Tag Archives: discovery

Work Product Privilege and Litigation Finance

Work product doctrine protects materials prepared in anticipation of litigation, meaning they do not have to be given to opposing counsel during discovery.  But with the growth of litigation finance, there has been a question of if agreements between attorneys and funders are covered by attorney work product.

The facts support agreements between attorneys and funder as work product. At the most common sense level, usually litigation funders would only be contacted if there were an anticipated lawsuit to fund.  Therefore, any agreements or even emails back-and-forth are covered by the doctrine.

The court in Lambeth Magnetic Structures v. Seagate Technology (US) Holdings held that “communications [between plaintiff and a litigation funder] were primarily, if not exclusively, for the purpose of preparing for litigation.  Thus, they were protected under the work product doctrine.

It has been argued that funding agreements and related documents between a claimant and financier or between the plaintiff’s attorney and the financier constitute a business deal and therefore are not covered by the work product doctrine.

However, the court in Lambeth refuted this exact argument from the defendant, saying that the materials were covered by work-product immunity.  Ultimately, the main point of this decision was that the materials were still made in anticipation of litigation.  Thus, they are covered by work-product immunity.

It is important to note that work product immunity and waiver of attorney-client privilege is not the same.  Attorney-client privilege is meant to assure confidentiality for whatever a client tells their attorney.  However, that privilege is waived when a third-party is given information that would usually be protected by attorney-client privilege, this can and often does happen when reaching a litigation financing agreement.  But just because attorney-client privilege was waived does not mean that the information is not covered my work-product immunity.

Works Cited:  Eric M. Robinson, Protecting Privilege in Litigation Financing Negotiations, Law360 (March 1, 2018).

Wisconsin Requires Disclosure of All Litigation Funding Arrangements

Wisconsin Governor Scott Walker signed legislation in April that requires all third-party litigation funding deals to be disclosed, regardless of whether there has been any discovery request for that information. The law is consistent with lobbying efforts by the U.S. Chamber of Commerce, which has long been an aggressive critic of litigation financing.

Wisconsin Act 235 requires litigants “provide to the other parties any agreement” under which third-party funders are entitled to a share in any earnings from a civil action, settlement or judgment. The rule excludes lawyer contingent fee arrangements. According to Law360, the new law is first of its kind on the state level.

In a press release, Lisa Rickard, president of the U.S. Chamber’s Institute for Legal Reform, said: “Wisconsin’s law brings litigation funding out of the shadows, so that funders in the state can’t anonymously ‘pull the strings’ of a lawsuit without other parties’ knowledge.” Paige Faulk, vice president of the Institute expressed confidence that other states would follow suit: “This law is another step in what’s become a growing movement.”

But the legislation may alienate many of the commercial entities that the Chamber purports to serve. In recent years, more and more businesses have sought to use litigation funding as a way to manage their risk and maximize the value of their litigation portfolios. Now they face some strategic harm from the legislation that the Chamber promoted.

As one observer noted, “[m]ost states have been diligent to draft new laws that clearly separate consumer and commercial litigation finance. In its haste to pass a consumer law, however, Wisconsin did not do so, despite there being no expressed desire to regulate commercial litigation finance. We view this as an accidental outlier that is likely to change in due course once Wisconsin businesses realize that their legislators just overreached.”

Keywords: litigation finance, third-party litigation funding, regulation, discovery, disclosure

Work Cited: Jamie Hwang, Wisconsin Law Requires All Litigation Funding Arrangements to Be Disclosed, ABA Journal (April 10, 2018) available at http://www.abajournal.com/news/article/wisconsin_law_requires_all_litigation_funding_arrangements_to_be_disclosed

Changes in Discovery Resulting From Litigation Finance

Novel issues in discovery have emerged and more and more lawsuits involve third-party litigation funding. Such issues revolve around the question whether and to what extent funding agreements are discoverable. Because there are few formal rules that directly address this question, courts have reached sometimes conflicting conclusions about how to resolve these issues.

