How Does Sharing Information with Litigation Funders Affect the Attorney-Client Privilege and Attorney Work Product Protection?

Written by LexShares Team | Aug 12, 2016 1:57:37 PM | 0 Comments

Written by LexShares Team | Aug 12, 2016 1:57:37 PM | 0 Comments

How Does Sharing Information with Litigation Funders Affect the Attorney-Client Privilege and Attorney Work Product Protection?

First explicitly recognized by the Supreme Court over 130 years ago in Hunt v. Blackburn1 and reaffirmed nearly a century later in Upjohn Co. V. United States2, the safeguards against discovery provided by the attorney-client privilege and attorney work-product protection have long been cornerstones of modern legal practice in the United States.3  While, as a general rule, attorney-related protections against disclosure are waived whenever protected information is disclosed by a client to a third party, a growing body of case law has developed to preserve those protections in situations where information or work product is shared with litigation funders.  Most recently, in In re International Oil Trading Company, LLC (“IOTC”),4 the U.S. Bankruptcy Court in the Southern District of Florida found that information shared between a claimant and a litigation funder were protected from disclosure where “the third party possesses a ‘common interest’ with the client, or the third party is an ‘agent’ of the client,”5 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.”6  The IOTC court’s decision marks only the most recent development in a growing body of case law7 recognizing the increased access to justice that litigation funders and their services provide.

The Common Interest Doctrine: Common Enterprise Versus Legal Interest

Beginning with the joint defense doctrine, which first expanded attorney-client protections by allowing criminal co-defendants to share privileged information with one another and their respective counsel to formulate a joint defense strategy, decades of progress eventually saw attorney-client privilege extended to communications between civil co-defendants.8  Over time, these specific extensions of attorney-client privilege coalesced into the common interest doctrine (also known as the common interest privilege), which an ever-expanding number of jurisdictions have recognized as preserving the attorney-client privilege or work-product doctrine where otherwise confidential information is shared with third parties who share any common interest, whether legal or non-legal in nature, so long as the information shared relates to that common interest.9  The Restatement (Third) of the Law Governing Lawyers describes this doctrine expansively:

If two or more clients with a common interest in a litigated or nonlitigated matter are represented by separate lawyers and they agree to exchange information concerning the matter, a communication of any such client that otherwise qualifies as privileged . . . that relates to the matter is privileged as against third persons.10

While the common interest doctrine is not universally recognized,11 more and more courts have begun to recognize the importance of allowing litigants to share privileged information and work product with third parties, such as litigation funders, who share their lawsuit-related interests.  Of those federal jurisdictions that recognize the common interest doctrine, two methods have arisen: the “common enterprise” approach and the “legal interest” approach.12  The common enterprise approach 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.  The legal interest approach instead requires that the interest shared by the client and the third party be strictly legal in nature.   

The IOTC court applied the common enterprise approach to the common interest doctrine in a three-part inquiry: 1) were the disclosures necessary to obtain informed legal advice that might not have been obtainable absent the attorney-client privilege; 2) did the nature of the communication between attorney, client, and litigation funder indicate that disclosure to third parties was not intended; and 3) was the information exchanged for the limited purpose of facilitating the shared interest?  The IOTC court found that the facts of the case answered all three questions in the affirmative, and that the communications shared with the funder were therefore protected from discovery.  It is likely that the IOTC court’s application of the common enterprise method was determinative, as other courts using the legal interest found the interest shared by clients and litigation funders to be commercial, rather than legal, in nature, and accordingly subject to disclosure.13  In the end, as IOTC demonstrates, whether the common interest extension of the attorney-client privilege applies to communications with litigation funders depends on the jurisdiction in which the lawsuit arises.

The Agency Doctrine: Broad Versus Narrow Constructions

Much like the common interest doctrine, the agency exception to waiver of the attorney-client privilege has developed two analytical interpretations: “narrow” and “broad.”14  The narrow approach limits non-waiving disclosures to situations where the third party merely serves as a “translator”—that is, one who interprets information already exchanged between attorney and client, such as law clerks or administrative assistants.  The broad approach, on the other hand, extends the privilege to cover situations involving a wide range of professionals to allow the exchange of information necessary for legal advice. 

