INSIGHT: Federal Valsartan Judge Latest to Confirm Litigation Funding Not Discoverable

Proponents of disclosure of litigation funding—whether on an automatic basis or as the product of routine discovery requests—recently were dealt a blow by a decision out of the U.S. District Court for the District of New Jersey in a products liability multidistrict litigation (MDL) involving the blood pressure medication valsartan.

That decision—the latest in a long line of cases denying such discovery requests—confirmed that defendants are not free to probe plaintiffs’ finances absent some showing of need.

Magistrate Judge Joel Schneider on Sept. 18 denied a products liability MDL defendant’s request to discover whether the plaintiffs had litigation funding, the details of any such funding arrangements, and communications concerning the financing. In re Valsartan NDMA Contamination Products Liability Litig. This discovery was, defendant had argued, necessary to determine whether the plaintiffs were the “real parties in interest” in the case.

The court flatly rejected this argument, siding instead with the “plethora of authority” from courts across the country concluding that such information is irrelevant to the claims and defenses at issue.

As the court explained: “Plaintiffs’ litigation funding is a ‘side issue’ that has nothing to do with addressing the key issues in the case such as what caused defendants’ valsartan contamination, whether the contamination caused any injuries, and whether plaintiffs may recover under their theories of liability. . . . It is pure speculation to argue a potential litigation funder rather than the named plaintiff may be the real party in interest. “

Critically, part of the court’s reasoning hinged on the fact that litigation funders typically do not control litigation in which they invest: “Also, despite their protestation, defendants have not cited to a single instance where a litigation funder owned the right to recover rather than being a passive investor that shares in the benefit of a recovery from an attorney’s contingent fee.”

As judges become more familiar with litigation funding, such observations—based on actual experience of funding, and not academic arguments advanced in favor of greater disclosure—may become more frequent.

The court also rightly rejected the argument that such discovery was needed to determine the outcome of any cost-shifting or sanctions motions in the case on the basis that it “routinely decides these issues without inquiring as to how the parties finance their cases.”

As the court wisely noted, opening the door to discovery into plaintiffs’ financing would open up discovery into defendants’ as well: “If the Court accepted defendants’ argument, the source(s) of defendants’ assets and funding could become fair game for discovery. The Court has no intention of going down this ‘rabbit hole.’”

These reasons alone were clearly sufficient to justify the decision. Nevertheless, the court went on to make a critical point that is often lost on proponents of disclosure: even if such information were marginally relevant, the discovery requested would not be proportional to the needs of the case as required under Rule 26(b)(1).

Narrow Circumstances May Exist for Discovery

Does this mean litigation funding arrangements are never subject to discovery?

No. As the court noted, there may be narrow circumstances where discovery is warranted, such as “where there is a showing that something untoward occurred . . . where there is a sufficient showing that a non-party is making ultimate litigation or settlement decisions, the interests of plaintiffs or the class are sacrificed or not being protected, or conflicts of interest exist.”

But critically, the court—like most other courts that have considered these issues—rejected the defendant’s invitation to speculate that such issues exist in the case simply because third-party funding might be involved.

This point is critical because proponents of automatic disclosure necessarily rely on such speculation. Defendants must, they argue, be informed of any funding in the case because there “might” be an issue. If such speculative reasoning cannot justify a one-off request for discovery, it surely cannot justify a rule requiring all parties to disclose all funding arrangements.

One final point worth making: the court did, in the end, take the plaintiffs up on their offer to submit any litigation funding arrangements to the court’s in camera review. But unlike the Opiate MDL, where the judge ordered automatic submission, Schneider left the timing of any review up to the plaintiffs’ discretion—an apparent signal of trust in the plaintiffs bar to use and inform the court about third-party funding responsibly, without the need to involve defendants as a check.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Julia Gewolb is director of underwriting at litigation funder Validity Finance. She previously was a litigation attorney at Boies, Schiller & Flexner.