Confidentiality in Litigation Funding: Work Product and the Attorney Client Privilege

By: Dr. Donald E. Vinson

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While the doors to litigation funding began to open in England as early as 1967, third party funding for commercial litigation has only recently begun to gain widespread acceptance in the United States. This innovative approach to financing the ever more exorbitant costs of prosecuting meritorious legal claims is helping small businesses, institutions and even large corporate entities enforce their rights and protect their assets. With that being said, the formation of a tripartite relationship involving litigants, their attorneys, and third-party financing groups creates unique confidentiality issues, specifically as they relate to the sharing of information, documents, and strategy materials.

Protecting sensitive information:

Litigants and their counsel have always relied heavily on the work product doctrine and attorney-client privilege to protect important case information. But complications arise when litigation financiers are sought, since they require information about the claims at issue in order to perform their own due diligence, make their funding decisions and – in instances where they provide financing – monitor their investments. This reality has raised several questions. For example, does disclosure of information to a funder represent waiver of the attorney-client privilege? And, are materials prepared specifically for a funder protected from discovery based on the work product doctrine?

To what extent does the work product doctrine apply?

Under the work product doctrine, materials prepared or collected in anticipation of litigation are not generally discoverable by opposing parties. Under the Federal Rules of Civil Procedure (Rule 26(b)(3)), the work product doctrine is not limited to materials prepared by attorneys and may apply to materials prepared for or by a party or a party's “representative,” a term that includes non-lawyers such as consultants, sureties, indemnitors, insurers, or agents. In one of the leading cases on this topic (Mondis Technology, Ltd. v. LG Electronics, Inc.), the United States District Court for the Eastern District of Texas held that materials generated for potential investors were protected work product since they were created for potential future litigation and that disclosure of such materials would reveal litigation strategy.

In another recent case (Miller UK Ltd. v. Caterpillar, Inc.), the United States District Court for the Northern District of Illinois held that “deal documents” related to litigation financing were not discoverable because they were outside the scope of the dispute and were not disclosable under disclosure rules, regardless of whether they were covered by privilege.

What role might the attorney-client privilege play?

While the scope of material protected by the attorney-client privilege is significantly narrower than that covered by the work product doctrine, the privilege is no less important in shielding documents from discovery. And, in fact, attorney-client privilege may also be used to protect communications shared with third party litigation funders. However, the conduct of attorneys, clients, and litigation financing firms should be guided by the imperative to preserve protection to every extent possible.

The United States District Court for the Eastern District of Pennsylvania provided important guidance in this regard. While attorney-client privilege is generally waived when a third party becomes involved in attorney-client communications, the privilege may still extend to protect communications with or involving parties deemed to share a “common interest.” In Devon IT, Inc. v. IBM Corp., the Court explicitly held that the attorney-client privilege can be maintained when sharing information with potential litigation funders by putting in place common interest and non-disclosure agreements prior to any disclosure, and defining with specificity the common interest material covered under such agreements.

A simpler solution?

Importantly, one of the easiest solutions to protecting confidentiality may also be one of the simplest. In many instances, funders may be able to perform their due diligence and case risk assessment without requiring confidential information or materials that would cause the privilege to be waived. While privileged information may still be required at later stages of the litigation process if a funding agreement were to be reached, all parties would have additional time to thoroughly research the rules and regulations unique to the venue in which the matter is pending, and implement appropriate measures to maintain confidentiality.

If you would like to learn more about Vinson Litigation Finance’s litigation financing service, please contact VLF here.