Decision Alert: Northern District of California Adds to the Growing Body of Law Rejecting Discovery Regarding Litigation Financing on Relevance Grounds

By: Amy Geise, Legal Counsel

This week, Google joined the growing ranks of corporate defendants who have unsuccessfully sought to compel in-court disclosure of litigation funding information. The case, Space Data Corp. v. Google LLC, et al., was brought against Google by wireless services company Space Data Corp. based on Google’s alleged misuse and misappropriation of Space Data’s balloon-based technology. The case is Case No. 16-cv-03260 BLF (NC) in the U.S. District Court for the Northern District of California.
 
During discovery, Google moved to compel Space Data to produce board minutes discussing potential litigation funding. It also asked that one of Space Data’s board members be compelled to answer deposition questions regarding funding.
 
In denying Google’s motion, Magistrate Judge Nathanael Cousins cited the principle that discovery must be “relevant to any party’s claim or defense and ‘proportional to the needs of the case.’” He concluded:

The Court is not persuaded that the materials sought are relevant to any party’s claim or defense and ‘proportional to the needs of the case.’ Even if litigation funding were relevant (which is contestable), potential litigation funding is a side issue at best. The Court finds that there is much discovery that would be more important in resolving the merits of this case. And the burden of responding would outweigh its likely benefit to defendants.

Judge Cousins noted that the discovery requested by Google was particularly irrelevant because Space Data had proffered that it never obtained any third-party funding. 

Because Judge Cousins reached his decision based on relevance, alone, he did not address whether such communications were also protected by the work product privilege. However, the majority of state and federal courts that have considered this question have held that documents and communications shared with a litigation funder are protected by the work product privilege.
  
Judge Cousin’s decision follows on the heels of a recent study by Westfleet Advisors finding that litigants attempting to force disclosure of an opposing party’s litigation financing documents are “overwhelmingly unsuccessful.” You can read more about the Westfleet study HERE. 

The strong judicial trend toward rejecting compelled disclosure of litigation funding information should counsel a broader rejection of the U.S. Chamber of Commerce’s push to implement mandatory disclosure rules. Bentham recently authored a comprehensive article describing the detrimental effect that mandatory disclosure could have on our already overburdened judicial system. Namely, mandatory disclosure would likely waste the already limited resources of courts and judges by causing irrelevant discovery battles. It would also strip judges of the opportunity to consider the appropriateness of the disclosure, while leaving them with the time-intensive burden of managing the inevitable disputes following mandatory disclosures. 

For additional insight into mandatory disclosure of funding arrangements, click here. If you would like to learn more about litigation finance, please contact one of our experienced team members to arrange a consultation.