‘Bait-and-Switch’ Claim Over $1 Million Hole-In-One Contest Fails When Court Says Assignment of Claim Was Champerty

‘Bait-and-Switch’ Claim Over $1 Million Hole-In-One Contest Fails When Court Says Assignment of Claim Was Champerty

So, four friends playing golf in Las Vegas get to the seventh hole, where a resort employee tells them that, “for a $20 fee, a golfer could enter the ‘million-dollar hole-in-one challenge’ in which a golfer who hits a ball from the tee to the cup in one swing ‘would get . . . a million-dollar prize.”

One friend, Aretakis, pays the $20 entry fee for all four in the four-some.  Another friend, Neary, offered to reimburse the first for the $20 “or to give [Aretakis] a half interest in the contest and the million-dollar hole-in-one prize.”

Neary hit a hole in one.

The golfers celebrated.

And then they read the “fine print” that appeared on the resort’s web site: instead of a million dollars, Neary had won “an all-expense paid trip back to Las Vegas to compete in a competition . . . to try to win the $1 million.”.

Neary signed an assignment agreement, assigning to Aretakis all of his claim and rights to any prize he was entitled to.

And that’s the end of the story, says the court reviewing Aretakis’s complaint.  The offer of the half-interest in the pre-swing hole-in-one shot failed for lack of consideration, said the court.  And the post-shot assignment agreement violated laws against champerty.  About chaperty, the court said the following:

The ‘medieval’ doctrine of champerty developed to battle the ills associated with the commodification of litigation. . .   ‘Champerty, as a term of art, grew out of the practice where someone bought an interest in a claim under litigation, agreeing to bear the expenses but also to share the benefits if the suit succeeded.” . . . .  Champerty statutes are designed to ‘prevent[] the “strife, discord and harassment’ that would be likely to ensue” from trading in claims for the purpose of bringing suit .. . .

New York has codified the prohibition on champerty in Judiciary Law § 489(1), which ‘restricts individuals and companies from purchasing or taking an assignment of notes or other securities ‘with the intent and for the purpose of bringing an action or proceeding thereon.’ . . . The New York Court of Appeals has clarified that the prohibition applies where “the primary purpose” of a transaction is “to enable [the purchaser] to bring a suit, and the intent to bring a suit must not be merely incidental and contingent.” . . .   This analysis distinguishes “between acquiring a thing in action in order to obtain costs and acquiring it in order to protect an independent right of the assignee, with only the former being champertous. . .   Thus, an assignment of rights is not champertous “if its purpose is to collect damages, by means of a lawsuit, for losses on a debt instrument in which it holds a preexisting proprietary interest.’

The purpose of the assignment agreement was clear from the agreement’s terms, which provided that if Aretakis seeks reimbursement from the report, the resort “may treat him as if he were me.That is the purpose of this assignment[.]” The termsalso provide that Neary sought to transfer his rights because he “did not want to be further upset and distracted with such a drastic and misleading event.”  Said the court: “These portions of the purported assignment make plain that the purpose of the assignment was to allow Plaintiff to prepare and file a lawsuit seeking to obtain the funds to which Plaintiff claims Neary is entitled.”  Accordingly, the attempted assignment constitutes champerty and is void.

The full opinion is available here.

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