Litigation Funding Contracts: Ammunition to Attack the Collateral Source Rule

On December 12, 2019, a United States District Court judge for the Eastern District of Louisiana, in the case Collins v. Benton, affirmed a magistrate's ruling that a litigation funding contract between a healthcare provider and a litigation funding company is relevant and discoverable.  This ruling is significant because the information produced could be critical to defendants' effort to limit the extent of medical expenses plaintiffs can recover. 

A.  Background

On August 9, 2017, Wayland Collins, Candy Kelly and Alvin Polk (collectively, "Plaintiffs") were involved in an automobile accident with a tractor-trailer in New Orleans.  Plaintiffs sued the truck driver, trucking company and their insurer for negligence/improper lane usage.  Plaintiffs were treated at Crescent View Surgery Center, LLC ("CVSC"), a provider that later sold its accounts receivable to MedPort, a litigation funding company.  Defendants filed a counterclaim against Plaintiffs for fraud, contending that the accident was staged.

Defendants issued a subpoena to CVSC for production of records of the charges, payments, and contracts with third parties and other documentation concerning the medical expenses charged by CVSC for medical procedures performed at that facility on Plaintiffs.  CVSC produced some billing information, but refused to provide the amount of the payments it received for the treatment provided to Plaintiffs.

On November 5, 2019, Defendants filed a motion for contempt against CVSC.  Following a hearing, the Magistrate ordered the production of the Master Purchase Agreement between MedPort and CVSC for purposes of an in camera inspection.  The Magistrate further ordered CVSC to provide Defendants with un-redacted copies of records showing the amount MedPort paid for the receivables.  CVSC filed objections and an appeal of the Magistrate's Order.

B.  Discussion

CVSC claimed the Magistrate erred, because the information contained in the contract was irrelevant.  Defendants countered that all contracts between CVSC and any litigation funding company and/or between CVSC and Plaintiffs' counsel relative to the payment of Plaintiffs' medical expenses is critical to the defense of their case and discoverable. 

Defendants argued that the collateral source rule does not apply to allow Plaintiffs to recover the difference between the amounts charged by CVSC (or any other healthcare provider) and the amounts the provider(s) received in payment from MedPort.  Plaintiffs had testified in depositions that their attorney was "taking care of" their medical bills.

C.  Conclusion

The Court held that because there was evidence that Plaintiffs' attorney was paying the medical bills, the contract between CVSC and MedPort was relevant to show whether the collateral source rule applies and bias on the part of Plaintiffs' medical providers.  The Court denied the motion and affirmed the Magistrate Judge's order.

D.  Why is this Important?

1. In Louisiana, where a Plaintiff's patrimony has been diminished to obtain collateral source payments, as is the case with private insurance or Medicare, then a plaintiff is entitled to recover the full value of the medical services, including the write off amounts.

2. A plaintiff's healthcare provider could have contracts with litigation funding companies that purchase the healthcare provider's accounts receivable at a discount.

3. Obtaining contracts like this during discovery could help a defendant reduce the amount a plaintiff can recover for medical treatment.

4. Litigants in personal injury cases governed by Louisiana law should be mindful that if a plaintiff cannot establish that he paid any benefit or suffered any diminution in his patrimony to obtain a discounted medical payment, an argument can be made that the collateral source rule does not apply.