Ltd v. Hall [1973] VR 161. 
• See, para [6-480] at p 282. 
• Supra . 
• At para [8.7].
• (Supra) at [54]. 
• Prosser v. Edmonds (1835) 160 ER 196. 
• (2007) 236 ALR 720 at [73]. 
• Supra 
• See Supreme Court cases referred to earlier.
• See, Trendtex (supra), at 702; South Australian Management Corp v. Shehan (1995) 16 ACSR 45 at 57-58; Monk v. Australia & New Zealand Banking Group (1994) 34 NSWLR 148 at 151-153. 
• Prosser v. Edmonds (1835) 160 ER 196;  Glegg v. Bromley [1912] 3 KB 474 at 489-490. 
• See, Park v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 at 53,467; Allstate Life Insurance Co v. Australia & New Zealand Banking Group Ltd [1994] FCA 814 at [18]; Pritchard v. Racecage Pty Ltd (1997) 72 FCR 203 at 218;  Chapman v. Luminis (No 4) (2001) 123 FCR 62 at [204] – [207];  Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (supra) at [50] – [52]; Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) (supra) at [110]. 
• See, Chapman v. Luminis Pty Ltd (supra). 
• Supra , at 153. 
• Supra , at 540.
• Supra , at [121] – [122]. 

How do I assign a claim or cause of action?

Published by a lexisnexis dispute resolution expert.

This Practice Note considers how you may assign a claim or cause of action in law or in equity , including the specific issues to consider when drafting the assignment, such as recoverable losses and costs liability post-assignment.

For guidance on when you may assign a claim or cause of action, see Practice Note: In what circumstances can you assign a claim or cause of action?

Note : in this Practice Note, we refer to the assignment of both causes of action and claims. We define a cause of action as ‘...a factual situation the existence of which entitles one person to obtain from the court a remedy against another person’ ( Letang v Cooper ) and a claim as the formal assertion of a cause of action by a claimant against a defendant. In the authorities , the phrases 'assigning a cause of action' and 'assigning a claim' are sometimes used interchangeably. For the purposes of this Practice Note, unless the context indicates otherwise, we refer to:

assigning ‘causes of action’ when

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Key definition:

Equity definition, what does equity mean.

Capital that is used to finance companies in the form of ordinary share capital as opposed to debt finance. The term is also sometimes used to describe preference shares or subordinated loan capital contributed by equity investors (commonly known as quasi-equity) to distinguish it from third party debt.

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2 – Corresponding legal duty in the defendant toward the plaintiff

The second element of the cause of action corresponds to the primary right of the plaintiff. This duty may arise from a contract or may be imposed by positive law independent of the contract, or it may arise ex contractu or ex delictu (consequences from breaching the contract).

There are several ways to determine whether the defendant had a duty to act:

• The defendant is engaged in the creation of the risk which resulted in the plaintiff’s harm.
• Voluntary undertaking: The defendant volunteered to protect the plaintiff from harm.
• Business/voluntary relationships:
• Business owner and customer;
• Innkeeper and guest;
• Land possessor who opens her land to the public;
• A person who voluntarily takes custody of another person.

Case example: Solomon v. Bates (N. C.)

In this case, the theory involves directors that are trustees for creditors, and individually owe a legal duty to them. The directors were wrong acting in a fraudulent, negligent, mismanagement affecting the creditor’s rights.

Case example: Purcell vs R.R 108 N.C 414

The court gave the verdict that the failure to discharge the duty required by the laws was a wrong caused by the defendant’s negligence -tort- and is properly united by the tort by fraud and deceit form part of the complaint.

3 – Wrong or violation of the plaintiff’s right, or breach of duty on the part of the defendant

Duty is the action which is to be done or not done by the person in obligation of it. A cause of action arises wherever there is proof that there was the existence of a duty towards the plaintiff by him which he failed to procure resulting in a breach. For instance, negligence as a Tort is a breach of duty that is not desired by the plaintiff but committed by the defendant.

The Wrongful Act or Omission forms part of the action that leads to affecting the right of the plaintiff.

