New York Litigation Funding Discovery After Perdomo and Lituma

At a Glance

Summary: The New York Consumer Litigation Funding Act changes how consumer litigation funding is regulated in New York, but it does not eliminate funding, does not require automatic disclosure, and does not turn funding into a collateral source. The Act creates a regulated structure for funding contracts, charges, disclosures, repayment terms, funder conduct, attorney responsibilities, privilege, registration, and reporting.

Rule: The Act regulates the funding relationship. It does not replace CPLR 3101, which still controls whether funding information is discoverable in litigation.

Claims Adjuster Consideration: Treat the Act as a settlement and case-valuation tool, not as a guaranteed discovery shortcut. The defense gains leverage from the Act’s limits on charges, funder influence, referral relationships, repayment language, and standardized disclosures, but discovery still requires a case-specific showing.

Overview: The New York Consumer Litigation Funding Act creates General Business Law Article 39-H, Third Party Litigation Financing. The statute applies to consumer litigation funding transactions involving a New York consumer with a pending civil claim.

The Act implicates New York personal injury litigation, Labor Law claims, premises liability actions, motor vehicle claims, and high-value bodily injury cases because funding can affect settlement posture, treatment patterns, lien issues, and the economics of resolution.

But the most important point is this:

The Act regulates consumer litigation funding. It does not make litigation funding disappear. It also does not make funding automatically discoverable.

That is where the new law intersects with the First Department’s decisions in Lituma v Liberty Coca-Cola Beverages LLCand Perdomo v 361 E. Realty Assoc. LLC. The Act gives defendants better arguments about funding structure and funder conduct. Lituma and Perdomo explain when those arguments may support discovery.

The practical rule is narrow but useful: the Act creates new leverage, not automatic transparency.

I. What the Act Actually Regulates

The Act is not a discovery statute. It is a consumer-protection and market-regulation statute.

Under General Business Law § 899-ccc, consumer litigation funding is a non-recourse transaction in which a funding company purchases a contingent right to receive part of the potential proceeds of a settlement, judgment, award, or verdict.

The transaction is tied to the outcome of the claim. If there is no recovery, repayment generally comes only from the proceeds of the legal claim, subject to the terms and exceptions in the contract.

For defense counsel and claims professionals, that means funding remains part of the litigation economy. The law does not prohibit plaintiffs from using funding. It regulates how funding companies may operate and what consumers must be told before they sign.

The Act addresses:

contract requirements;
mandatory disclosures;
the right of rescission;
charge limitations;
repayment schedules;
funder conduct;
attorney acknowledgments;
referral-fee restrictions;
privilege;
registration;
annual reporting; and
penalties for willful violations.

That is a major change for New York civil litigation, but it is not the same thing as mandatory disclosure to defendants.

II. What the Act Does Not Do

The defense value of the Act starts with understanding its limits.

The New York Consumer Litigation Funding Act does not:

ban consumer litigation funding;
require plaintiffs to disclose funding in every lawsuit;
amend CPLR 3101;
make funding automatically material and necessary;
convert funding into a collateral source under CPLR 4545;
give defendants a right to every communication between plaintiff’s counsel and the funder;
eliminate funding pressure from settlement negotiations;
retroactively regulate funding transactions completed before the Act’s effective date.

Those limits matter. If defense counsel treats the Act as an automatic discovery rule, the request will likely fail. That is the lesson of Perdomo.

The stronger use of the Act is different. Defense counsel should use the statute to identify improper influence, test settlement positions, challenge inflated demands, investigate referral relationships, and frame targeted discovery where the facts justify it.

III. The Act Creates a More Standardized Funding Contract

One of the most important changes is contract structure.

General Business Law § 899-ddd requires consumer litigation funding contracts to be written in clear language, completely filled in when presented, initialed by the consumer on each page, and accompanied by disclosures concerning charges, maximum amounts, rescission rights, and repayment obligations.

The contract must also include an attorney acknowledgment. The attorney must acknowledge, among other things, that the attorney reviewed the mandatory disclosures with the consumer, that the attorney is being paid on a contingency basis, that proceeds will be disbursed through a trust account or settlement fund, and that the attorney has not received a referral fee or other consideration from the funding company.

That structure gives the defense a practical benefit.

If funding becomes discoverable in a particular case, the documents should be easier to understand. The Act requires the key financial terms to be identified in a more organized way. That may help defense counsel evaluate repayment pressure, lien issues, settlement obstacles, and inconsistencies in testimony.

But the defense still needs a reason to get the documents.

Standardization makes funding documents more useful when they are discoverable. It does not make them automatically discoverable.

IV. The 25 Percent Charge Limitation Changes the Settlement Conversation

The Act’s most important settlement feature is the charge limitation.

