For anybody not following along with the SEC vs. Ripple ($XRP) litigation, there was a semi-recent ruling requiring production of potentially privileged advice from Ripple’s legal counsel regarding securities issues central to the case. This was a huge ruling, and could be very harmful to Ripple depending on what is in those documents. There have been a few tweet threads about that ruling, which inspired this article.
In my NFT practice, I represent a lot of businesses and individuals who are exceedingly tech savvy but know very little about the law. With clients who are not especially legally sophisticated (i.e., haven’t been sued a ton and don’t have an in-house legal department), it is always important to explain the rules regarding privilege. This is a complex topic, and even attorneys who don’t have litigation and discovery experience often misunderstand the rules surrounding privilege.
This article will give the uninitiated a background on how attorney/client privilege works, and what you need to know to protect yourself and your growing NFT business.
Background on Attorney/Client Privilege Under US Law
Please note that every jurisdiction differs on the exact rules regarding attorney/client privilege, so do not take these general guidelines on this complex legal doctrine as gospel. If you are worried in any way about waiver of privilege, talk to your attorney and err on the side of keeping things secret.
If you are ever sued, or decide to sue somebody, many of the legal battles are won or lost during the discovery process. During litigation discovery, both sides get to request information relevant to the dispute from the opposing party, and the opposing party must respond fully and truthfully or risk serious sanctions. This means that no matter how embarrassing or damning the document may be, if the other side appropriately requested it, you need to turn it over to them to review.
Generally, all relevant evidence, even if not admissible in court, is still discoverable in litigation. This is because, at the end of the day, the goal of court proceedings is to uncover the truth and allow the finder of fact (i.e., the judge or jury) to make their decision based on the truth and not just one side’s version of the truth.
Some exceptions to this rule can be found in the various doctrines of privilege. In the US, we want our citizens to have open and honest conversations with certain trusted individuals without fear of those conversations being subject to later disclosure in discovery. That is the reason for the doctor/patient privilege: we want people to be able to be completely honest with their own doctors even if that honesty would hurt some pending or potential legal dispute.
Similarly, the attorney/client privilege grew out of the recognition that people need to be able to be completely honest with their attorneys without fear that honesty will hurt their court case. Attorneys need to be able to collect all the information possible and trust their client isn’t hiding anything in order to effectively represent them. Attorneys also need to be able to be honest with their clients without fear that harsh truth would be discoverable (imagine how damning it would be if a jury could see the client’s own attorney advising that client they are on the losing/wrong side of a legal dispute).
Under the rules of privilege, courts recognize that while the information exchanged between an individual and their attorney may be highly relevant to the legal dispute at hand, the other side still can’t see it. It is one of the only times the court prioritizes confidentiality over revealing the truth. Under the attorney/client privilege, an attorney may not be compelled to testify or disclose conversations between the attorney and their client, nor may the client be compelled to reveal conversations that client had with their attorney.
Important Attorney/Client Privilege Rules to Know
The privilege doctrine does not protect every conversation between an individual and an attorney, it only protects certain conversations. Here are some rules to know:
Rule 1- It only applies when there is an attorney/client relationship. While this is an obvious rule, it is especially important to remember when you are interviewing potential attorneys. Until there is an attorney/client relationship established (usually in the form of a signed engagement letter) nothing you say is privileged. Never give more information in these intro meetings than is necessary to determine if that attorney is a good fit for your legal needs. Always request a formal engagement letter to memorialize the attorney/client relationship. Err on the side of confidentiality.
Rule 2- The conversations must be confidential. The privilege is based off the recognized need for secrecy. If the conversation is not kept secret, then the other side has a right to discover the contents of that conversation and all related conversations which put it into context. This means you cannot talk about privileged information with your neighbor, or garbage man, or have the conversation on speaker phone while custodial staff is in the room. You cannot forward your attorney’s email to a consultant you hired and maintain the privilege. When in doubt about who you can talk about legal advice with, ask your attorney. Err on the side of confidentiality.
Rule 3- Not every conversation with attorney is privileged. The privilege covers a vast majority of conversations, but not everything. The identity of your attorney is generally not privileged, nor how much you paid that attorney. If the attorney is not acting in his/her legal role (i.e., if it is just a person who passed the bar but is acting as CEO or strategic advisor) those conversations aren’t privileged.
Rule 4- Can’t be used to commit a crime/in furtherance of fraud. Don’t ask your attorney to destroy evidence. Don’t talk about plans to assassinate the president of El Salvador. If you think you have already potentially committed a crime and need representation, or would like to ensure what you are planning to do is not a crime, then by all means hire an attorney and those conversations are privileged. But you can’t have communications about plans to commit a crime and then hide behind privilege simply because the person you talked about those plans with was an attorney.
Rule 5- Privilege cannot be selectively waived. Many times, you may think what you told your attorney or what your attorney told you could be helpful. You might want to tell a potential client that you have obtained advice from an attorney that your planned venture has received a legal OK. Know that if you waive some of the conversation, you waive all related conversations which provide context to what you waived. So if that client comes along and sues you, they have a right to know exactly what you told the attorney who gave the OK, and exactly what the attorney said regarding that green-lighting. More often than not, a small waiver opens up a bigger can of worms than you want. Err on the side of confidentiality.
The attorney/client privilege doctrine is nuanced and differs from jurisdiction to jurisdiction, but if you know and obey these five rules you should be covered in a vast majority of situations. And, one last time for all the people in the back, err on the side of confidentiality.
Major Takeaways for People in Web3
People are often not concerned about privilege issues until they are being sued and it is too late. One improper disclosure slip-up, and the genie can’t be put back in that bottle. This is a lesson that Ripple is learning the hard way. Hopefully, by reading this you can avoid suffering the same consequences.
You should be obtaining legal advice for your Web3 ventures, but you shouldn’t be telling the world about what that advice was. Be careful with all communications you put in writing and understand that any offhanded email or Discord message or Twitter reply could be Exhibit A in court some day. Be especially careful when it comes to legal advice. You should be acting on legal advice, but that advice should stay between you and your attorney. If what you are about to say is “what our attorney told us was…” or anything similar, that’s probably something you shouldn’t be saying without talking to your attorney first.
Finally, with all conversations (not just potentially privileged conversations), if you are going to say something which you know is going to sound incriminating: first don’t do that. Second, at least have that conversation the phone or in a private voice chat. A conversation between developers about artistic goals in a copyright lawsuit can be explained away. A discord message which says “just copy the Bored Ape crown” cannot. Be Web2 and pick up the phone. Don’t put something in writing, even privately, unless you are OK with that writing being potentially released some day.
Ripple bragged about the legal advice they received to people they shouldn’t have, and because of it suffered a major blow in the case against the SEC. Don’t be Ripple. When you hire an attorney, know the rules of privilege and don’t waive that privilege. Treat your business like an UFC fight and remember to protect yourself at all times.
If you have any questions, or would like me to cover anything in particular, reach out to me on either of my twitter pages. As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.