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Article: January 2020: Application of Attorney-Client Privilege and Work-Product Doctrine to Documents Created in Connection with Litigation Finance

Business Litigation Reports

Litigation finance is a solution to the problem of economic inequality in lawsuits. It is a process whereby litigants can finance their legal costs using a third-party litigation financing company, which provides money for legal fees and expenses incurred in the lawsuit in exchange for a share of the judgment or settlement if the litigant prevails. Although litigation financing is not new, it has only recently become popular in the United States, and it has raised issues for courts to grapple with, one of them being whether communications and documents exchanged between a litigant—usually the plaintiff—and a litigation financer are discoverable in the litigation.

            Plaintiffs have argued that such documents are not discoverable for two reasons:  relevance and privilege. With respect to relevance, courts have taken different approaches. In the Seventh Circuit, for instance, the court in Miller UK Ltd. v. Caterpillar, Inc. held that deal documents created between the plaintiff and the financer, including the actual funding agreement, were not relevant, because they do not actually relate to the claims and defenses in the action. 17 F. Supp. 3d 711, 721 (N.D. Ill. 2014); see also Benitez v. Lopez, 2019 WL 1578167, at *1 (E.D.N.Y. Mar. 14, 2019); MLC Intellectual Property, LLC v. Micron Tech., Inc., 2019 WL 118595, at *2 (N.D. Cal. Jan. 7, 2019); Space Data Corp. v. Google LLC, 2018 WL 3054797, at *1 (N.D. Cal. June 11, 2018); Kaplan v. S.A.C. Capital Advisors, L.P., 2015 WL 5730101, at *5 (S.D.N.Y. Sept. 10, 2015); Yousefi v. Delta Electric Motors, Inc., 2015 WL 11217257, at *2 (W.D. Wash. May 11, 2015). Non-deal documents, that is, documents provided to a financer that do not relate to the actual terms of the agreement, were deemed to be “clearly” related to plaintiff’s claims and relevant. Id. at 730. The court noted, however, that these are fact-specific inquiries. Id. at 722. Even though deal documents were not relevant in that particular action for misappropriation of trade secrets, the holding in Miller does not mean that they might not be relevant in other actions asserting different claims. Id. at 722-23. 

            Other courts have also found that determining whether documents provided to a litigation financer are relevant, and thus discoverable, is a case-by-case inquiry. For example, in In re Valsartan N-Nitrosodimethylamine (NDMA) Contamination Products Liability Litigation, the court denied the discovery of documents shared by plaintiff with a litigation financer in a mass tort case. The court held that such discovery was irrelevant unless there is a showing that “something untoward occurred,” such as that the financer made the ultimate litigation or settlement decisions, the interests of plaintiffs or the class were not being protected, or conflicts of interest existed. 2019 WL 4485702, at *3 (D.N.J. Sept. 18, 2019). The court also distinguished the case from other types of cases where these types of documents may be relevant, such as a case involving a dispute over patent ownership; a case where the documents may have been relevant to central issues such as patent validity and infringement, valuation, damages, royalty rates, pre-suit investigative diligence, and whether plaintiff is an operating company; a case where documents were relevant to the credibility and bias of a witness; and a case where the litigation financer arranged and funded plaintiffs’ treatments relating to the tort at issue. Id. at *6.

            Even if the documents are deemed relevant, a party may withhold them from discovery if they are subject to the attorney work-product doctrine or attorney-client privilege. The work-product doctrine protects materials prepared in anticipation of litigation from production. However, it can be waived if the information is disclosed to a third party, and that disclosure substantially increases the opportunity for potential adversaries to obtain the information. The attorney-client privilege protects confidential communications between an attorney and client in connection with obtaining legal advice. It is also generally waived when the communications are disclosed to a third party, unless the third party shares an identical, legal interest in the communications with the litigant (the common interest doctrine). 

