Most federal courts that have considered whether communications involving litigation funding arrangements are discoverable have held that those materials are either immaterial, privileged, or protected by the work product doctrine. See, e.g., Kaplan v. SAC Capital Advisors, LP, No. 12-cv-09350 (S.D.N.Y. Sept. 10, 2015) (funding agreement immaterial); Devon IT, Inc. v. IBM Corp., No. 10-2899, 2012 WL 4748160 (E.D. Pa. Sept. 27, 2012) (common interest privilege applied); Viamedia, Inc. v. Comcast Corp., No. 1:16-cv-05486, 2017 WL 2834535, at *3 (N.D. Ill. June 30, 2017) (litigation funding documents were protected as attorney work product).[1]  State courts are generally in agreement.  See, e.g., Carlyle Investment Management L.L.C. v. Moonmouth Company, S.A., C.A. No. 7841-VCP (Del. Chancery Ct., February 24, 2015).  

While some courts have ordered litigation funding documents to be produced in discovery, those rulings recognized that the materials constituted work product but found that the party seeking discovery had demonstrated a “substantial need” for the documents. Odyssey Wireless, Inc. v. Samsung Electronics Co., Ltd., No. 3:15-cv-01738, 2016 WL 7665898, at *7 (S.D. Cal. Sept. 20, 2016); In re Int’l Oil Trading Co., 548 B.R. 825, 839 (S.D. Fla. 2016).  See also, Gbarabe v. Chevron Corp., No. 14-CV-00173-SI, 2016 WL 4154849, *2 (N.D. Cal. Aug. 5, 2016) (litigation funding documents held subject to disclosure in connection with class certification, no work-product objection was raised).

These issues continue to evolve.  The United States Chamber of Commerce and more than two dozen other business groups in June 2017 submitted a “renewed proposal” to amend Federal Rule of Civil Procedure 26 to require disclosure of all compensation agreements that are “contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise”. http://www.uscourts.gov/sites/default/files/17-cv-o-suggestion_ilr_et_al_0.pdf; https://www.law.com/nationallawjournal/sites/nationallawjournal/2017/06/02/us-chamber-pushes-rule-to-expose-litigation-funding/?back=law.[2]

It was reported in November 2017 that the Judicial Conference Advisory Committee on Rules of Civil Procedure had created a subcommittee to take up a package of proposals to amend federal multidistrict litigation procedures. One of the proposals, submitted by Lawyers for Civil Justice, highlighted the pervasiveness of third-party litigation financing in MDLs. The subcommittee is expected to spend six to 12 months gathering additional information. https://www.law.com/nationallawjournal/sites/nationallawjournal/2017/11/08/federal-judicial-panel-to-consider-litigation-financing-sort-of/.

In addition, HR 985, the Fairness in Class Action Litigation Act of 2017, recently passed the House of Representatives and is pending in the Senate.  The bill provides:

In any class action, class counsel shall promptly disclose in writing to the court and all other parties the identity of any person or entity, other than a class member or class counsel of record, who has a contingent right to receive compensation from any settlement, judgment, or other relief obtained in the action. https://www.congress.gov/bill/115th-congress/house-bill/985?q=%7B%22search%22%3A%5B%22fairness+in+class+action+litigation%22%5D%7D.

For further information, please feel free to contact Roni A. Elias, who leads the litigation finance team at TownCenter Partners, LLC, a boutique litigation funding company that funds plaintiffs and plaintiffs’ law firms nationwide.  TownCenter Partners, LLC is a litigation funder with a social mission and continues to level the playing field in litigation. Mr. Elias can be reached at roni@yourtcp.com or (703) 570-5264. © 2018 Roni A. Elias. All rights reserved

Topics:  Litigation finance, Federal Rule of Civil Procedure 26, third-party funding, alternative litigation finance, discovery, common-interest privilege, attorney-client privilege, work product doctrine, pending legislation

[1] Federal courts are split regarding the application of the common interest privilege to litigation funding documents.  Leader Techs., Inc. v. Facebook, Inc., 719 F. Supp. 2d 373, 376-77 (D. Del. 2010) (common interest privilege does not apply to disclosure to funder).

[2] The U.S. Chamber of Commerce features a website dedicated to advancing the cause against litigation financing. U.S. Chamber Inst. for Legal Reform, Third Party Litigation Funding, U.S. Chamber of Com., http://www.instituteforlegalreform.com/issues/third-party-litigation-funding [http://perma.cc/73SH-UCVK. An article in the Yale Law Journal noted that “the rhetoric [on the site] could perhaps fairly be characterized as shrill”, “ear-splitting” and comprised of “refer[ring] breathlessly to litigation financing as ‘a clear and present danger to the impartial and efficient administration of civil justice in the United States.’” Tyler W. Hill, “Financing the Class: Strengthening the Class Action Through Third-Party Investment”, 125 Yale L.J. 484, 524 (2015), citing John H. Beisner & Gary A. Rubin, “Stopping the Sale on Lawsuits: A Proposal to Regulate Third-Party Investments in Litigation”, U.S. Chamber Inst. for Legal Reform 1 (2012).