Addressing a novel issue in In re: International Oil Trading Company, LLC, 548 B.R. 825 (Bankr. S.D. Fla. 2016), the United States Bankruptcy Court for the Southern District of Florida recently denied in part an involuntary debtor’s motion to compel production of communications between the judgment creditor who had filed the involuntary bankruptcy petition and the petitioner’s litigation funder. The Court found that the attorney-client privilege and work product protection were applicable to certain disclosures made to the litigation funder, a non-lawyer third-party. In reaching its conclusion, the Court relied on both federal common law and Florida law.
The dispute arose out of a judgment awarded to Mr. Mohammed Al-Saleh. Mr. Al-Saleh had entered into contracts with debtor International Oil Trading Company, LLC (“IOTC”) to transport fuel across Jordan to Iraq on behalf of the U.S. military. After IOTC failed to satisfy the judgment, Mr. Al-Saleh obtained litigation funding from Burford Capital, LLC (“Burford”) to further its collection efforts and then filed an involuntary bankruptcy petition against IOTC. IOTC subsequently propounded discovery demands seeking, among other things, all communications exchanged between Mr. Al-Saleh and Burford. Mr. Al-Saleh objected, asserting attorney-client privilege, common interest/joint defense privilege, and work product protection. The Court held that all three protections were applicable.
Common Interest Exception
The Court first considered whether disclosure to the litigation funder constituted a waiver of any privilege. The Court declined to apply a “common legal interest” theory and instead relied on the broader “common enterprise” approach1 to the common interest exception. The “common enterprise” exception protects communications outside the immediate attorney-client relationship where the communications are between those sharing a common enterprise and the legal advice relates to the goal of that enterprise. The Court applied the exception relying on three factors: Mr. Al-Saleh’s disclosures to Burford were necessary to obtain funding and thus informed legal advice, the disclosures were not intended to be further divulged, and the information was for “the limited purpose of assisting” in the common cause and securing Burford’s investment.2
The Court also found applicable the agency exception to waiver. The agency exception protects from discovery communications between clients and non-attorneys whose services are provided to further that client’s litigation aims. The Court rejected the narrower so-called “translator” theory. The narrower approach will apply the privilege only when the disclosure is made to “translators,” i.e. paralegals, secretaries, linguistic translators etc. Instead, the Court adopted the more permissive approach under which the privilege extends beyond traditional non-attorney law office support so long as disclosure is made to further the rendering of legal services to the client. The Court held that litigation funders such as Burford are within this category. The Court reasoned that Burford was retained in order to fund collection of the debt owed and was therefore compelled to evaluate the merits of the litigation and provide strategic advice. The Court reasoned that without such funding, judgment creditors and others with meritorious claims could be forced to abandon their rights to recovery. The Court found that “[c]ommunications with a litigation funder fall within the agency exception for the very reason that litigation funders exist—because without litigation funders, parties owed money, or otherwise stymied by deep-pocketed judgment debtors, might have reduced or no ability to pursue their claims.”
Work Product Exception
The Court additionally held that work product protection applies to the work of litigation funders. The Court described the material at issue as “communications between a client, the client’s attorney, and a litigation funder whose participation depends on assessments of the merits of litigation.” The Court found that IOTC failed to establish that it had a substantial need for documents classified as work product. To the contrary, the Court found that IOTC could acquire the information elsewhere – it could do its own analysis – and thus production was not warranted. Mr. Al-Saleh retained Burford for the “primary purpose” of obtaining legal services, and the requested documents contained protected legal opinions. The sole document that the Court required be produced was the Funding Agreement between Mr. Al-Saleh and Burford because that item constituted “fact work product” subject to a lesser protection than “opinion work product.” The Court nonetheless allowed the redaction of the agreement for all payment terms and any opinions concerning the litigation against IOTC.
Litigation funding is gaining wider acceptance in the marketplace, and with the increased cost of legal services it is reasonable to assume that such growth will continue. As is evidenced by the IOTC case, challenging and novel privilege and work product issues arise as a result of requisite due diligence conducted by litigation funders concerning the legal and factual strengths and weaknesses of the claims that will secure any investment. Typically, litigation funders have prepared “white papers” or other analysis concerning, among other things, the privilege and work product issues. This case is of particular note because it deals with direct communications between the litigant and the litigation funder. While the IOTC decision provides useful guidance, parties considering a third-party funding solution or defending a case that is funded by a third-party should expect that this area of the law will continue to develop.