New York First Department Issues First Decision Addressing Litigation Funding Agreements

In a ruling that establishes critical legal precedent, appellate attorney Diane Toner, Special Counsel in our New York City office, obtained the first-ever appellate decision granting the discovery of third-party litigation funding material in New York, which had previously been protected from discovery for public policy reasons.

Lituma involved a personal injury claim stemming from a motor vehicle accident. The defendants, Liberty Coca-Cola Beverages, LLC, argued that the accident was staged, alleging that the plaintiff deliberately sped up, cut in front of them and then slammed on the brakes to cause a collision. The defendants argued for various discovery related to the fraud.

With respect to the specific issue of the discovery of litigation funding material, the appellate court held that the defendants established that the information sought is “material and necessary” as it could reveal a financial motive for fabricating the accident.

In addition to establishing legal precedent for the discovery of third-party litigation funding, the Lituma decision sets forth a standard for maintaining a counterclaim for fraud, by citing to the insurance agent’s detailed chronology and specific evidence of connections to other suspicious individuals. In contrast, in Linares v. City of New York, 233 A.D.3d 479 (1st Dept. 2024), the appellate court dismissed a counterclaim for fraud where the defendants relied solely on “unproven allegations of fraud” in their RICO complaint.