Litigation Finance, a Success Story

More than five years after a small family-owned company based in England filed suit against U.S. construction machinery giant Caterpillar Inc. for breach of contract and trade secret misappropriation of its “Bug coupler” technology (specialized equipment used with hydraulic excavators), the journey has paid off.   In December, after an eight-week trial, a jury awarded plaintiff Miller UK Ltd. (“Miller”) $74.6 million in damages (including $49.7 million in exemplary damages); an award that Miller’s attorneys contend is the largest ever under the Illinois Trade Secret Act.

Aside from the verdict, what makes this case particularly notable is that it is one of the first public U.S. litigations where the plaintiff openly relied on litigation finance and an early example of the type of case that we at Lake Whillans regularly support.

Miller had been devastated by Caterpillar’s actions, leading the company to lay off 75% of its 400 employees.  Financially hamstrung, and facing what it described as a “scorched-earth” litigation strategy by Caterpillar, Miller obtained litigation financing and hired Kirkland & Ellis to go punch for punch with Caterpillar.  While the terms of the deal are not public, litigation financing agreements typically provide the counterparty with non-recourse capital to pay attorney fees and expenses (like the numerous experts hired by Miller), and may additionally have included capital for Miller to sustain its business while the litigation was pending.

Miller’s use of litigation financing became known to Caterpillar amidst heated discovery.  In 2014, Caterpillar sought the production of the litigation funding agreement and communications with Miller’s funders, arguing that such an arrangement was impermissible under Illinois law (Illinois had a criminal statute prohibiting champerty and maintenance).  In a detailed analysis, Magistrate Judge Jeffrey Cole rejected Caterpillar’s arguments, holding that Miller’s use of litigation financing was permissible because it did not constitute “officious intermeddling” – the definition of maintenance contemplated by the Illinois statute.  Specifically, the court found that the funders were “sought out by a cash-strapped [Miller] embroiled in bitterly contested litigation” and had not “wickedly and willfully” stirred up litigation between Miller and Caterpillar.

Judge Cole next examined whether Caterpillar was entitled to discovery of communications between Miller and its potential and eventual funders or whether those communications were shielded from disclosure either by the attorney-client privilege or work product protection.  With respect to the attorney-client privilege, Judge Cole held that disclosure to third-party funders waived any attorney-client privilege that would have otherwise attached, rejecting the theory that Miller and its funder shared a common legal interest.  With respect to the work product doctrine, however, the court held that the protection was not waived so long as Miller had a reasonable expectation of confidentiality with the funders.   Miller was thus not required to disclose work product provided to funders subject to a non-disclosure agreement, which the Court held gave Miller a reasonable expectation of confidentiality.  (Judge Cole noted that even absent an NDA, a reasonable expectation of confidentiality might exist, but he did not reach that issue.)   Other courts have likewise upheld work product protection to documents shared with a financier.  (We discussed these developments here.)

So far, the Miller case has a happy ending for the company, the lawyers and the funders, though post-trial motions and appeals are undoubtedly coming.  Keith Miller, Miller’s founder, told the Wall Street Journal that should the verdict stand, he will be able to use the award to give his company a “fresh start.”  In retrospect, the only way that this story could have a better outcome is if Miller had obtained financing sooner and used the funding to support its business in the immediate wake of Caterpillar’s breach, and perhaps avoided at least some of the 300 layoffs it was forced to make.

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The best way for companies and their counsel to determine if litigation finance is an attractive option is to discuss it with us.