Litigation Funding Discovery in New York: How the First Department's Perdomo Decision Impacts Fraudulent Personal Injury Claims
We recently wrote about Tavares v. Tuck-It-Away Assoc., where the Appellate Division, First Department affirmed an order granting the defendant leave to assert affirmative defenses sounding in fraud. To support that, the Court pointed to specific facts in the record that supported the defense.
At the time, it looked like another data point suggesting the First Department was taking a harder line against fraudulent personal injury claims.
Then came Perdomo v. 361 East Realty LLC.
In Perdomo, the First Department affirmed the denial of a motion to compel disclosure of the plaintiff’s litigation funding agreements. The defendant argued that the funding documents were relevant to its defense. The Court was not persuaded.
The panel held that the defendant failed to demonstrate “why the funding documents are material and necessary to a defense of this action.” The amount and source of litigation funding, the Court reasoned, are not elements of plaintiff’s damages claims. Nor did the defendant explain how the documents would support or undermine any particular claim or defense.
The Court also rejected the theory that funding documents would reveal plaintiff’s motivation for bringing suit. That argument, in the Court’s view, lacked a factual foundation. Litigation funding, structured as a loan repayable by the plaintiff, does not constitute a collateral source subject to disclosure under CPLR 4545.
The defendant further argued that a funding company, potentially holding a lien, might have veto power over settlement and thereby impede resolution. Again, the Court found no evidentiary basis for that assertion.
Significantly, however, the First Department did not close the door entirely. It observed that a defendant may be entitled to discover whether the plaintiff is actually under an enforceable obligation to repay the funding. That information, the Court suggested, could be obtained through interrogatories or depositions. In other words: tailor the demand and ground it in something concrete.
The fraud argument fared no better. The defendant pointed to civil RICO actions naming some of plaintiff’s medical providers. But the Court emphasized that there was no evidence of misconduct by plaintiff’s doctors or counsel in the case at bar, and no identification of which providers overlapped with the RICO actions. Even the fact that plaintiff, a Medicaid recipient, did not bill most treatment to Medicaid did not, standing alone, suggest fraud. The Court noted it was entirely plausible that plaintiff chose providers who did not accept Medicaid and financed that treatment.
So, is the First Department retreating from its stance in Tavares?
Not quite.
The distinction between the two cases is procedural and evidentiary, not philosophical.
In Perdomo, the defense theory was speculative. There was no evidentiary showing that the claim itself was fraudulent. The argument for funding discovery rested largely on general discovery principles and the existence of unrelated RICO litigation involving some providers.
By contrast, in Tavares, the defendant identified evidence that the Appellate Division expressly cited as supporting the fraud defense. The Court noted conduct that “demonstrated that plaintiff willfully engaged in deceitful and obstructionist conduct designed to undermine the integrity of this proceeding by attempting to provide false and misleading testimony regarding her alleged injuries and how she sustained them.” That is a far different posture than speculation about possible improper motives.
The takeaway: if you want discovery aimed at exposing fraud, particularly into litigation funding, you need more than suspicion. You need material evidence that raises a legitimate question about the integrity of the claim.
Perdomo does not foreclose funding discovery. It makes clear, however, that the First Department will require a specific, fact-based, showing of relevance and necessity. If there is real evidence of fraud, the Court appears willing to engage. If not, generalized concerns about the litigation funding industry will not carry the day.
In fighting fraud, as in most things appellate, the record is everything.
GCKB’s Appellate Advocacy Group regularly litigates lawsuits that fit the fraudulent claim mold. Contact us to discuss recent developments in the area to help defend against allegedly fraudulent claims.
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