Baker Hostetler Cleveland partner Thomas D. Warren authored the article, “Preserving Attorney–Client Privilege: How Companies Maintain Confidentiality of Documents and Communications When Using a Third–Party Litigation Funder,” which appeared in the online version of Directorship, the National Association of Corporate Directors publication on March 9, 2011.
Third–party financing of litigation is becoming more prevalent in the United States and its attractions are obvious. Traditionally, the risks of suing on an affirmative claim—uncertainty both as to cost and outcome—have been borne by the company possessing the claim (the traditional model) or by its lawyers (the contingent–fee model). In litigation financing, Warren says, a third party funds some or all of the litigation expenses in exchange for a portion of the proceeds of any settlement or judgment. Such an arrangement transfers some or all of the litigation risks, both as to expense and outcome, to entities better suited to shoulder and manage those risks than the companies or their lawyers. In essence, litigation funding allows for capital markets to perform as they are intended—by efficiently transferring risk from one party to another.
While the increase in third–party litigation finance in the United States has provoked a great deal of discussion about legal and ethical concerns, litigation funding is here to stay. The article answers the following question: How can a company considering whether to use a third-party funder maintain the confidentiality of its documents and its communications in the process? Warren explains the most straightforward way for a company to approach this issue is by sharing information through its counsel to the funder’s counsel, under what is known as the “common-interest privilege.” The common–interest privilege provides that two companies that share a “common interest in a litigated or non–litigated matter” and that are represented by separate lawyers may exchange information concerning the matter, those communications without destroying the attorney–client privilege. The common interest is broadly construed to cover anything legal, factual, or strategic in nature.
Warren notes that a company considering obtaining third–party litigation funding would be well advised to enter into a common–interest agreement with a funder prior to disclosing any information. Any agreement should spell out the parties’ common interests and their intent to keep the communications confidential. And the sharing of confidential information should be done through the parties’ respective counsel.