A Disclosure Strategy

On review of the studies and recent court opinions suggested a list of arguments to be made in any case in which a party seeks to discover litigation funding agreements. These arguments demonstrate the need for, at a minimum, in-camera judicial review coupled with the production of redacted agreements that enable defense counsel to identify problems for the court to consider.

• Privilege log

The agreements are relevant or are calculated to lead to the discovery of relevant evidence and so should, at least, be listed on a privilege log so that the court can consider redaction of any terms that disclose mental impressions of counsel.

• Merits

The agreements may be relevant to an issue on the merits, such as a statute of limitations, bad faith in bringing the suit, or a post-trial motion for fees.

• Need for judicial review of conflicts to protect the public

If the funder is paid by the lawyer, that is fee-splitting which most ethical codes prohibit to ensure the independence of counsel. If the funder is paid out of the plaintiff’s recovery, and not by the lawyer, then that creates a conflict between the lawyer and the client. Either way, if the plaintiff does not have independent legal advice concerning the arrangement, the court needs to review the agreement to protect the interests of the public.

• Control

An agreement may not expressly give the funder “control,” or may even deny the funder “control”, but still may indirectly give the funder the ability to influence the case outcome:

If the funder plays a role in the selection or compensation of treating doctors, or in the selection or payment of experts, then that information is relevant to the expert’s bias.

If the doctor or expert referred the plaintiff to the funder in exchange for a referral fee, that may similarly be a basis for impeachment.

If the funder controls the selection of counsel, has a right to manage litigation expenses, has a right to receive pleadings or notice of settlement offers, or has a right to participate in settlement discussions, that maybe “control” as a practical matter.  If the funder has engaged in cold calls or other such tactics to solicit clients, that is relevant to whether subsequent surgery was medically necessary.  If the plaintiff or counsel owes the litigation funder a first dollar amount, that, in effect, “controls” the plaintiff’s willingness to settle.

If the plaintiff’s counsel has an ongoing relationship with the litigation funder, then de facto control may exist, or a conflict of interest may arise out of the funder’s role as a source of referrals or the payment of a referral fee.

 

• A realistic appraisal of the case

The agreement should be discoverable just like an insurance agreement is discoverable, so that, as the comment to that rule says, “disclosure will enable counsel for both sides to make the same realistic appraisal of the case, so that settlement and litigation strategy are based on knowledge and not speculation.”

• Like a lien

The agreements should be discoverable just as a worker’s compensation lien or a medical lien would be discoverable because of its potential to become part of settlement negotiations. A full settlement may be impossible if the defendant cannot be sure that all liens have been satisfied.

• Allocation of discovery expense

Litigation funding is relevant to the “parties’ resources” that must be taken into consideration in discovery disputes.

• Class action

In a class action, plaintiffs other than the named plaintiff have an interest in knowing about their counsel’s resources and relationship with a litigation funder.

• Wisconsin and West Virginia

If either of these state’s law applies, that state has a statute requiring disclosure of litigation funding agreements.

These arguments favor disclosure of the entire agreement and related documents, at least subject to a protective order. Litigation funding agreements should be treated like all other discoverable documents in litigation and, if the privilege is claimed, should be listed on a privilege log and submitted to the court for in camera review. But financial details that show how counsel has valued the case will almost certainly be protected, just as insurance reserves are protected. If an in-camera review is conducted, then the defense should be given redacted copies so that the defendant will have the “ability to make its assessment and arguments regarding the funding agreement, and its impact.”  And, short of that, the list of “control” opportunities outlined above could be given to the judge conducting the in-camera review to alert the court of all the ways potential control problems could occur.

Parties have a right to know who is controlling their litigation and who has a financial stake in their opposition’s success. This can only be accomplished through reasonable transparency standards, a trend toward which is discernable. Discovering funders’ identities and funding agreements can allow the courts to move on to the next step: determining whether litigation funding should be allowed at all.

Topics: Disclosure | Class Action

Work Cited: https://www.jdsupra.com/legalnews/discoverability-of-third-party-10343/