AI and the Attorney Client Privilege

Keeping It Confidential

Written by: Steven N. Kurtz, Esq., Partner at Stubbs Alderton & Markiles, LLP

Much has changed since my first Article on AI (ChatGPT v. Steve Kurtz). Most of you are now using AI, sometimes without even knowing. AI is built into many commercial finance and factoring software platforms. It helps you spot trends and is able to handle a massive amount of data. When optimized, it can help you prevent losses. Many of you are using AI to write communications and ask about problems. Your clients are likely doing the same thing to you. Some of you are using AI to verify, understand, or work with your lawyers, for which I have no problem. The more you know, the better equipped you are to prevent problems. However, there is a school of thought, backed up by case law, which has destroyed the attorney-client privilege when using certain AI platforms. Litigation can be nasty. There are always people that think litigation is war and will do anything they can to get the upper hand. This includes trying to break the attorney-client privilege.

The attorney-client privilege is sacred. It allows you to freely communicate with your lawyer, and know that your adversary cannot learn anything about what was discussed. The privilege belongs to the lawyer’s client, which for most of you reading this means the factor or lender that you work for. The first cousin to the attorney-client privilege is the work product doctrine. The work product doctrine protects everything your lawyer does to represent you and work up the case. This includes notes, legal research, memos, and hopefully the lawyer’s own AI research.

The issue with AI and opening up the attorney-client privilege and work product doctrine and making your valuable information available to the other side, is the structure of the AI system. The deciding factor comes down to whether the AI program is on an open or closed platform. The common AI programs out there are ChatGPT, Claude, Grok, and Gemini. Generally, these will be an open platform. The open platform simply means that the information you put into the program for a search can theoretically be shared with the world and used for “training purposes”. A closed-end program does not allow your searches to be shared with others or accessed for training purposes. Examples of closed-end programs are Microsoft Copilot, legal research platforms such as Westlaw or Lexis, and Lucio, which is a start-up legal oriented AI program used by a handful of law firms, including my new firm. The distinction is very subtle and likely lies within the terms of use. This distinction also seems counterintuitive because for example, a basic internet search not using AI will not typically blow up your privileges. Neither will use your cell phone.

In U.S v. Heppner, 820 F. Supp 3d 292 (S.D.N.Y. 2026), the court found a waiver of the attorney-client privilege when the client used an open-ended AI program to conduct research. In the Heppner case, the defendant was being investigated for possible criminal conduct. Mr. Heppner naturally wanted to understand what he was up against. Maybe he wanted to verify what his lawyer was telling him, or perhaps he needed to understand the issue better. Mr. Heppner logically had a series of questions which he decided to ask Claude about. Mr. Heppner then sent the results of the research to his lawyer and engaged in what everyone thought would be a protected conversation. The U.S Government then obtained a search warrant and seized his computer. Heppner and his lawyer then moved to protect what they thought were privileged communications.

The Heppner court found that the attorney-client privilege relating to the Claude research and counsel communications were waived. The judge noted that Mr. Heppner entered his search into a public AI program. The court focused on the terms of service in the AI program, which, in reality, was a boiler plate statement in a click wrap format. These click wrap terms and conditions are rarely ever read. The terms of service had language which stated that the information can be shared for training purposes. Since Mr. Heppner entered his search in this public setting and sent the results to his lawyer, the court found everything to be waived. The judge also noted that the Claude search was not done at the direction of the lawyer. The Court determined that Mr. Heppner could not have had a reasonable expectation of privacy, based upon a situation most people never considered.

Nowhere in the opinion was any discussion on how anyone other than some possible coding person at Anthropic (Claude’s owner), could ever legally access the information. The opinion fails to indicate how a third person, or even the U.S. Government could ever access Mr. Heppner’s AI research. My suspicion is that it takes high-level hacking skills to break into Anthropic and steal Mr. Heppner’s data. The U.S. Government certainly would never be allowed to access this information but for this case.

