By Nate Raymond
For alternative litigation funders like Burford Group and
Juridica Capital Management, attorney-client privilege has been
a lingering problem.
Litigation funders don't act as attorneys, yet they
typically engage in discussions with lawyers for the parties
whose claims they're backing. Are those talks protected by privilege? And what about work product shared with outside
funders? Does it lose protection because the financiers aren't
acting as attorneys? District courts from Delaware to Texas have
reached different conclusions on the issue. Some judges have
compelled disclosures, while others have ruled the privilege
holds. Some bar groups, including the New York City Bar
Association, have urged caution to litigants discussing
privileged issues with outside funders, even as they've given a green light to litigation finance.
A little-noticed court decision late last month in a case
against International Business Machine Corp is giving the
litigation finance industry a boost in its arguments
that funders' communications with clients are protected from
disclosure. The decision by U.S. District Judge Joel Slomsky in
Philadelphia marked one of the first times a judge has ruled
that discussions with third-party litigation funders are covered
by the work-product doctrine, the same principle that has long
allowed defendants to discuss cases confidentially with their
Burford CEO Christopher Bogart hailed the decision in an
interview with us on Wednesday, noting that continued
uncertainty about privilege has affected the ability of his $300
million fund to invest in cases. "It's one of the first
questions I get asked by lawyers when I meet with them, which
is, 'What can I tell you when I meet with you without the
opponent claiming waiver,'" he said.
The ruling came in a suit filed in 2010 by the Pennsylvania
computer company Devon IT, which accused IBM of a $12 million
fraud. According to Devon, IBM was supposed to use the money to
develop a Blade server or computer workstation, but, instead,
IBM employees allegedly misused the $12 million to inflate
earnings. IBM denied the allegations.
Burford stepped into the case in March 2011, around the time
Slomsky allowed the case to move on past a motion to dismiss.
That wasn't the beginning of Burford's involvement, however.
According to an affidavit by Burford managing director Aviva Will, the funder had been in discussions with Devon for a year
before the suit was even filed. Burford and Devon had entered a
confidentiality agreement in March 2010 to protect their
communications. Devon's lawyer at the time said in an affidavit
that he also shared a draft complaint, legal memoranda and his
personal opinions about the progress of the case with Burford.
IBM's lawyers at Jones Day said in a brief that they only
found out about Devon's third-party backing in January 2012.
They immediately subpoenaed Burford, seeking details of its
financial arrangements with Devon and the funder's
communications with Devon and its lawyers. IBM sadeclinedid it needed
the documents because (among other things) Pennsylvania still
recognizes champerty and maintenance, the old common law rules
prohibiting the sale of a lawsuit.
Devon and Burford moved to quash the subpoena, claiming
their communications are privileged. Slomsky agreed. In a ruling
on Sept. 27, the judge said that since Burford and Devon share a
"common interest" in the outcome of the case and had entered
into the confidentiality agreement, their communications were
protected. "Given these controlled conditions, there was no
waiver of the attorney-client privilege or the work product
doctrine," Slomsky wrote.
The underlying suit was settled Oct. 5, according to the
docket. Devon counsel Mark Hansen of Kellogg, Huber, Hansen,
Todd, Evans & Figel declined to discuss the settlement, as did
Regardless of Devon's recovery, the privilege ruling adds to
what has been a slowly developing debate in the judiciary about
the reach of privilege to communications between clients and
funders. An oft-cited 2010 decision by now retired U.S. district
judge Joseph Farnan in Wilmington, Delaware, affirmed a
magistrate's finding in Leader Technologies' suit against
Facebook that privilege doesn't extend to the funders. In
contrast, now retired U.S. district judge T. John Ward in
Marshall, Texas, declined in 2011 to compel production of
documents provided to investors in a Mondis Technology case
against LG Electronics.
IBM counsel Glen Nager of Jones Day declined comment, and
IBM representatives did not respond to requests for comment. As
an aside, IBM general counsel Robert Weber is scheduled to speak on a panel about litigation finance at an event later this month. The event is sponsored by the U.S. Chamber of Commerce, a
frequent critic of third-party litigation funding.
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