General Business Law § 899-eee provides that, where the consumer or the consumer’s attorney gives the funding company an attestation disclosing the final gross proceeds from the claim, the maximum allowable charges may not exceed 25 percent of the gross proceeds from the applicable legal claim.

That should be described carefully.

The Act limits “charges.” It does not simply say that every dollar owed to a funder can never exceed 25 percent of the recovery. The statute distinguishes between the “funded amount” and “charges.” Under General Business Law § 899-ccc, charges include fees and interest above the funded amount. Under General Business Law § 899-fff, repayment must be a predetermined amount based on time intervals and may not be calculated as a percentage of the legal recovery.

That distinction matters in mediation.

A plaintiff may still have a repayment obligation. A funder may still expect repayment from the recovery. But the Act gives defense counsel a cleaner response to inflated demands that appear driven by funding pressure:

The settlement number should reflect the value of the claim, not an uncontrolled funding burden.

For claims adjusters, that changes the negotiation posture. In high-value cases, the defense should ask whether the plaintiff’s demand is being driven by liability and damages or by the economics of repayment.

The Act does not eliminate the problem. It gives the defense better language to confront it.

V. The Act Prohibits Funder Control Over Settlement

The Act’s anti-influence language is a practical litigation tool.

General Business Law § 899-eee prohibits a consumer litigation funding company from receiving any right to make decisions about the conduct, settlement, or resolution of the underlying legal claim. Those decisions remain with the consumer and the attorney.

General Business Law § 899-ggg requires disclosure language stating that the funding company has no role in deciding whether, when, or for how much the legal claim is settled. The statute also states that the company may seek updated information about the status of the claim, but may not interfere with the attorney’s independent professional judgment.

This is one of the most useful parts of the Act for defense counsel.

When the plaintiff rejects reasonable offers without explanation, escalates demands without new evidence, or delays resolution in a way that does not match the proof, the defense can raise the Act’s anti-control rule.

The argument should be framed carefully. The point is not that funding is improper. The point is that New York law does not permit the funder to drive litigation strategy or settlement decisions.

That issue can be raised in mediation, court conferences, settlement letters, and targeted discovery where there is a factual basis to believe the settlement posture is being influenced by someone other than the plaintiff and counsel.

VI. The Act Targets Referral Fees and Financial Relationships

The Act also addresses relationships among funders, lawyers, and medical providers.

General Business Law § 899-eee prohibits funding companies from paying or offering referral fees, commissions, rebates, or other consideration to attorneys, law firms, medical providers, chiropractors, physical therapists, or their employees for referring a consumer to the funding company.

The Act also prohibits attorneys and law firms retained by the consumer from having a financial interest in the funding company offering funding to that consumer.

For insurers and defense counsel, this is significant.

In routine cases, this may not matter. In cases involving suspicious treatment patterns, repeated provider networks, staged-accident concerns, unusual referral paths, or inflated medical specials, the referral-fee provisions give the defense a statutory framework for investigation.

The question becomes:

Is the funding relationship separate from the medical and legal referral structure, or is it part of a coordinated claim-development system?

That question will not justify discovery in every case. But in the right case, it may support a more targeted request.

VII. The Act Targets Referral Fees and Financial Relationships

The Act also addresses relationships among funders, lawyers, and medical providers.

The Act also prohibits attorneys and law firms retained by the consumer from having a financial interest in the funding company offering funding to that consumer.

For insurers and defense counsel, this is significant.

The question becomes:

Is the funding relationship separate from the medical and legal referral structure, or is it part of a coordinated claim-development system?

That question will not justify discovery in every case. But in the right case, it may support a more targeted request.

VIII. The Act Preserves Privilege, But Not Every Funding Fact Is Privileged

VII. The Act Preserves Privilege, But Not Every Funding Fact Is Privileged

General Business Law § 899-jjj states that communications between the consumer’s attorney and the funding company concerning consumer legal funding fall within the attorney-client privilege, including work-product protection.

That provision is important and should not be ignored.

A broad request for every communication between plaintiff’s counsel and the funder will invite a privilege objection and may make the defense look like it is overreaching.

But the privilege provision does not mean every fact about the funding relationship is immune from discovery.

There is a difference between privileged communications and non-privileged facts, such as:

whether funding exists;
the identity of the funding company;
the date of funding;
the amount advanced;
the repayment obligation;
the payment schedule;
whether the funder has any asserted lien;
whether the funder was referred by a lawyer, provider, or other person;
whether any non-privileged statement by the plaintiff conflicts with testimony;
whether the plaintiff is under an enforceable repayment obligation.

The better defense approach is to request facts and contract terms first, not attorney-funder communications. If plaintiff asserts privilege, ask for redactions, a privilege log, or in camera review.

That approach is more likely to survive judicial scrutiny.

