Litigation Funding Agreements Discoverable in Delaware

We’ve all heard that “what’s good for the goose is good for the gander.” Some of us describe it as “the rule of poultry equivalents.” However you phrase it, we’ve always thought that if a defendant’s insurance is routinely discoverable, a plaintiff’s litigation financing agreement should be as well. Today’s decision from Delaware, Burkhart v. Genworth Financial, Inc., 2024 WL 3888109 (Del. Ch. Aug. 21, 2024), isn’t a pharmaceutical or medical device case, but it is the fourth decision out of the Delaware state courts holding that a plaintiff’s litigation funding agreement is discoverable.  The decision adds to some of the positive case law and local rules related to litigation funding that we’ve addressed here, here and here.  

Burkhart is a class action case, and the defendant moved to compel production of the plaintiffs’ litigation funding agreements. In their motion to compel, the defendants emphasized the potential conflict between class counsel and litigation funders:

[The defendants] argue that the presence of litigation funders creates the potential for conflicts of interest that may incentivize counsel to prioritize the interests of the Funders over those of the class.  And the potential for such conflicts makes the Funders’ identity and the character of its interest . . . relevant and necessary to test whether the Plaintiffs are truly independent from the Funders’ direction and control.

Id. at *3.

Those are the same concerns that arise with litigation funding in MDLs or other coordinated proceedings. The court recognized that those concerns were particularly applicable in class certification questions and the determination whether class counsel can fairly and adequately represent the class:

As it relates to these considerations, I believe there may be legitimate concerns that counsel could face a conflict of interest.  There are many instances where a funder’s interest might diverge from those of a claim holder. But the class action context seems especially ripe for a third-party funder to exercise improper control over the litigation, at least relative to the heightened degree of oversight that might tend to accompany an ordinary attorney-client relationship.

Id. at *4.  Substitute “mass tort context” for “class action context” in this quote from the court, and the exact same reasoning applies.  The court also pointed out that litigation funders could exercise control over litigation even if their ability to do so was not overtly set out in the funding agreement. This is an important point that underscores the need for discovery into these agreements and their mechanics.

Plaintiffs opposed production of the funding agreement based on work product and relevance. The court found neither argument convincing.  The funding agreement—which the court reviewed in camera—contained a provision indicating that the parties expected it to be disclosed during litigation. That provision, coupled with the concerns of litigation funding in the class action context, led the court to hold that the contents of the funding agreement were relevant and discoverable.

As to work product, plaintiffs argued that litigation funding agreements were prepared in anticipation of litigation, reflected litigation strategy and were therefore protected work product.  The court rejected this argument, citing three other Delaware cases that rejected the work product doctrine’s applicability to funding agreements. 

The court granted the defendants’ motion to compel and required production of the unredacted funding agreement. Looks like Delaware would recognize the rule of poultry equivalents.