Delaware Court Orders Full Disclosure of Class Action Funding Agreement
Disclosure of litigation funding agreements has been one of the most contentious issues in recent years, particularly in the state of Delaware, where certain judges have focused on in questions of transparency. However, a class action in the state has produced one of the most interesting rulings of the year, as the court ordered the full disclosure of the funding agreement and suggested that the litigation funder may also be a competitor of the defendant.
An article in Reuters examines a case in the Court of Chancery for the State of Delaware, in which Vice Chancellor Nathan Cook ruled that plaintiffs in a class action must share their litigation funding agreement with the defendants. The class action at stake is a 2018 case brought against insurer Genworth Financial over allegations of fraudulent transfers that stripped assets from its long term care subsidiary, resulting in the company being unable to pay future claims and commissions to policyholders and insurance brokers. The August 21 ruling granted the defendants’ motion to compel the production of both the litigation funding agreement and the unredacted fee agreements.
Cook explained his ruling in part by emphasising that both the nature of class action lawsuits and the specific context of this case, “give rise to several unique concerns, including the potential for class counsel to face conflicts of interest and for the third-party funders to exercise improper control over the litigation”. Cook also highlighted that the language used in the funding agreement appeared to acknowledge that “the arrangement set forth within, will be disclosed in some fashion during litigation.”
Cook went on to refute the arguments made by the plaintiff’s lawyers that the funding agreement contained privileged or confidential information, stating: “I am confident that, in compelling production of the Funding Agreement, I am not requiring Plaintiffs to disclose meaningful opinion work product.” Referencing existing case law set down in the cases of Carlyle and Charge Injection, Cook concluded that “contrary to Plaintiffs’ assertion, it is not “well established” that, under Delaware law, “litigation funding agreements . . . are not discoverable.””
One of the most interesting elements of Cook’s ruling was that he appeared to infer that the nature of the unnamed litigation funder had raised concerns. Cook noted that the funders behind the Genworth class action “do not seem to be entities ordinarily involved in litigation funding”, going on to state that “they appear to be competitors financing litigation against a market peer.”