Introduction

"Third party funding is a feature of modern litigation." These opening words of the judgment of the English Court of Appeal in Excalibur1 reflected the reality that over the course of the last 20 years the role of third party funding in major litigation, including competition litigation, has become pervasive in many jurisdictions, including England, the US and Germany, and in international arbitration. Indeed, funders find competition litigation particularly attractive as an investment opportunity, where often the litigation arises as the result of a conclusive finding of a breach of competition law by a local or regional regulator. Breach has already been established, leaving only causation and quantum to be determined. But the involvement of an additional entity in the assessment of the merits of a claim can lead to questions about the application of privilege.

The underlying purpose of privilege is to allow candid and transparent communications between lawyers and clients without concerns about disclosure of those communications to other parties in litigation. The impact of third party funding on privilege remains an area with some uncertainty, in particular, how privilege can be protected when communicating with and providing documents to a third party funder.

Before deciding to fund a claim, a funder will usually conduct comprehensive due diligence in order to evaluate the strengths and weaknesses of the claim and the potential return on its investment. As part of the due diligence process, the funded party will often be required to provide information and documents to the funder that would otherwise be typically protected by privilege.

This raises an important concern: would a party that discloses privileged documents or communication to a third party funder to secure funding risk waiving the privilege? In this article we address this issue through the lens of common and civil law jurisdictions, namely the US, England and Wales, and Germany. We also examine the impact of third party funding on international arbitration.

The US

The US: attorney-client privilege and the work product doctrine

In the US, attorney-client privilege protects communications between attorney and client made in confidence and created for the purpose of seeking, obtaining or providing legal assistance. The doctrine of attorney work product ensures that "opinion" documents (which reflect an attorney's opinion) created in anticipation of litigation and prepared by an attorney or their agent are protected from disclosure.

Most US states do not regulate litigation funding companies. Among the few states that have enacted any statutory regulation, only three specify that disclosures of otherwise-protected communications to a third party funder do not constitute a waiver of claims to attorney-client privilege or work product protection.2 Therefore, the current landscape of discoverability of information shared with third party funders has been drawn by the courts.Prior to 2014, only a relatively small number of courts had considered the issue. Miller, decided that year, provided the first extensive discussion of, and has become the leading decision on, the applicability of these discovery protections in the third party litigation context.3 As the issue has been addressed with increasing frequency in recent years, the picture has come more clearly into focus, with consistent themes emerging in more recent decisions.

As is discussed below, courts are divided on whether the shared interest of clients and third party funders in the successful outcome of a litigation is sufficient to sustain claims of attorney-client privilege under the common interest doctrine. However, courts have held with great consistency that work product protection can apply to funding agreements and due diligence documents, even in cases in which the attorney-client privilege is found to have been waived.

Attorney-client privilege and "common interest" analysis

Under US common law, the attorney-client privilege protects confidential communications between a lawyer and client for the purpose of providing legal advice.5 Because the purpose of the attorney-client privilege is to encourage frank communication between lawyer and client by assuring confidentiality, disclosure to a third party that eliminates that confidentiality constitutes a waiver of the privilege.6 The common interest doctrine is an exception to that general principle, and allows communications that are already privileged to be shared with third parties that have a "common legal interest" without a resultant waiver.7

Attorneys' legal analysis can be central to a third party funder's due diligence when investing in the pursuit of a legal claim. Thus, the common interest doctrine is commonly invoked as an exemption from normal waiver rules in the litigation funding context. However, there is no consensus among US courts as to how narrowly "common interest" should be construed

Some courts have interpreted the common interest doctrine to require a common legal interest between the client and the third party funder and not simply a commercial interest. The court in Miller held that a client's relationship to a litigation funder was merely "a shared rooting interest in the successful outcome of a case", and thus not a common legal interest, in which

"there was no legal planning with third party funders ... litigation was not to be averted, as it was well underway, and Miller was looking for money from prospective funders, not legal advice or litigation strategies".8

Similarly, another widely-referenced case, Leader, held that a plaintiff and litigation funder did not share a common legal interest sufficient to extend the privilege—in spite of an executed common interest agreement—because the court held common interests must be "identical, not similar, and be legal, not solely commercial", and "there should be a demonstration that the disclosures would not have been made but for the sake of securing, advancing, or supplying legal representation".9 Thus, courts requiring identical legal interests often find that communications between funders and clients are not protected by attorney-client privilege.10

