Despite the fact that litigation finance arrangements are rarely relevant to the claims and defenses of the underlying litigation, many defendants seek to compel their disclosure because of the obvious strategic advantage to be gained. Despite some outliers, courts and lawmakers have generally taken a cautious approach against mandating disclosure to defendants, as shown again by a recent decision in the Northern District of California.
A long list of federal court decisions has recognized that absent a clear showing of relevance, funding arrangements do not need to be disclosed during discovery. See, e.g., Miller UK Ltd. v. Caterpillar, Inc., 17 F. Supp. 3d 711 (N.D. Ill. 2014); see also VHT, Inc. v. Zillow Group, Inc., No. C15-1096JLR, 2016 WL 7077235 (W.D. Wash. Sept. 8, 2016).
In the early part of this year, the U.S. District Court for the Northern District of California continued this precedent and denied as irrelevant defendant Micron Technology’s demand that plaintiff MLC Intellectual Property discloses the identity of any third party funder backing MLC’s patent infringement lawsuit. MLC Intellectual Property LLC v. Micron Technology, Inc., No. 14-cv-03657, 2019 WL 118595 (N.D.Cal. Jan. 7, 2019). This result simply confirms what many previous courts have held, namely, that absent specific showing of relevance, litigation funding arrangements should not be disclosed to the Defendant.
Judge Illston denied Micron’s motion to compel the handing over of funding-related material, holding that the discovery was irrelevant and that MLC had complied with the local rules. This ruling is of interest to the funding community because three years prior, Judge Illston compelled disclosure of an unredacted version of a litigation funder’s agreement with a law firm in Gbarabe v. Chevron Corp., Case No. 14-cv-00173, 2016 WL 41548449 (Aug. 5, 2016).
However, the facts were distinctive. In this case, the law firm had conceded relevance because the firm’s financial resources were squarely at issue with respect to the “adequacy of counsel” requirement for class certification. Furthermore, for reasons unknown, the firm did not assert any privileges. Gbarabe can, therefore, be seen as consistent with precedent yet an outlier in regard to fact pattern and MLC continues a clear precedent that disclosure requires establishing relevance, which can rarely be accomplished.
A healthy funding market requires honest communication between litigants and funders to enable sensible underwriting decisions to be made. MLC Intellectual Property LLC v. Micron Technology and prior decisions help to foster such an environment.
Vice President and General Counsel
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