A Practice Smart(TM) Feature
“As the costs and delays of civil litigation increase, the ideal of equal justice is unfulfilled. All too often … the party with the greater financial resources …prevails by exhausting the resources for the weaker opponent. The mere threat of delay or unbearable expense denies justice to many actual or prospective litigants. Persons or businesses of comparatively limited means settle … and relinquish claims simply because they cannot afford to litigate … ” Justice Powell as quoted in Joseph R. Biden, Jr’s, Equal, Accessible, Affordable Justice Under Law
In March of 2011, Thomas Warren, a partner in Baker Hostetler wrote an article, “Preserving Attorney-Client Privilege: How Companies Maintain Confidentiality of Documents and Communications When Using a Third-Party Litigation Funder.” He observed:
Third-party financing of litigation is becoming more prevalent in the United States and its attractions are obvious. Traditionally, the risks of suing on an affirmative claim-uncertainty both as to cost and outcome-have been borne by the company possessing the claim (the traditional model) or by its lawyers (the contingent-fee model). In litigation financing, Warren says, a third party funds some or all of the litigation expenses in exchange for a portion of the proceeds of any settlement or judgment. Such an arrangement transfers some or all of the litigation risks, both as to expense and outcome, to entities better suited to shoulder and manage those risks than the companies or their lawyers. In essence, litigation funding allows for capital markets to perform as they are intended-by efficiently transferring risk from one party to another.
While the increase in third-party litigation finance in the United States has provoked a great deal of discussion about legal and ethical concerns, litigation funding is here to stay. The article answers the following question: How can a company considering whether to use a third-party funder maintain the confidentiality of its documents and its communications in the process? Warren explains the most straightforward way for a company to approach this issue is by sharing information through its counsel to the funder’s counsel, under what is known as the “common-interest privilege.” The common-interest privilege provides that two companies that share a “common interest in a litigated or non-litigated matter” and that are represented by separate lawyers may exchange information concerning the matter, those communications without destroying the attorney-client privilege. The common interest is broadly construed to cover anything legal, factual, or strategic in nature.
Warren notes that a company considering obtaining third–party litigation funding would be well advised to enter into a common–interest agreement with a funder prior to disclosing any information. Any agreement should spell out the parties’ common interests and their intent to keep the communications confidential. And the sharing of confidential information should be done through the parties’ respective counsel.
On October 10, 2012 in New York, a US Federal Court has ruled decisively in favor of litigation funders being able to see privileged material and attorney work product without those materials being discoverable by opposing parties.
The Court held:
As part of the evaluation process, [Plaintiff] shared confidential information with [Funder].. It is quite evident that the subpoenas seek the production of documents that were prepared by counsel for [Plaintiff] in anticipation of and during litigation and are protected by the work product doctrine. Litigation strategy, matters concerning merits of claims and defenses and damages would be revealed if the documents were produced. The matters directly involve the mental impressions of counsel and are protected from disclosure as work-product. Moreover, the production of the items subpoenaed would intrude upon attorney-client privilege under the “common-interest” doctrine. The “common-interest” doctrine protects communications between parties with a shared common interest in litigation strategy. [Citations omitted] Here, [Funder] and [Plaintiff] now have a common interest in the successful outcome of the litigation which otherwise [Plaintiff] may not have been able to pursue without the financial assistance of [Funder].
Practice Smart(TM) Features are a service of Michael Blum and Appeal Funding Partners, LLC. The Features are thoughts from a variety of sources on our practices, on being trial lawyers and things of importance to trial lawyers and their clients.
Michael Blum is a trial attorney and CEO of Appeal Funding Partners, LLC with over 17 years experience providing risk mitigation services and non-recourse funding to attorneys and plaintiffs with money judgments on appeal. He has served on the Board of Directors of the Consumer Attorneys of California and of the Marin Trial Lawyers Association and regularly speaks to trial-lawyer groups and has written for TLA magazines on the financial management of a contingency-fee law firm. He may be contacted at 415-729-4214 or firstname.lastname@example.org.
The information in this article is provided for informational purposes only and with the understanding that the author is not engaged in rendering legal, accounting, tax or other professional advice or services.
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