Court Allows Discovery of Funding Sources for Nunes Family Farms' Libel Lawsuit

From the Nustar Farms case, a decision today by Magistrate Judge Mark Roberts:

Although Plaintiffs emphasize that the funding of the litigation is irrelevant to their defamation claim, the scope of discovery is not limited to that claim but extends to Defendants’ own “claim[s] and defense[s].” …

First, Plaintiffs have not denied that the litigation is being funded by others. Second, Plaintiffs have only incurred $500 in charges during this protracted litigation. Third, Anthony Nunes III, an individual Plaintiff and the corporate representative has “no idea” who is paying the lawyers representing Plaintiffs.

These circumstances may not ultimately turn out to be “untoward,” but they are certainly unusual. Moreover, these circumstances lift the basis for Defendants’ inquiry above the level of mere speculation and raise legitimate subjects for inquiry not present in a more run-of-the-mill personal injury case or commercial dispute. The instant case is distinguishable from a case like Benitez where the defendant seeking litigation funding information could not point out how it might affect the plaintiff’s credibility or be used for impeachment.

As Defendants point out, a crucial and often determinative issue in a defamation case is whether a plaintiff needs to prove actual malice. This Court has expressed doubt about the viability of a theory of defense based on the Plaintiffs’ status as involuntary public figures. Nevertheless, the unusual facts presented here make Defendants’ inquiry into litigation funding a legitimate subject for discovery to enable them to make the argument on a full record…. Congressman Nunes is clearly a public figure who would be required to prove actual malice. The requirement of actual malice was adopted by the United States Supreme Court because “[i]t would give public servants an unjustified preference over the public they serve, if critics of official conduct did not have a fair equivalent of the immunity granted to the officials themselves.” New York Times v. Sullivan, 376 U.S. 254, 282-83 (1964.)

It may turn out that there has been no coordination between the Congressman and his family, as Plaintiffs assert. However, Defendants inquiry into third-party funding serves the legitimate purpose of determining whether such coordination exists. In light of the important constitutional protections that proof of actual malice provides, it is not a significant imposition to require Plaintiffs to provide discovery that would prove or dispel the notion that a third party is using the instant case to avoid a significant hurdle to a defamation claim. Given the close family relationship, the other defamation litigation Congressman Nunes has pursued in his own name with the help of the same attorney, and the Plaintiffs’ lack of knowledge of who is paying their lawyers, the inquiry is not founded on mere speculation.

These circumstances also justify discovery of third-party funding based on the other reasons advanced by Defendants. Plaintiffs filed a Financial Interest Disclosure Statement that provides:

Pursuant to Rule 7.1 of the Federal Rules of Civil Procedure and Local Civil Rule 7.1(a) of the United States District Court for the Northern District of Iowa and to enable Judges and Magistrate Judges to evaluate possible disqualification or recusal, the undersigned counsel for Plaintiff, NuStar Farms, LLC (“NuStar”), in the above captioned action, certifies that there are no associations, firms, partnerships, corporations, and other artificial entities that either are related to NuStar as a parent, subsidiary, or otherwise, or have a direct or indirect pecuniary interest in the Plaintiffs’ outcome in the case. There are no parents, trusts, subsidiaries and/or affiliates of NuStar that have issued shares or debt securities to the public.

I will not engage in speculation about what arrangements Plaintiffs may have made to finance their lawsuit, if any. However, Anthony Nunes III professed lack of knowledge about who is paying Plaintiffs’ lawyers at least raises the possibility that an undisclosed entity related to NuStar has a pecuniary interest in the outcome of the case that would be pertinent to the Court’s assessment of conflicts.

Additionally, an action must be prosecuted in the name of the “real party in interest.” Fed. R. Civ. P. 17(a)(1). Suda v. Weiler Corp. (D.N.D. 2008) noted:

Rule 17(a) was designed to serve dual purposes. First, it serves “to protect the defendant against a subsequent action by the party actually entitled to relief, and to ensure that the judgment will have a proper res judicata effect.” Intown Properties Mgmt., Inc. v. Wheaton Van Lines, Inc., 271 F.3d 164, 170 (4th Cir. 2001) (citation omitted). Second, it is designed to avoid the unjust forfeiture of claims. See Sun Refining & Mktg. Co. v. Goldstein Oil Co., 801 F.2d 343, 345 (8th Cir. 1986). “Although the district court retains some discretion to dismiss an action where there was no semblance of any reasonable basis for the naming of an incorrect party, there plainly should be no dismissal where substitution of the real party in interest is necessary to avoid injustice.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997) (quotation and citations omitted).

