LexShares respects the legal issues and ethical considerations relating to investments in lawsuits. Several legal doctrines are frequently mentioned when discussing litigation finance in the United States. They include the doctrines of maintenance, champerty, and barratry, as well as attorney-client privilege and work product immunity.
Maintenance, Champerty and Barratry
Maintenance involves an arrangement where a party supports another to enable him or her to further a legal claim. Champerty is a specific form of maintenance, where an unrelated party strikes a bargain with a litigant to financially support the litigation in return for a share of the proceeds from that claim. Finally, barratry entails the encouragement of another to bring or continue a claim.
These three medieval English doctrines historically prohibited third-party financing of lawsuits in the United States and most other common law countries. Today, the modern view is to permit maintenance, champerty and barratry as these doctrines are predominantly viewed by the courts as obsolete.
In medieval England, maintenance and champerty was used by the powerful as a means of settling scores. Feudal lords and other privileged members of society would often support legal disputes of others against the supporter’s personal or political enemy. Most colonies that imported their laws from England – including many U.S. states – passed laws designed to protect litigants from “officious intermeddling” and profiteering from the sale of legal claims to third parties.
Over time, as other means of controlling abuses of the legal system became more effective, the need for the prohibitions on maintenance, champerty and barratry became obsolete. The American civil justice system increasingly recognized that access to justice depends upon the broad availability of legal representation for all socioeconomic levels. The public policy for increasing access to the legal system for those that could least afford it overrode the concerns underlying these doctrines in many states.
According to the modern view, widespread exceptions to these doctrines recognize that financial considerations often influence access to justice. Most states now permit maintenance, champerty and barratry as they refuse to void contracts based on these outdated doctrines.
Attorney-Client Privilege and Attorney Work Product Immunity
The attorney-client privilege is a legal concept that protects certain communications between attorney and client from disclosure to the opposition. In addition, the work-product immunity protects materials prepared by attorneys and third parties in anticipation of litigation from discovery. These two concepts are actually two separate legal doctrines but frequently cited together.
Recent cases support the view that litigation finance transactions preserve the protections afforded by both doctrines. In Mondis Technology, Ltd., v. LG Electronics, Inc., 2011 WL 1714304 (E.D. Tex.) a court refused to compel production of documents provided to investors. More recently, in Devon IT, Inc., v. IBM Corp., 2012 WL 4748160 (E.D. Pa.), a court held that discussions with litigation investors are covered by the work-product doctrine. The judge in that case explained that since the investors and Devon shared a "common interest" in the outcome of the case and had entered into the confidentiality agreement, their communications were protected.
In a practical sense, issues regarding the waiver of the attorney-client privilege apply to only a small class of information. The privilege clearly applies only to communications between a client and the attorney, not just any communication about the lawsuit. The client is free to tell a prospective funder anything other than what the client communicated to the attorney, without waiving the privilege. An investor can expect to receive substantial information from the plaintiff about the claim without ever creating waiver problems.
LexShares' managing member and broker dealer, WealthForge, can evaluate the merits of cases without access to privileged information. The case evaluation process generally focuses on the legal team’s assessment of the case as well as documents that are already subject to discovery.