In recent years, New York courts and insurers have confronted a troubling rise in suspicious personal-injury claims tied to the construction industry. Patterns have emerged revealing the same lawyers, the same doctors, the same "witnesses," and, increasingly, the same litigation funders appearing across clusters of questionable accidents. These cases often follow a script. They involve rapid referrals to preferred medical providers, identical fact patterns, outsized treatment plans, and quick demands for high-value settlements. As insurers and defendants push back, courts are being asked to decide how far discovery may reach when the record suggests an orchestrated effort to manufacture claims for financial gain.
In Lituma v. Liberty Coca-Cola Beverages, LLC, the Appellate Division, First Department, sent a clear message. When credible evidence suggests that plaintiffs, medical providers, lawyers and litigation funders may be connected through a wider fraudulent accident-network, discovery must extend beyond traditional boundaries. The court upheld vacatur of the note of issue and allowed defendants to pursue discovery into litigation funding arrangements, recognizing that such information could illuminate a financial motive to fabricate accidents or inflate claims.
Emerging Signs of a Fraud Network Justified Vacating the Note of Issue
The First Department affirmed the Supreme Court, New York County's order, which vacated the note of issue and permitted further discovery. Although defendants moved more than twenty days after the filing of the note of issue, the Court held that the trial court acted within its discretion. A motion to vacate a note of issue made outside the twenty-day period must demonstrate "good cause," established by showing "unusual or unanticipated circumstances and substantial prejudice." Taylor v. Enterprise FM Trust, 214 A.D.3d 493, 494 [1st Dept. 2023].
The defendants met this burden. Their insurance agent submitted an affidavit detailing a chronology in which the plaintiffs, their medical providers, and multiple individuals tied to other suspicious accidents appeared interlinked. These connections surfaced approximately one month before plaintiffs filed the note of issue, and more evidence emerged thereafter. Considering these newly revealed facts, the delay in seeking vacatur was neither unreasonable nor prejudicial. The court agreed that the circumstances were sufficiently unusual and unanticipated to justify reopening discovery.
Discovery of Potential Litigation Funding is Necessary in Cases Where Fraud is Suspected
The most significant aspect of the ruling is the Court's express approval of discovery into litigation-funding arrangements, a topic New York courts historically approach with caution.
Under CPLR 3101(a), litigants are entitled to "full disclosure of all matter material and necessary" to the defense or prosecution of an action. Courts interpret "material and necessary" liberally to include anything bearing on the controversy. Rivera v. NYP Holdings Inc., 63 AD3d 469 [1st Dept. 2009].
In Lituma, defendants argued that litigation funding could reveal a financial motive to engineer a fraudulent accident, given the broader indicators of an organized claim-generation scheme in the record. The First Department agreed that litigation-funding information could be directly relevant. Unlike cases where funding discovery was denied because relevance was speculative or remote, such as Smartmatic USA Corp v. Fox Corp., 2023 NY Slip Op 30886(U), *4-5 (Sup. Ct., N.Y. County 2023), this case resembled those where financial relationships help illuminate alleged misconduct. Worldview Entertainment Holdings, Inc. v. Woodrow, 204 AD3d 629 [1st Dept. 2022].
By allowing litigation-funding discovery, the Court acknowledged a reality increasingly faced by defendants. Financial incentives and third-party funding can play a central role in perpetuating fraudulent claims. When those incentives may be driving the litigation itself, they are fair game in discovery.
Unpreserved and Non-Appealable Arguments Were Properly Rejected
Two plaintiffs, Jorge Emerson Godoy Alvarado and Amparo Yaqueline Hernandez, argued that defendants could not rely on their fraud-based affirmative defense and counterclaim because fraud does not lie in a personal-injury action. The First Department refused to review the issue.
Plaintiffs had never appealed the Supreme Court's prior April 8, 2024, order granting defendants leave to assert the fraud claim. An issue not appealed from the underlying order is not properly before the Court. Owens v. STD Trucking Corp., 220 AD3d 542 [1st Dept. 2023]. The plaintiffs also failed to raise the argument in their motion papers below, rendering it unpreserved. New York Community Bank v. Parade Place, LLC, 96 AD3d 542 [1st Dept. 2012].
The Court also declined to address plaintiffs' argument about reimbursement for an independent medical examination, explaining that the February 7, 2025, order granted defendants no relief on that issue. Because plaintiffs were not "aggrieved," the argument was nonreviewable under CPLR 5511.
Conclusion: Courts Will Not Shield Fraud from Scrutiny- Even Through Litigation Funding
Lituma v. Liberty Coca-Cola Beverages LLC marks another step in New York courts' growing willingness to confront fraudulent-accident patterns head-on. The First Department made clear that when defendants present credible evidence suggesting a coordinated scheme involving plaintiffs, doctors, attorneys, and litigation funders, discovery may, and should, reach the financial arrangements underpinning the case.
The decision reinforces three important principles:
- Fraud concerns justify vacating a note of issue even late in the litigation timeline.
- Litigation-funding discovery is appropriate where it may reveal financial motives or relationships driving suspicious claims.
- Appellate review will not rescue unpreserved or non-aggrieved arguments, maintaining procedural discipline.
As fraudulent construction-accident litigation becomes more sophisticated, this ruling signals that New York courts are prepared to widen the lens of discovery to expose the financial structures enabling it. Attorneys defending high-volume or pattern-based injury claims should view Lituma as an important tool in uncovering the full architecture of fraud, and as confirmation that courts will not allow funding arrangements to operate in the shadows when the integrity of the litigation is at stake.
