What Courts Are Saying About Litigation Finance Disclosure

What Courts Are Saying About Litigation Finance Disclosure
By Stephanie Spangler and Dai Wai Chin Feman (January 29, 2020)

Last year, we provided a comprehensive summary of the debate
surrounding the disclosure of commercial litigation funding. That debate
continues, with defendants persisting in propounding document requests,
interrogatories and deposition questions regarding the identity, terms and
other aspects of financing arrangements.

As defendants continue to seek discovery, courts continue to weigh in.
The most highly publicized recent decision occurred in the Valsartan
Products Liability Litigation last fall, where the U.S. District Court for the
District of New Jersey denied discovery on the basis of relevance.
                                                                                 Stephanie Spangler
This article discusses four recent cases concerning disclosure that were
issued since the Valsartan decision. The cases are consistent with the
broader trend of rejecting or limiting discovery based on the core issues
of relevance[1] and the attorney work product doctrine.[2]

Pipkin v. Acumen

In Pipkin v. Acumen,[3] the U.S. District Court for the District of Utah
prohibited any discovery regarding litigation funding on the basis of
relevance.
                                                                                 Dai Wai Chin Feman

The dispute arose in connection with the plaintiff’s deposition, at which defense counsel
questioned the plaintiff regarding litigation funding. The plaintiff’s counsel objected,
instructed the plaintiff not to answer, and moved for a protective order.

The defendant opposed the plaintiff’s motion for a protective order asserting that a witness
in the case may be financing the litigation, which would be “relevant as to the bias and
credibility of that witness.”[4] The defendant accordingly sought discovery concerning fee
agreements involving the witness.

In granting the plaintiff’s motion for a protective order, the Pipkin court held that
“information related to funding of the litigation is irrelevant to the claims and defenses of
the case and, therefore, Plaintiffs’ funding of the lawsuit is not discoverable.”[5] With
respect to credibility, the court found the defendant’s argument to be “entirely speculative
and insufficient to demonstrate the relevance of the sought-after fee agreements.”[6]

While the court acknowledged possible instances where litigation funding agreements could
be discoverable, such disclosure required specific, articulated reasons of bias or conflicts of
interest. Because defendant’s reasoning for disclosure was entirely speculative, the court
found that the required specificity lacking.

Takeaway

The Pipkin decision is consistent with the prevailing trend that discovery should not be
allowed absent a special showing. Witness bias arguments have generally failed to gain
traction in other cases, and they can be expected to continue to fail (especially in cases
backed by commercial funders with no connection to the underlying dispute).

Fulton v. Foley

In Fulton v. Foley,[7] the U.S. District Court for the Northern District of Illinois quashed a
subpoena to a litigation funder on the grounds of relevance and attorney work product.
However, the Fulton court ordered the plaintiff to produce “all non-mental impressions, fact-
based information and documents including any statements provided by Plaintiff directly, if
any, that was provided to [the litigation funder].”[8]

In its subpoena, the defendant sought production of (1) litigation funding agreements and
(2) communications and information provided to the litigation funder by the plaintiff and his
counsel in connection with obtaining funding.

The defendant argued litigation funding agreements are relevant to (1) mitigation of
plaintiff’s lost wages claim, (2) determine a reasonable settlement value of the case and (3)
the plaintiff’s bias. The court rejected each of the defendant’s arguments. The court noted
that generally, courts throughout the country have held that litigation funding information is
irrelevant to proving the claims and defenses in a case.

In looking at the specific discovery issues at hand, the court held that the funding
agreement documents are irrelevant to the mitigation of damages because in the event of a
successful outcome, the plaintiff will be obligated to repay the funder and, therefore, the
funds are not income.[9]

With regard to settlement value, the court held that “settlement considerations are a wholly
distinct concept and not a proper basis to obtain discovery under Rule 26(b)(1),” and that
“litigation funding documents have no bearing on evidence that is needed to prove a claim
or defense at a trial or establish the amount of damages that a jury should award.”[10]

Finally, concerning bias, the court held that “the assistance of litigation funding, in order to
pay the fees and expenses of a litigation, does not assist the fact-finder in determining the
credibility of Plaintiff’s testimony.”[11] While the plaintiff’s gains from a successful lawsuit
could be relevant on cross-examination, the court found that litigation funding did not
impact the nature of that inquiry one way or another.

