Plaintiff Bias Is Weak Basis to Reveal Litigation Funding Deals

Discovery about litigation funding and how it can be used in litigation continues to percolate in the courts. Some defendants have argued that litigation funding arrangements may reveal a plaintiffs’ bias in the case. But the size of the plaintiff’s stake in the case doesn’t change their motivation, and the evidence could confuse juries.

Courts have landed on different approaches on this issue, but the better stance would require defendants to articulate specifically how evidence of litigation funding could show bias or a conflict of interest before allowing discovery.

Plaintiff’s Stake ‘Relevant to Bias’

In Speyside Medical, LLC v. Medtronic Corevalve, LLC, Magistrate Judge Christopher Burke ordered individual members of the plaintiff LLC to testify to their “precise financial stake[s] in the suit.” The plaintiff LLC was owned by two members; it also received litigation funding from a third-party. The defendants moved the court to compel deposition testimony on the individuals’ financial stakes in the outcome of the litigation. Of course, revealing what the individuals stood to gain in the ligation would also reveal what the third-party funder stood to gain as well.

Burke granted the motion to compel and ordered the individuals to testify regarding their financial stakes in the litigation. In his view, “the fact that the members have a financial stake in the lawsuit is itself all the Court needs to know to make this ‘classic evidence of bias’ relevant.

The court reasoned that “a 1% stake will have a different impact on a witness than a 98% stake.” The court added, “Put differently, whether the percentage that each member stands to recover is a tiny bit of the whole or nearly all of the whole (or something in between) is surely instructive as to the heft of any charge that their testimony may be biased by their ability to profit from the case result.”

In reaching his conclusion, the court relied on cases outside of the litigation funding context. Burke relied on Crowe v. Bolduc, where the U.S. Court of Appeals for the First Circuit held that it was error to prevent defense counsel from questioning two lawyer witnesses for the plaintiff, who had provided opinion testimony on the meaning of a contract, about their contingency fee interest and financial stake in the underlying lawsuit.

Burke also relied on Yousefi v. Delta Electric Motors, Inc., where the court found that the defendant could question third party witnesses from a union about the union’s financial interest in the outcome of the litigation.

Burke separately rejected any argument that the work-product doctrine shielded the information in dispute, noting that there was a “substantial need” for this information, which could not have been obtained any other way.

No Reason to Suspect Bias

Just one day later, in GoTV Streaming, LLC v. Netflix, Inc., Magistrate Judge Shashi Kewalramani denied Netflix’s motion to compel the production of “litigation funding documents” and rejected Netflix’s argument that such documents were relevant to bias.

The court rejected all of Netflix’s arguments in favor of disclosure. As to the issue of bias, the court commented that though “the issue of bias is a fair area of inquiry of any witness,” on the facts before it, Netflix’s basis for bias was “too speculative to warrant the production of litigation funding related documents.” What was missing from the record was “a specific, articulated reason to suspect bias or conflicts of interest.”

Bias Shouldn’t Be Presumed

Burke’s broad view of bias is potentially troublesome for plaintiffs and their funders. While disclosure of funding information in discovery under a protective order is not necessarily problematic, Burke’s decision goes a step further. Burke held that the financial stakes at issue in Speyside could be used for “cross examination.” Burke’s approach will put the issue of litigation funding squarely in front of the trier of fact.

Using the bias argument against parties and their owners also seems out of place. Introducing evidence relating to a financial interest in the underlying litigation only makes sense for third party witnesses like the attorneys in Crowe and the union members in Yousefi.

The bias argument is much less compelling for the actual parties to the litigation (or owners of those parties). That’s because a jury would be surprised to learn that an independent witness has a stake in the litigation. But it should come as no surprise that plaintiffs and owners of plaintiff companies have a financial interest in the outcome of litigation and want to win the case.

Questioning an expert witness about their interest in the outcome of the litigation is always fair game. It should not matter, however, what financial stake a party has in the litigation. Even under the extreme example proposed by Burke—comparing a 1% stake to a 98% stake—a party witness is still under oath and has the same general motivation to testify on behalf of herself or their company and win the case.

Cross-examining a plaintiff on their financial interest in the litigation will only confuse the jury. More concerning is that it could prejudice plaintiffs who cannot afford to litigate the case on their own and have given up a portion of their recovery in order to secure representation through contingency fee or litigation funding arrangement. Kewalramani’s approach of demanding a more specific showing of bias seems more appropriate.

The cases are Speyside Medical, LLC v. Medtronic Corevalve, D. Del., No. 20-361, 5/23/23; GoTV Streaming, LLC v. Netflix, Inc., C.D. Cal., No. 22-7556, 5/24/23.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Casey Grabenstein is a Partner at Saul Ewing, handling complex commercial litigation for clients nationwide across an array of industries.

Andrew Schwerin is an Associate at Saul Ewing, representing clients in patent and trade secret litigation on both the plaintiff and defense sides of these disputes.

Mary Hutchings and Taylor Wilson, summer associates in Saul Ewing’s Philadelphia office, also contributed to this article.