Litigation Finance in Class Actions: Are Third-Party Funding Agreements Discoverable?
There is on-going uncertainty about whether and to what extent agreements for third-party litigation funding can be subject to discovery. This is true in all kinds of litigation, but a couple of recent decisions have reached opposite results in the context of class actions. This difference ultimately arises from different views about whether the existence of a third-party funder is relevant to class certification issues.
In Kaplan v. S.A.C. Capital Advisors, L.P., the defendants sought discovery about the relationship between the representative plaintiff, class counsel, and a third-party litigation funder. According to the defendants, such discovery was necessary “to explore whether there may be a risk that the Elan plaintiffs’ funding arrangements could affect the strategic decisions they will make on behalf of the class, or could cause counsel’s interest to differ from those of the putative class members they purport to represent.” In addition, the defendants argued that the discovery would be necessary to determine whether there was a potential for conflicts between the representative plaintiff and the class over the costs associated with litigation funding. These arguments did not prevail, however. The district court declined to compel the production of funding documents because the court found that class counsel’s representations about the adequacy of its resources were sufficient and that any questions about potential conflicts between the class and the representative plaintiffs was purely speculative.
Gbarabe v. Chevron Corp. arose from a fire on an off-shore oil drilling rig off the coast of Nigeria. The plaintiff class was comprised of fishermen who alleged that their businesses and health were adversely affected by the fire. As in Kaplan, the defendant argued that the disclosure of litigation funding agreements was necessary to determine the adequacy of class counsel’s representation. Unlike Kaplan, however, the district court did permit discovery of the litigation funding arrangements.
But there were unique factual circumstances in Gbarabe. Most importantly, there were serious questions about the adequacy of class counsel, who was a solo practitioner with no formal office or support staff. Moreover, class counsel had missed deadlines due to lack of resources. In addition, the confidentiality provision of the litigation funding agreement, which class counsel had quoted in a brief to the court, seemed to contemplate that the agreement would be subject to discovery.
These two cases demonstrate that there is no single clear rule for determining the discoverability of third-party litigation agreements. In the ordinary course, there are strong reasons for prohibiting discovery. But, when there are real questions about the adequacy of class counsel, and when litigation funding is a crucial factor in assuring such adequacy, discovery may be warranted.
Topics: litigation finance, legal reform , third-party funding, litigation costs, legal costs, law reform, class actions, discovery
Works Cited:
Kaplan v SAC Capital Advisors, LP, 2015 U.S. Dist. LEXIS 135031 (SDNY, Sep. 10, 2015)
Gbarabe v Chevron Corp., 2016 U.S. Dist. LEXIS 103594 (ND Cal, Aug. 5, 2016)
