How Federal Courts Apply Common Interest Privilege To Litigation Funding, M&A Due Diligence, And Other Third-Party Scenarios

The concept of "privilege" is critically important in the United States legal system and litigation. Privileged documents and communications are protected and may not be discoverable by an adverse party. Generally, confidential communications between attorneys and clients concerning legal advice are privileged under the doctrine of attorney-client privilege. Fed. R. Evid. 502. And a party's documents and notes-including those of the parties' representatives and attorneys-made primarily in anticipation of litigation are privileged under the work product doctrine. Fed. R. Civ. P. 26(b)(3). Unlike attorney-client privilege, which focuses on the confidential communications provided by a client to an attorney, the work product doctrine focuses on tangible documents containing the thoughts and mental impressions of an attorney. To invoke work product privilege, documents must not have been created in the ordinary course of business-they must have been prepared primarily in anticipation of litigation.

When privileged communications are disclosed to third parties-non-parties to a litigation-confidentiality is usually breached and privilege is waived. Because privilege is waived when confidentiality is breached these communications could now be discoverable.

Common Interest Privilege

Common interest privilege, also known as the joint defense privilege, is an extension of attorney-client privilege that protects the compelled disclosure of communications between two or more parties and/or their respective counsel when the parties are allied in a common legal interest. It permits a client to disclose information to his or her attorney in the presence of joint parties and their counsel without waiving the attorney-client privilege. This extension of privilege was intended to prevent joint parties and their attorneys from disclosing confidential information learned through a joint defense. United States v. Hsia, 81 F. Supp. 2d 7, 16 (D.D.C. 2000). The party asserting the privilege generally must show that: (1) the communications were made in furtherance of a joint defense effort; (2) the statements were designed to further that effort; and (3) the privilege was not waived. In re Sealed Case, 308 U.S. App. D.C. 69, 29 F.3d 715, 719 n.5 (D.C. Cir. 1994).

The common interest privilege is also an extension of the work-product doctrine. See Power Mosfet Techs. v. Siemens AG, 206 F.R.D. 422, 424 (E.D. Tex. 2000). Generally, when an attorney discloses privileged information to a third party, both attorney-client and work-product protection are waived. See United States v. Pipkins, 528 F.2d 559, 563 (5th Cir. 1976). But common interest privilege extends the privileges to potentially protect those otherwise waived communications. Siemens AG, 206 F.R.D. at 424.

The historical roots of common interest privilege lie in criminal procedure against multiple co-defendants. Chahoon v. Commonwealth, 62 Va. 822 (1871). In civil litigation, the common interest privilege was created because civil co-defendants commonly have the same objectives. See In re LTV Sec. Litig., 89 F.R.D. 595, 604 (N.D. Tex. 1981). In the civil context, the common interest privilege protects both communications between co-defendants and their counsel in actual litigation as well as potential co-defendants and their counsel. Ferko v. NASCAR, 219 F.R.D. 396, 401 (E.D. Tex. 2003). It is the latter type of communication-those made between potential, but not actual, co-defendants-that raises many issues today.

Litigation Funding

Litigation funding occurs when a third party decides to fund a plaintiff to litigate against a defendant while retaining a financial stake in the litigation's outcome. This is becoming increasingly popular in today's legal climate. Because many companies and individuals cannot afford to finance costly litigation, potential litigation investors incentivize lawsuits by covering litigation fees while maintaining valuable upside potential for plaintiffs.

Of course, litigation funders must make calculated decisions about their investing strategies because they have a stake in the litigation. Therefore, plaintiffs will commonly share confidential and privileged information with the funders. The issue that often arises is whether sharing confidential attorney-client communications or work product with non-party litigation funders constitutes a breach of confidentiality and thus a waiver of privilege, or whether common interest privilege protects disclosure of such communications.

The district of Delaware recently addressed this issue in Acceleration Bay Llc v. Activision Blizzard, No. 16-453-RGA, 2018 U.S. Dist. LEXIS...