Preserving Privilege in Claim Based Funding

Themis Legal Capital evaluates potential Claim Based Funding transactions using its proprietary Case Assessment Protocol. The protocol provides Themis, our potential counter-parties and their attorneys with an efficient and systematic process to develop a clear understanding of the merits of the claim, the true measure of damages and other relevant matters in order to underwrite the potential investment. It is essential, however that, in conducting our due diligence, we make every effort to preserve all applicable privileges. Accordingly, the Themis protocol is designed to do just that.

Fortunately, there is a developing body of case law in the US that is defining the types of privileged information that can be shared with a potential funder such as Themis and the terms on which it can be shared without compromising the privilege.

For context it is worth noting that the most significant information that Themis’ Case Assessment Protocol elicits is the evidence that will be produced in discovery and, ultimately, presented at trial to prove the facts necessary to establish liability and the measure of damages. This evidence is what the judge and jury will hear and see and as such is not ordinarily privileged.

Beyond the non-privileged evidence, Themis explores the litigant’s attorney’s legal analysis of the issues presented in the case and his or her candid opinions of the likely resolution of those issues during the course of the proceedings. These “mental impressions, conclusions, opinions, or legal theories” and the “documents and tangible things; prepared in anticipation of litigation or for trial; by or for another party or by that party’s representative (including attorney, consultant, surety, indemnitor, insurer or agent)” are protected work product in the US pursuant to Federal Rule of Civil Procedure 26(b)(3).

Recent case law has confirmed that the work product protection is not waived when attorney work product is shared pursuant to a confidentiality agreement. For example, Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3rd 711, 738 (N.D. Ill. 2014) in the Northern District of Illinois offered a thorough analysis of the issue and concluded that sharing attorney work product under a confidentiality agreement did not compromise the work product protection. In Carlyle Investment Mgmt LLC v. Moonmouth Co. S.A, C.A. No. 7841-VCP, 2015 WL 778846. At *9 (Del. Ct. Ch. Feb. 24, 2015) the Delaware Chancery Court came to the same conclusion and recognized that ”Allowing work product protection for documents and communications relating to third-party funding places those parties that require funding on the same footing as those who do not and maintains a level playing field among adversaries in litigation.” Thus by executing a confidentiality agreement at the beginning of the due diligence process, Themis can access this attorney work product without risk that it will be subject to discovery.

The attorney client privilege is a narrower privilege which applies specifically to the direct and confidential communications that take place between the attorney and his or her client. While many courts have concluded that a common interest exists between the client and the prospective funder which protects attorney-client privileged information from discovery, others including the Miller court have held the opposite. Given the unsettled state of the law and to assure protection of these communications, Themis does not seek disclosure of matters that are specifically protected by the attorney-client privilege.

In appropriate cases Themis will enter into a formal consulting agreement with the law firm. Such an arrangement will have the dual effect of adding an additional level of protection for the shared work product and facilitating a robust exchange of ideas about legal strategy. We views Themis as a partner with the litigant and its attorney. Clients that we have worked with have acknowledged that the depth and breadth of the experience of the Themis team offers valuable insights and strategic advice to the entire claim resolution process. Accordingly, in many cases formalizing this relationship is appropriate to further enhance the ability to collaborate among Themis and the other parties.