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Does Attorney-Client Privilege Cover Legal Funders? (original)

January 30, 2011
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5min read

When a legal funding company is reviewing an application or tracking the status of a case they have already invested in, they typically require important case documents and conversations with the attorney on the case. In many instances, funders do not need confidential information that is covered by attorney-client privilege.  Pleadings, motions, and information that has already been shared or will be shared with opposing counsel typically need not be safeguarded by plaintiff's counsel since the other side already has it. But what if certain information is needed by the funder that is confidential and the plaintiff's counsel does not want to make it discoverable to the defense?  Is it covered under attorney-client privilege? 

In an article for the Denver University Law Review, University of Louisville professor Grace Giesel attempts to answer this question. Here are some of her findings. Simply put, attorney-client privilege protects the communications between an attorney and a client by holding that they may remain confidential. This ensures that a client feels free to reveal any and all relevant information with the attorney -- which allows the attorney to give the most appropriate legal advice to the client. According to Giesel, this privilege is broken when communication is held in the presence of another entity, or if communication is shared after the fact with an outside party. In essence, then, including a legal funding company in these communications breaks the privilege, as the funding company is, obviously, neither the attorney nor the client. But, like any good legal doctrine, there are exceptions where a third party can be included in attorney client privilege.

Unfortunately, these exceptions, which Giesel calls "wrinkles to the privilege," are inconsistent from court to court and case to case -- but they do sometimes include legal funders. Under the joint client doctrine, the privilege is extended to situations in which a single lawyer represents multiple clients involved in the same legal matter. In this arrangement, all information is shared among co-clients under attorney-client privilege, allowing for maximum efficiency as a case proceeds.

It's unlikely, though, that a legal funder would ever be considered a "joint client" under this doctrine, as a court would have to find that the legal funder and the person being funded have identical interests. This is especially true in the pre-investment stage of legal funding -- during which most of the information between the attorney and funder is shared -- where the funder's interests -- evaluating whether or not to invest -- may be misaligned with the client's -- being able to resolve their lawsuit successfully.

However, Geisel suggests that there might be room in this subdoctrine for funding companies who have already invested in a case and are just interested in monitoring it, as the client's interests will then align with the funder's. Geisel identifies another subdoctrine to attorney-client privilege called the allied party-common interest doctrine, which provides for exceptions to the privilege for third parties with a common legal interest. Courts vary from case to case in their application of this concept, especially regarding its application to legal funders.

In one case, Leader Technologies, Inc. v. Facebook, Inc., when a funder decided not to invest in the plaintiff after receiving classified documents, the court ruled that the privilege did not cover those communications; the documents exchanged were deemed admissible in court. In another, Devon IT, Inc. v. IBM Corp., Burford Capital signed a "Common Interest and Non-Disclosure Agreement" and invested in Devon's case. The court upheld that any communication between Burford and the plaintiff was covered by the privilege, seemingly because Burford invested in the case and thus shared the plaintiff's interests. Interestingly, though, the documents in question were shared before Burford funded the plaintiff -- when its interests were not directly aligned with Devon's. It's clear from Geisel's research that there's no hard-and-fast rule to incorporating legal funders into attorney-client privilege standards.

Further, she suggests that funders shouldn't be protected -- as doing so would stretch the privilege beyond its limits. In her evaluation, including legal funders would just lead to more confusion in an already confused area of the law, which will ultimately lessen the value of the privilege altogether. There might be room to create a separate kind of privilege just to fit legal funders, but she decides not to evaluate the merits of such a proposal.

For now, clients and their attorneys can't count on legal funders being held under the doctrine of attorney-client privilege. Before sharing any documents that they wouldn't want their opponent to see, then, a client seeking funding should always enter into a confidentiality or nondisclosure agreement with their legal funder.

In our interview with Victoria Shannon, she expressed hopes that the privilege would some day expand to include legal funders, but that it wouldn't be until this was "a big enough problem" that legislators would take notice. In an extensive article to be published Tuesday on LFC360, a commercial litigator writes about a strategy that he thinks may help ensure that protected information that is shared with a funder would still fall under attorney-client privilege.

Stay tuned.  

(Editor's note: here it is!)

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