Another Court Holds That Sharing Legal Memorandum With Potential Litigation Funders Does Not Make Them Discoverable

There is a growing body of case law across multiple jurisdictions (including those that regularly see high stakes commercial litigation) holding that communications with litigation funders will not effect a waiver of work product protection, assuming the parties take common-sense precautions such as signing a non-disclosure agreement. A recent case from the Eastern District of Texas adds to that jurisprudence, holding that attorney memos prepared for and shared with prospective litigation funders are protected attorney work product, even under the Fifth Circuit's comparatively narrower test for what qualifies as work product.
Hardin v. Samsung Electronics Co. (E.D. Tex. Oct. 25, 2022) is a patent infringement case. Approximately one year before filing suit, plaintiffs' counsel began exploring third-party funding options. Counsel created confidential memoranda analyzing the contemplated claims and funding opportunity for potential funders. These documents were shared with funders pursuant to non-disclosure agreements, and each page was labelled "Attorney Work Product & Attorney Client Privileged - CONFIDENTIAL SUBJECT TO NDA."
After defendant Samsung sought discovery of the shared memoranda, the plaintiffs moved for a protective order preventing discovery, arguing that the documents were protected attorney work product. Samsung countered that the plaintiffs had failed to state "what information in the documents the attorneys supplied, or whether any mental impressions or opinions in the document[s] are actually those of an attorney" and argued that the plaintiffs had conceded that the documents were created not for the purpose of litigation but rather for the purpose of obtaining funding from non-parties. Samsung also contended that it had a substantial need for the factual information contained in the documents "to learn about valuations placed on [Plaintiffs'] patents prior to the present litigation" because no such information had been produced in other documents.
Following in camera review, the court rejected Samsung's arguments, finding that the documents were in fact protected work product. The documents were created by the plaintiffs' external counsel and contained legal analyses, which constituted counsel's protected "mental processes." The court thus concluded that the material was created with "the primary motivating purpose" of aiding in future litigation.
The need to assess "primary motivating purpose" is a quirk of the Fifth Circuit's attorney work product jurisprudence. The Hardin court cites the relevant Fifth Circuit standard in United States v. El Paso Co., 682 F.2d 530, 542 (5th Cir. 1982) (holding that "litigation need not be imminent ... as long as the primary motivating purpose behind the creation of the document was to aid in possible future litigation"). Courts outside the Fifth Circuit do not apply a "primary motivating purpose" test, instead asking merely whether the document was prepared because of the prospect of litigation -- that is to say, as long as future litigation is one among multiple purposes.
Yet, while the "primary motivating purpose" standard may be more demanding than the tests applied elsewhere, the Hardin court did not hesitate in concluding that the documents in question were attorney work product despite their creation in order to communicate with litigation funders. The court further held that there was no waiver of this work product protection by sharing the memos with litigation funders because "although the documents were disclosed to third parties, ... they were disclosed subject to non-disclosure agreements, and thus, did not substantially increase the likelihood that an adversary would come into possession of the materials."
The Hardin court's rejection of Samsung's position aligns with the holdings of the large majority of courts that have considered similar issues. Several courts have observed that "litigation funders have an inherent interest in maintaining the confidentiality of potential clients' information." See, e.g., U.S. ex rel. Fisher v. Ho (E.D. Tex. Mar. 15, 2016). Communications between a party, its attorneys and actual or prospective litigation funders necessarily contain and reflect "opinions by . . . counsel regarding the strength of . . . claims, the existence and merit of . . . defenses, and other observations and impressions regarding issues" arising in litigation, and they therefore fall squarely within the work product protection doctrine. Doe v. Society of Missionaries of Sacred Heart (N.D. Ill. May 1, 2014).
Counsel frequently prepare memos about a potential claim before seeking funding, as was the case in Hardin. Such memos can be a useful input into the diligence process of a potential funder (though they are not a prerequisite for seeking funding from Lake Whillans). As Hardin demonstrates, the best practice approach is to share these documents pursuant to a non-disclosure agreement.