The defendant also argued that information and communications between the plaintiff and
his counsel and the litigation funder was relevant. These documents comprised “[the]
counsel’s description of the case and counsel’s assessment of the strengths and weaknesses
of the case.”[12] The court disagreed, finding that “[the] counsel’s opinions and thoughts
are not facts.” [13] The counsel’s assessments of a case was reflective of the counsel’s own
opinions and thoughts, not factual evidence that would be more likely to prove a claim or
defense.[14]

Going further, the court also held that the attorney work-product doctrine protected against
disclosure, stating that “[the] counsel’s mental impressions are protected by the attorney
work-product doctrine because they were created for the purposes of litigation.”[15]
Moreover, the court held that disclosure to a third-party funder does not constitute waiver
because it “does not substantially increase the chance that opposing counsel would obtain
the information” because such “communications are designed to be confidential.”[16]

Otherwise, the court reasoned, “no counsel would ever memorialize on paper the relative
merits and the chances of success of a piece of litigation and apply for litigation
funding.”[17] In the same vein, “if litigation funding companies did not maintain

confidentiality of documents provided by attorneys about their evaluation of the case,” then
funders “would run out of clients fairly quickly.”[18]

Although it granted the motion to quash the subpoena to the funder, the court ordered the
plaintiff to produce non-privileged, “non-opinion, fact-based materials that do not involve
the mental impressions of counsel in the documents that Plaintiff has provided [to the
litigation funder].”[19] The court reasoned that “statements or representations about the
facts of the case ... would be relevant information that could expand on the allegations of
the Complaint, identify witnesses, and potentially be used for impeachment.”[20]

Takeaway

The Fulton decision largely comports with prior case law, and makes several obvious
observations regarding mitigation, work product and waiver that may dissuade defendants
from making similar arguments in the future.

However, the Fulton court took the rare step of ordering production of nonprivileged fact-
based communications between the plaintiff and litigation funder. This may be of limited
ultimate utility for the defendant, as the common interest privilege will likely apply to most,
or all, of the materials shared.

V5 Techs. v. Switch

In V5 Techs. v. Switch Ltd.,[21] the U.S. District Court for the District of Nevada denied the
defendant’s motion to compel, among other things, documents and deposition testimony
regarding litigation funding.[22] The V5 Techs. court focused exclusively on the irrelevance
on the discovery and accordingly elected not to address privilege issues.

Citing to the Fulton v. Foley decision, the court recognized that courts generally hold that
litigation funding is irrelevant to the claims and defenses in a case.[23] However, because
there is no bright-prohibition on the discovery of litigation funding information, the court
recognized possible instances where such disclosure would be relevant.

Summarizing existing law, the court stated that mere speculation by the party seeking this
discovery will not suffice and “courts will compel discovery into funding sources only upon
the presentation of some objective evidence that the discovering party’s theories of
relevance are more than just theories.”[24]

The court admonished the defendant’s rank speculation through “attempts to poke holes in
that showing of irrelevance by grabbing its baton, trumpets, and costumes to put on its own
parade of horribles here.”[25]

The court rejected defendant’s concerns that one of its competitors was funding the
litigation, that nonparty witnesses may have an undisclosed financial interest in the
litigation, and that the judges and potential jurors may have an unknown conflict of interest.
The court dispelled these concerns as “recycled ... speculation” that other courts have
rejected as a basis to permit discovery into litigation funding.[26]

The plaintiff refuted under sworn testimony the contention that its litigation was funded by
defendant’s competitor, the defendant had the opportunity to question nonparty witnesses
about any financial interest in the outcome of the litigation, there was no showing that a
litigation funder likely had discoverable information, and any potential juror bias could be
addressed “in camera during the voir dire process.”[27]

Accordingly, the court denied the defendant’s motion to compel the production of
documents identifying the litigation funder. Similarly, it “decline[d] ... to compel further
deposition testimony given that the subjects are irrelevant and, therefore, beyond the scope
of allowable discovery.”[28]

Takeaway

The V5 Techs. decision is strongly anti-disclosure. Any disagreement by the district judge
with any of the the magistrate’s findings regarding relevance would necessitate a work
product analysis.

Continental Circuits v. Intel Corp.

In Continental Circuits LLC v. Intel Corp.,[29] the U.S. District Court for the District of
Arizona denied the defendants’ motion to compel the production of litigation funding
agreements on the basis of work product.

However, the court ordered the plaintiffs to identify “all persons or entities (other than
counsel) with a fiscal interest in the outcome of the litigation,” and held that “the fact of the
funding agreements’ existence” does not, in and of itself, constitute work product.

The defendants, alleged patent infringers, moved to compel three categories of discovery
requests: (1) litigation funding agreements, (2) the identities of entities providing litigation
funding and (3) the identities of entities that declined to provide litigation funding.

In support of their motion to compel, the defendants argued the discovery is relevant to “to
refute any David vs. Goliath narrative at trial, to evaluate the value of the patents at issue
and any damages claimed by Plaintiff, to address bias and prejudice of witnesses who may
appear at trial, and to identify any jurors who may have a relationship with a litigation
funder.”[30] The plaintiff asserted that the requests were not relevant and disclosure was
barred by the work product doctrine.

