Litigation Funding Companies and Discovery

By: Negin Portivent

Litigation funding companies (LFCs) have become almost as common as tort litigation itself. LFCs are third-parties, unrelated to a lawsuit, that provide capital to a plaintiff in return for a percentage of any settlement reached or trial verdict rendered. In other words, these companies finance a plaintiff’s lawsuit in exchange for a portion of what the plaintiff ultimately recovers. This growing industry has important implications for the discovery process. Focused discovery can unearth potential biases and motives, evidence of which is admissible at trial.

Discovery in Georgia is governed by O.C.G.A. § 9-11-26, which provides that parties may obtain discovery “regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party . . . .” Of note, the potential inadmissibility at trial of the information sought is not grounds for objection if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

Georgia courts have routinely interpreted this statute broadly to fulfill the intended purpose of discovery — issue formulation and factual revelation — and afford parties “wide latitude” in conducting discovery. This wide latitude given to parties engaged in discovery extends to discovery sought from nonparties as well. O.C.G.A. § 9-11-34(c) governs discovery on nonparties, like LFCs, and provides that “any party may serve . . . a request to produce . . . documents on any . . . persons, firms, or corporations who are not parties.”

Nonparty discovery to LFCs should be narrowly crafted to seek specific information, such as contracts between the LFC and the plaintiff or plaintiff’s counsel, liens, assignments of rights, and text messages/voicemails between the LFC and the plaintiff or plaintiff’s counsel. However, the request must also be broad enough to capture any documents in the LFC’s possession regarding the plaintiff. Requests to LFCs should be drafted with an eye toward discovering the details of the financial agreement between a plaintiff and the LFC. For example, did the LFC enter into an agreement with plaintiff directly by giving him a cash advance? Did the LFC enter into an agreement with the plaintiff’s medical providers where it would pay them directly or did it purchase a provider’s existing medical lien? If so, how did that affect the rates charged and the special damages claimed?

Discovery on these issues may produce evidence of the relationship between a plaintiff, his attorneys, his doctors and the LFC, which is relevant to demonstrate bias, intent and motive. If evidence of bias or motive is obtained, it should be admissible at trial. See ML Healthcare Servs., LLV v. Publix Super Markets, Inc., 881 F.3d 1294, 1301 (11th Cir. 2018); see also Stephens v. Castano-Castano, 346 Ga. App. 284 (2018). In fact, several LFCs have websites touting their relationships with their network of health care providers. When a provider’s compensation or business relationship is dependent upon the outcome of the case, it can be argued the provider has become an investor of sorts in the lawsuit and a jury should know that information to evaluate the provider’s bias and motivation when testifying. See Stephens, 346 Ga. App. at 291. This is particularly true if, for example, the LFC referred the plaintiff to his doctors. If the plaintiff has a favorable recovery, the LFC may be inclined to refer other plaintiffs to that doctor in the future. A jury is entitled to know how a provider’s relationship with the LFC might affect the doctor’s testimony or may motivate the doctor to testify in a way that he may not have, absent the financial entanglement. Id.

More often than not, discovery served on LFCs will be met with an objection. The most frequently cited ground for objection is that documents sought from the LFC are barred by the “collateral source rule,” which prohibits a defendant from presenting evidence of payments of expenses by a third party. In other words, a defendant cannot present evidence of payments made by a health insurance company to a plaintiff and take credit for that payment to reduce damages. With respect to LFCs, however, courts applying Georgia law have ruled LFCs are not a traditional collateral source because they do not pay or even reduce a plaintiff’s medical bills. Rangel v. Anderson, 202 F.Supp.3d 1361, 1373 (S.D. Ga. 2016); Houston v. Publix Supermarkets, Inc., No. 1:13-CV-206, 2015 WL 4581541, at *2 (N.D. Ga. July 29, 2015). While litigation surrounding LFCs is still evolving, there appears to be some clarity with respect to the collateral source rule, and any objection founded on that theory should be challenged.

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Negin Portivent

Requests to LFCs should be drafted with an eye toward discovering the details of the financial agreement between a plaintiff and the LFC.
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