In a case of first impression, the Court of Chancery in Carlyle Investment Management L.L.C., et al. v. Monmouth Company S.A., et al., 2015 WL 778846 (Del. Ch. Feb. 24, 2015), held that documents concerning the negotiation of a litigation funding agreement are protected by the work product doctrine.
Carlyle Investment Management L.L.C. and related persons and entities (collectively “Carlyle”) brought suit against the defendants alleging they had violated certain releases between them. In particular, Carlyle alleged that one of the defendants assisted with or pursued litigation financing for Liquidators of Carlyle Capital Corporation Limited (in Liquidation) (“CCC”). In another action, CCC had sued Carlyle. But having lost all of its assets except its claims against Carlyle, CCC needed third party financing to pursue its claims. In this case, Carlyle sought discovery of documents related to the negotiation of the litigation funding agreement. CCC successfully moved to intervene and sought a protective order claiming such documents were protected by the work product doctrine.
Agreeing with CCC, the Court held that the documents were “protected by work product privilege” under Delaware law. Delaware’s “work product protection extends relatively broadly” to documents “created because of litigation.” Documents concerning the negotiation of a litigation funding agreement were created because of litigation. As the Court reasoned, “in all probability, to get the litigation funder to supply the financing, the claim holder would need to convince her of the merits of the case,” “negotiations between those two parties almost certainly would involve the lawyers’ mental impressions, theories and strategies about the case, which were only prepared ‘because of’ the litigation.”
While not before the Court, the Court also recognized that the funding agreement could be protected by the work product doctrine. Created “because of” litigation, “the terms of the final agreement—such as the financing premium or acceptable settlement conditions—could reflect an analysis of the merits of the case.” Just like litigation reserve numbers, which have received work product protection in Delaware, the agreement may contain work product as its terms could “reveal the mental impressions, thoughts, and conclusions of an attorney in evaluating a legal claim.”
As a matter of public policy, the Court recognized the importance of extending work product protection to such documents,
the work product doctrine exists to preserve and promote the adversarial system of litigation and prevent a party from free-riding on his opponent’s efforts. . . No persuasive reason has been advanced . . . why litigants should lose work product protection simply because they lack the financial means to press their claims on their own dime. Allowing work product protection for documents and communications relating to third-party funding places those parties that require outside funding on the same footing as those who do not and maintains a level playing field among adversaries in litigation.