“At Issue” Waivers Implicate Subtle Distinctions

July 28, 2021

The frighteningly unpredictable “at issue” waiver doctrine can strip away attorney-client privilege protection when the client seeks some legal advantage by putting “at issue” its knowledge, ignorance, conduct, etc. This type of waiver does not involve any actual disclosure of privilege communications or any explicit reliance on lawyers or their advice. So they are hard to see coming, and frequently involve very subtle issues.

In SEC v. Ripple Labs, Inc., the court assessed the waiver implications of defendant’s “fair notice” affirmative defense – which pointed to the “lack of clarity and fair notice regarding [Ripple’s] obligations under the law, in addition to the lack of clarity and fair notice regarding [the SEC’s] interpretation of the law.” No. 20-CV-10832 (AT) (SN), 2021 U.S. Dist. LEXIS 102002, at *8 (S.D.N.Y. May 30, 2021) (Netburn, J.). The SEC analogized Ripple’s affirmative defense to a “good faith” defense in similar settings – which many (but not all) courts find triggers an “at issue” waiver (requiring those litigants to disclose any privileged communications that formed their legal understanding). The court rejected the SEC’s argument. The court noted that “a ‘good faith’ defense is grounded in a party’s subjective belief that its behavior complied with the law, thus putting at issue any legal advice it received bearing on that question.” Id. at *10. The court contrasted such a “good faith” defense with a “fair notice” defense. The latter’s “focus on the enforcing agency’s behavior reveals that the fair notice defense was not rooted in the defendant’s state of mind. Rather it is an objective test of how a reasonable person would have interpreted the agency’s conduct.” Id. Thus, because “Ripple focuses on the SEC’s failure to provide fair notice to the market about the Commission’s state of mind as to whether XRP qualified as a security[,] [i]t is not clear that such a defense even requires that a defendant act in good faith.” Id. at *11-12.

Not all courts would be this deliberate and careful, so corporations and their lawyers should always consider the risk of possibly relying on their client’s knowledge (or lack of knowledge) to gain some advantage in litigation.