• A buys a horse from B.
• Later he came to know that the horse is suffering from a life-threatening disease.
• As a result, B’s Non-Disclosure of information is part of the Wrongful Act with his clear intention to commit fraud against A.
• Here, A has full rights to bring legal action against B.

Case example: Hart v. Hanson , 14 N.D. 570, 105 N.W. 942 (1905)

The defendants were directors of the State Bank of Northwood, the plaintiff and his assignors became sureties on the such-depositary bond, and the same was delivered to and accepted by the county. County funds were thereupon deposited in the bank and were closed by the state authorities by reason of its insolvency. Here the defendant’s activities are part of the question since they acted fraudulently, as they already knew the insolvency of county funds but they remained silent . They were also the trustees in whose name the creditors invested money. Consequently, the directors were held completely liable to creditors.

When the defendant intentionally interferes with the rights of the plaintiff they lay the foundation for the lawsuit with the cause of action.

Case example: Davenport v. Underwood

The court held the defendant liable. The bank directors were held responsible for causing losses for the bank as they were directly liable to depositors on the grounds of fraud and negligence while performing the corporation’s duties.

Case example: Delano v. Case

In this case, the defendant committed a wrongful act on the ground of negligence. The court ruled that the purpose of cause of action could exist where there has been a liability in the right of the corporation to be enforced.

4 – Concurrence of right, duty, and wrong

According to Salmond “no right can exist without any corresponding duty and vice versa”.

Every person is rendered some rights which are granted to him against individuals or some against the public at large. These rights cannot be taken away. On the other hand, it’s the duty of individuals around him to let him enjoy his right by doing or restraining from doing anything which may hinder it. Rights and duties exist simultaneously.

A right is an interest protected by the law or the state, and it’s the duty that mandates the protection of the right. But when the protection is infringed by a failure to follow the duty, it gives rise to the wrong committed and hence, to a cause of action. This renders another right to claim the damage suffered for the one whose right was infringed.

5 – Damage

When the duty obliged is not performed, the right is infringed causing loss or damage and can be claimed with the cause of action that arose. Damages can be defined as the injury caused or loss incurred by the plaintiff due to the failure of the defendant and can be remedied by issuing the cause of action claiming damages.

Case example: Marzetti v. Williams (1830) 1 B & Ad 41

This case stated that every contract implies a duty to be performed by the parties and in the event of breach, cause of action arises against the party at fault mandating the use of the maxim, Ubi jus ibi remedium . Where there is action given by law, there are damages to the violated right.

6 – Concurrence of wrong and damage

The maxims damnum sine injuria and injuria sine damnum are elaborative of the relationship between the wrong and damage. Damnum sine Injuria refers to damages without injury or damages where there is no infringement of any legal right in spite of the loss which might have been incurred.

On the other hand, Injuria sine damno refers to infringement of legal right without causing any harm, loss, or damage to the plaintiff. Whenever any legal right is infringed, the plaintiff or the one who suffers can bring a cause of action against the one who infringed the right. Therefore, damages are the result of the cause of action through an actionable wrong.

Case example: Clark v. McClurg 215 Cal 279

In order to establish that there was breach of duty, the plaintiff must not only prove the existence of actionable wrong but also damages thereof. It was emphasized that the concurrence of actionable wrong and damages are important for the cause of action to be advanced.

Case example: Mogul Steamship Co Ltd v McGregor, Gow & Co [1892] AC 25

This case established that immoral acts done in a lawful manner led to no legal injury, hence no damages to be claimed by the plaintiff, and no point of the cause of action.

Last thoughts for the legal researcher

Although this guide is limited in scope and purpose, it’s clear that your own duty as a lawyer is to be well-versed with the facts of a case and to competently analyze similar cases where possible. This demands significant time and effort in both research and analysis, and understandably so. Yet the energy spent in gathering pertinent definitions and requirements don’t need to be so cumbersome.

The steps laid out above to specify causes of action serve only as basic principles so you can confidently proceed to the next phase of thorough analysis and file a lawsuit.

