Is Your Privilege Blown? U.S. Supreme Court Dismisses Important Case Involving Scope for "Dual-Purpose" Communications

Is Your Privilege Blown?  U.S. Supreme Court Dismisses Important Case Involving Scope for "Dual-Purpose" Communications

The Supreme Court heard arguments recently in an important case centering on the scope of certain attorney-client communications, with especially significant consequences for in-house attorneys.  The case, In re Grand Jury, No. 21-1397, arose from a Ninth Circuit decision, and asked the Supreme Court to decide whether dual-purpose communications—that is, communications between a lawyer and a client that have both a legal purpose and a business purpose—are within the counters of the attorney-client privilege.  Although the Supreme Court likely granted certiorari to resolve a circuit split between the Seventh, Ninth, and D.C. Circuits on the question of the appropriate test for courts to apply in evaluating whether a dual-purpose communication is privileged and thus protected from disclosure, it is difficult to say with certainty why the Court dismissed it as improvidently granted.  At minimum, the takeaway for companies and their attorneys is that this issue will remain unsettled in the lower courts until an appropriate vehicle can make its way up to the Supreme Court.  In the meantime, corporate attorneys and clients should be mindful of the risk that the Court could adopt the narrower view of dual-purpose communications.

Case Background

Because the underlying dispute involves an attempt to prevent production of documents there are relatively few specific background facts. Petitioner was an unnamed law firm specializing in international tax law, including the practice of advising clients on the tax consequences of expatriation.  Pet. Br. at 4.  In 2012, one of petitioner’s clients asked the law firm to provide advice on the expatriation process.  Resp. Br. at 2-3.  The client was an early promoter of bitcoin, and at the time, significant questions were unresolved as to the tax consequences of cryptocurrencies on the expatriation process.  Id. Petitioner provided the client with advice on the process and the client ultimately expatriated from the United States in 2014.  Resp. Br. at 2.  The client also asked petitioner to prepare several of its individual income tax returns at the same time.  Id.

Petitioner was subsequently served with a grand jury subpoena seeking documents in connection with a criminal tax investigation of the client.  Pet. Br. at 5.  In response to the subpoena, the law firm produced over 20,000 pages of records, but withheld certain documents based on attorney-client privilege and the work-product doctrine.  Id.

Respondent, the United States Department of Justice, filed a motion to compel production of the withheld documents.  Id. at 6.  In a sealed, unpublished order, the district court ordered production of certain “dual-purpose” communications, on the ground that the primary purpose of the documents was to obtain tax advice—not legal advice.  See In Re Grand Jury, 23 F.4th 1088, 1090 (9th Cir. 2021). The district court later issued a contempt citation after the law firm steadfastly refused to produce the records.  Id.

Petitioner appealed the district court’s order to the Ninth Circuit.  The law firm argued that the Ninth Circuit should adopt the test for dual-purpose communications articulated in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014), in a panel opinion written by then-Judge Kavanaugh.  Inre Grand Jury. 23 F.4th at 1094.  There, the D.C. Circuit held that in the context of an internal investigation, if providing legal advice was a significant purpose of the communication, then the entire communication was protected under the attorney-client.  In re Kellogg Brown & Root, Inc., 756 F.3d at 760.    

The Ninth Circuit rejected the petitioner’s argument and affirmed the district court’s order compelling production of the dual-purpose communications.  The court of appeals adopted the “primary-purpose” test to determine whether a dual-purpose communication falls within the scope of the attorney-client privilege.  In re Grand Jury. 23 F.4th at 1091-92.  In adopting the primary-purpose test for the Ninth Circuit, the court of appeals held that in determining whether a dual-purpose communication falls under the attorney-client privilege, a district court must first ascertain the sole primary purpose of the communication.  If the primary purpose of the communication is legal advice, then the communication is protected by the attorney-client privilege.  If, however, the primary purpose of the communication is non-legal business advice, then the document is not protected by the attorney-client privilege and must disclosed.

