The attorney-client privilege covers confidential communications between a client and attorney, and it is generally understood that a client waives the privilege by disclosing attorney-client communications to third parties. But what if a client must relay counsel’s advice to a third-party agent who must implement that advice? A court in the Southern District of New York recently weighed in on this question, holding that, with two limited exceptions, disclosure of attorney-client communications to a third-party agent waives the privilege.
The case arose from negotiations concerning a potential financing deal between plaintiff Ayrton Capital LLC (“Ayrton”) and defendant Bitdeer Technologies Group (“Bitdeer”). The parties’ term sheet contained an exclusivity provision that prohibited Bitdeer from soliciting, negotiating, or accepting financing proposals from any third party for 30 days following the termination of negotiations between Bitdeer and Ayrton. Negotiations failed and, just two weeks later, Bitdeer entered into a financing agreement with a third party. Ayrton sued Bitdeer for breach of the term sheet’s exclusivity provision. Ayrton Capital LLC v. Bitdeer Tech. Grp., 24-cv-5160 (LJL), 2025 WL 743761 (S.D.N.Y. Mar. 7, 2025) (Liman, J.).
In discovery, Bitdeer asserted attorney-client privilege over certain emails between it and its financing broker, China Renaissance. In those emails, Bitdeer relayed counsel’s interpretation of the exclusivity term to China Renaissance by forwarding to it communications between Bitdeer and its outside counsel. Recognizing that disclosing attorney-client communications with a third party would ordinarily breach the privilege, the court then analyzed two limited exceptions to that general rule. First, privileged communications may be shared with a third party that is an agent of either the attorney or the client if the agent’s participation is necessary to facilitate the client’s receipt of legal advice. Second, privileged communications may be shared with a third party that is the “functional equivalent” of an employee of the client. The court held that neither exception protected Bitdeer’s disclosure of privileged communications to China Renaissance.
The first exception did not apply because China Renaissance did not participate in or facilitate discussions with attorneys. Instead, China Renaissance received from Bitdeer its counsel legal advice that Bitdeer had already obtained. The court reasoned that Bitdeer’s disclosure of attorney-client communications to China Renaissance was the “paradigmatic example of waiver,” since Bitdeer could have communicated with China Renaissance without forwarding its otherwise confidential communications with counsel.
As for the “functional equivalent” exception, the court noted that its viability is uncertain, as some New York district courts have rejected the exception outright. The court did not take a position on that split but held instead that, even if the exception did apply, Bitdeer was not entitled to its protections. The functional equivalent exception is grounded in the Supreme Court’s seminal decision in Upjohn and the understanding that attorneys must have the ability to confer with third parties who, due to their relationship with the client, possess information that should be freely communicated to counsel. To determine whether a nonemployee is a “functional equivalent” of a client’s employee, courts consider five primary factors that commonly distinguish “functional equivalents” from ordinary third-party service providers, specifically whether the nonemployee (1) lacked independent authority on the client’s behalf; (2) possessed information held by no one at the company; (3) served as a company representative to other third parties; (4) maintained an office at the company or otherwise spent a substantial amount of time working for it; and (5) sought legal advice directly from the client’s lawyers to guide the nonemployee’s work on behalf of the client.
Although Bitdeer argued that China Renaissance acted as its agent, Bitdeer’s relationship with China Renaissance bore none of the other hallmarks of functional equivalency. China Renaissance exercised independent judgment in representing Bitdeer. It did not hold any information about Bitdeer that was not also held by Bitdeer employees. It did not maintain office space or a regular physical presence at Bitdeer’s offices. And it never sought legal advice directly from Bitdeer’s counsel. As a result, the court held that Bitdeer’s disclosure of attorney-client communications to China Renaissance waived the privilege as to those communications, and Bitdeer was not entitled to withhold them from discovery.
This decision offers a cautionary reminder that legal advice should be kept between client and counsel as much as possible to maintain the protection of the attorney-client privilege. Rakower Law has successfully litigated the “functional equivalent” doctrine and other privilege issues in federal court. If you have questions about the attorney-client privilege, please contact Michael C. Rakower or Daniel F. Gilpin.
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