GMO Gamecenter USA, Inc. v. Whinstone US, Inc.

Background

The case concerns alleged breaches of agreements under which Whinstone was to provide cryptocurrency-mining data-center services to GMO. GMO alleged that Whinstone failed to provide required power and maintain part of the Texas facility, causing GMO’s mining machines to generate less income than expected. Whinstone denied the allegations and contended that GMO failed to meet its own obligations.

GMO moved to compel Whinstone and Riot Blockchain, Inc.—which the opinion identifies as Whinstone’s parent company—to produce documents withheld as protected by attorney-client privilege or the work-product doctrine. GMO argued that the documents were business or factual materials, or that protection was waived when third-party advisers, accountants, or financial advisers were included in communications. Whinstone and Riot argued that the documents involved legal advice or were prepared in anticipation of litigation.

Legal standards

The attorney-client privilege protects confidential communications between a client and a lawyer made to obtain or provide legal advice. It generally does not protect ordinary business advice. Including a third party can waive the privilege, unless that person was necessary to help the lawyer understand information or provide legal advice.

The work-product doctrine protects documents prepared because of existing or expected litigation. It does not protect materials created in the ordinary course of business or materials that would have been prepared in essentially the same form without litigation. Opinion work product—lawyers’ mental impressions, conclusions, and legal theories—receives stronger protection than factual work product. Factual work product may be discoverable when the requesting party shows substantial need and cannot obtain the equivalent without undue hardship.

Court’s analysis

The court found that Whinstone and Riot had not shown that they anticipated litigation with Northern Data over the purchase-price adjustment before June 1, 2022. The parties were initially using a contractual process involving negotiations and, if necessary, an independent accounting expert. The court therefore rejected work-product protection for earlier documents concerning that adjustment. By contrast, the court found that discussions about terminating GMO’s agreement began with the legal team while the GMO litigation was pending, so there was no comparable timing problem for those materials.

After reviewing document samples privately, the court concluded that Whinstone had withheld some ordinary business analyses, factual communications, transmittal emails, and other materials without establishing privilege or work-product protection. The court also found that privilege had been waived for some communications because third parties such as Greenhill, Mazars, XMS, or EY were included without showing that they were necessary to translate information for counsel or otherwise qualified for an exception. The court rejected GMO’s argument that all withheld materials were subject to a broad subject-matter waiver and instead treated the documents individually.

The court also rejected GMO’s claim that it had shown substantial need for protected work product. The court found that GMO possessed a large amount of information with which to pursue its case and had not shown the required hardship.

Disposition

At the beginning of the opinion, the court described GMO’s motion as “granted in part and denied in part.” In the conclusion, the court stated that the motion was “granted in part.” The court ordered the following categories of relief:

- Certain documents had to be produced without redactions because they were not privileged or protected, or because protection had been waived. - Certain documents had to be produced in redacted form, with only privileged or protected portions removed. - Other documents were properly withheld as confidential attorney-client communications or protected work product. - Whinstone had to produce the documents required by the order within two weeks and re-review other withheld documents to determine whether the court’s principles required additional production, in whole or in part. - Because the result was mixed and Whinstone’s objections were substantially justified, the court awarded neither side fees for the motion.

Judge Katharine H. Parker issued the order as a pretrial discovery ruling; it did not decide the underlying contract claims.