IX. Registration and Reporting Create a More Regulated Market

The Act also requires funding companies to register.

Under General Business Law § 899-kkk, a consumer litigation funding company may not engage in consumer litigation funding in New York unless it has registered with the State. The section also requires filing of contract forms and authorizes implementing rules and regulations.

General Business Law § 899-lll requires annual reporting by funding companies, including the number of fundings, total funded amounts, and annual percentage charged where repayment was made. The Department of State must make information publicly available while maintaining confidentiality of company and consumer names.

This part of the Act may become more important over time.

For now, it tells claims professionals that New York is moving away from an unregulated funding environment. Over time, the reporting requirements may provide a broader picture of how funding affects personal injury litigation, settlement values, repayment pressure, and claims inflation.

That information may not solve a specific case today. But it may eventually help insurers identify trends.

X. Violations Have Consequences

The Act has teeth.

Under General Business Law § 899-hhh, a funding company that willfully violates the Act in a specific funding case waives its right to recover both the funded amount and charges in that case. The company may also face a civil penalty of up to $5,000 for each violation, recoverable by the New York Attorney General.

That enforcement structure raises issues with settlement strategy.

If the record suggests a statutory violation, the defense should not automatically assume that the funding obligation is fixed and unavoidable. A willful violation may change the economics of the plaintiff’s repayment obligation.

That does not mean defense counsel can litigate every funder-consumer dispute inside the personal injury case. But it does mean the defense should pay attention to possible violations when funding pressure appears to be driving settlement positions.

XI. How Lituma Fits Into the New Law

Lituma v Liberty Coca-Cola Beverages LLC is the case defendants will cite when they want litigation funding discovery.

In Lituma, the First Department affirmed an order allowing further discovery, including materials related to the funding of the plaintiffs’ litigation. The defense did more than speculate. It submitted an insurance agent affidavit that provided a chronology and connected plaintiffs, medical providers, and other individuals involved in other suspicious accidents.

The Court held that the requested information was material and necessary because it could reveal a financial motive for fabricating the accident.

The affidavit was impactful.

Lituma does not mean funding is always discoverable. It means funding may be discoverable when the defense connects the funding information to a real issue in the case, such as fraud, fabrication, motive, credibility, or coordinated treatment.

After the New York Consumer Litigation Funding Act, Lituma becomes even more useful because the statute identifies categories of conduct that matter: funder control, referral fees, attorney financial interests, repayment obligations, disclosures, and funding-company compliance.

A strong defense request after Lituma should not say only, “Produce the funding agreement.”

It should say why the funding relationship matters to the case.

XII. How Perdomo Limits the Defense Strategy

Perdomo v 361 E. Realty Assoc. LLC is the limiting case.

In Perdomo, the First Department affirmed the denial of a motion to compel litigation funding documents and lien information related to the plaintiff’s medical treatment. The Court held that the defendants had not shown why the funding documents were material and necessary to a defense under CPLR 3101.

The Court explained that the amount and source of litigation funding were not part of the plaintiff’s claimed damages. The defendants also had not shown how the documents would support or undermine a particular claim or defense.

The Court also rejected the argument that litigation funding qualified as a collateral source under CPLR 4545. To the extent the defendants were entitled to know whether the plaintiff was under an enforceable repayment obligation, the Court stated that information could be obtained through interrogatories or depositions.

That is a practical point.

Perdomo does not shut down all inquiry into funding. It rejects broad, speculative document discovery. It leaves room for narrower questions about enforceable repayment obligations when those questions are properly tied to the case.

The lesson is direct: do not overread the Act, and do not overread Lituma.

XIII. The Real Rule After the Act, Lituma, and Perdomo

The New York Consumer Litigation Funding Act regulates consumer funding contracts. Lituma and Perdomo regulate the discovery fight.

Together, they create this working rule:

Funding may matter, but the defense must explain why it matters in the case being litigated.

A defense request is stronger when it is tied to:

fraud;
staged-accident allegations;
motive to fabricate;
credibility;
inconsistent testimony;
medical referral relationships;
lien or repayment pressure;
unexplained treatment patterns;
inflated settlement demands;
funder influence over settlement;
statutory violations under the Act;
damages claimed by the plaintiff;
a pleaded affirmative defense or counterclaim.

A defense request is weaker when it rests on:

suspicion alone;
generic concerns about litigation funding;
a belief that all funded plaintiffs have inflated demands;
unrelated RICO allegations involving unnamed providers;
a general desire to know how much money the plaintiff received;
a broad demand for privileged attorney-funder communications.

That is the difference between Lituma and Perdomo.

Lituma had a factual bridge. Perdomo did not.

XIV. Defense Counsel Strategy Under the New Act

The defense should not treat the Act as a single discovery demand.

It should be used in stages.

