We’ve addressed some potential pitfalls in the past associated with litigation funding when it comes to attorney liability, including ethical considerations. (See HERE and HERE)

Recently, a New York intermediate appeals court has affirmed a trial court’s order, holding the trial court correctly allowed defendants to seek materials related to the funding of plaintiffs’ litigation. See Lituma v. Liberty Coca-Cola Beverages LLC, 2025 N.Y. App. Div. LEXIS 6513, 2025 NY Slip Op 06389 (1^st Dep’t 2025).  

The court noted that complete disclosure is mandatory of all matters, material and necessary to the defense of an action. The words material and necessary are to be interpreted liberally to require disclosure of any facts bearing on the controversy. Id., page 2.  

In Lutima, since the defendants asserted an affirmative defense and counterclaim sounding in fraud — essentially that the accident was staged — the court held that the defendants established the litigation funding information was material and necessary by explaining that it could reveal a financial incentive for lying about the accident. Id.

An attorney put in such a predicament, not necessarily based upon the specific facts in Lutima, might end up in a situation where such disclosure could evidence potential conflicts between the litigation funders and the plaintiff and possibly force the attorney to disclose privileged or confidential information, amongst other issues. Until recently users of litigation funding essentially disregarded discovery demands seeking information and documents regarding the litigation funding, as they were not enforceable.

Now, while the litigation funding disclosure may be limited to the specific facts and circumstances in Lutima, it should be another warning for the users of litigation funding:  If you are a lawyer using litigation funding, and such funding is material and necessary for the opposing party’s position, your documents and information could be discoverable. Proceed with caution.