Commercial Division Blog

Posted: June 3, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Categories Discovery/Disclosure, Champerty

Discovery About Litigation Financing Not Relevant

On April 28, 2022, the First Department issued a decision in Worldview Entertainment Holdings, Inc. v. Woodrow, 2022 N.Y. Slip Op. 02891, holding that document demands concerning "litigation financing and witness payments" were not relevant to any claim or defense in the case, explaining:

The court properly denied defendant's motion to compel discovery from plaintiffs. While plaintiffs waived their right to object generally to defendant's demands by failing to respond timely with the requisite particularity (CPLR 3122[a][1]), the three general categories of discovery defendant seeks on appeal are palpably improper (see Khatskevich v Victor, 184 AD3d 504, 504-505, 124 N.Y.S.3d 178 [1st Dept 2020]; Zurich Ins. Co. v State Farm Mut. Auto. Ins. Co., 137 AD2d 401, 401- 402, 524 N.Y.S.2d 202 [1st Dept 1988]).

First, there were no pending alter ego claims when the court issued its February 2021 order.

Second, while [*3] defendant argues that he needs discovery about plaintiff Worldview Entertainment Holdings Inc.'s operations after he was terminated, because it will support his claim that Cestone and Conners breached fiduciary duties by mismanaging the company, as indicated, there were no pending direct claims against Cestone and Conners, including breach of fiduciary duty, as of February 2021.

Third, defendant has not explained how discovery about litigation financing and witness payments would support or undermine any particular claim or defense.

Given the prevalence of litigation funding in commercial litigation, the extent to which a defendant can seek information about the plaintiff's funding arrangements has significant consequences. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about litigation funding and to what extent your funding arrangement is discoverable.