Third-party litigation funding continues to attract investors, as evidenced by relatively new litigation funding firm  Gerchen Keller Capital’s recent $260 million capital raise, which brings their total investor commitments to $310 million (as discussed in a January 12, 2013 New York Times article, here). As litigation has become more prevalent, courts have had to grapple with the phenomenon. As highlighted in a recent discovery ruling in a trade secrets lawsuit between Miller U.K. Ltd. and equipment-maker Caterpillar, courts seem to be becoming increasingly comfortable with the involvement third-party litigation financing.

 

Miller first sued Caterpillar in the Northern District of Illinois in 2010, alleging that Caterpillar had misappropriated trade secrets. According to Magistrate Judge Jeffrey Cole, “the case has been bitterly contested at every turn.” The parties have had extensive discovery disputes, including a dispute about whether or not Caterpillar could discover Miller’s third-party financing arrangements, as well as of the documents and information Miller had supplied prospective funding firms in order to try to obtain financing.

 

In a January 6, 2014 opinion (here), Magistrate Judge Cole granted in part and denied in part Caterpillar’s motion to compel. The opinion is interesting in a number of respects, particularly with regard to the Magistrate Judge’s consideration of the legality of third=party litigation financing under Illinois law.

 

Miller had sought to block discovery of its litigation financing agreements, contending that it was not relevant to the parties’ trade secrets dispute. Caterpillar argued that it was entitled to discover the financing transaction documents because, it argued, the financing agreement violated Illinois laws barring “maintenance and champerty” and that discovery of the financing transaction documents would allow Caterpillar to raise the supposed illegality of the funding document as a defense to certain of Miller’s claims. (As discussed here, “maintenance” is the intermeddling of a disinterested party to encourage a lawsuit and “champerty” is the “maintenance” of a person in a lawsuit on condition that the subject matter of the action is to be shared with the maintainer.)

 

After a detailed review of the relevant legal considerations, as well as the recognition that litigation funding remains controversial, the Magistrate Judge concluded that Caterpillar’s contention that Miller’s financing arrangement violated Illinois law prohibiting champerty and maintenance is “utterly unsupported.” He also rejected Caterpillar’s argument that discovery of the transaction documents would allow Caterpilllar to determine who the “real party in interest” is in the case or that Caterpillar was entitled to discovery of the transaction on that basis.

Read original article


Tags: Caterpillar