With respect to litigation funding agreements, the court found they may contain relevant
information. However, in evaluating whether the agreements were work product, the court
applied the U.S. Court of Appeals for the Ninth Circuit's “because of” standard. The litigation
funding agreements were created because of the litigation they funded. Accordingly, the
court found that the agreements qualified as work product, concluding that “the agreements
in this case would not have been ‘created in substantially similar form but for the prospect
of the litigation.”[31]

This was true despite the plaintiff’s status as a nonpracticing entity. The court further found
that the defendants failed to demonstrate a substantial need under Federal Rule
26(b)(3)(A)(ii), as they did not “show[] that obtaining the litigation funding agreements is
essential to an element of their defense or the preparation of their case.”[32] The
defendants also failed to show that the plaintiff had waived the work product protection by
sharing the funding agreements with funders.[33]

However, the court did order the plaintiff to identify its litigation funder. The court found
that the identity of the litigation funder was relevant and was not protected by the work
product doctrine. In contrast to the litigation funding agreements themselves, the “fact of
the funding agreements’ existence does not disclose attorney mental impressions and
therefore is not shielded from discovery by the work product protection for intangible

information.”[34]

Specifically, the court explained that “to the extent persons affiliated with Plaintiff may
receive substantial compensation through the litigation, that fact bears on their
credibility.”[35] In addition, “[t]he identity of litigation funders who have a stake in the
litigation will also help identify jurors, if any, who have a relationship with such
funders.”[36]

Finally, the court denied the defendants’ request for disclosure of potential litigation funders
that declined to provide funding as such information was not relevant under Rule 26. The
court held that “[t]he identities of such persons or entities, if they exist, have nothing to do
with the actual financial interests or resources in this litigation, the potential bias of
witnesses, or possible disqualification of jurors,” and the request is therefore “a side issue at
best.”[37]

Takeaway

The Continental Circuits decision’s finding of relevance makes it an outlier. It is inconsistent
with the vast majority of existing case law on relevance. However, the work product
conclusions largely moot the relevance finding.

The end result — identification of the actual litigation funder and disclosure of the fact of
funding — likely does not provide the defense with what it truly sought, and is in accordance
with the limited disclosure approach favored by various funders and litigants. In addition,
informing the jury that funding exists may actually support the plaintiff’s David vs. Goliath
narrative.

Outlook

Courts confronted with disclosure disputes continue to deny or limit attempts to compel
production of documents and information concerning litigation funding. Although outright
denials of discovery requests are common, recent decisions illustrate that litigation funding
is not automatically immune from discovery.

Case-specific factors, such as the value of the plaintiff’s patents and rebuttal of an apparent
plan to present a David vs. Goliath narrative in Continental Circuits, may be persuasive from
a relevance perspective in compelling disclosure of the identity of funders. In addition,
certain fact-based communications between clients and funders may be discoverable as
ordered in Fulton v. Foley.

To the extent courts have allowed discovery, it has typically been limited in nature and
respectful of the privileged nature of litigation funding documents and communications.
Plaintiffs and litigation funders have thus generally succeeded in avoiding potentially costly
discovery satellite litigation sideshows. In the event the law continues to develop in a
manner that does not prejudice funded parties, discovery disputes will likely become less
frequent, less costly and more predictable.

Finally, it is worth noting that discoverability does not equate to admissibility. As recently as
this week, a federal court granted a plaintiff’s motion in limine to “preclude any reference to
any entity that provided litigation funding.”[38]

Stephanie Spangler is an associate at Norris McLaughlin PA.

Dai Wai Chin Feman is director of commercial litigation strategies and corporate counsel
at Parabellum Capital LLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views
of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This
article is for general information purposes and is not intended to be and should not be taken
as legal advice.

[1] Cases addressing relevance include In re Valsartan N-Nitrosodimethylamine (NDMA)
Contamination Prods. Liab. Litig., 2019 U.S. Dist. LEXIS 160051 (D.N.J. Sep. 18,
2019); Ath. v. Hylete, 2019 U.S. Dist. LEXIS 148245 (D. Conn. Aug. 30, 2019); MLC
Intellectual Property, LLC v. Micron Technology, Inc., 2019 WL 118595 (N.D. Cal.
2019); Securitypoint Holdings, Inc. v. United States, 2019 U.S. Claims LEXIS 341 (Fed. Cl.
Apr. 16, 2019); Benitez v. Lopez, 2019 U.S. Dist. LEXIS 64532 (E.D.N.Y. March 14,
2019); Mackenzie Architects PC v. VLG Real Estate Developers LLC, 2017 WL 4898743, at
*3 (N.D.N.Y. March 3, 2017); Telesocial Inc. v. Orange S.A. (N.D. Cal. Sept. 30,
2016); VHT, Inc. v. Zillow Group, Inc., 2016 WL 7077235, at *1 (W.D. Wash. Sept. 8,
2016); Kaplan v. S.A.C. Capital Advisors, L.P., 2015 WL 5730101 (S.D.N.Y. 2015); Yousefi
v. Delta Elec. Motors, Inc., 2015 WL 11217257, at *2 (W.D. Wash. May 11, 2015);
and Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711, 721 (N.D. Ill. 2014).

