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Work product protection for legal finance

October 11, 2019
Andrew Cohen

In our inaugural Burford Quarterly in 2015, Ernest Getto wrote about the interaction of litigation finance and the protection of attorney work product. The article concluded that “the tide is clearly running in favor of including litigation finance within the umbrella of protection from disclosure—which is certainly the right answer as a policy matter, too.” Over the past three years, the law has even more strongly reinforced the protection under the work product doctrine of documents created in connection with litigation finance, or produced to litigation finance providers over the course of diligence and investment.

The work product doctrine, generally speaking, protects from disclosure any materials prepared in anticipation of litigation. As a policy matter, it makes perfect sense: To allow a litigation opponent to obtain an adversary’s work product is inimical to the adversarial system as a whole. The protection is so fundamental that, in comparison to the attorney-client privilege, which is typically waived upon disclosure to any third party, the work product protection survives disclosure to third parties, provided that the disclosure does not substantially increase the opportunity for an adverse party to obtain the protected materials.

As applied to the litigation finance context, the analysis is simple. A party seeking financing must provide diligence materials to the potential financier in order to convince the financier that the litigation merits an investment. Those materials, typically, are subject to the work product protection, because they were created for and provided to the potential financier as a consequence of the litigation. Similarly, the deal documents embodying a finance transaction were created because of the litigation, and the terms of such agreements reflect the information provided in work product protected documents, such as lawyers’ mental impressions, theories and strategies about the underlying litigation. It follows that documents provided to and created by litigation financiers in the course of diligencing, closing and monitoring a finance transaction should be protected by the work product doctrine. The alternative would create a world where a party needing financing would be faced with a Hobson’s choice of either obtaining the desired capital and turning over its work product to its adversary or foregoing the capital in order to protect its trial strategy and its lawyers’ mental impressions.

As we noted in 2015—and it is even truer today—courts that have considered these issues have overwhelmingly found in favor of extending the work-product “umbrella” to litigation finance providers, and have protected work product provided to litigation financiers from disclosure to adversaries. In addition to the Devon, Mondis, Walker Digital, Miller, Carlyle, and CIT cases we have previously discussed in these pages, a number of decisions have come down recently further solidifying the work product protection as applied to litigation finance documents.

In the IOTC case (In re: Int’l Oil Trading Co., LLC, No. 15-bk-21596 (S.D. Fla. Bankr. Apr. 28, 2016) (order granting in part and denying in part third motion to compel)), a bankruptcy court was faced with motions to compel discovery relating to communications between a creditor and the creditor’s litigation funder (the bankrupt entity was a judgment debtor who had avoided payment for five years). In addition to finding that the communications were protected by the attorney-client privilege (despite the presence of the third-party funder, who was deemed in this situation to share a common interest with the creditor), the court also held that the communications were protected by the work product doctrine. The court explained that communications relating to litigation finance are a link in the chain “in furtherance of rendition of legal services” and thus subject to work product protection. Similarly, the litigation funding agreement itself was subject to work product protection, “as it was entered into with the intent to facilitate litigation.”

The court in Viamedia (Viamedia, Inc. v. Comcast Corp., No. 16-cv-05486 (N.D. Ill. Jun. 30, 2017) (order denying motion to compel)) followed the long line of cases holding that documents disclosed in the course of securing litigation finance remain subject to the work product protection. In denying the motion to compel discovery, the court observed that “while Defendants point out that funders could disclose information to certain individuals and organizations (e.g., their accountants and attorneys), 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.”

This is an important thread that runs through the work product jurisprudence: “[T]he point of the protection is not to keep information secret from the world at large but rather to keep it out of the hands of one’s adversary in litigation.”

More recently, in the Lambeth case (Lambeth Magnetic Structures, LLC v. Seagate Tech. (US) Holdings, Inc., No. 16-cv-00538 (W.D. Pa. Dec. 19, 2017) (order denying motions to compel)), the court extended the work-product protection to communications with potential litigation financiers in the period of time leading up to litigation. Unsurprisingly, the court found that the communications with litigation financiers were for the purpose of preparing for litigation. And because the communications “took place during a period when Lambeth actually and reasonably foresaw litigation,” the protection applied.

One reminder of the legal maxim “hard cases make bad law” is the recent order in Acceleration Bay LLC v. Activision Blizzard, Inc., No. 16-cv-00453 (D. Del. Feb. 9, 2018), in which a court upheld a Special Master’s order allowing discovery into the plaintiff’s communications with a prospective litigation funder, over work product objections. The facts here are messy: Defendants alleged that plaintiffs at first failed to log documents relating to litigation finance, despite a previous order requiring them to be produced. The conversations occurred, according to the court, prior to the litigation having been filed or even the underlying patents having been acquired by the plaintiff, and the court makes no reference to an operative non-disclosure agreement. Perhaps in its eagerness to reach a certain outcome on these facts, the court compounded the bad facts by applying the wrong standard to determine whether the communications were work product–the “primary purpose” test (which applies in the Fifth Circuit) rather than the “because of litigation” test (which applies in the Third Circuit). The result is an outlier opinion, in conflict with the law of the court’s own circuit, and in conflict with other Delaware courts.

Outliers notwithstanding, a wealth of caselaw has time and again demonstrated that litigation finance fits squarely within the work product protection. This is the right result as a policy matter, and it is a result that should give comfort to litigants and counsel pursuing litigation finance.