Litigation funding documents are non-discoverable work-product | 10/1/24

J. Bibas of the Third Circuit, sitting by designation in the District of Delaware, recently denied a motion to compel litigation funding documents, concisely summarizing the relevant scope of the work-product doctrine:

[W]hatever work product’s precise scope, it includes [litigation funding documents].  They are confidential documents created by lawyers to evaluate the strengths, weaknesses, and strategy of an impending lawsuit. While those documents informed an investment decision, they did so by evaluating whether a lawsuit had merit and what damages it might recover. That is legal analysis done for a legal purpose.

See Design with Friends, Inc. v. Target Corp., No. 1:21-cv-01376-SB, 2024 WL 4333114 (D. Del. Sept. 27, 2024).

The court held that the the litigation funder—both before and after diligencing the matter—was the plaintiff’s representative for work-product purposes, and further underscored the flexibility of the work-product doctrine:

The final question is whether Validity created these documents as Design’s repre- sentative. The records cover two periods: before and after Validity agreed to fund the suit. In both periods, this element is met. . . . Work-product doctrine is “intensely practical ..., grounded in the realities of litigation in our adversary system.” Nobles, 422 U.S. at 238. In litigation finance, one of those realities is that financiers need to evaluate the strength of a case before agreeing to fund it.

Id.

How “freely assignable” are antitrust claims? | June 15, 2024

Can federal antitrust claims be assigned? Yes.  See John Wiley & Sons, Inc. v. DRK Photo, 882 F.3d 394 (2d Cir. 2018).  Can the assignee of the claim substitute in for the assignor? Also yes.  See Cordes & Co. Fin. Servs., Inc. v. A.G. Edwards & Sons, Inc., 502 F.3d 91 (2d Cir.2007).  Will the assignee have standing to litigate?  That’s usually a yes too. See Silvers v. Sony Pictures Entertainment, Inc., 402 F.3d 881, 903 (9th Cir. 2005). 

But what if a litigation funder controls the assignee entity?  Seems that’s a no-go (or at least it’s not an abuse of discretion to deny the substitution request):

The Magistrate Judge exercised his discretion to deny the motions. He did not invalidate Sysco’s assignment of its claims to Carina, but denied the motions for substitution after reasoning that substitution would be contrary to the Federal Rules and public policy. (Magistrate Judge’s Order at 3, 14–15.) The Magistrate Judge was particularly concerned with the possibility that on the facts of this case, substitution would allow a litigation financer “with no interest in the litigation beyond maximizing profit on its investment to override decisions made by the party that actually brought suit.” (Id. at 3.) The Magistrate Judge concluded that Sysco and Burford’s assignment agreement and substitution request would allow Carina to stymie settlements for Burford’s gain, contravening public policy favoring party control over litigation and settlements. (Id. at 18–21.) Specifically, he wrote that “[t]he largest harm that condoning Burford’s efforts to maximize its return on investment would cause is the harm of forcing litigation to continue that should have settled.” (Id. at 17.)

See In re Pork Antitrust Litig., No. 18-cv-1776 (D. Minn. June 3, 2024).

It’s unclear why Sysco, as the assignor, still has standing to litigate a claim that it assigned away to Carina. 

The effect of motions practice on settlement | January 28, 2024

Motions practice in business litigation can be expensive, with the key question often being “is it worth it?”  A recent study based on a sample of 585 federal district court cases provide some worthwhile findings on the interplay between filing non-discovery motions and the timing of settlement:

  • The likelihood of settlement increases by 375% after a substantive motion is filed;

  • A granted motion increases settlement speed by 270%;

  • If the plaintiff’s motion is granted there will be a stronger effect on settlement timing (an increase of 450%) than a motion from the defendant;

  • There is no statistically significant difference in settlement timing based on the type of substantive motion filed;

  • Motions that apply law to fact or are pleading-based show no statistically significant impact on settlement timing in the initial month after denial but both motion types exhibit a positive (though not statistically significant) effect on settlement timing after the first month.

In short, the study finds that that the initiation, content, and outcome of motions, as well as whether the plaintiff or defendant filed the motion, can significantly influence the timing of settlements.   See Boyd, Christina L. Boyd, Christina L. and Hoffman, David A., "Litigating Toward Settlement" (2013), https://scholarship.law.upenn.edu/faculty_scholarship/2551/

Negotiating fee agreements | March 5, 2024

Negotiating fee agreements with outside counsel is a crucial responsibility for in-house counsel, requiring a balance between cost-effectiveness and securing high-quality legal representation appropriate for addressing the business risk. The evolution of non-hourly fee arrangements like contingent, flat fees, and hybrid models with success incentives, has broadened the options available to in-house counsel. Understanding the practical implications of these risk-sharing pricing models is essential to successfully manage any litigation. 

Contingent fee agreements generally don’t require the client to pay an hourly fee (but often do require the client to pay other litigation costs).  These agreements are structured to require the payment of percentage of litigation proceeds (or a percentage of saved expenses on the defense side), thereby aligning the interests of the client and counsel towards achieving a favorable outcome. Contingent fee arrangements necessitate a detailed understanding of the case's merits, potential recoveries, and associated risks.   

Flat fees offer predictability in billing but, like hourly fees, do not depend on the litigation outcome, promoting efficiency in counsel's work.  But these arrangements require careful risk evaluation by the counsel, as a case with misjudged or uncertain resource requirements may lead outside counsel to under-work the case relative to the client’s expectation. Thus, the flat fee option works best if the client and outside counsel understand and agree on business risk and required legal work to manage it.  

Hybrid models combine elements of these arrangements to balance incentives, risks, and rewards for both parties.  They generally involve a full or partial hourly component coupled with a “success fee” that’s defined by contract.  The hourly fee allows the client to not pay for more legal work than they receive, provide compensation for outside counsel’s time, and also align incentives to ensure that litigation tasks are identified and further executed in manner that maximizes their impact.  

Lastly, particularly when the needs of a litigation are uncertain, a pure hourly fee arrangement may work best.  This is because hourly fee arrangements do not necessitate an upfront evaluation of the case by counsel but they may require more active management of the case by in-house counsel, particularly earlier on in the litigation.  

Ultimately, the choice of arrangement should be guided by a thorough understanding of the case specifics, client goals, and financial considerations. Moreover, the agreement should address the scope of representation, potential for conflict, and arrangements for covering litigation expenses.  In-house counsel must navigate these considerations carefully, ensuring the chosen fee arrangement aligns with the client's interests, legal objectives, and budgetary constraints, promoting a beneficial relationship with outside counsel that contributes to successfully resolving the case.