The IOTC court looked to Florida statutes that protect communications with those “to whom disclosure is in furtherance of the rendition of legal services to a client” as supporting the broad approach, in which “communications with any party who assists the client in obtaining legal services,” including litigation funders, remain protected under the agency exception.15  As the IOTC court observed, “Communications with a litigation funder fall within the agency exception for the very reason that litigation funders exist—because without litigation funders, parties owed money, or otherwise stymied by deep-pocket judgment debtors, might have reduced or no ability to pursue their claims.  Litigation funders may be essential to the provision of legal advice in such cases.”16

The Attorney Work Product Doctrine: “Opinion” Versus “Fact” Work Product

The Federal Rules of Civil Procedure protect documents prepared by attorneys in anticipation of litigation from discovery, unless the disclosure-seeking party demonstrates substantial need for the documents and would otherwise be unable to obtain them without undue hardship.17  Even then, “opinion” work product—comprising the mental impressions, conclusions, or legal theories of counsel or other representatives concerning the litigation—must remain protected.18  The IOTC court considered the documents sought for disclosure to be “communications between a client, the client’s attorney, and a litigation funder whose participation depends on assessments of the merits of litigation.  If they are work product at all, they are opinion work product.”19

In determining whether the requested litigation funding agreement was protected by the work product doctrine, the IOTC court considered the primary purpose rule and pivotal issue doctrine.20  The primary purpose rule extends work product protection to documents composed “for the purpose of facilitating the rendition of legal services to the client.”21  While IOTC claimed that the purpose of the documents shared with the litigation funder were purely financial, the court viewed the claimant’s use of the funder’s services as an act undertaken with the purpose of facilitating the rendition of legal services on his behalf, thereby satisfying the rule and protecting the documents from disclosure.

Under the pivotal issue doctrine, even mental impressions of counsel can be made discoverable if they are pivotal or central to the litigation before the court.  The threshold for applying this doctrine, however, is extremely high and fact intensive, such that it is applicable only in “rare and extraordinary circumstances,” usually in response to circumstances indicating bad faith.  The IOTC court found that this threshold had not been met, as the mere involvement of a litigation funder did not, “in of itself, indicat[e] an improper motivation.”  Accordingly, the court found nothing in the claimant or funder’s actions rising to the threshold of a rare or extraordinary circumstance. 

Nevertheless, recognizing the requesting party’s substantial need for information contained in the “fact” work product portions of the funding agreement, the IOTC court ultimately ordered disclosure of portions of the litigation funding agreement that did not constitute protected “opinion” work product.  The court, in doing so, allowed for the claimant to “redact the terms of payment and any terms he reasonably believes may disclose mental impressions and opinion in relation to [the] litigation.”22

Conclusion

Recent rulings like IOTC confirming the application of the common interest and agency exceptions to waiver of attorney client privilege, as well as the application of the work product doctrine to information shared with litigation funders, indicate the courts’ increasing acknowledgement of “the sound public policy of making justice accessible to all regardless of wealth”23 that litigation finance provides.  While that acknowledgement is not yet universal, an increasing range of claimants can rest assured that merely sharing protected information with litigation funders like LexShares need not necessarily compromise their protection from discovery in an ever-expanding range of jurisdictions.24

 

Works Cited

[1] 128 U.S. 464, 470 (1888).

[2] 449 U.S. 383, 390 (1981).

[3] Matthew D. LaBrie, The Common Interest Privilege, American Bar Association, Section of Litigation, Trial Evidence Committee (Sept. 30, 2014), http://apps.americanbar.org/litigation/committees/trialevidence/articles/fall2014-0914-common-interest-privilege.html.

[4] 548 B.R. 825 (Bankr. S.D. Fla. 2016).

[5] See In re Int’l Oil Trading Co., LLC (“IOTC”), 548 B.R. 825, 831 (S.D. Fla. 2016).

[6] Id.

[7] See, e.g., Charge Injection Techs., Inc. v. E.I. DuPont De Nemours & Co., 2015 WL 1540520 (Del. Super. Ct. 2015) and Carlyle Invmt. Management v. Moonmouth Co., 2015 WL 778846 (Del. Ch. 2015) (holding that the work product doctrine protected the terms contained within a litigation finance agreement); Obermayer Rebmann Maxwell & Hippel LLP v. West, Civil Action No. 15-81 (W.D. Pa. 2015) (holding the terms of a litigation finance agreement did not amount to usury); Hamilton Capital VII, LLC, I v. Khorrami, LLP et al., 2015 WL 4920281 (Aug. 17, 2015) (acknowledging that a funder’s right to recovery under a litigation finance agreement did not constitute impermissible fee-sharing with a non-lawyer).

