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Attorney-client Privilege And Work-product Doctrine Application To Records Produced In Connection With The Financing Of Litigation

Financing cases is a response to the question of income disparity in lawsuits. It is a mechanism by which litigants can use a third-party litigation financing firm to fund their legal bills, which offers funds for legal fees and expenditures incurred in the case in return for a portion of the judgment or settlement if the litigant prevails. While litigation funding is not fresh, it has only recently become common in the United States, and it has created problems for courts to contend with, one of them being whether communications and documents exchanged in the litigation are discoverable between a litigant, typically the defendant, and a litigation funder.

Plaintiffs also argued that for two reasons: importance and privilege, certain records are not discoverable. The courts have taken varying approaches with regard to validity. For example, the court in Miller UK Ltd. v. Caterpillar, Inc. held in the Seventh Circuit that the deal documents generated between the plaintiff and the financier, including the actual funding arrangement, were not significant because they do not directly apply to the charges and defenses in the action. Non-deal documents, i.e. documents sent to the financer not relating to the actual terms of the agreement, were considered to be “clearly” connected to the representations of the applicant and to be relevant. At 730, Id. However, the court acknowledged that these are fact-specific enquiries. At 722, Id. Although the agreement agreements were not applicable to the misappropriation of trade secrets in that specific action, the holding in Miller may not mean that they will not be relevant to other cases that claim different allegations. At 722-23, Id.

Other courts have also found that it is a case-by-case investigation to decide if records given to a litigation funder are important and therefore discoverable. For instance, in In re Valsartan N-Nitrosodimethylamine (NDMA) Contamination Products Liability Litigation, in a mass tort case, the court rejected the discovery of documents exchanged by the defendant with a litigation funder. The court held that such a finding was irrelevant unless there was proof that “something unfair happened,” such as that the financier made the final litigation or settlement decisions, that the rights of the complainants or the class were not covered, or that there were conflicts of interest. The court has also distinguished the case from other types of cases in which certain types of documents may be applicable, such as a case involving a patent ownership dispute; a case in which the documents may have been relevant to key issues such as patent validity and infringement, valuation, penalties, royalty rates, pre-suit investigative diligence and whether the plaintiff is an operating company;

Even if the documents are considered relevant, if they are subject to the attorney’s work-product doctrine or attorney-client privilege, a party can withhold them from discovery. The doctrine of work-product covers products prepared in preparation of production litigation. However, if the information is revealed to a third party, it may be waived, and the disclosure greatly increases the possibility for future adversaries to access the information. In connection with seeking legal advice, the attorney-client privilege covers confidential correspondence between an attorney and a client. When conversations are revealed to a third party, it is often usually waived unless the third party shares an equal legal interest in interacting with the litigant (the common interest doctrine).

A Delaware federal court recently ruled in Acceleration Bay LLC v. Activision Blizzard, Inc. that neither the work-product nor the doctrine of common interest will protect correspondence from disclosure between a plaintiff and its litigation financier. The court held that the documents were not covered by the doctrine of the work-product since they were not prepared in anticipation of litigation but for the primary purpose of the financer’s obtaining a loan. WL 798731 of 2018, at * 2 (D. Del. Feb. 9, 2018). They did not fall under the doctrine of the common interest, since there was no written agreement between the plaintiff and the financier at the time they were formed, and litigation had not yet been brought, so that the plaintiff and the financier may not have held the same legal interests. Id., in *3. In the light of Acceleration Bay, there has been concern that the legal strategy will have to be turned over to the opposing party by a plaintiff shares with funders which funders need to decide the merits of a case. However, other court rulings on the subject have shown that, in all cases, Acceleration Bay does not apply. See Miller, 17 F., e.g. Supp. Sup. 3d at 735 (non-deal documents exchanged with litigation funders are covered by the work-product of the solicitor because they consist of documents containing the mental observations, ideas and tactics of the lawyers regarding [Defendant’s] alleged misappropriation of trade secrets” and were therefore “only prepared for the litigation”);”

There are steps that can be taken by litigants to shield knowledge from disclosure that they report to litigation funders. For example, in deciding if communications were protected by the work-product doctrine, the Acceleration Bay court used the “primary purpose” test if the “primary purpose” of the documents was litigation. Id., on *1. The “because of” test, which is narrower, has been used by other courts. In Carlyle Investment Management L.L.C. v. Moonmouth Company S.A., for instance, the court It held that the doctrine of the work-product protected the discovery of knowledge exchanged with litigation funders, since agreements between litigants and funders would almost certainly include the mental observations, ideas, and tactics of the lawyers about the case, in order to explain the merits of the case to the financier. 2015 (Del. Ch. Ct. Feb. 24, 2015) WL 778846, at *8-9; see also Miller, 17 F. Supp. Sup. 3d at 735 (documents containing the mental observations, ideas, and tactics of the plaintiff’s lawyers regarding the defendant’s alleged misappropriation of trade secrets given to the prospective litigation funders were prepared prior to the litigation and are thus protected by the doctrine of the work-product).

While the question of waiver of the work-product doctrine was never reached by the Acceleration Bay Court, other courts have held that the existence of a non-disclosure agreement between a claimant and potential funders is sufficient to shield records from discovery, since a non-disclosure agreement will minimize the possibility that a third party will reveal the information to a potential adversary

As to the theory of common interest, courts have agreed with the holding in Acceleration Bay in other cases. Eight years ago, in Leader Technology, Inc. v. Facebook, Inc., the same court had held that there was no mutual interest privilege in documents exchanged with a litigation funder because there was no agreement between the claimant and the financer. Oh. 719 F. Supp. Sup. 2d 373 and 374-76 (D. Del. 2010). The Miller court also concluded that records exchanged with a financier are not covered by the doctrine of mutual interest since there is no common legal interest in a shared interest in the successful outcome of a case. Seventeen F. Supp. Sup. With 732. The Miller Court argued that the object of the doctrine of mutual interest is to enable parties with a shared legal interest to obtain legal help in order to comply with legal requirements and to prepare their conduct accordingly. Id., at number 732-33. The court held that by advancing compliance with the law, encouraging the administration of justice, and preventing litigation, this serves the public interest, and these aims are not met with respect to litigation funders, where the purpose is not to seek legal advice but to seek capital. Id.-Id. But see Trading in Int’l Crude, 548 B.R. 832 (for litigation funding records, finding mutual interest applies); Rembrandt Techs., L.P. WL 402332, at *7 (Del. Super. Ct. Feb. 12, 2009) v. Harris Corp., 2009 (same). Because of the existence of the records released to litigation funders and when they are normally exchanged with litigation funders, most courts determine whether they can be found under the work-product right of the attorney, not the doctrine of attorney-client privilege/common interest.