Friday, February 15, 2013

Can a Corporation Transfer Right to File Lawsuit to an Individual?

Dear Rich: Can an individual buy or take over a corporation's rights to file suit? If yes, does it change the situation or collection rights? The reason for the question: A corporation needs to be represented by an attorney in order to file a suit but an individual does not and can represent itself in court. Many times the attorneys fees are so costly that they offset any potential gains from the lawsuit and in some case the legal fees and costs exceed the amount of the suit. This causes small businesses to walk away from lawsuits simply because they cannot afford to fight the case. Unfortunately there are companies out there that realize this and use this to cheat smaller companies out of their due. This is especially prevalent in the construction industry. We're drifting a little bit from our bailiwick (intellectual property) but we'll answer it because the issue may arise in lawsuits involving licenses, trademarks, trade secrets or unfair business practices.
What's your jurisdiction? The rule that a corporation must be represented by an attorney is jurisdiction-specific -- that is, it's not a universal rule. For example, in California and New York, the rule does not apply for small claims court but does apply for other civil lawsuits. So, your first step is to determine whether your state (or the particular court in your state) permits corporations to represent themselves without an attorney, and if so, in what instances. Sometimes lawsuits are permitted if the corporation is represented by a director, officer, or employee of the corporation.
Can the "right to sue" be sold? There are many legitimate ways to transfer a right to sue someone. If the right to sue arose out of a contract, those contract rights may be assigned (unless the agreement prohibits or eliminates assignments). Similarly, if the lawsuit is over a debt or an existing judgment, that may be assigned, as well. Many jurisdictions prohibit "champerty," the funding of, or investment in lawsuits and "champertous connivances," (scroll down to P. 165) are rare.


I. Assaf said...

Dear Rich,

I have a small company and we filed to challenge an IP before the EPO office. We are in the process of dissolving the company and starting a new one. My question is: How to transfer the rights to the proceedings to the new company? If there a form we can use?


The Dear Rich Staff said...

We answered your question here ...