Originally published on November 17, 2022

The content appearing on this website is not intended as, and shall not be relied upon as, legal advice. Although this content was created to provide you with accurate and authoritative information, it was not necessarily prepared by attorneys licensed to practice law in a particular jurisdiction. It is general in nature and may not reflect all recent legal developments. Thomson Reuters is not a law firm and an attorney-client relationship is not formed through your use of this website. You should consult with qualified legal counsel before acting on any content found on this website.

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Assigning claims – A practical update

Assigning claims - A practical update

Siba diqer and justin ward write for the australian restructuring, insolvency & turnaround association journal (volume 32 #01 2020) on pricing, structure and the practicalities involved in the purchase of causes of actions belonging to a company and those conferred on the liquidator by the corporations act 2001 (cth)..

The first of March marked the second anniversary of the changes to the Corporations Act 2001 (Cth) (Act) permitting an external administrator to assign rights to sue.

The Australian Government proposed the reform in the hope that the ‘sale of rights of action may enable the value in such rights to be realised’ [1] .

This article is based on our experience over the past two years of purchasing claims through our LCM Recoveries program as an alternative to traditional litigation funding.

It explores the causes of action which can be assigned, the pricing of an assignment, structuring the assignment, and the answers to some practical queries that are frequently raised in relation to claim purchases.

Why assign?

At the outset, it is important to note that the ability to assign claims has provided liquidators with an additional tool to maximise creditor outcomes.

This has been achieved through the:

• ability of liquidators to fund claims that would not have met traditional funding criteria
• ability of liquidators to distribute funds to creditors before the resolution of a claim and, in some circumstances, finalise the liquidation before the resolution of the dispute
• increase of options available to liquidators when realising company assets, and
• mitigation (and in some circumstances elimination) of the risks and costs associated with protracted litigation. In our experience, the ability to assign claims has resulted in improved outcomes for creditors and other stakeholders.

What claims can be assigned?

Liquidators have the power to sell causes of action belonging to the company [2] and causes of action conferred on the liquidator by the Act. [3] Actions belonging to the company which are assignable include:

• the right to recover unpaid debts, and
• contractual rights to claim damages (where the contract does not prohibit assignment). [4]

Causes of action conferred on the liquidator by the Act, which may be assigned, include claims relating to:

• unfair preferences [5]
• uncommercial transactions [6]
• insolvent transactions [7]
• unfair loans to a company [8]
• unreasonable director-related transactions [9] , and
• a director’s duty to prevent insolvent trading by the company [10] .

A company’s statutory causes of action which are not otherwise assignable cannot be assigned merely because of the liquidation of the company. For example, a claim in respect of misleading and deceptive conduct cannot be assigned [11] , and there is conflicting authority on whether a breach of director duties claim under s 180 to 184 of the Act is assignable [12] .

Once assigned, the plaintiff named in the action will be the assignee instead of the liquidator or the company.

Pricing the assignment

In pricing claims purchased by LCM, liquidators have relied on a discounted cashflow methodology to ascertain the present value of the claim. This process relies upon the preparation of a cashflow model which recognises cash outflows (legal fees, liquidator’s fees, disbursements, after-the-event insurance, funding and other costs) and cash inflows (claim value less settlement discount), which are then discounted at an appropriate discount rate to provide a current value of the claim.

In our experience, the use of this methodology allows for a clear and transparent pricing assessment, which can be objectively supported and justified to creditors and, if necessary, to the court. (Although any approval pursuant to s 477(2B) of the Act is unlikely to include a review of the commerciality of the transaction [13] and, in any event, we consider that the above approach would satisfy a liquidator’s obligations when exercising their powers pursuant to s 477 of the Act [14] ).

Structure of assignments

The purchase may be structured in a number of ways, including:

• One-off upfront paymen t – This allows the administration of the company to be finalised and funds to be distributed to creditors and other stakeholders.
• One-off payment upon the completion of investigations – This allows for the quantification of the claim by the purchaser, thereby de-risking the matter for the assignee and maximising purchase price and returns to creditors. LCM as assignee has successfully obtained eligible applicant status in order to conduct public examinations and facilitate this investigation phase post assignment.
• Split payment with an up-front component and a contingent back-end payment calculated as a percentage of the proceeds of recovery – While this requires the external administration to continue and creditors to await the outcome of the litigation, this structure maximises returns for creditors in circumstances where there is uncertainty regarding the claim size.