For example, in 2015, a New York federal district court considered a motion to compel the production of litigation funding documents. Kaplan v. S.A.C. Capital Advisors, L.P., No. 12-CV-9350 VM KNF, 2015 BL 324773, at *4 (S.D.N.Y. Sept. 10, 2015). The court denied the motion, ruling that the defendants did not demonstrate the documents were relevant to any party’s claims or defenses. Nevertheless, other courts ruling on similar requests have found litigation finance documents to be relevant and therefore discoverable. See e.g., Acceleration Bay LLC v. Activision Blizzard, Inc., No. CV 16-453-RGA, 2018 BL 45102, at *4 (D. Del. Feb. 9, 2018).

Even in those courts that find them relevant, the documents relating to litigation funding agreements have sometimes been found to be protected by the work product doctrine, which protects documents prepared in aid of litigation. See Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 738 (N.D. Ill. 2014); see also Morley v. Square, Inc., No. 4:10CV2243 SNLJ, 2015 BL 379408, at *4 (E.D. Mo. Nov. 18, 2015). In Acceleration Bay, the court concluded that funding documents were not work product because their “primary purpose” was to obtain funding and because the documents were not prepared for a party to the litigation. Acceleration Bay, 2018 BL 45102, at *3.

The discovery of litigation funding is also an increasingly prevalent issue in non-judicial forums. Some arbitration organizations require the disclosure of parties who have a direct financial interest in the outcome of the arbitration. See IBA Guidelines on Conflicts of Interest in International Arbitration, § 6 (b), Oct. 23, 2014; see also ICCA-Queen Mary Task Force, Third-Party Funding in International Arbitration 40 (Sept. 1, 2017) (draft) (examining third-party funding in the international arbitration context).

In light of these trends in discovery, funders and the lawyers for parties seeking funding would be well-advised to consider drafting appropriate common-interest agreements to extent the protection of the privilege to at least some parts of the funding transaction. In addition, funders and counsel should consider minimizing the extent to which documents are created disclosing potentially sensitive views as to the likelihood of success in the litigation.

Keywords: litigation finance, litigation funding, discovery, disclosure

Work Cited:

Alan R. Glickman, William H. Gussman, Jr. and Hannah Thibideau, Discovery Trends in Litigation Finance Arrangements, Big Law Business (April 20, 2018) available at https://biglawbusiness.com/discovery-trends-in-litigation-finance-arrangements/

Federal Judge Protects Litigation Funding Information From Disclosure

A federal district court judge in Chicago federal judge has refused to compel an antitrust plaintiff to disclose its litigation funding arrangements.  This decision is further support for the argument that litigation funding arrangements should be routinely disclosed.  In addition, the decision supports the proposition that disclosure of confidential materials to a litigation funder does not waive the attorney-client and/or work-product privileges.

The decision came in a case concerning “interconnects” – cooperative platforms set up by cable service providers, which allowed local advertisers to buy ad time across “particular Designated Media Markets.” Viamedia alleged that Comcast acted to eliminate competition for “spot advertising” on the interconnects in the Chicago and Detroit areas, ordering other cable TV service providers, to only sell spot cable ads through Comcast’s wholly owned subsidiary, Comcast Spotlight.  According to the complaint, this action cut Viamedia out of the markets in which it had long competed.

Comcast filed a motion to compel seeking certain documents that Viamedia had claimed as privileged.  In the motion, Comcast asserted that Viamedia may have sought funding help from third-party litigation financing firms and may have disclosed confidential documents to those financiers.  In addition, Comcast noted that Viamedia had disclosed some documents to the Justice Department in an effort to prompt government enforcement proceedings.  Comcast argued that this disclosure waived any privilege in these documents.  Viamedia, however, argued all of the documents should remain protected by legal privilege, as the responded by arguing that the documents were all prepared and shared only in anticipation of legal action, and any prior disclosure was “inadvertent.”

On June 30, U.S. District Judge Amy J. St. Eve denied Comcast’s motion. Although her decision declined to address whether the documents should be protected by attorney-client privilege, she held the documents should remain protected under the work-product doctrine, which protects from disclosure certain materials prepared in anticipation of filing a lawsuit.  In this connection, she rejected Comcast’s arguments that privileges could not apply because they were disclosed in a lobbying effort to instigate a regulatory action, not a lawsuit.

