Precedent Established: New York Appellate Division Grants Discovery of Third-Party Litigation Funding

Key Points:

• The Appellate Division, First Department, affirmed that defendants may obtain discovery of third-party litigation funding agreements, breaking with prior public policy protections. 
• The court upheld defendants’ fraud counterclaim, emphasizing the importance of specific, detailed evidence (such as the claims representative’s chronology and links to other staged accidents) rather than mere allegations. 
• This decision not only establishes a new discovery right but also sets a higher evidentiary bar for fraud claims in personal injury litigation.

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.

In Lituma v. Liberty Coca-Cola Beverages LLC, 2025 WL 3235985 (1st Dept. 2025), the Appellate Division, First Department, affirmed the decision and order of the Supreme Court, Bronx County, which granted the defendants’ motion to remove the case from the trial calendar, vacate the note of issue, and compel extensive discovery related to the allegations of fraud, including discovery of litigation funding agreements. 

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’ underlying motion was supported by a detailed affidavit from a claims representative, whose thorough investigation uncovered numerous connections between the plaintiffs and other claimants in similar staged accidents, as well as medical providers involved in other suspicious accidents. 

The appellate court found that the defendants had met their burden of demonstrating “unusual or unanticipated circumstances” sufficient to vacate the note of issue because the suspected fraud began to surface only one month before the plaintiffs filed the note of issue. 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. 

The appellate court rejected the plaintiffs’ argument that fraud claims do not lie in a personal injury action and, therefore, the defendants were not entitled to the discovery. The court noted that the plaintiffs had not made this argument in opposition to the defendants’ motion to vacate the note of issue, nor had they appealed from the order permitting the defendants to amend their answer to include the fraud affirmative defense and counterclaim. 

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 AD3d 479 (1st Dept. 2024), the appellate court dismissed a counterclaim for fraud where the defendants relied solely on “unproven allegations of fraud” in the RICO complaint. 

Next Steps
Marshall Dennehey attorneys Adam Calvert and Maura Ryan are handling the case at the trial level. Now that the appellate court has affirmed the order awarding discovery, the next step will be to obtain the discovery, including unrestricted HIPAA authorizations, depositions of police and EMS personnel, social media and phone records, depositions of related claimants, depositions of the plaintiffs’ former employers, fraud-related depositions of the plaintiffs, additional independent medical examinations (IMEs) such as independent radiology studies, and depositions of the plaintiffs’ medical providers. Should the plaintiffs fail to comply with these court-approved discovery demands, the defendants can rely on the appellate order to move to dismiss the case.

Stay tuned for further updates on this pivotal ruling and its impacts on cases involving third-party litigation funding. 

_{Defense Digest, Vol. 31, No. 4, December 2025, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2025 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}