However, a number of other courts have construed the doctrine more broadly, requiring only a "substantially similar" legal interest or a "common enterprise" between the third party and the privilege holder. For example, in Rembrandt, the court found a common legal interest among a patent holder and consultants. There, an agreement to enforce and monetise certain patents through litigation was sufficient to invoke the common interest doctrine, and attorney-client communications which were shared among the community of interest were shielded from discovery. 11 More recently, a bankruptcy court in Florida considered and declined to follow Leader, holding that the common interest doctrine applied to communications with a litigation funder that financed an action to pursue plaintiff's claim against a debtor. The court instead adopted the "more expansive" common enterprise approach, which requires only that the "third party and the privilege holder are engaged in some type of common enterprise and that the legal advice relates to the goal of that enterprise".12

Thus, no consensus exists as to whether the common interest exception to the attorney-client privilege applies to documents shared with litigation funders, and parties should not rely on such protection. Notably, however, even courts that are reluctant to extend the attorney-client privilege to third party litigation funders under the common interest doctrine are likely to find that the work product doctrine (discussed below) applies and shields such material from discovery.

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Footnotes

1. Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144; [2017] 1 W.L.R. 2221; [2017] C.P. Rep. 13.

2. See Ind. Code s.24–12-8-1; Neb. Rev. St. s.25-3306; Vt. Stat. tit. 8, s.2255.

3. Miller UK Ltd v Caterpillar Inc 17 F. Supp. 3d 711 (N.D. Ill. 2014).

4. Note that to be discoverable, information must be relevant to some party's claims or defenses. Fed. R. Civ. P. 26(b)(1). Assertions of attorney-client privilege or work product protection should be evaluated only for any information found to be relevant. Miller 17 F. Supp. 3d at 722 (quoting Oppenheimer Fund Inc v Sanders 437 US 340, 352 (1978)). Often, terms and content of the funding agreement have no bearing on the claims or defenses in a case. See United Access Technologies LLC v AT&T Corp 2020 WL 3128269 (D. Del. 12 Jun 2020).

5. See, e.g. Re Teleglobe Communications Corp 493 F.3d at 345, 359 (3d Cir. 2007) (quoting Restatement (Third) of the Law Governing Lawyers, s.68 (Am. Law. Inst. 2000)).

6. See Miller 17 F. Supp. at [731]; Upjohn Co v United States 449 US at [383], [389] (1981).

7. Miller 17 F. Supp. at [383], [389].

8. Miller 17 F. Supp. at [732]–[733].

9. Leader Technologies Inc v Facebook 719 F.Supp.2d at 373, 376 (D. Del. 2010) (finding no clear error in a magistrate's finding of no common interest between plaintiff and funder, so common interest doctrine did not apply and attorney-client privilege was waived). The District of Delaware followed Leader in a 2018 decision, Acceleration Bay LLC v Activision Blizzard Inc, finding the plaintiff and a prospective funder did not possess identical legal interests in certain patents, and were not otherwise "allied in a common legal cause" at the time of the communications, before an agreement was reached and before any litigation had been filed. Acceleration Bay Nos 16-453-RGA, 16-454-RGA, 16-455-RGA, 2018 WL 798731 at p.3 (D. Del. 9 February 2018). However, in a later opinion, the judge who decided Acceleration Bay appeared to limit the reading of that decision, stating Acceleration Bay "did not set a firm rule that parties must have a written agreement or have filed suit to share a legal interest. Rather, I merely considered the lack of an agreement or suit as evidence of the lack of a shared interest". TC Technology LLC v Sprint Corp 16-CV-153-RGA, 2018 WL 6584122 at p.5 (D. Del. 13 December 2018).

10. Although two brief orders decided in 2012 and 2013 found sufficient commonality under this more stringent standard in which non-disclosure and confidentiality agreements were in place between the parties, neither case has been widely cited. See Walker Digital v Google, No. 11-309-SLR, ECF No. 280, 2013 WL 9600775 (D. Del. 12 February 2013) (holding that a patent monetisation consultant and the plaintiff had a "common legal interest", even though the consultant was "not a law firm and was not retained to provide legal services"); Devon It Inc v IBM Corp No. CIV.A. 10-2899, 2012 WL 4748160 (E.D. Pa. 27 September 2012) (holding that the common interest doctrine, which requires "a shared common interest in litigation strategy," applies when the funder and plaintiff have a common interest in the successful outcome of the case).

11.  Rembrandt Technologies. L.P. v Harris Corp No. 07C-09-059, 2009 WL 402332 at p.7 (Del. Super., 12 February 2009) (citing Re Teleglobe 493 F.3d 345, 365 (3d Cir. 2007) and Re Regents of the University of California 101 F.3d 1386, 1390 (9th Cir. 1996) for the "substantially similar legal interest standard").

12. Re International Oil Trading Co 548 B.R. 825, 832–833 (Bankr. S.D. Fla. 2016) (citing Rembrandt 2009 WL 402332 at p.7).

Originally published by Global Competition Litigation Review - Issue 3 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.