The decision is consistent with the idea that seeking litigation funding is part of the litigation process and that funding companies are not really in the position of third parties to the litigation.  Therefore, disclosing information to a funder for the purpose of obtaining funding is akin to sharing information with an expert or a consulting law firm that might be assisting in the representation.  In short, the decision is another step in developing the recognition that litigation finance is normal part of the litigation process.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, disclosure, discovery, Comcast

 Works Cited: Jonathan Bilyk, Judge Won’t Force Viamedia to Share Documents on Litigation Funding, DOJ Action vs Comcast, Cook County Record (July 7, 2017) available at http://cookcountyrecord.com/stories/511145298-judge-won-t-force-viamedia-to-share-documents-on-litigation-funding-doj-action-vs-comcast

Why Mandatory Disclosure of Third-Party Litigation Funding Is a Bad Idea

One widespread response to the rise of litigation funding is a call for the mandatory disclosure of any litigation funding arrangements.  Advocates of mandatory disclosure contend that it is necessary to bring litigation funding “out of the shadows” and to prevent any potential conflicts of interest.  But mandatory disclosure seems less about clarity and more about providing an opportunity for distraction.

As with many developments concerning litigation finance, the movement for mandatory disclosure started abroad.  In China, the Hong Kong Law Reform Commission recently recommended mandatory disclosure for cases there.  In December 2016, the Singapore International Arbitration Centre released new investment arbitration rules that allow tribunals to order disclosure of third-party litigation funding contracts and their principal terms.  Courts in several Canadian provinces routinely require the disclosure and judicial approval of litigation funding arrangements in many class action cases and in certain other cases as well.  There have also been movements towards mandatory disclosure in Australia and New Zealand.

This movement has support in the United States, too.  In December 2014 and again in April 2016, the United States Chamber of Commerce, perhaps the leading foe of third-party litigation funding, submitted proposals to the Advisory Committee on Rules of Civil Procedure for an amendment of Fed. R. Civ. P. 26 that would require automatic disclosure of funders at the outset of all civil cases.  In 2016, the Northern District of California considered amending its local rules along similar lines.

For now, United States authorities have rejected these “reform” proposals. The Advisory Committee noted that judges have the authority to order disclosure of any litigation funding arrangement when it is relevant to the case.  Similarly, the Northern District of California decided to not require disclosure in every case.  Instead, it modified one of its standing orders to require disclosure only in class or representative actions.

Why is this the right result?  Because discovery is about relevance and litigation funding arrangements are not relevant in every case.  When disclosure is mandated in every case, regardless of relevance, disclosure can be used as a distraction. Once the arrangement is disclosed, it may be possible for the opposing party to seek confidential communications between the funder and the party receiving funding. Even if such communications are ultimately protected from discovery, the mandatory disclosure has turned into an opportunity for distraction and harassment.

 Topics:  litigation finance, legal reform, third-party funding, litigation costs, lawsuit loans, non-recourse financing, discovery, mandatory disclosure

 Works Cited:

Tripp Haston, The Missing Key to 3rd-Party Litigation Funding, Law360 (Feb. 7, 2017) available at https://www.law360.com/articles/888716/the-missing-key-to-3rd-party-litigation-funding

The Problem of Discovery about Litigation Funding Arrangements

As litigation funding becomes more prevalent, it is subject to increasing scrutiny, including in discovery in cases where one of the litigants receives funding from a third party. When a litigant does obtain litigation funding, that party’s attorney must take care to assure that any discovery about the funding agreement does not become an instrument with which the opposing litigant can seek privileged or confidential materials.  This means that attorneys must be careful about what kinds of information they share with litigation funders and they should strongly consider the execution of an agreement that would protect confidentiality and define a common interest for the funder and the litigant.

When a litigant seeks funding from a third party, the funder will, of course, seek information about the strength of the claim as part of its due diligence process.  In addition, once funding is provided, the funder will need information about the on-going developments in the case.  Sharing information about the case with someone other than the client creates a risk of breaking the attorney-client privilege.  If the opposing litigant learns about the existence of a litigation funding agreement, it may seek discovery about the agreement and about what information has been shared with the funder.  If the attorney and litigant have not been careful about such shared information, the opponent may be able to argue that the attorney-client privilege has been waived through the sharing of information with the funder.