I cannot say, based on the record before me, that NuStar is not a real party in interest. However, I also cannot rule out the possibility. Anthony Nunes III’s lack of knowledge about who is paying the attorneys prosecuting this action raises legitimate concern about not only who may be in charge of the lawsuit, but also whether Plaintiffs are the still the real parties in interest. Defendants call the Court’s attention to Conlon v. Rosa, which raised the concern of secret funding by stating, “He who pays the piper may not always call the tune, but he’ll likely have an influence on the playlist.”

Again, I will refrain from speculating about the terms of any agreement between Plaintiffs and a third-party who may be funding this litigation. Nevertheless, it is more than mere speculation and far from a “fishing expedition” to make inquiries that would determine if Plaintiffs assigned all or some of their interest in their claims. Plaintiffs claim compensatory damages of $20,000,000. It is not unreasonable to inquire whether Plaintiffs’ arrangement with whomever may be funding the case includes an assignment or an agreement that the funder otherwise stands to benefit from the litigation’s outcome. If Plaintiffs have made such an assignment, they may no longer be the real parties in interest. Defendants have a legitimate interest in ensuring the judgment will have a preclusive effect. See e.g., TCF Nat. Bank v. Mkt. Intel., Inc. (D. Minn. 2012) (allowing discovery to proceed to identify real parties in interest).

Similarly, Defendants raise a concern that “one of the witnesses” in this case may be involved in funding the litigation. “Courts have found that indemnification agreements between co-defendants, including agreements regarding the payment of defense fees and costs, are relevant to credibility issues and a proper subject of discovery.”

I gather from comments at the hearing that Defendants’ concern is that Congressman Nunes may be a source of, or helped arrange, the funding. While this concern has yet to be proven, the basis for it goes beyond mere conjecture. Congressman Nunes and Mr. Biss have related litigation in this Court arising from the same allegedly defamatory article at issue here. Congressman Nunes alleges significant damages arising from the article, as do Plaintiffs.

While these family members may be separately financing their respective suits, it is not merely a fishing expedition to inquire about the Congressman’s involvement in the financing of the instant lawsuit and his stake, if any, in the outcome. It may be that he has no more than a desire for his family to succeed in their lawsuit. However, he is also a witness in this case and Defendants are entitled to inquire about his interests in the lawsuit that may illuminate a possible bias.

Finally, the records are relevant to respond to a “David vs. Goliath” narrative. Certainly, Plaintiffs’ Second Amended Complaint previews this narrative and no one who has spent any time trying cases would be surprised by such a theme. {For example, Plaintiffs assert: “Plaintiffs are private individuals. They operate a private business and live with family in the small community of Sibley, Iowa. They are active in the local community in Sibley, and have always been involved in giving and fundraising for their local church.” Plaintiffs describe Defendant Hearst as follows:

“Hearst’s headquarters and principal place of business is in New York. Hearst publishes Esquire magazine. Hearst is a unit of Hearst Corporation, a global media, information and services company. Hearst’s print and digital assets reach 155 million readers and site visitors each month – two-thirds of all millennials, and over 80% of Gen Z and millennial women in the country.”}

Contl. Cirs. LLC v. Intel Corp. (D. Ariz. 2020) addressed discovery of litigation funding to permit a defense response to the narrative: “[The discovery requests] concern Plaintiff’s financial resources and could be used to refute any David vs. Goliath narrative at trial. Plaintiff claims that any such narrative is speculative, but Defendants are entitled to conduct discovery that may refute potential trial themes, and Defendants note that at least some evidence suggests that such a narrative will be asserted in this case.” …

I [also] conclude it is prudent to review the records prior to requiring production to Defendants. If, after my in camera review, no reason appears to reconsider my decision, I anticipate entering a supplemental order requiring their production to Defendants consistent with the protective order in place.