Today an article appeared in Law 360Are Litigation Funding Documents Protected From Discovery? It is an interesting article insofar as it helps lawyers begin to understand the complexities of information flows between them and the traditional litigation funders—those advancing cash to the lawyer’s client that the client can use to pay the lawyer’s fees and expenses. But it falls short in providing clarity as to how to triage information proposed to be shared between the funder and the lawyer and is actually confusing in reiterating an often-repeated admonition that “privileged information” should never be shared. In the article the authors articulate a “Best Practice”:

Do not share attorney-client-privileged materials with a funder. Courts are unlikely to protect attorney-client-privileged information disclosed to a funder, and, in any event, funders do not need or want that information. Disclosure of privileged information injects unnecessary risk that could negatively affect the outcome of the case (which is bad for everyone involved). Bottom line, if there is any question about whether a document is subject to the attorney-client privilege, err on the side of caution and do not risk waiver by sharing it with a funder.

For a variety of reasons such a blanket admonition is not particularly helpful for the lawyer trying to make a real-time assessment of what information and documents can and cannot be disclosed in the traditional funder-client-lawyer tripartite. First, the article correctly recognizes that information properly qualified as “work product” to the relevant proceedings should be protectable, but it does not mention that privileged information can, at the same time, qualify as work product. As such, the information at issue could be protected against discovery in the underlying proceedings even if it loses its protection afforded by “privilege” rules from discovery by others in connection with matters outside the litigation.

Second, it is mind-boggling to try to imagine where to draw the lines in the disclosure process if the authors’ blanket admonition were put into practice. For example, lawyer opinion work product is regularly communicated by the lawyer to the client and, if it meets the “Five Cs” (a communication made between privileged persons in confidence for the purpose of obtaining or providing legal assistance for the client), it is privileged. Opinion work product usually contains information communicated by the client to the lawyer, which is also subject to privilege. These kinds of privileged information regularly find their way into work product shared with funders, and the confluence of protections become inextricably intertwined. Funders always want such information—what would the client settle for? or What defects are there in the client’s case?—so it is confusing to attempt to abide by the authors’ proposed cardinal rule and simply untrue to suggest funders don’t need it or seek it. What funder would invest in a claim without knowing the client’s settlement appetite, especially since, statistically, almost all litigations settle before trial?

Third, it is hard to understand how the disclosure of information that constitutes both privileged information and work product can “negatively affect the outcome of the case (which is bad for everyone involved)”, as the authors caution. True, the disclosure of privileged information as work product could jeopardize the future protection of the disclosed privileged information outside of the litigation, but that risk is one, among many, about which the lawyer needs to consult the client and obtain client consent.

These are important issues, and the world of litigation finance needs to get them right. Indeed, a recent Market Survey of the Commercial Litigation Finance by Bloomberg Law indicated that the biggest initial concerns by lawyers about litigation finance are the ethical implications (45%) and client privilege issues (42%).

Legis has published a set of Best Practices in Litigation Finance Transactions.

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