Regardless of the structure agreed, in our experience, the assignment of the cause of action has resulted in an earlier distribution to creditors and a much lower level of risk for liquidators.

Practical queries

A number of queries are often raised in relation to the practical aspects of a claim purchase, including:

Can the liquidator provide documents in relation to the claim to the assignee?

Yes. As discussed above, a liquidator may assign its right to sue under the Act [15] and ‘sell or otherwise dispose of, in any manner, all or any part of the property of the company’ [16] including a chose in action [17] . Pursuant to s 477(2)(m) of the Act, a liquidator may ‘do all such other things as are necessary for winding up the affairs of the company and distributing its property’.

By way of analogy, in order to sell the business of the company, certain financial records of the company must be provided to the purchaser. Similarly, in order to sell a claim and distribute the proceeds, certain financial records can be provided to the assignee. This is because the assignee must have access to certain documents in order to be in a position to run the purchased claim, much like the purchaser of a business requires company records to run the business.

Will confidentiality and privilege be preserved?

Yes. It is standard practice to enter into a confidentiality agreement prior to accepting documents in support of a funding application or potential assignment. The purpose of this agreement is to preserve confidentiality, the assignor’s privilege and the parties’ common interest privilege.

Both assignor and assignee ‘share an interest in the successful prosecution of the litigation and the advice given in relation to the litigation’ [18] . Nevertheless, when purchasing a claim by way of assignment, the assignee will often obtain its own independent legal advice.

Will the liquidator need to stay involved and how is that relationship governed?

Although uncommon, in some circumstances there may be a need for the liquidator to provide assistance to the assignee following an assignment.

In matters involving LCM, this issue has been resolved through provisions in the deed of assignment which allow LCM to obtain the liquidator’s services at their standard hourly rate, effectively on the basis of a consultancy. The structuring of the relationship in this way does not prevent the liquidator from finalising the relevant administration.

Change in funding dynamics

The changes to the Act allowing the sale of liquidators’ claims (along with the existing rights to assign company claims) have provided a significant change in the funding dynamics of insolvency claims.

In our experience, the ability to assign claims has resulted in improved outcomes for creditors and stakeholders generally. It has provided liquidators with additional flexibility and, notwithstanding some areas of uncertainty, is generally achieving the stated goal of enabling ‘the value in such rights to be realised’ [19] .

1 Secretary to the Treasurer and Attorney-General, Parliament of Australia, Proposals Paper: A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia, (2011) 39.

2 Corporations Act 2001 (Cth) s 477(2)(c).

3 Insolvency Practice Schedule (Corporations) s 100-5.

4 Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd [2018] VSC 633; CGS Owners of Strata Plan No 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285.

9 s 588FDA.

11 Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd [2018] VSC 633; Aquatic Air Pty Ltd v Siewert [2015] NSWSC 928.

12 Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233 compared with Re Novaline Pty Ltd (in liq) (2011) 282 ALR 49.

13 McLean v Elvapine Aberglasslyn Road Pty Ltd [2008] NSWSC 484.

14 Wentworth Metals Group Pty Ltd v Leigh and Owen (as liquidators of Bonython Metals Group Pty Ltd): In the matter of Bonython Metals Group Pty Ltd (in liq) [2013] FCA 349.

15 Insolvency Practice Schedule (Corporations) s 100-5.

16 s 477(2)(c).

17 s 9 (definition of ‘property’).

18 Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 361 [32].

19 Secretary to the Treasurer and Attorney-General, Parliament of Australia, Proposals Paper: A modernisation and harmonisation of the regulatory framework applying to insolvency practitioners in Australia, (2011) 39

Investment Manager - APAC

[email protected]

+61 418 815 863

Justin Ward

Portfolio Manager - APAC

[email protected]

+61 2 8098 1396

+61 420 305 345

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Deeds of assignment - what claims are you really buying?