This decision, in my view, defies common sense. Nobody expects their cell phone conversations to blow up a privilege because the conversation travels the airwaves and someone with tech skills and the right equipment can access the conversation with a listening device. Nobody expects an email to be public because it may be shared over some common data transmission protocol and bounce around a few different places before it gets to the ultimate recipient. Nobody expects someone at the post office or Federal Express to read your paper mail—that’s illegal. All courts even protect against inadvertent disclosures. For example, if an opposing counsel sends me a privileged email that he intended to send to a different Steve, but for my name being auto-populated, my duty is to figure out that this is a privileged email, delete it, not disclose to my client, and inform the other side about what happened (a real-life experience).

My suspicion is that the majority of the population, including lawyers, would not think that a simple search in an AI platform followed up with a question to a lawyer, would ever result in the disaster that the Heppner case became. This expectation of complete privacy is bolstered by the reality that nobody except for a skilled hacker, probably the subject of an interesting Netflix series, would ever be able to break into Anthropic and take this information. My suspicion that it’s probably easier to hack someone’s cell phone than break into a secured “public” AI search. Someone who succeeds in breaking into this public AI search will likely face significant prison time if caught.

Fortunately, the Heppner case is an isolated decision and hopefully is reversed or not followed. However, the case has put AI in the spotlight and protection must be taken. This requires reviewing what AI you are using for business and communicating with your lawyer. It’s critical to assess whether the AI you are using is an open versus closed-end platform. More likely than not, the AI embedded in your financing software is closed end. That’s likely a selling point for those who sell commercial financing software. For those who have developed a program using AI in-house, again, it’s likely closed end, but check.

When communicating with a lawyer, have a discussion with and let your lawyer know if you are using AI as part of your research and problem-solving strategy. There are also professionals who can advise on this issue, which can also be a good investment.

Sometimes strange fact patterns create bad law. However, the use of AI and the opposing side’s ability to access your information is out there and precautions must be taken. Litigation can turn into a life of its own and can often be unpredictable. Hopefully this issue will be addressed by other courts and perhaps this can be handled with changes to state and federal rules of evidence. But, for now be careful as there is always someone who will look for a leg up and try to separate you from your privacy.

About the Author

Steven N. Kurtz, Esq. is a Partner at Stubbs Alderton & Markiles, LLP in the Corporate and Litigation Practices. He is also the Chair of the Commercial Finance, Bankruptcy, Insolvency, and Specialty Lending Practice.

Steven's practice specializes in a range of legal subjects, focusing on bankruptcy and insolvency, business law and transactions, creditors’ rights, commercial law, commercial finance, litigation related to the foregoing, outside general counsel and expert witness/consultant. He assists clients in both transactional matters and litigation.

Steven began his career as a commercial and bankruptcy litigator. During this time, he conducted multiple bench trials and evidentiary hearings in federal and state court systems, as well as appellate work. He has also served as lead counsel in numerous complicated commercial “meltdowns,” including fraudulent transfers, lender liability, fraud, PACA, transportation, garment industry, high tech and multi-jurisdiction matters.

After a successful career as a litigator, Steven began to explore documentation, which morphed into structuring complex commercial finance transactions and helping clients develop and implement cutting-edge lending products. Currently, Steven splits his time equally between litigation and transactional matters, with a large national presence and burgeoning international practice. Clients he represents include factors, asset-based lenders, commercial finance companies, innovative fintech lenders, banks, and entrepreneurs. Steven also serves as outside general counsel for several entrepreneurial and commercial finance companies.

Steven is an active member of his community. He has served as a Judge Pro-Tem for the Los Angeles County Superior Court and regularly provides pro-bono work to give back to his community. He is a frequent speaker at various associations across California, having previously spoken at organizations such as the Los Angeles County Bar Association, Financial Lawyers Association, San Fernando Valley Bar Association, and several others. Steven also regularly contributes to the Commercial Factor newsletters and has been published in other journals and magazines.

Steven has been named as a Southern California “Super Lawyer” for seven consecutive years, recognized for his impactful legal work in business and corporate, bankruptcy, and business litigation.

The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.