Litigation funding has become a popular topic this year, deserving of its own synopsis. For those who missed out on the recent blow-by-blow events as they happened, relive the saga below.
This is a bit lengthy. You've been warned. Pour yourself a cup of tea first and get comfortable.
The Exposition: Discovery on Litigation Funding is a Mixed Bag
To set the stage, let's discuss litigation funding disputes in the District of Delaware before the most recent developments. Over the past few years, discovery disputes regarding litigation funding issues have produced mixed results. The Court sometimes grants motions to compel litigation funding materials, and other times denies them, and may (rarely) conduct an in camera review to evaluate relevance.
Like a game of battleship, many parties kept hearing 'MISS' prior to 2022. In one example, even where defendants knew that the plaintiff had third-party litigation funding, they could not compel a plaintiff to produce the agreement and communications because they didn't have the agreement or other evidence to support their suspicion that the agreement contained some assignment of patent rights.
But litigation funding discovery has become an increasingly active area. See Uniloc USA, Inc. v. Motorola Mobility, LLC, C.A. No. 17-1658-CFC, 2020 U.S. Dist. LEXIS 244512, at *25 (D. Del. Dec. 30, 2020) (Judge Connolly granted dismissal based on a litigation funding agreement).
The Inciting Incident: New Standing Orders Emerge
With that background, let's discuss Chief Judge Connolly's standing orders regarding litigation funding and other disclosures (which, to be clear, apply only in cases before Judge Connolly).
Chief Judge Connolly issued his new standing orders in April 2022 — all with the theme of expanding public disclosure about the parties' litigating in his courts.
First, there was a requirement to disclose third-party litigation funding arrangements publicly on the docket. He also added a requirement in diversity cases to disclose the name and citizenship of every individual and corporation with a direct or indirect interest in every party. A third order expanded disclosure requirements under FRCP 7.1 for non-governmental joint ventures, LLCs, partnerships, and LLPs.
All of these orders fit a theme: Chief Judge Connolly wants litigation to be open, and will not permit parties to litigate in secret. As he often puts it, the Court is not a star chamber.
The Rising Action: Yes, the Standing Orders Have Teeth!
After Chief Judge Connolly issued his standing orders, predictably, several parties either challenged or simply ignored them. After all, a rule is only as good as its enforcement.
Though there was no explicit deadline for compliance, we pointed out that "the language seems to apply to existing cases". But, not everyone seemed to get the memo, and the Court had to issue oral orders to direct parties in existing cases to comply with his standing orders — and unsealed a plaintiff's disclosures on litigation funding and stayed the case because its 7.1 disclosures were inadequate.
Something similar happened again a few weeks later in a case involving IP Edge, where the court granted discovery where plaintiff failed to provide adequate disclosures. (FORESHADOWING: this case was more important than we originally realized.)
Then, things started really heating up. Judge Connolly ordered owners of plaintiff entities in at least 14 cases to appear in-person for evidentiary hearings regarding compliance with his standing orders. We waited with great anticipation to observe one of these hearings ourselves in person back in November.
The Midpoint: the November 4, 2022 Hearing Heard Round the Nation
It was worth it. The hearing was indeed, wild.
After an owner for one of the plaintiff entities was a no-show, the Court grilled the attorney instead, and in the process discovered the name of a company called MAVEXAR LLC. This was the first time the now-famous name "Mavexar" emerged on the scene.
From the attorney's answers, it became clear that Mavexar acted as an intermediary between the attorney and the client at times. In fact, the attorney explained that he had never communicated with the client directly at the time of drafting his engagement letter, and instead communicated to them through Mavexar.
I won't repeat our article, written freshly after we observed the hearing, but the highlights are that Mavexar seemed to be pulling the strings behind several plaintiff entities, that the plaintiff company owners (including a food truck restauranteur) did not seem to be driving their own litigations. Beyond that, Mavexar had connections to IP Edge. It seems unlikely that the defendants would have ever been able to dig this information out via any other discovery mechanism, because they likely would have been thwarted by confidentiality objections at every turn. The inner workings of those three NPE plaintiffs only became public due to the Court's efforts.
Falling Action: Poke the Thing Under the Rock to See if It Moves
That hearing incited a national buzz which has not yet died down. And remember, that was the first of many scheduled hearings designed to address several parties' failures to conform to Judge Connolly's standing orders.
After the Court flipped over the first rock, additional hearings revealed that another plaintiff's owner appeared to be a paralegal, whose husband was an attorney who works for Mavexar, raising questions about corporate veil piercing.
The Court indicated that the November 4 hearing gave "rise to concerns that include but art not limited to the accuracy of statements in filings . . . and whether the real parties in interest are before the Court." Then, the Court ordered production of multiple categories of documents.
The Climax: It's Alive! Taking the Conflict to the Federal Circuit
Upon receiving the Court's order to produce documents, one of the entities filed a petition for a writ of mandamus with the Federal Circuit to "review and reverse" the Court's order and to "direct[] the district court to terminate its judicial inquisition of the Petitioner."