Global Corporate Limited v Dirk Stefan Hale [2017] EWHC 2277 (Ch) 

A recent judgment re-iterates the importance of carefully drafting a deed of assignment when assigning claims.

In Global Corporate , the liquidators of a company assigned certain claims by way of a deed of assignment to Global Corporate Limited (the “ Assignee ”). The Assignee (the Applicant in this case) then brought several claims against the company’s former director and shareholder.

Two of the Assignee’s claims were dismissed because, as the High Court held, only the claims expressly set out in in the transfer documentation were transferred to the Assignee. As the other claims had not been provided for in the deed of assignment, they failed for lack of standing.

Powerstation UK Ltd (the “Company”) entered liquidation in November 2015 and liquidators were appointed.

The liquidators identified various claims against a former director of the Company. The claims related to payments to the former director which, in the liquidators’ view, constituted an unlawful dividend or, in the alternative, a transaction at an undervalue.

The Assignee agreed to purchase the claims from the liquidators. The assignment of claims was recorded in a deed of assignment dated 25 August 2016 between the liquidators and the Assignee (the “ Deed ”). Under the terms of the Deed, the liquidators assigned the ‘claim’. ‘Claim’ was defined as (emphasis added) “a potential debt to the company comprising alleged illegal dividends and/or transactions at an undervalue ”.

The Assignee subsequently brought claims against the former director on the basis that the payments to him constituted either:

• unlawful dividends;
• a transaction at an undervalue;
• a preference; or
• misfeasance.

On the unlawful dividends claim, the judge, His Honour Judge Matthews, concluded that the Company’s articles did not allow the former director to declare provisional dividends capable of being subsequently re-categorised (which the judge found was the nature of the payments made to the former director). Therefore, whatever the payments were, they were not dividends and so could not be unlawful. This removed the Assignee’s prospects of seeking recovery of unlawful dividends pursuant to section 847 of the Companies Act 2006.

The transaction at an undervalue claim failed on the basis that sufficient consideration had been given.

On the remaining claims (misfeasance and preference), HHJ Matthews said that the Assignee did not have standing as the Deed did not mention these claims.

At para 45 HHJ Matthews said, in respect of the misfeasance claim:

‘There is some difficulty here with the applicant’s title to sue, since the deed of assignment did not on its face extend to any claim in respect of director’s misfeasance.'

At para 66 HHJ Matthews noted that, as regards the preference claim:

‘The applicant is not an assignee of any claim of the company or the liquidators in respect of a preference...The first reference to a claim to set aside a preference that I have been able to find in the documents comes out in the application notice of 12 September 2016... But this cannot operate so as to confer on the applicant a title to sue that he otherwise would not have.’

HHJ Matthews emphasised that a preference claim could not be implied into the Deed due to the material differences between a transaction at an undervalue and a preference. If the Assignee wanted to acquire a right to bring a preference claim, the Deed should have expressly mentioned it.

At para 67 HHJ Matthews commented that:

‘A preference is not the same as a transaction at an undervalue, and neither is there necessarily an example of the former every time there is the latter. If the applicant wished to take an assignment of the claim to set aside a preference, it should have drafted the deed of 25 August 2016 so as to achieve this end.’

Finally, the court held that while the liquidators of the Company did retain the right to bring a claim to set aside a preference, they were not parties to the application and an effective order could therefore not be made.

Consequences

This case highlights the importance of thoroughly reviewing the deed of assignment where claims are being acquired.

Only those rights of action expressly mentioned in a deed of assignment will be transferred to the assignee. The court will not allow an assignee to bring an action which has not been included in the wording of the assignment. Further, the court will not imply alternative causes of action into deeds of assignment where those actions have material differences from those actually transferred.

Filed under

• United Kingdom
• Insolvency & Restructuring
• Charles Russell Speechlys
• Liquidation
• Companies Act 2006 (UK)
• High Court of Justice (England & Wales)

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