Litigation funding, also called litigation finance, is a rapidly growing industry and involves a practice where a third-party funds some, or all, of a plaintiff’s legal expenses in exchange for a portion of the proceeds from litigation or arbitration. The first-ever detailed analysis of the U.S. commercial litigation funding industry was completed in 2019 using data collected directly from litigation funders. This analysis placed the size of the industry at $2.3 billion.i In 2020, despite a global pandemic and disruption to the justice system, the commercial litigation funding industry grew by six percent, reaching $2.47 billion.ii
Advocates of litigation funding say it levels the playing field, but critics disagree, arguing adding an outside third-party only complicates the already complicated litigation process. The nature of litigation funding’s monetary investment and the contractual involvement inherently posits financers in a position of control and influence over plaintiffs. This relationship encourages plaintiffs to file frivolous suits, leads to inflated settlement and trial demands, and emboldens plaintiffs to seek additional treatments and procedures such as physical therapy, MRIs, and CT scans, which can increase claim severity. In fact, there appears to be a direct correlation between the availability of litigation funding and increased claim payment and claim duration.iii Plaintiff’s bar is ready to leverage their financial backing to increase the chances of achieving a nuclear verdict. Financial backing empowers plaintiffs to make absurdly high demands, which could, in turn, lead to a rise in Nuclear Verdicts™ at trial.
The US Chamber Institute for Legal Reform highlights the relationship between litigation funding and Nuclear Verdicts™, stating “the funder may hold out for a large settlement to maximize her own return even if an early settlement might actually most benefit the plaintiff. Similarly, the presence of a funder, particularly in high-profile collective litigation, can shift the balance of power so far that defendants feel compelled to settle even if the claim is weak.”iv
Discoverability of Litigation Funding
The defense bar should always make demands for litigation funding information, including the interest rates, agreements, and lien amounts in every case. In New York, there is no statutory obligation to disclose the existence of litigation funding during discovery. The threshold question in discovery is whether information is relevant to the case. New York courts have addressed this issue, and unfortunately have found litigation funding agreements were not relevant and are not discoverable.v With no disclosure laws and no help from the courts, insurers will likely experience increased claims expenses and litigation costs.
Public Resources to Discover Litigation Funding
Even if the court denies a defense counsel’s request for litigation funding information, defense attorneys may still utilize public resources which are available to help determine whether plaintiff in a particular case has litigation funding. In personal injury cases, if a plaintiff takes out a new loan for medical treatment, the litigation financer is required to file a UCC lien with the New York Department of State. UCC liens and filing statements are public information in New York, and are readily available at no cost on the New York Department of State’s website. While the filing statement does not include the monetary amount of the loan, it does contain the debtor’s and secured party’s name and address. Defense counsel can utilize this important information to press plaintiff on the existence of litigation funding during the cross-examination of plaintiff.
As litigation funding continues to grow, the defense bar continues to fight for transparency. Even if courts continue to rule against the relevancy of litigation funding information, defense attorneys should continue to demand as much information as possible and utilize all available resources to discover information about how plaintiff is funding the litigation. By utilizing these resources, defense attorneys can prepare to fight Nuclear Verdicts™ caused by overly available litigation funding.