Southern District Weighs in on Discoverability of Litigation Funding Agreements under the Federal Rules


By: Wayne Melnick and Christopher Lee

One of the currently hottest areas of general liability law is the effect of medical-legal funding companies on litigation and the admissibility of evidence of this funding to undercut a plaintiff’s claims. Recently, the defense side of the “v” got a big win on this issue that may help allow juries to consider whether the amounts billed are even remotely reasonable.

On September 21, 2020, Judge Benjamin Cheesbro of the United States District Court for the Southern District of Georgia entered a ruling granting the defenses motion to compel discovery from non-party cherokee funding in the case of Misty Spears v. Wal-Mart Stores East, LP, Civil Action No.: 2:18-CV-152. While the 11th Circuit’s ruling in ML Healthcare Servs., LLC v. Publix Super Markets, Inc. opened the door for parties to question the boundaries of the discoverability of documents and agreements maintained by litigation funding agreements related to a plaintiff’s medical treatment, the Court’s ruling in Spears marked the first time that a court in Georgia determined that the amount billed and the amount ultimately paid are both relevant and possibly admissible at trial to determine the reasonableness and necessity of a plaintiff’s medical treatment.

Judge Cheesbro reiterated the finding in Houston v. Publix Supermarkets, Inc. determining that a medical lien funding company “is not … a traditional collateral source [as it] serves as an investor in the lawsuit and receives no payment from the Plaintiff until after the lawsuit.” No. 1:13-CV-206, 2015 WL 4581541, at *1 (N.D. Ga. July 28, 2015). Furthermore, the Order emphasized the purpose of the collateral source rule and its intent on excluding the admissibility of evidence, not its discovery, and left the door open as to the possibility for even the admissibility of these documents/information from Cherokee Funding at trial, showing the amount billed versus the amount ultimately paid to medical providers for a plaintiff’s treatment. In furthering the holding in Houston and other federal precedent, Spears highlighted the intimate involvement that is inherently present in a medical funding company and the underlying litigation which creates financial motivation for treating physicians and the potential future referral of patients based on favorably testimony.

Despite Cherokee’s arguments that it did not pre-approve any medical procedure or expenses and did not refer plaintiff to any care provider, Spears conceded this distilled the weight of the evidence but still declined to find that this distinction rendered the requested information undiscoverable. In its ruling, the Court noted that Cherokee’s advertisement to purchase receivables at “the highest prices” for plaintiff’s attorneys could incentivize and “inure” participating healthcare providers to provide services not normally rendered, or at higher than normal costs considering the potential for non-payment from the plaintiff. Thus, Spears determined this scheme created a situation in which Cherokee’s involvement may be relevant to the issue of treating physicians’ potential bias, intent, or motives.

As it pertains specifically to the discoverability of amounts actually paid for a plaintiff’s medical treatment, the Court held succinctly, “the difference between what a healthcare provider charged Plaintiff for a service and what Cherokee Funding paid the provider for the receivable may be relevant to the reasonableness of the charge … for the purposes of discovery, this information is potentially relevant, and therefore discoverable.” The Court further rejected any notion that the information sought was proprietary, confidential business information.

Spears is of utmost importance to the defense bar and provides yet another way to peer into the veiled world of personal injury litigation funding. While the first of its kind in several ways, this order falls within the trend of recent cases in this regard in the 11th Circuit and we anticipate it will not be the last.  

If you would like a copy of the opinion, please contact Wayne Melnick ([email protected]) or Christopher Lee ([email protected]) directly.