The Supreme Court granted certiorari to review the Ninth Circuit’s opinion, ostensibly in order to resolve a deepening circuit split between the Ninth Circuit (applying primary-purpose test) D.C. Circuit (applying the significant-purpose test) and Seventh Circuit (applying the most restrictive dual-purpose test).[1]

At oral argument, the Justices, and in particular Justice Gorsuch, expressed frustration with both sides’ seemingly changing positions on the application of the specific test to dual-purpose communications.  Petitioner expanded on its reply brief and argued that the proper application of the test would go as far as asking whether the communication had “any bona fide meaningful legal purpose.”  When pinned down as to why petitioner’s position seemed to be changing, he argued that “any bona fide legal purpose” could also be characterized as “any significant purpose.”  The Government, on the other hand, was pushed by the Justices on how a court would handle close calls whether a communication’s primary purpose was legal advice versus business advice.  The Solicitor General’s lawyer appeared to concede that close calls would be resolved in favor of applying the privilege but could not identify a meaningful line to draw to determine where the business advice outweighed legal advice.

Perhaps the biggest fact undercutting petitioner’s argument is that until the Kellogg decision in2014, federal courts and state courts alike had almost universally been using the “primary-purpose test.”  And despite calling it the “primary-purpose test,” courts had actually been applying a test in practice that was much closer to the “significant purpose test.”  Justice Kagan somewhat jokingly asked petitioner about “the ancient legal principle, if it ain’t broke, don’t fix it.”  Petitioner addressed this question by pointing out that once the Supreme Court adopts the test, courts will know with clarity the parameters to apply, and the Supreme Court should take the opportunity to clearly set forth how to apply the test regardless of name. And of course, any time the circuits are split on an important legal question, the Supreme Court’s resolution of the debate is needed, because it is illogical that the set of facts can result in a company being treated differently than another due to no reason other than location.

Although the Supreme Court takes relatively few cases overall, and because attorney-client privilege cases are even rarer, time will tell when an appropriate vehicle can make its way to the Court for a definitive resolution of this question.  Moreover, because then-Judge Kavanaugh authored the Kellogg opinion, it would not be surprising if the Supreme Court ultimately adopts a test using those same principles.

The Need for Supreme Court Resolution[2]

An eventual Supreme Court decision on this question will have a far-reaching effect on future attorney-client communications, lawyers’ and law firms’ decisions on which communications fall under the attorney-client privilege for document productions, and trial court determinations over disputed communications.

Businesses often call on lawyers to address issues that have both legal and non-legal elements.  It is difficult if not impossible to determine in many instances whether the issue and communication is primarily legal in nature or primarily business in nature.  The primary purpose test does not reflect the current role that lawyers play in advising businesses and requires an uncertain evaluation of a communication.  As former Chief Justice Rehnquist reasoned for the majority in the seminal Supreme Court case evaluating the attorney-client privilege, Upjohn Co. v. United States,449 U.S. 383 (1981), “if the purpose of the attorney-client privilege is to be served, the attorney and client must be able to predict with some degree of certainty whether particular discussions will be protected. An uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.”  Id. at 393

In addition to client uncertainty, district courts will inevitably struggle with consistently applying the primary-purpose test.  It may well prove difficult if not impossible for courts to conduct a balancing test after the fact in order to determine if the purpose of the communication was 51% legal and privileged on the one hand, versus 49% legal and not privileged on the other.

If the Supreme Court ultimately adopts the primary-purpose test for weighing dual-purpose communications, it will inevitably chill communications between lawyers and their clients seeking counseling, and thus frustrate the reason for the attorney-client privilege in the first place. Instead, in a future case, the Supreme Court should adopt the significant-purpose test, which serves the purpose of the attorney-client privilege, provides more certainty for clients (and their lawyers) to know when a communication is privileged, and will allow courts to consistently apply the test. Using the significant-purpose test, clients and lawyers can remain confident that a communication conveying important legal and business advice will be protected.

[1]              In United States v. Frederick, 182 F.3d 496 (7th Cir. 1999), the Seventh Circuit Court of Appeals held that any communication containing both legal and business advice did not fall under the attorney client privilege.  Respondent has not argued for the adoption of this test.

[2]              The Supreme Court’s decision will impact application of the attorney-client privilege in cases involving federal law but will not bind state courts and their application of the attorney-client privilege in state law claims.

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