For the first time in some time, the United States Supreme Court agreed to hear a case involving the corporate attorney–client privilege. The issue is the proper standard courts should use to determine whether the attorney–client privilege protects dual-purpose communications—those created for legal and non-legal purposes. In re Grand Jury, No. 21–1397 (U.S.). The specific question presented is—
Whether a communication involving both legal and non-legal advice is protected by attorney–client privilege where obtaining or providing legal advice was one of the significant purposes behind the communication.
In a series of posts, I’ll follow and comment on the case and final decision. We begin by discussing the decision rendered by the Ninth Circuit Court of Appeals. In re Grand Jury, 23 F.4th 1088 (CA9 2021). You may read the opinion here. I later explore the parties’ arguments at the petition stage, the petitioner’s merits arguments, the positions of fourteen amici, and the government’s opposition.
Grand Jury Investigation and a Contempt Order
A law firm that specializes in international tax issues provided an individual with tax advice related to expatriation, including how to determine ownership of cryptocurrency assets, methods of asset evaluation, and tax-filing strategies. The firm also prepared several of its client’s tax returns, including certification of compliance with expatriation tax requirements.
Federal prosecutors targeted the law firm’s individual client and issued a grand jury subpoena to the law firm. The law firm produced some documents but withheld others on grounds that the corporate attorney–client privilege protected them from disclosure. The government moved to compel the putatively privileged documents.
The U.S. District Court for the Central District of California found that many of the law firm’s withheld documents were dual-purpose communications, meaning they pertained to business and legal issues. The court ultimately ruled that the privilege did not protect these documents because “the primary purpose” of the communications were to secure tax advice, not legal advice.
The law firm disagreed with the court’s ruling and refused to produce the documents. The court held those entities in contempt but stayed that sanction so that the law firm could appeal to the Ninth Circuit.
The Legal Issue
The Ninth Circuit immediately recognized that, in “our increasingly complex regulatory landscape,” attorneys “wear dual hats” and often serve a client as a lawyer and “trusted business advisor.” The record is sealed, making it difficult to ascertain the full nature of the business-legal mixture at issue, but we know that the at-issue communications pertained to tax advice and legal advice.
The court recognized that the attorney–client privilege does not protect all tax-related communications. It compared, for example, a client’s communications to his lawyer regarding W-2 information, which the privilege does not protect, with the client’s seeking advice about what to claim on a tax return, which the privilege covers. Tax-related communications, therefore, can have dual purposes, some that are non-legal, like compliance issues, and some that are quite legal, such as seeking advice when the IRS challenges a deduction.
The question, therefore, was how the court should apply the attorney–client privilege to these dual-purpose communications. The court recognized, though, that—
the Ninth Circuit has yet to articulate a consistent standard for determining when the attorney–client privilege applies to dual-purpose communications that implicate both legal and business concerns.
The court evaluated two potential standards or tests to determine whether the attorney–client privilege covers dual-purpose communications. The law firm interestingly advocated for a “because of” standard. This standard derives from work-product doctrine, which I discussed in my assessment of Microsoft’s work-product loss for dual-purpose tax communications. When applied in the attorney–client privilege context, the standard protects dual-purpose communications when created because of anticipated litigation and “would not have been created in substantially similar form but for the prospect of litigation.”
The other standard for consideration was “the primary purpose” test, which directs courts to “look at whether the primary purpose of the communication is to give or receive legal advice” as opposed to business-related, non-legal advice, which, in the case, meant tax advice. The court correctly noted that—
the natural implication of this inquiry is that a dual-purpose communication can only have a single “primary” purpose.
Citing to United States v. Sanmima Corp., which I discussed in Ninth Circuit Adopts Work-Product Waiver Standard—In-House Counsel Memos Partially Survive, the Ninth Circuit observed that it had not adopted a standard for dual-purpose communications in the privilege context, which left no guidance for its district courts, which had been “applying both tests for attorney–client privilege claims.”
The court determined that “the primary purpose standard test applies to attorney–client privilege claims for dual-purpose communications.” It rooted its decision in federal common law, which holds that the privilege extends to those communications made for “the purpose of facilitating the rendition of professional legal services.” The scope of the privilege, the court held, “is defined by the purpose of the communication consistent with the common law.” (emphasis added).
The court easily rejected the “because of” standard. The privilege focuses on the purpose of the communication, not “its relation to anticipated litigation.” The work-product doctrine and attorney–client privilege, while often asserted together, arise from different policy goals. The work-product doctrine preserves that “zone of privacy” to allow lawyers and their clients to develop legal theories and litigation strategy without intrusion from adversaries.
The privilege, on the other hand, encourages full and frank communications between lawyers and their clients so that lawyers can provide optimal legal advice—advice that may not have anything to do with existing or anticipated litigation. These policy differences, therefore, signify that it “makes sense to have different tests for the two.”
What about Justice Kavanaugh’s Standard?
In two opinions issued while on the D.C. Circuit Court of Appeals, then-Judge Kavanaugh criticized “the primary purpose” test and, instead, adopted “a primary purpose” test. For a greater discussion of these opinions adopting and applying this differing standard, you may read Significant D.C. Circuit Decision for Attorney–Client Privilege and Internal Investigations, examining In re Kellog, Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014), and SCOTUS Nominee’s Latest Privilege Opinion: A Win for Corporate Legal Counsel, examining Federal Trade Comm’n v. Boehringer Ingelheim Pharmaceuticals, Inc., 892 F.3d 1264 (D.C. Cir. 2018).
In short, Judge Kavanaugh found that district courts should not try to find the one primary purpose of a communication, which “can be an inherently impossible task.” From a practical standpoint, he found, it is “not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B.” As a result, Judge Kavanaugh reframed the question to this:
Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?
We See the Merits
The Ninth Circuit saw “the merits of the reasoning” explained by Judge Kavanaugh, but also saw “no reason to adopt that reasoning in this case.” Further, the court raised a distinction between applying the “a primary purpose” test to internal investigations, which was at issue in Kellogg, and tax/legal advice at issue before the grand jury. In the end, the court settled on “the primary purpose” test, in part, because applying the “a primary purpose” standard would have made little difference in the outcome.
The law firm filed its Petition for Certiorari on April 5, 2022, and the Supreme Court granted it on October 3, 2022. Let’s see where it goes.