Attorney-Client Privilege Protections May Extend to Company Investors

Attorney-Client Privilege Protections May Extend to Company Investors




A recent decision issued by the U.S. Court of Federal Claims could change the landscape regarding discovery – specifically expanding attorney-client privilege in commercial litigation. Under the court’s ruling, attorney client privilege includes communication with outside investors who have some stake in the litigation in question.

The Court’s Ruling

The decision involved a combative lawsuit involving a patent dispute. The court found that non-party equity investors still shared a common legal interest in the validity of the patent that was being disputed in the lawsuit. Simply put, because both companies had a mutually vested legal interest in the validity of the patents, they would need the ability to speak freely and confidentially regarding issues with those patents. For this reason, the communications between the plaintiff in the lawsuit and the investor did not waive any claims of attorney-client privilege.

The court did not go so far, however, as to determine whether a simple agreement to pay for litigation between parties was enough to equate “shared interest in litigation.” That being said, the court did not an equity investor who had a stake in disputed property had more than a merely commercial relationship with the other party.

The Underlying Dispute

The underlying dispute started nearly eight years ago with a claim by Security Point Holdings, Inc. (SPH) that the Transportation Safety Administration (TSA) violated its 2002 patent. The patent uses carts to move trays at security screener areas in airports. The TSA admitted to the violation, but claimed any invention by SPH was an obvious one. After a trial was held the Court of Federal Claims disagreed with TSA, not finding the invention obvious. The focus then turned to SPH’s damages.

During discovery to determine SPH’s actual damages, the government sought several financial and other documents including communications between SPH and its outside equity investor, Raptor. The equity investor’s interest in the case revolved around a pre-existing equity agreement between Raptor and SPH, which gave the investor an ownership interest in the patents at issue in the TSA lawsuit and involved a litigation funding agreement whereby Raptor would finance the case in exchange for a priority claim of proceeds from the suit if SPH were successful.

SPH objected to TSA’s discovery requests for its communications with Raptor claiming attorney-client privilege because the parties shared a common legal interest and the communications were related to legal, not commercial, matters. While the TSA conceded the documents were attorney-client privileged, they claimed SPH waived that privilege when it shared the communications with Raptor.

Attorney Client Privilege

In most circumstances, disclosing any communications to a third party that have to do with legal advice waives – or destroys – attorney-client privilege as to the topic of that communication. Just like many things in the law there is, however, an exception. Under the common-interest doctrine, communications with legal advice are protected if shared with a third party when that third party is an ally in a common legal cause with a party to the lawsuit.

The case is Security Point Holdings, Inc. v. TSA.

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