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Recent Cases Deliver Blow to Litigation Finance Companies

Written by: Abigail Castleberry, Esq.

The use of litigation financing has significantly increased in recent years. A study published by ALM Media found that 36% of U.S. law firms used litigation financing in 2017, up almost 30% from 2013.1) Typically, litigation finance companies will contract with doctors to provide medical care for injured claimants who lack medical insurance. These companies purchase medical debt from doctors at a discounted rate, and contracts made with plaintiff-patients allow the financers to recover the full cost of the medical care out of any subsequent settlement or judgment.

Litigation finance companies will often utilize the “collateral source” rule to prevent discovery of their agreements and financial transactions. The Eleventh Circuit Court of Appeals, however, recently upheld a district court’s admission of such evidence to show bias on the part of a treating physician. In ML Healthcare Services, LLC. v. Publix Super Markets, Inc., 881 F.3d 1293 (11th Cir. 2018), the respondent argued that in order to recover on their investments, litigation finance companies need the plaintiffs they invest in to win their claims, and this motivation introduces bias on the part of the doctors who receive referrals from the companies and testify on behalf of plaintiffs. Id. at 1302. The Eleventh Circuit held that the district court did not abuse its discretion in admitting ML Healthcare’s payment arrangement for the purpose of showing bias on the part of the doctors. The Court explained that “the fact that evidence . . . implicates the collateral source rule does not render it irrelevant ‘for impeachment purposes.’” Id. The Court did not reach the issue of whether the same evidence was admissible to challenge the reasonableness of medical expenses. Id. at 1304.

Significantly, this decision comes off the heels of a Georgia Court of Appeals case, Wellstar Kennestone Hospital v. Roman, No. A17A1497, 2018 WL 617035 (Ga. Ct. App. Jan. 30, 2018), which affirmed a defendant’s right to obtain similar evidence based on the narrow rationale that the information was “discoverable.” Id. at *2-3. The defendant sought information concerning Wellstar’s write-offs for patients in various categories. Id. at *1-2. Wellstar contended that the collateral source rule barred discovery of this information, but the trial court ruled the information was discoverable. Id. The Court of Appeals, in upholding the trial court’s decision, explained that Wellstar had the burden to show that the discovery of the information was not reasonably calculated to lead to the potential discovery of admissible evidence. Id. at *3. The Court further explained that admissibility was not the relevant analysis in determining the discoverability of the information, but that such analysis would occur later. Id.

The above referenced cases indicate that Georgia courts are becoming increasingly aware that litigation financing poses a threat to the fairness of the litigation process. These agreements can lead to inflated medical specials and demands, which are incongruent to a claimant’s actual injuries and only fund the coffers of the litigation financers. Under current Georgia case law, litigation financing agreements are not admissible to challenge the reasonableness of a plaintiff’s medical expenses. However, these recent cases have opened up avenues for defendants to begin challenging these agreements in court. Therefore, it is advisable that defense counsel ask in every case whether a plaintiff received litigation financing and, if so, make every effort to obtain the agreements and payment transactions through the discovery process