[8] Compare Chahoon v. Commonwealth, 62 Va. (21 Gratt.) 822, 841-42 (1871) with Schmitt v. Emery, 2 N.W.2d 413, 416 (Minn. 1942). 

[9] See, e.g., Rest. 3d § 76; In re Grand Jury Subpoenas, 89-3 & 89-4, John Doe 89-129, 902 F.2d 248-49 (4th Cir. 1990). 

[10] Rest. 3d § 76. 

[11] See, e.g., Waste Mgmt., Inc. V. Int’l Surplus Lines Ins. Co., 579 N.E.2d 322, 328-29 (Ill. 1991) (adhering to a narrower historical view of the joint defense privilege); Ctr. Partners, Ltd. v. Growth Head GP, LLC, 981 N.E.2d 345, 355-56 (Ill. 2012) (privilege to be “strictly confined within its narrowest limits”); Karoly v. Mancuso, 65 A.3d 301, 315 (Pa. 2013) (noting that a broad “common interest” privilege is not clearly established in Pennsylvania courts); Citizens for Ceres v. Superior Court, 159 Cal Rptr. 3d 789, 792 (Ct. App. 2013) (limiting “common interest” privilege to “reasonably necessary” communications that are exchanged in the timeframe in which the common interest exists); In re XL Specialty Ins. Co., 373 S.W.3d 46, 50-53 (Tex. 2012) (interpreting the “allied litigant defense” under the Texas Rules of Evidence as limiting privilege “to situations where the benefit and the necessity are at their highest, [thereby] restricting the opportunity for misuse”); but see Hyatt v. State of Cal. Franchise Tax Bd., 962 N.Y.S.2d 282, 295-96 (App. Div. 2013) (recognizing a narrow common interest privilege wherein the shared interest must be “identical (or nearly identical), as opposed to merely similar”); 3Com Corp. V. Diamond II Holdings, Inc., No. 3933-VCN, 2010 Del. Ch. LEXIS 126, at *25 (May 31, 2010) (noting the codification of the common interest privilege in Rule 502(b)(3) of the Delaware Rules of Evidence, which protects, inter alia, “confidential communications made for the purpose of facilitating the rendition of profession legal services to the client . . . by the client or the client’s representative or the client’s lawyer or a representative of the lawyer to a lawyer or a representative of a lawyer representing another in a matter of common interest”); Hanover Ins. Co. v. Rapo & Jepsen Ins. Servs., 870 N.E.2d 1105, 1110, 1112 (Mass. 2007) (adopting the Restatement (Third)’s version of the common interest privilege).

[12] Bentham IMF, Florida Bankruptcy Court Applies the Common Interest Exception to Protect Claimant-Funder Communications from Discovery, http://www.benthamimf.com/blog/blog-full-post/bentham-imf-blog/2016/06/14/florida-bankruptcy-court-applies-the-common-interest-exception-to-protect-claimant-funder-communications-from-discovery.

[13] See Miller UK Ltd. v. Caterpillar (17 F. Supp. 3d 711 (N.D. Ill. 2014).

[14] Bentham IMF, Work Product Doctrine Protects Litigation Finance Documents from Disclosure in Florida, https://www.benthamimf.com/blog/blog-full-post/bentham-imf-blog/2016/06/28/work-product-doctrine-protects-litigation-finance-documents-from-disclosure-in-florida#_edn2.

[15] IOTC, 548 B.R. 825.

[16] Id.

[17] FRCP 26(b)(3).

[18] Id.

[19] Id.

[20] Bentham IMF, supra note 10.

[21] Id.

[22] Id.

[23] Hamilton Capital VII, LLC, I v. Khorrami, LLP et al., 2015 WL 4920281 (Aug. 17, 2015).

[24] See Bentham IMF, Case Law Indicates Growing Acceptance of the Litigation Finance Industry, June 30, 2016, https://www.benthamimf.com/blog/blog-full-post/bentham-imf-blog/2016/06/30/case-law-indicates-growing-acceptance-of-the-litigation-finance-industry.

Topics: Attorney-Client Privilege, Litigation Finance