While most industry professionals have heard of “litigation funding,” the impact of the same may often not be fully appreciated. This partially is attributable to the fact that many (primarily) Plaintiff’s counsel are often reluctant to even confirm that an individual claim does involve “Third Party Litigation Funding (or Financing),” (“TPLF”), or the related “Third Party Medical Funding” (“TPMF”).
In one case handled by the author, Plaintiff’s counsel did voluntarily disclose the existence of third party involvement in a claim as we were negotiating settlement of a fairly significant matter.
While counsel described this funding as “My (counsel’s) problem and not yours (the author and his client),” this was in fact not the case. Rather, this situation complicated and delayed the ultimate settlement of that claim- and the amount of funding provided to that Plaintiff was relatively minimal. This is often not the case in such scenarios.
Most commonly, in a TPLF scenario, in exchange for advancing money to a party (again, primarily- though not exclusively- a Plaintiff), an “investor” receives a portion of the proceeds from the litigation.
Conversely, TPMF involves Plaintiffs with bodily injury claims receiving medical services from providers within the “investor’s” “network” in exchange for transferring the right to recover the related medical bills to the “investor” via a medical “lien.”
Opponents of TPLF often argue that the same violates the Model Rules of Professional Conduct. For example, Rule 5.4(a) prohibits lawyers from sharing fees with non-lawyers, and Rule 1.7(a) prohibits any representation where there are conflicts of interest, both of which are arguably present in the typical TPLF situation.
Conversely, however, proponents of TPLF dismiss these arguments, asserting that so long as the client contracts directly with the “investor,” then the client can waive any potential conflict of interest.
Given the scenarios as described above, the “investor” is interested in maximizing claim value and by extension the value of their stake, and is often therefore even more inclined to have settlement offers rejected or refuse to negotiate any reduction from any purported full “lien” amount, which in turn can make potential settlement both more difficult and expensive.
Court decisions regarding these issues tend to vary throughout the country. However, in New Jersey we are fortunate to have some guidance to consider.
The District of New Jersey addressed the issue in the matter of In re: Valsartan N-Nitrosodimethylamine (NDMA) Contamination Prods. Liab. Litig., 405 F. Supp. 3d. 612 (D.N.J. Sept. 18, 2019). In this multidistrict litigation, there was an allegation that contaminated valsartan (a generic prescription medication used to treat high blood pressure) contained carcinogens that caused injuries. The Defendants, some 60 entities around the world, including manufacturers, distributors and the like of the same, sought discovery of the Plaintiffs’ litigation funding. Plaintiffs objected.
The Court noted that “Generally, Defendants want to discover whether Plaintiffs are backed by litigation funders, the details of the financing, and communications regarding the financing.” Id. at 612.
Specifically, Defendants sought the following:
“All documents and communications related to funding or financing, if any, you or your counsel have obtained to pursue this litigation.” Id. at 614.
Defendants’ letter brief identified precisely what they sought:
“Defendants seek to obtain information about Plaintiffs’ agreements and communications with any third-party funders of the litigation, including Plaintiffs’ documents and communications relating to or concerning any litigation finance obtained in connection with this litigation, documents and communications regarding conferences, meetings or conventions attended with the purposes of seeking litigation finance, and documents and communications relating to agreements to finance this litigation.” Id.
Plaintiffs asserted that what they characterized as “private personal financial information” was irrelevant and, as such, the Defendants had no need for or entitlement to the same.
In response, “Defendants argue the requested discovery is relevant to identifying, ‘the real party in interest as to some or all of the claims alleged in this action,’ and whether Plaintiffs have standing to sue. Defendants also argue Plaintiffs’ funding information is relevant to determining: (1) Plaintiffs’ credibility and bias, (2) the scope of proportional discovery, (3) the scope of potential sanctions, and (4) the “medical necessity and the reasonableness of Plaintiff’s treatments.” Id.
The Court ultimately concluded that:
“After considering the present record and the relevant case law, the Court rules in Plaintiffs’ favor. The Court finds that litigation funding is irrelevant to the claims and defenses in the case and, therefore, plaintiffs’ litigation funding is not discoverable.” Id. at 615.
The Court did allow that discovery could be allowed if “good cause” was shown that “something untoward occurred,’ such as a non-party making litigation decisions.
However, subsequently, the U.S. District Court for the District of New Jersey adopted a local Rule, Civ. Rule 7.1.1, effective June 21, 2021, requiring disclosure by litigants regarding the use of litigation funding.
Though some Federal Courts have implemented rules mandating some disclosure of the existence and identity of litigation funders, New Jersey’s rule requires all parties to further disclose:
“1. The identity of the funder(s), including the name, address, and if a legal entity, its place of formation; 2. Whether the funder’s approval is necessary for litigation decisions or settlement decisions in the action and if the answer is in the affirmative, the nature of the terms and conditions relating to that approval; and 3. A brief description of the nature of the financial interest.” Civ. Rule 7.1.1. (Emphasis added.)
Some potential “signs” that TPLF or TPMF may be involved in a particular claim include:
- Significant and unusually high medical billing;
- Treatment for unrelated or “new” alleged injuries;
- Particularly aggressive and/or accelerated medical treatment;
- Medical treatment possibly provided outside the “specialty” of the physician; and
- Medical treatment provided by physicians not located in the geographic area of the Plaintiff/claim.
If and when discovery is sought, it should include requests for agreements between the “investor” or Third Party funder and the Plaintiff, but also the “investor” or Third Party funder and any medical provider(s), and by extension any supporting correspondence and the like.
If the “Third Party” “investor” is not a party to the litigation, subpoenas may be required.
How aggressively opposing counsel may respond to requests on these issues may in itself suggest whether Third Party Funding is implicated in a given matter.
In short, it does seem likely that at least some aspect of “litigation funding” will be a significant issue for consideration in the industry going forward. Therefore, if the circumstances of a particular claim suggest that some form of “Third Party Funding” may be involved, the issue should be thoroughly investigated. Relevant discovery obtained could be very beneficial in calling the credibility of a claimant into question, and in any event would be instructive as to the motivating factors playing upon Plaintiff’s counsel in the pursuit of the same.