First, evaluate whether the type of case suggests funding may matter. Funding is most likely to affect high-value personal injury cases, Labor Law claims, catastrophic injury cases, prolonged-treatment cases, cases with large medical liens, and cases where settlement demands do not match the evidence.

Second, look for facts that connect funding to a disputed issue. The issue may be motive, credibility, fraud, damages, medical treatment, lien pressure, or settlement control.

Third, start with targeted questions before seeking broad document production.

Useful deposition or interrogatory topics include:

whether the plaintiff obtained consumer litigation funding;
when the funding was obtained;
the amount advanced;
whether repayment is required from settlement or judgment proceeds;
whether the plaintiff understands the repayment obligation;
whether the plaintiff received funding to pay medical expenses;
whether any medical provider referred the plaintiff to a funding company;
whether any lawyer, provider, or other person recommended the funder;
whether any funder communicated settlement expectations;
whether the plaintiff believes a settlement must exceed a certain amount because of repayment obligations.

Fourth, decide whether document discovery is justified. If the answers suggest repayment pressure, referral issues, inconsistent statements, funder influence, or fraud, the defense may have a better basis for a Lituma-style application.

That is how the Act should be used: as a framework for targeted case development.

XV. Claims Handling Impact

For claims adjusters, the Act changes how high-value New York claims should be evaluated.

Funding should be considered early, but not mechanically. A claim file should identify whether funding could be affecting the plaintiff’s settlement posture, treatment decisions, or demand structure.

A practical claim note might ask:

Is this a case where funding is likely?
Is the demand out of proportion to liability, damages, or venue?
Is treatment unusually prolonged?
Are there large liens or letters of protection?
Are the same providers appearing across multiple claims?
Did settlement movement stall without a litigation reason?
Is there a basis to ask defense counsel about targeted funding discovery?
Would deposition questions be more effective than a motion to compel?
Does Perdomo make broad discovery too risky?
Does Lituma support a more focused request?

This is where the Act gives claims professionals value. It helps adjusters understand the economic forces behind settlement demands without assuming that every case has hidden funding or every funding relationship is improper.

The right approach is disciplined skepticism.

XVI. Practice Pointers

Do not describe the Act as a mandatory disclosure law. It is not.

Use the phrase “New York Consumer Litigation Funding Act” in settlement letters, mediation statements, and claim reports when funding may affect valuation.

Separate the funded amount from charges. The 25 percent limitation applies to charges, not necessarily the entire repayment obligation.

Use the anti-control language when settlement decisions appear influenced by a funder.

Use the referral-fee prohibitions when the same funding company, medical providers, or referral sources appear repeatedly.

Avoid broad requests for attorney-funder communications unless there is a specific basis for seeking them.

Start with interrogatories and deposition questions about enforceable repayment obligations.

Use Lituma when the facts connect funding to fraud, motive, fabrication, credibility, or damages.

Expect Perdomo to be cited against speculative funding discovery.

Build the record before moving to compel.

Coordinate with adjusters early so the funding strategy matches reserve analysis, mediation posture, and settlement authority.

XVII. A Regulated System, Not Full Transparency

The New York Consumer Litigation Funding Act is a major development for personal injury litigation, insurance defense, and claims handling in New York.

But it should not be oversold.

The Act does not create full transparency. It does not require automatic disclosure to defendants. It does not eliminate funding pressure. It does not guarantee access to funding contracts. It does not override privilege.

What it does is more practical.

It regulates the funding contract. It limits charges. It prohibits funder control. It restricts referral relationships. It requires clearer disclosures. It creates attorney acknowledgments. It imposes registration and reporting requirements. It gives the defense better settlement arguments. And, in the right case, it gives counsel a stronger framework for targeted discovery.

The litigation takeaway is straightforward:

The Act changes the economics around funding. Lituma and Perdomo explain when those economics become discoverable.

For insurers, defense counsel, and claims professionals, that is the new leverage point.

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If this decision affects a claim file, coverage position, or motion strategy, forward it to the person handling the issue.

Read more New York Civil Law analysis here.

Questions This Post Answers

What does the New York Consumer Litigation Funding Act do?
Does the New York Consumer Litigation Funding Act require automatic disclosure of litigation funding?
How does the New York Consumer Litigation Funding Act affect personal injury settlement negotiations?
What is the 25 percent charge limitation under the New York Consumer Litigation Funding?
Can a litigation funder control settlement decisions in New York?
Does litigation funding qualify as a collateral source under CPLR 4545?
When is litigation funding discoverable after Lituma?
Why did funding discovery fail in Perdomo
How should defense counsel use the New York Consumer Litigation Funding Act in discovery?
What should claims adjusters consider when litigation funding may affect settlement value?

Sources

Photo Credit to Giorgio Trovato