Privilege Doctrines in Litigation Funding

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Safeguarding Privileged Information in Litigation Funding

As a general rule, attorney-client privilege and other protections against disclosure are waived whenever protected information is disclosed by a client to a third party.

However, a growing number of cases have held that information shared with litigation funders is protected under either the (i) work product doctrine or (ii) common interest doctrine.

Work Product Doctrine and Litigation Funding

In federal court, federal work product rules apply in federal question cases and some diversity actions.

The work product doctrine protects from discovery documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent).[1]

Courts have expanded the reach of work product from physical documents to attorneys’ thought processes and mental impressions.[2]

Information provided by an attorney to a litigation funder is similarly protected under work product doctrine, as recently affirmed by the US District Court for the Northern District of Illinois[3].  The Court refused to require disclosure of documents relating to litigation finance in an antitrust suit, ruling that the documents are protected from discovery.  Like other federal courts, the US District Court for the Northern District of Illinois affirmed plaintiff’s (Viamedia Inc.) contention that the Court cannot conclude that Viamedia’s disclosure made it substantially more likely that its work-product protected information would fall in the hands of its adversaries.  It should be noted that Viamedia had a non-disclosure agreement in place with its litigation funder.

This ruling is in line with earlier affirmations of work product protection in litigation finance. Among the most notable of these is Miller UK Ltd. v. Caterpillar Inc.[4], in which the court observed that, because litigants must share documents in order to obtain litigation funding, it would be ridiculous to put a litigant in the position of obtaining capital while sacrificing confidentiality or foregoing capital in order to protect its trial strategy — thereby weakening its ability to prosecute its case.

Common Interest Doctrine and Litigation Funding

In a case in the US Bankruptcy Court for the Southern District of Florida[5] the Court found that information shared between a claimant and a litigation funder was protected from disclosure where “the third party possesses a common interest with the client,” and, in the case of attorney work product, when the documents reflected “communications between a client, the client’s attorney, and a litigation funder whose participation depends on assessments of the merits of litigation.”  The Court concluded that an essential element of the exception to the general rule (client’s disclosure of privileged information to non-attorneys constitutes waiver of the privilege) is that the parties must maintain a reasonable expectation of confidentiality in their communications.  In that case, this condition was satisfied because the litigation funding agreement contained a confidentiality provision.

While the common interest doctrine is not universally recognized, and important legal exceptions by lower court judges exist, many courts have begun to recognize the importance of allowing litigants to share privileged information and work product with litigation funders. Those that do recognize a “common enterprise” approach, which focuses on whether the client and third party to whom the privileged information had been disclosed were engaged in a common enterprise, and whether the information shared relates to that enterprise’s goal.

Recent case law has begun to favor work product doctrine and common interest doctrine protections, illustrating robust protections from discovery if sufficient measures are put in place by the litigation funder.

John J. Hanley focuses his practice on litigation finance, first and second lien financings; private placements of debt and equity securities; and the purchase and sale of loans, securities, trade claims, and other illiquid assets. His clients include litigation funders, claimants, business development companies, specialty lenders, investment banks, hedge funds, actively managed CLOs, special purpose vehicles, and other financial institutions.

Maxim Waldbaum has been assisting clients in successfully resolving patent, trademark, copyright, and trade secret cases and business disputes on such issues for 48 years. Mr. Waldbaum has handled intellectual property cases and transactions in the billions of dollars, representing many Fortune 50 companies and has been counsel in leading intellectual property cases, and arbitrated more than 170 cases and mediated more than 40.

Attorney Advertising. This document is not intended to be and is not considered to be legal advice. Transmission of this document is not intended to create, and receipt does not establish an attorney-client relationship.