Carlyle Investment Management LLC v. Moonmouth Company S.A., C.A. No. 7841-VCP (Del. Ch. Feb. 24, 2015). This  Delaware Court of Chancery opinion decided an issue of first impression: whether funding agreements for litigation are protected under the work-product privilege.

In the course of its analysis, the court traced the original of the work-product doctrine to the United States Supreme Court decision in Hickman v. Taylor, 329 U.S. 495 (1947), which was codified in Court of Chancery Rule 26(b)(3), which states the current iteration of the Delaware work-product rule.

Instead of the “primary purpose” test, Delaware applies “the because of litigation test,” which analyzes why a document was created, to determine the applicability of the work-product protection. The primary purpose test has been rejected in Delaware for purposes of determining the applicability of the work-product doctrine.

The court reasoned that in order to obtain funding for litigation, the claim holder would need to convince the funder of one’s version of the merits of the case and these discussions would almost certainly involve “lawyers’ mental impressions, theories and strategies about the case,” which were “only prepared ‘because of’ the litigation.” See footnote 58. Similarly, the financing terms might also reflect an analysis of the merits of the case. Likewise, Delaware courts have found the amount of litigation reserve, such as what an insurance company might allocate, is protected because it would reveal the mental impressions and conclusions of an attorney regarding a claim, much like settlement considerations would. See footnotes 60 and 61.

Because there was no controlling decision on this issue under either Guernsey or Delaware law, the court found no conflict of law analysis to be necessary, and therefore applied the law of Delaware to this discovery dispute.

Finally, the court observed that there are exceptions to the work-product protection when a party can “demonstrate substantial need of the materials in the preparation of their case and that they are unable without undue hardship to obtain the substantial equivalent of the materials by other means.” See Ct.Ch.R. 26(b)(3). Thus, one should remember that even documents protected by the work-product protection could conceivably be subject to production.