November 2017 Ethically Speaking - Navigating Privilege in the Emerging World of Litigation Funding

by Cathy Tran Moses

Litigation funding (sometimes referred to as “alternative litigation finance”) refers generally to litigation-related financing by an entity other than the parties, their counsel, or the parties’ insurers. Litigation funding has been on the rise, and many different funding models have developed.1 For example, a third-party funder may agree to pay for some or all litigation expenses of a plaintiff in exchange for an agreed-upon share of any recovery. However, many other variations exist, including defense-side funding and various ways in which to finance portfolios of cases.

Before deciding to fund litigation and setting financial terms, the funding entity often seeks from the litigant or its counsel information about the claims and defenses in order to assess the risks and rewards of a possible arrangement. The increased awareness of litigation funding has spurred opposing parties to seek discovery of these communications once litigation is under way. In cases involving the funding of a plaintiff’s claim, for example, defendants have argued that such information may not be privileged in the first place, or that if any privilege exists, it has been waived by disclosure to third-party funders. Plaintiffs, in contrast, have argued that such communications are non-discoverable, including on the grounds of work-product and common-interest privilege. Although necessarily dependent on the specific facts (and potentially dependent on the law of the specific jurisdiction in which a litigation is venued), recent decisions provide useful guidance on these issues.

Recent Decisions Find Litigation Funding Documents to Be Protected Attorney Work-Product

Two federal district courts recently held that documents provided to actual and prospective litigation funders can be protected as attorney work-product, and that the disclosure of materials to funders does not waive that protection, particularly if the parties enter into non-disclosure agreements that will protect against more widespread distribution of materials. In Viamedia, Inc. v. Comcast Corp., No. 16-cv-5486, 2017 WL 2834535 (N.D. Ill. June 30, 2017) (St. Eve, J.), the defendants moved to compel the production of fifty-one documents that the plaintiff, Viamedia, had disclosed to three prospective litigation funders (Therium, Longford and Burford Capital) before Viamedia filed a suit alleging violations of federal and state antitrust laws against Comcast. Viamedia opposed the defendants’ request, claiming both attorney-client privilege and work-product protection, on the grounds that those documents reflected its attorneys’ legal advice and the mental impressions of Viamedia and its attorneys about the case.

With respect to work-product, the court observed that the doctrine had two purposes: first, to protect an attorney’s thought processes and mental impressions against disclosure; and second, to limit the circumstances in which an opponent’s attorneys can “piggyback on the fact-finding investigation of their more diligent counterparts.” Id. at *1. The work-product doctrine was critical to “ensur[ing] that our adversarial system of justice remains adversarial.” Id. (emphasis added). Thus, work-product protection could be waived “based on disclosure to a third party, but only where the disclosures ‘substantially increase the opportunity for potential adversaries to obtain the information.’” Id. at *2 (citation omitted). The court noted that this concept of waiver is distinct from waiver of the attorney-client privilege: the “reason for this difference is the work-product doctrine’s roots in the adversarial process—the 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.” Id. (citation omitted).

The court reviewed the withheld documents in camera and held that the work-product doctrine applied. There also was no waiver of any work-product protection by disclosure to the funders, as 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.” Id. at *3. Among other things, and in what appeared to be a critical fact to the court, Viamedia had disclosed the documents to the prospective funders under a non-disclosure agreement. The court also rejected the defendants’ contention that the funders might disclose the privileged information to certain individuals and organizations such as their accountants and attorneys. Id.

The court’s conclusion in Viamedia is consistent with the holding of a recent district court case in the Ninth Circuit, Odyssey Wireless, Inc. v. Samsung Elecs. Co., No. 3:15-cv-01735, 2016 WL 7665898 (S.D. Cal. Sept. 20, 2016), which involved claims of patent infringement against Samsung and other mobile device manufacturers. The defendants sought the production of litigation funding documents, arguing among other things that the documents did not contain any evidence of an attorney’s involvement, let alone an attorney’s opinions or mental processes. The Odyssey court disagreed, holding that the documents were work-product. While there is a “dearth of case law regarding the applicability of the work-product doctrine to litigation funding documents,” the court noted that the few district courts that had examined the issue had found that the work-product doctrine applied.

Moreover, even though the documents at issue had been prepared before litigation had started, they were created because litigation was expected, which was “sufficient to bring them within the protections of the work-product doctrine.” Id. at *5. The court also rejected the defendants’ argument that the plaintiff had waived privilege by disclosing the documents to funders. Just as Viamedia had entered into non-disclosure agreements with prospective funders before disclosing any materials, the disclosures to third parties in Odyssey had “occurred pursuant to confidentiality agreements and an expectation that the information would remain confidential.” Id. at *6. Such measures “did not increase the likelihood that an adversary would come to possess them.” Id.

Notwithstanding this conclusion, the court still ordered a limited production of the materials because the defendants established a substantial need for the documents under Federal Rule of Civil Procedure 26(b)(3)(A)(ii). The defendants claimed that the withheld documents were relevant to damages, including relating to valuation of the patents-in-suit, and argued that they could not obtain the information from another source. The court agreed that the defendants had shown that they had not been able to obtain this information from third parties or been given other relevant documents. Thus, the court ordered production of portions of the documents that related to valuation of Odyssey’s patents, but allowed Odyssey to redact other portions.

