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June 28, 2018 Practice Points

Who's Paying the Plaintiff's Bills? You Might Not Be Entitled to Discover the Answer

Discovery of litigation finance depends first and foremost on its relevance to the parties' claims and defenses.

By Joseph V. Schaeffer

Historically, third parties were prohibited from purchasing an interest in litigation (champerty) or from financing litigation in which they had no interest (maintenance). Now, however, those practices are gaining currency and acceptance under the moniker of “litigation finance.”

That litigation finance is going mainstream is apparent not only from the frequency of email solicitations hitting lawyers' inboxes, but also from its role in one of this decade's most consequential court cases. When Hulk Hogan (real name Terry Gene Bollea) sued Gawker Media for posting his sex tape online, he didn't foot the bill. Instead, Hogan's legal fees were paid by Peter Thiel, the well-known PayPal cofounder and venture capitalist who had been "outed" by Gawker in 2007. (Gawker later settled claims against Thiel for his role in Hogan's suit. Ironically, one of Gawker's reasons for settling was its inability to obtain litigation financing.)

Hogan's case is undoubtedly an outlier: Not every litigation finance case will involve significant constitutional issues at the intersection of press freedom and privacy, and not every litigation financier will have Thiel's non-monetary motivations. Yet, in nearly every case, defendants will have an irrepressible interest in knowing who is backing the lawsuits against them.

As a recent decision from the Northern District of California demonstrates, however, an irrepressible interest does not always equate to a right to discovery. In Space Data Corp. v. Google LLC et al., Google and its parent company, Alphabet, moved to compel discovery relating to Space Data's use of litigation finance. No. 16-cv-3260, 2018 WL 3054797 (N.D. Cal. June 11, 2018). When Space Data proffered that it was self-financing, though, the court had no trouble concluding that "potential litigation funding is a side issue" neither relevant nor proportional to the needs of the case. Id., at *1 (emphasis in original).

It's likely too early to say that Space Data establishes a trend or even a rule (although the court was skeptical of the relevancy of actual litigation funding, as well). Nonetheless, Space Data is a caution for defendants who might previously have assumed an entitlement to discover not only the plaintiff's claims but also his or her bank. Discovery of litigation finance depends, like all other evidence in litigation, first and foremost on its relevance to the parties' claims and defenses.

Joseph V. Schaeffer is with Spilman Thomas & Battle, PLLC in Pittsburgh, Pennsylvania.

Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).