Late last year we said that almost every legal conference these days has a session on artificial intelligence. It is de rigeur. That is also true with respect to litigation funding. It is a hot issue. Our Inn of Court (University of Pennsylvania) did a presentation on litigation funding that, despite the fact that it is such a well-trodden topic, managed to show us a few things we had not seen before. For example, in some cases it turned out that the lawsuit was being funded by a competitor of the defendant.  When that competitor litigation funding comes from overseas, it seems even more menacing.  And, of course, most of you remember how a tech billionaire with a grudge against a media outlet funded a celebrity’s case against said media outlet. Hello, lawsuit. And, after a ruinous verdict, goodbye, defendant. 

But the issues surrounding litigation funding are usually of a more quotidian sort.  A recent example is Gilead Sciences, Inc. v. Khaim, 2025 U.S. Dist. LEXIS 75105, 2025 WL 1151412 (E.D.N.Y. April 21, 2025). In resisting discovery of third-party litigation funding, parties often make claims that the information is privileged.  This case holds that information about who is paying for a party’s lawyer and how is not necessarily privileged.  Quotidian or not, the case is still interesting.

Actually, maybe quotidian is the wrong word. Gilead is an unusual case, with a drug company as the plaintiff in civil litigation against defendants alleged to be involved in counterfeiting the plaintiff’s FDA-approved drugs.  The drugs were for the treatment or prevention of HIV. Following the receipt of multiple complaints from patients and pharmacies who had purchased counterfeit drugs bearing the plaintiff’s brand name, the plaintiff manufacturer filed a complaint against various defendants for trademark infringement, false descriptions, false advertising, and trademark dilution, all in violation of the Lanham Act, as well as deceptive business practices in violation of New York General Business law section 349, and common law unjust enrichment and unfair competition. If the plaintiff succeeded in its action against the defendants, one form of available damages would have been to recover the defendants’ “ill-gotten profits.” 

The plaintiff sought to test a representation by one of the defendants to the effect that she “earned almost no money from the multi-million dollar fraud for which she helped launder and conceal the profits, and that her legal fees are not paid out of those concealed profits but rather from generous benefactors.” (Any fan of American theater cannot help but think of Blanche Dubois’s last, sad statement in “A Streetcar Named Desire” that she had “always depended on the kindness of strangers.”) To determine that defendant’s ability to satisfy a judgment, the plaintiff sought discovery (Rule 45 requests for production) from the defendant’s counsel about who was paying the defendant’s fees and how.  The defendant claimed privilege and the court rejected the claim.  

There were extensive negotiations between the plaintiff and the defendant regarding the discovery. The defendant was facing a parallel criminal proceeding and wanted to postpone the discovery until the criminal proceeding terminated.  Her lawyers were good ones and, presumably, expensive. The defendant eventually entered a change of plea – changing from the initial not guilty plea to a guilty plea.  That guilty plea should have helped bring the discovery negotiations to some sort of compromise, but then the defendant wanted to postpone discovery until her sentencing – which still has not taken place.  The plaintiff manufacturer agreed to limit the time period for the fee payment information, but the parties were still at loggerheads.  Thus, the court needed to decide the discovery issue.

Here is what the Gilead court decided:

First, the court held that the requested discovery was not privileged.  Fee arrangements are not within the attorney-client privilege because “they are not the kinds of disclosures that would not have been made absent the privilege and their disclosure does not prevent the attorney from rendering legal advice.”  Thus, information that fees were paid by third persons may be sought to determine the identity of a benefactor.  If there is a headline to this case, that is it.

Under the relevant case law, there can be “special circumstances” that protect disclosure of such information, but they are limited to situations where disclosure really would reveal something privileged. But here, no special circumstances existed that could result in wrecking some privilege.  Information is not privileged merely because the party may strongly fear the effects of disclosure.  (Any ex-prosecutor cannot help but think of the old joke about how the most common objection by criminal defense attorneys is, “Objection, your Honor: prejudicial – tends to show guilt.”)  The defendant failed to show that complying with the discovery request would “inhibit the ordinary communication necessary for an attorney to act effectively, justly, and expeditiously.”  Moreover, the defendant had not shown that production of the information would “affect her ability to obtain informed legal advice in the instant case and in the Criminal Action.”

Second, the court held that the requested discovery was relevant and proportional.  As we all know, the standard for discovery under Fed. R. Civ. P. 26(b)(1) is broad.  A subpoena to a third party per Rule 45 is subject to the Rule 26(b)(1) standard.  The information “concerning Defendant’s financial status, including her ability to pay her legal fees” bears on the plaintiff’s claim for damages available under the Lanham Act.  The plaintiff’s agreement to narrow the time-frame of the request aided it in persuading the court that the information sought was “proportional to the needs of the case.” 

Accordingly, the Gilead court held that the plaintiff manufacturer was entitled to “all non-privileged documents and information sufficient to show (1) the source of all payments from or on behalf of Defendant to [her law firm] since the commencement of her representation in the Criminal Action; and (2) the dates and amounts of all payments from or on behalf of Defendant received by [her law firm] since commencement of her representation in the Criminal Action.”

The implications of the Gilead ruling are potentially far-ranging. You and your clients might like some and dislike others. At a minimum, the next time you are in a squabble over discovery of third-party litigation funding, the Gilead case might offer useful ammo.