We previously wrote about the complex relationship between companies that finance plaintiffs and attorney-client privilege. We concluded that in most cases, plaintiff financing companies only require information not covered by attorney-client privilege anyway-such as information the defense already has or public records like pleadings and police reports. But what about cases that depend on total confidentiality? In this guest post, attorney Mathew Andrews discusses the role of litigation finance in one of the most secretive (and lucrative) types of lawsuits-whistleblower cases-and suggests how attorney client-privilege, even in these types of cases, might be preserved.
In the last 20 years, whistleblower lawsuits have led to billions of dollars in settlements and judgments. Despite this, litigation financiers have only recently begun to take notice of these cases. As highlighted by The Yale Law Journal The Growth of Litigation Finance in DOJ Whistleblower Suits, whistleblowers and their lawyers are now looking for financial backing to manage the increasing costs of qui tam claims.
For litigation funders, whistleblower suits present an attractive investment opportunity. These cases often target large corporations, reducing the risk of insolvency. Additionally, settlements from these claims don’t follow market trends, and the potential returns can be massive, with some cases reaching as much as $3 billion, as seen in the GlaxoSmithKline case. However, getting into the world of litigation finance isn’t as straightforward as it seems.
Challenges in Whistleblower Litigation Finance
One of the biggest hurdles in this space is the difficulty in maintaining attorney-client privilege when whistleblowers share confidential information with financiers. Courts are split on whether this sharing waives the legal protection of these documents, leaving the whistleblower’s case exposed during the discovery process.
The current solution—the “common interest” agreement—isn’t always enough to protect privileged information. Without full protection, whistleblowers might hesitate to share vital details, and funders could miss out on important information to assess the case properly. However, with the right contract modifications, funders can safeguard privileged information and move forward without these risks.
A Quick Look at the History of Whistleblowing
The foundation for whistleblower lawsuits lies in the False Claims Act (FCA), which dates back to the Civil War, created to fight fraud by defense contractors. Since being updated in 1986, the FCA has led to nearly 10,000 claims and recovered about $26 billion in settlements. The largest healthcare fraud settlement in U.S. history remains Pfizer’s $2.3 billion settlement in 2009 for illegal drug marketing practices. Although many significant healthcare fraud cases have emerged since then, this still holds the record【25】.
Litigation financiers are increasingly eyeing this space, with companies like Bentham Capital (now Omni Bridgeway) exploring qui tam actions. Several third-party funders specifically target these claims, but challenges remain. Since whistleblower suits are filed under seal and kept confidential, funders must rely on privileged information from whistleblowers and their attorneys to assess the strength of the case.
The Issue of Privilege Waiver
Sharing confidential information with third-party financiers risks waiving legal protections. While common interest agreements help, they aren’t always enough to safeguard sensitive documents. Courts have disagreed on whether these agreements create a genuine shared interest in the litigation. To better protect privileged information, litigation finance contracts must go beyond common interest agreements.
Two Solutions for Protecting Privileged Information
- Separate Contracts for Due Diligence and Negotiation
Currently, courts reject the notion of a common interest during initial negotiations between funders and whistleblowers because they consider it an “arm’s-length” transaction. To avoid this issue, funders should divide the process into two stages—due diligence and negotiations. Contracts for the due diligence phase should specify that any privileged information is only for assessing the merits of the case and not for negotiating funding terms. - Partial Assignments
Funders can also use partial assignments to protect privileged information. This involves transferring a small portion of the whistleblower’s claim to the funder, which creates a shared legal interest and thus safeguards privilege. The courts have recognized that even a minimal transfer of a legal right creates a common interest between the parties, providing a safer way for whistleblowers and financiers to work together.
Updated Statistics on FCA Whistleblower Cases
In fiscal year 2023, the Department of Justice recovered $2.68 billion under the False Claims Act, with $1.8 billion involving healthcare fraud【16】【19】. Whistleblowers contributed to over $2.3 billion of these recoveries and were awarded $349 million for their efforts【17】 【19】. The number of qui tam filings also rose significantly, with 712 new complaints filed in 2023【19】.
Conclusion
As the field of litigation finance expands into qui tam lawsuits, it opens up new opportunities for whistleblowers and financiers alike. But to fully take advantage of these opportunities, funders need to address the challenges posed by privileged information. By updating their contracts and using partial assignments, they can protect sensitive documents and help whistleblowers bring their cases forward without risking legal exposure.
Links for Further Reading
GlaxoSmithKline’s $3 Billion Fraud Settlement