The Federal Circuit hit the pause button and issued a stay while it evaluated the issues, and Judge Connolly granted stays in other Mavexar-related plaintiffs pending the outcome of that appeal. He later granted stays in a few additional Mavexar-related cases.
Background Events While Waiting for the Federal Circuit's Decision
While the Federal Circuit's decision was pending, several other things happened in the background. One defendant—not a plaintiff—moved for an unopposed protective order to prevent the Mavexar-related LLC from producing the documents defendant sent to it. One of the Mavexar-related entities continued filing suits in other jurisdictions, including Central District of California, without disclosing Mavexar as an entity with an interest in the case, despite a rule requiring them to do so—though they later tried to fix it.
With Mavexar's new-found notoriety, it became the subject of new lawsuits, including an allegation that it (with Waverly Licensing LLC, Array IP LLC, and IP Edge LLC) had engaged in a harassment campaign against the plaintiff over alleged patent infringement.
The Court Responds to the Petition for Writ of Mandamus, and Amicus Briefs Roll In
After the first petition for a writ of mandamus, Judge Connolly issued a searing 78-page opinion explaining the full history of the Court's investigation, including events from months prior; (remember that foreshadowing we mentioned?).
The Court indicated that its order had sought relevant information, including investigating a possible fraud on the Court, and that the order wouldn't require a waiver of privilege. The opinion further suggested that counsel may have violated their ethical duties and the patent assignment to the Mavexar-related entity may be invalid. In other words—forget the blog post you're currently reading: Judge Connolly's opinion sets out layers of detail and is very worth reading.
Six amicus briefs were filed in support of Judge Connolly's Litigation Funding Standing Orders, including by CNET, Intel, Power Integrations (which filed suit against Mavexar), EFF, Acushnet, U.S. Chamber of Commerce, and HTIA. The amicus brief from HTIA mentioned the fact that Mavexar-related LLCs were still filing suits, including in Central District of California (and cited our post!).
A Few More Subplots, While Waiting for the Federal Circuit to Weigh In
In one case, Chief Magistrate Judge Thynge granted an accused infringers' motion for three categories of discovery related to litigation funding, but found that Plaintiff had a viable claim of attorney-client privilege over some of the documents. This case was different from the Mavexar cases, but may indicate a shift towards more expansive discovery on litigation funding from the broader Court—even where a practicing entity was concerned.
Another entity (Swirlate), which may be Mavexar-related, filed a new petition for mandamus with the Federal Circuit, arguing that the Court could not act where all parties had stipulated to dismissal.
The Resolution: The Federal Circuit Agrees with Judge Connolly and Orders Document Production
The Federal Circuit denied the first mandamus petition, ordering that Nimitz (the Mavexar-related entity) had to produce all the documents ordered by Chief Judge Connolly. The Federal Circuit confirmed that the material sought by the order was relevant to issues before the Court, not "simply in order to serve an interest in public awareness, independent of the adjudicatory and court-functioning interests reflected in the stated concerns."
Immediately after, Nimitz filed an an unusual motion, a "Motion to Withdraw the Court's Memorandum of November 30, 2022." The Court promptly denied that petition as meritless.
Defeated but Not Dead: Additional Mandamus Petitions Challenging Validity of the Standing Orders
Two other Maxevar-related entities filed two more mandamus petitions to challenge Chief Judge Connolly's Article III standing because the cases had been dismissed, argue that the Court abused its discretion in issuing the standing order, and assert that Congress has deemed the "real party in interest" irrelevant in patent cases.
The Federal Circuit denied both of these in January 2023, finding that the arguments were premature and that "there is no absolute prohibition on a district court's addressing collateral issues following a dismissal . . . . [and] a federal court may consider collateral issues after an action is no longer pending." The Federal Circuit never reached an assessment of the standing orders themselves.
Nimitz failed to produce the documents ordered by the Court by the December 8, 2022 deadline, and Judge Connolly responded by issuing an order for Nimitz to show cause why it should not be sanctioned for that failure. On the deadline to respond to the show cause order, Nimits filed a short explanation of why it did not produce the documents, expressing its intent to file for rehearing en banc at the Federal Circuit.
Epilogue
Other Courts, including the Eastern District of Texas, have quoted Judge Connolly's prior rulings and transcripts in at least one other mirror case involving an IP Edge/Mavexar-related entity.
This Court continues to keep the discovery production pressure up in the Mavexar-related entity cases in the District of Delaware, as evidenced by recent discovery orders. This week, the Court set a hearing for April 11, 2023 at 2:00 pm, and ordered counsel to appear and explain their failure to comply with the discovery order.
[TO BE CONTINUED]
That's all for now! But we hope you enjoyed this unusually-long overview of litigation funding developments. Now you're all caught up, just in time for Tuesday's hearing! If we don't see you in person, make sure to catch the highlights back here!
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