Production Of Litigation Funding Agreement Ordered

The Delaware Court of Chancery has required production of a litigation funding agreement in a class action brought against Genworth Financial

This decision resolves the defendants’ motion to compel (the “Motion”) as it relates to the production of two categories of documents: (1) a litigation funding agreement and (2) unredacted fee agreements. The plaintiffs’ arguments as to the latter are wholly dependent on the success of their arguments as to the former. As to the former, the plaintiffs raise two objections to the production of the funding agreement—relevance and the work product doctrine. Delaware state courts have addressed the production of litigation funding agreements and related communications on several occasions. Three decisions have required production of the funding agreements but permitted limited redactions on work product grounds.

But this Court’s most recent decision to address the issue seems to have rejected the general applicability of the work product doctrine to litigation funding agreements. And in another decision, this Court ordered production of litigation funding communications, notwithstanding objections on work product grounds. None of these cases, however, arise in the class action context.

As explained below, I find the litigation funding agreement relevant for two reasons. First, the class action context and specific aspects of this litigation give rise to several unique concerns, including the potential for class counsel to face conflicts of interest and for the third-party funders to exercise improper control over the litigation. These concerns may foreseeably bear on my decision as to the pending motion for class certification. Second, the parties to the litigation funding agreement set forth their collective “expectation” that the agreement would be disclosed to the Court during litigation in advance of class certification. I read this “expectation” as an acknowledgment of relevance. I conclude further that the plaintiffs’ three-sentence argument as to work product does not satisfy their burden of showing the
funding agreement may be withheld on that basis. Accordingly, I grant the Motion as to the funding agreement. And the plaintiffs’ only argument as to the fee agreements rises and falls with their arguments as to the funding agreement.

Class action context

If it is not already clear, this Court takes its thorough evaluation of the Rule 23 requirements seriously. Indeed, “[t]he adequacy of the class representative” requirement set out in Rule 23(a)(4) brings with it “a constitutional dimension. The Due Process Clause of the United States Constitution requires ‘that the named plaintiff at all times adequately represent the interests of the absent class members.’”

As it relates to these considerations, I believe there may be legitimate concerns that counsel could face a conflict of interest. There are many instances where a funder’s interests might diverge from those of a claim holder. But the class action context seems especially ripe for a third-party funder to exercise improper control over the litigation, at least relative to the heightened degree of oversight that might tend to accompany an ordinary attorney-client relationship.

And “[t]his concern is even more problematic[,]” as here, where class counsel “contract[s] directly with a funder for financial resources” since, in doing so, counsel may take on duties to the funder that are separate and apart from counsel’s “professional duties to the class.”

Given these clear concerns, it seems relevant to determine whether, or the extent to which, diverging interests may impact counsel’s ability or willingness to adequately represent the class.

Such questions seem almost inherently to implicate the Funders’ identities and the extent of their control (whether direct or indirect) over the litigation. These are questions the Funding Agreement can help answer.

(Mike Frisch)