Federal Trade Commission v. Lending Club Corporation

Background

The Federal Trade Commission sued Lending Club Corporation in April 2018, alleging in part that Lending Club’s representation that it charged “no hidden fees” was deceptive because its origination fee was effectively hidden. Before filing the lawsuit, the FTC provided Lending Club with a draft proposed consent order.

After the litigation began, Lending Club’s outside counsel started and led “Project Ocelot.” The project tested different loan-application flows and disclosures with prospective real borrowers to determine how Lending Club could change its application process in response to the FTC’s concerns. Lending Club completed the testing in February 2019 and launched an updated application that it believed addressed those concerns.

The FTC sought the draft application flows that had been tested on live consumers but not adopted. Lending Club asserted attorney-client privilege and work-product protection. The work-product doctrine protects materials prepared by or for a party or its representative in anticipation of litigation or trial.

Court’s Analysis

The court held that Lending Club met its burden of showing that the draft flows were protected work product. First, it found that the drafts were created in anticipation of the litigation. Although Lending Club’s president testified that he had intended to launch a similar project around the same time, the court concluded that the record showed Project Ocelot was initiated because of the lawsuit and the FTC’s concerns.

Second, the court rejected the FTC’s argument that the draft flows were merely facts and therefore unprotected. Requiring Lending Club to disclose the different versions tested but not adopted would reveal the changes Lending Club had considered as part of its litigation-related decision-making.

Third, the court found that testing the draft flows on live consumers did not waive work-product protection. The court reasoned that the consumers did not receive the various iterations that Lending Club sought to protect and that no single consumer would know all the changes being tested. Thus, the testing did not substantially increase the likelihood that the FTC would obtain the protected information.

Fourth, the court found that the FTC had not shown a substantial need for the information at that time. The court stated that it was open to revisiting that issue as the case developed.

Disposition

The court denied the FTC’s motion to compel the information and stated that the order disposed of Docket No. 109. This was an order concerning a discovery dispute, not a decision resolving the FTC’s underlying allegations against Lending Club.