            In Acceleration Bay LLC v. Activision Blizzard, Inc., a Delaware federal court recently held that neither the work-product nor the common interest doctrine can shield communications between a plaintiff and its litigation financer from discovery.  The court held that the documents were not protected by the work-product doctrine, because they were not prepared in anticipation of litigation but for the primary purpose of obtaining a loan from the financer. 2018 WL 798731, at *2 (D. Del. Feb. 9, 2018). They did not fall within the common interest doctrine, because at the time they were made, there was no written agreement between the plaintiff and financer, and litigation was not yet filed, so the plaintiff and financer could not have held identical, legal interests. Id., at *3. In light of Acceleration Bay, there has been concern that the litigation strategy a plaintiff shares with financers, which financers need to evaluate the merits of a case, would have to be turned over to the opposing party.  However, other court decisions on the subject have shown that Acceleration Bay may not apply in all cases.  See, e.g., Miller, 17 F. Supp. 3d at 735 (non-deal documents shared with litigation funders are protected by attorney work-product as they consist of documents containing the lawyers “mental impressions, theories and strategies about [Defendant’s] claimed misappropriation of trade secrets” and were thus “only prepared ‘because of’ the litigation”); see also Viamedia, Inc. v. Comcast Corp., 2017 WL 2834535, at *3 (N.D. Ill. June 30, 2017); In re Int’l Oil Trading Co., LLC, 548 B.R. 825, 837 (Bankr. S.D. Fla. 2016); United States v. Homeward Residential, Inc., 2016 WL 1031154, at *6 (E.D. Tex. Mar. 15, 2016); United States v. Ocwen Loan Svcg., LLC, 2016 WL 1031157, at *6 (E.D. Tex. Mar. 15, 2016); Doe v. Society of Missionaries of Sacred Heart, 2014 WL 1715376, at *3 (N.D. Ill. May 1, 2014); Mondis Tech., Ltd. v. LG Elecs., Inc., 2011 WL 1714304, at *3 (E.D. Tex. May 4, 2011).   

            There are measures that litigants may take to protect information they disclose to litigation financers from discovery. For example, the Acceleration Bay court used the “primary purpose” test in determining whether communications were covered by the work-product doctrine—whether the “primary purpose” of the documents was litigation. Id., at *1. Other courts have used the “because of” test, which is broader. For example, the court in Carlyle Investment Management L.L.C. v. Moonmouth Company S.A. held that the work-product doctrine shielded discovery of information shared with litigation financers, because negotiations between litigants and financers would almost certainly involve the lawyers’ mental impressions, theories, and strategies about the case, in order to show the financer the case’s merits. 2015 WL 778846, at *8-9 (Del. Ch. Ct. Feb. 24, 2015); see also Miller, 17 F. Supp. 3d at 735 (documents containing plaintiff’s lawyers’ mental impressions, theories, and strategies about defendant’s purported misappropriation of trade secrets that were provided to the prospective litigation funders were prepared because of the litigation, and are therefore, covered under the work-product doctrine).

            Although the Acceleration Bay Court never reached the issue of waiver of the work-product doctrine, other courts have held that the existence of a non-disclosure agreement between a plaintiff and potential financers is sufficient to shield documents from discovery, because a non-disclosure agreement would reduce the likelihood that a third party would disclose the information to a potential adversary. See, e.g., Sacred Heart, 2014 WL 1715376, at *4, Devon IT, Inc. v. IMB Corp., 2012 WL 4748160, at *3 (E.D. Pa. Sept. 27, 2012); Mondis, 2011 WL 1714304, at *3. 

            As to the common interest doctrine, courts in other cases have agreed with the holding in Acceleration Bay.  In Leader Technologies, Inc. v. Facebook, Inc., the same court eight years earlier also held that there exists no common interest privilege as to documents shared with a litigation financer because no deal was consummated between plaintiff and the financer. 719 F. Supp. 2d 373, 374-76 (D. Del. 2010). The Miller court also concluded that documents shared with a financer are not protected by the common interest doctrine, because a shared interest in the successful outcome of a case is not a common legal interest. 17 F. Supp. at 732. The Miller Court reasoned that the purpose of the common interest doctrine is to encourage parties with a shared legal interest to seek legal assistance in order to meet legal requirements and plan their conduct accordingly. Id., at 732-33. The court held that this serves the public interest by advancing compliance with the law, facilitating the administration of justice, and averting litigation, and these objectives are not met with respect to litigation financers, where the objective is not to seek legal advice but to seek money. Id. But see Int’l Oil Trading, 548 B.R. at 832 (finding common interest does apply to litigation funding documents); Rembrandt Techs., L.P. v. Harris Corp., 2009 WL 402332, at *7 (Del. Super. Ct. Feb. 12, 2009) (same). Because of the nature of the documents disclosed to litigation financers and when they are generally shared with litigation financers, most courts decide the issue of whether they are discoverable under the attorney work-product privilege, not the attorney-client privilege/common interest doctrine. See, e.g., Mondis, 2011 WL 1714304 at *3 (not reaching the issue whether documents are covered by attorney-client privilege).