Legal & Ethical Issues of Litigation Funding
Trends & Current Status of Litigation Funding Issues
Commercial litigation financing gives rise to certain legal and ethical issues for litigants and their lawyers. Litigation financing is permissible in some form in essentially every state, and the universal trend has been toward liberalization of any restrictions on these activities. Nonetheless, all parties to a litigation financing transaction must be cautious and deliberate in their approach to ensure compliance with all the relevant legal and ethical parameters.
Champerty, Maintenance, and Related Litigation Funding Issues
The doctrines of champerty and maintenance prohibited litigation financing in medieval England, and that nation has abolished these doctrines in the modern era. However, vestiges of these ancient laws can still be found in many U.S. jurisdictions. Nearly every U.S. state has either abolished champerty laws (or never adopted them in the first place) or significantly narrowed their application to situations in which an “officious intermeddler” promotes frivolous or abusive litigation, which is not a part of the modern commercial litigation finance industry. Nonetheless, litigation funding regulation laws vary state-by-state and careful attention must be paid.
Confidentiality and Privilege Waivers
Litigants and their attorneys are afforded certain protections against confidential information being subjected to discovery in litigation by an opposing party. The attorney client privilege and work product doctrine are both very important in the context of litigation financing, particularly since litigation funders must have access to information in order to conduct their investment diligence and appropriately monitor their investments.
The attorney client privilege is intended to encourage fulsome communication between the attorney and client, and thus, preserves the confidentiality of these exchanges unless they are disclosed to other parties that do not share a common legal interest.
The work product doctrine is intended to prevent an opposing party from gaining an unfair advantage arising from having access to information that was prepared as a result of or in anticipation of litigation. Information protected by work product includes a lawyer’s impressions, analysis, and strategies concerning the litigation.
The work product doctrine is much broader and less easily waived than the privilege. Although the law is still developing in this area, courts that have considered the application of the work product doctrine to litigation finance have overwhelmingly held that, as long as reasonable precautions are taken, work product protection is not waived as the result of disclosures of otherwise confidential information to litigation funders.
Law Review Articles
For more information about legal and ethical issues related to litigation funding, please download Westfleet Advisors’ Guide to Litigation Financing. Please by contact us directly or call (615) 312-8255 for more specific details.