[2] Cases addressing privilege include Securitypoint Holdings, Inc. v. United States, 2019
U.S. Claims LEXIS 341 (Fed. Cl. Apr. 16, 2019); In re Nat’l Prescription Opiate Litig., 2018
WL 2127807 (N.D. Ohio 2018); Space Data Corp. v. Google LLC, 2018 WL 3054797 (N.D.
Cal. 2018); Lambeth Magnetic Structures, LLC v. Seagate Technology (US) Holdings, Inc.,
2018 WL 466045 (W.D. Pa. 2018); Acceleration Bay LLC v. Activision Blizzard, Inc., 2018
WL 798731 (D. Del. 2018); Viamedia, Inc. v. Comcast Corporation, No. 16-5486, 2017 WL
2834535 (N.D. Ill. 2017); Eidos Display, LLC v. Chi Mei Innolux Corp., 2017 WL 2773944
(E.D. Tex. 2017); Odyssey Wireless, Inc. v. Samsung Elecs. Co., Ltd., 2016 WL 7665898
(S.D. Cal. 2016); United States v. Homeward Residential, Inc., 2016 WL 1031154 (E.D.
Tex. 2016); United States v. Ocwen Loan Serv., LLC, 2016 WL 1031157 (E.D. Tex.
2016); In re Int’l Oil Trading Co., 548 B.R. 825 (Bankr. S.D. Fla. 2016); United States ex
rel. Fisher v. Homeward Residential, Inc., 2016 U.S. Dist. LEXIS 32910 (E.D. Tex. Mar. 15,
2016); Charge Injection Techs., Inc. v. E.I. Dupont De Nemours & Co., 2015 WL 1540520
(Del. Super. Ct. 2015); Morley v. Square, Inc., 2015 U.S. Dist. LEXIS 155569 (E.D. Mo.
Nov. 18, 2015); Doe v. Soc’y of Missionaries of Sacred Heart, 2014 WL 1715376 (N.D. Ill.
2014); Devon IT, Inc. v. IBM Corp., 2012 WL 4748160 (E.D. Pa. Sept. 27, 2012); Mondis
Tech., Ltd. v. LG Elecs., Inc., 2011 WL 1714304 (E.D. Tex. 2011); and Leader Techs., Inc.
v. Facebook, Inc., 719 F. Supp. 2d 373 (D. Del. 2010).

[3] Pipkin v. Acumen, No. 1:18-cv-00113-HCN-PMW, 2019 U.S. Dist. LEXIS 206233 (D.
Utah, Nov. 26, 2019).

[4] Id., at *2.

[5] Id., at *3.

[6] Id., at *3-4.

[7] Fulton v. Foley, No. 17-cv-8696, 2019 U.S. Dist. LEXIS 209585 (N.D. Ill., Dec. 23,

2019)

[8] Id., at *11.

[9] Id., at *6-7.

[10] Id., at *7.

[11] Id., at *8.

[12] Id., at *8.

[13] Id., at *9-10.

[14] Id., at *9-10.

[15] Id., at *9.

[16] Id., at *9-10.

[17] Id., at *10.

[18] Id.

[19] Id.

[20] Id., at *10-11.

[21] V5 Techs. v. Switch, Ltd., No. 2:17-cv-02349-KJD-NJK, 2019 U.S. Dist. LEXIS 224482
(D. Nev., Dec. 20, 2019).

[22] This ruling, made by the magistrate judge, is currently the subject of an objection on
which the district judge has not yet ruled.

[23] Id., at *10.

[24] Id., at *11 (internal quotations omitted).

[25] Id., at *11-12.

[26] Id., at *14.

[27] Id., at *13.

[28] Id., at *16.

[29] Cont’l Circuits LLC v. Intel Corp., No. 16-cv-02026-PHX-DGC, 2020 U.S. Dist. LEXIS
12698 (D. Ariz., Jan. 27, 2020)

[30] Id., at *3.

[31] Id., at *10.

[32] Id., at *16.

[33] Id., at *11-12.

[34] Id., at *19.

[35] Id., at *5.

[36] Id.

[37] Id., at *6.

[38] CXT Systems, Inc. v. Academy, Ltd. et ano., No. 18-cv-00171-RWS-RSP, Dkt. No. 424
(E.D. Tex., Jan. 27, 2020).