Courts Have Diverged Regarding the Common-Interest Doctrine

As these recent cases reveal, in cases involving third-party funding of a plaintiff’s claims, there has been a trend towards protecting documents provided to funders as attorney work product. Notably, neither court in the Viamedia or Odyssey cases ruled as to whether disclosures to prospective or actual funders fell within the attorney-client privilege and common-interest privileges. See Viamedia, 2017 WL 2834535 at *1 (because it held that documents were protected work product, the court “need not reach the question of whether the attorney-client privilege applies to the documents.”). At least one federal court has recently held that communications between a party, its counsel, and a litigation funder in a case involving the funding of a plaintiff’s claim were subject to the attorney-client privilege and shielded by the common-interest doctrine, a rule whereby privileged communications can be shared with a third party who shares a “common interest” with the client without waiving any privilege. See In re Int’l Oil Trading Co., LLC, 548 B.R. 825, 830 (Bankr. S.D. Fla. 2016). That court held, based on Florida law, that the common-interest exception applies where the third party and the privilege holder are engaged in a “common enterprise,” and the legal advice relates to the goal of the enterprise. Id. at 832-33.

In contrast, the Northern District of Illinois concluded in 2014 that the common-interest doctrine did not apply to the disclosure of privileged documents to litigation funders because in the Seventh Circuit, the doctrine applies only “where the parties undertake a joint effort with respect to a common legal interest, and the doctrine is limited strictly to those communications made to further an ongoing enterprise.” Miller UK Ltd. v. Caterpillar Inc., 17 F. Supp. 3d 711, 732 (N.D. Ill. 2014) (emphasis in original). The Miller court held that the doctrine did not apply because the plaintiff sought only “money from prospective funders, not legal advice or litigation strategies”; the “funders, for their part, were interested in profit”; and “[l]egal strategies and subtleties were exclusively for Kirkland & Ellis and its predecessor [counsel], Nixon Peabody.” Id. at 733. As the plaintiff made no claim or showing that it had undertaken a joint litigation strategy with any funding source (id. at 722 n.15), the common-interest doctrine did not apply.

The Ninth Circuit shares a similar view of the common-interest doctrine, describing the doctrine in a case not involving litigation funding as “an exception to ordinary waiver rules designed to allow attorneys for different clients pursuing a common legal strategy to communicate with each other.” In re Pac. Pictures Corp., 679 F.3d 1121, 1129 (9th Cir. 2012). A shared desire to see the same outcome in a legal matter is insufficient in the Ninth Circuit; instead the parties “must make the communication in pursuit of a joint strategy in accordance with some form of agreement[.]” Id. Thus, a plaintiff in this circuit may contend that the common-interest doctrine applies to privileged documents provided to litigation funders if, for example, the funders were heavily involved in the plaintiff’s legal strategy. In Rembrandt Patent Innovations, LLC v. Apple, Inc., No. 14-05093, 2016 WL 427363 (N.D. Cal. Feb. 4, 2016), the court held in an analogous situation that the common-interest doctrine protected communications between the inventors on a patent and the University of Pennsylvania (Penn), which had been assigned rights in that patent, because Penn had an interest in monetizing the patent through litigation or licensing, and the inventors shared an interest with Penn in developing those strategies, as the inventors had a right to certain royalties. The parties shared an interest in “legal questions involved in licensing and enforcement opportunities, perfecting title in the patent, and defending the patent’s validity.” Id. at *4.

The sharing of licensing royalties between parties is certainly distinct from a third party’s funding of a plaintiff’s claim: plaintiffs may not be dependent on funders for legal advice or questions of legal strategy in the same way that Penn depended on the inventors to provide legal advice regarding the scope of the patent and prior art. But the court’s ruling in Rembrandt, and the Ninth Circuit’s case law on the common-interest doctrine, suggest that the more legal input and advice that a funder gives to the plaintiff, the stronger the case will be in support of the common-interest doctrine.

As forms of litigation funding continue to emerge and evolve, adversaries will likely continue to press for the production of litigation funding documents. In turn, courts will be asked to examine a variety of factors, including the terms of any funding and the parties’, counsel’s, and funders’ actions, in deciding whether production should be ordered. At least in the Ninth Circuit, plaintiffs who seek to withhold materials provided to funding entities may find themselves on more solid footing by relying on the work-product doctrine and associated rule of non-waiver, particularly where they have entered into non-disclosure agreements that reduce the risk of disclosure to adversaries.


  1. (1) For an overview of some of the different models, as well as various ethical considerations relating to them, one resource is the American Bar Association Commission on Ethics 20/20, White Paper on Alternative Litigation Finance, https://www.americanbar.org/content/dam/aba/administrative/ethics_2020/20111019_draft_alf_white_paper_posting.authcheckdam.pdf. See also, Jason Krause, Third-Party Financing Is Growing, and Lawyers Are Big Players, ABA Journal (July 2016), http://www.abajournal.com/magazine/%0Barticle/third_party_financing_is_growing_and_lawyers_are_big_players.


Cathy Tran Moses is a senior counsel with Cox Castle & Nicholson LLP in Irvine, specializing in complex business litigation and employment litigation. She can be reached at cmoses@coxcastle.com.