There are ways to be careful and avoid the risk of privilege breaks, however.  The most obvious way is to restrict the kind of information shared with litigation funders.  In many situations, a funder’s due diligence requirements can be met with information that would be subject to discovery in any event.  The attorney for a litigant seeking funding may be able to inform a funder about the prospects of a case without sharing any of her own work product or any confidential information obtained from the client.

In other situations, the funder may want or need more sensitive information.  In such situations, the common interest doctrine may provide a way to respond to the funder without risking a privilege break.  The common interest doctrine is an exception to the general rule that disclosure of privileged material to a third party constitutes a waiver of the attorney-client privilege. For a communication to be privileged under the common interest doctrine, the interests between the parties must be identical and legal in nature, not purely commercial.

It is possible for the funder and litigant to enter an agreement that permits them to take advantage of the common interest privilege if and when potentially privileged information is shared with the funder.  Under this kind of agreement, the client and funder would stipulate the shared information was confidential and was provided for the purpose of helping the client obtain legal services and advice.  Most importantly, the agreement would have strict non-disclosure provisions that could provide assurance that the shared information would not be disclosed to anyone else.  In some recent case law, courts have concluded that sharing information with a funder will not waive the privilege if such agreements are in place.  To be sure, making such an agreement will not necessarily guarantee preservation of the privilege, but it can go a long way towards reducing the risk that sharing information with a funder will have adverse consequences in discovery.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, discovery, attorney-client privilege, common-interest privilege

 Works Cited:

Lisa Thomas, Beware Discovery in 3rd-Pary Litigation Funding, Law360 (Dec. 20, 2012) available at https://www.law360.com/articles/400599/beware-discovery-in-3rd-party-litigation-funding

Litigation Finance in Class Actions: Are Third-Party Funding Agreements Discoverable?

There is on-going uncertainty about whether and to what extent agreements for third-party litigation funding can be subject to discovery.  This is true in all kinds of litigation, but a couple of recent decisions have reached opposite results in the context of class actions.  This difference ultimately arises from different views about whether the existence of a third-party funder is relevant to class certification issues.

In Kaplan v. S.A.C. Capital Advisors, L.P., the defendants sought discovery about the relationship between the representative plaintiff, class counsel, and a third-party litigation funder.  According to the defendants, such discovery was necessary “to explore whether there may be a risk that the Elan plaintiffs’ funding arrangements could affect the strategic decisions they will make on behalf of the class, or could cause counsel’s interest to differ from those of the putative class members they purport to represent.”  In addition, the defendants argued that the discovery would be necessary to determine whether there was a potential for conflicts between the representative plaintiff and the class over the costs associated with litigation funding.  These arguments did not prevail, however.  The district court declined to compel the production of funding documents because the court found that class counsel’s representations about the adequacy of its resources were sufficient and that any questions about potential conflicts between the class and the representative plaintiffs was purely speculative.

Gbarabe v. Chevron Corp. arose from a fire on an off-shore oil drilling rig off the coast of Nigeria.  The plaintiff class was comprised of fishermen who alleged that their businesses and health were adversely affected by the fire.  As in Kaplan, the defendant argued that the disclosure of litigation funding agreements was necessary to determine the adequacy of class counsel’s representation.  Unlike Kaplan, however, the district court did permit discovery of the litigation funding arrangements.

But there were unique factual circumstances in Gbarabe.  Most importantly, there were serious questions about the adequacy of class counsel, who was a solo practitioner with no formal office or support staff.  Moreover, class counsel had missed deadlines due to lack of resources. In addition, the confidentiality provision of the litigation funding agreement, which class counsel had quoted in a brief to the court, seemed to contemplate that the agreement would be subject to discovery.

These two cases demonstrate that there is no single clear rule for determining the discoverability of third-party litigation agreements.  In the ordinary course, there are strong reasons for prohibiting discovery.  But, when there are real questions about the adequacy of class counsel, and when litigation funding is a crucial factor in assuring such adequacy, discovery may be warranted.

Topics:  litigation finance, legal reform , third-party funding, litigation costs, legal costs, law reform, class actions, discovery

 Works Cited:

Kaplan v SAC Capital Advisors, LP, 2015 U.S. Dist. LEXIS 135031 (SDNY, Sep. 10, 2015)

Gbarabe v Chevron Corp., 2016 U.S. Dist. LEXIS 103594 (ND Cal, Aug. 5, 2016)