January 11, 2023

Supreme Court to Resolve Three-Way Circuit Split Involving Attorney-Client Privilege

For the first time in 25 years, the U.S. Supreme Court is considering the scope of the attorney-client privilege in the case In re Grand Jury, No. 21-1397. The Court heard oral arguments earlier this week about when the attorney-client privilege protects communications involving both legal and nonlegal advice (dual-purpose communications).

In re Grand Jury

A grand jury subpoenaed documents from the petitioner, a tax law firm, related to a criminal investigation into the law firm’s client.1 The law firm withheld documents that had dual-purpose communications based on the attorney-client privilege. After the government moved to compel, the district court used the “primary purpose test” to determine whether the dual-purpose communications were privileged. The court used the test to determine “whether the primary purpose of the communication [was] to give or receive legal advice, as opposed to business or tax advice.”2 In the end, the district court ordered the law firm to produce documents to the government after redacting tax-related legal advice. When the law firm refused, the court held it in contempt, and the Ninth Circuit affirmed the contempt order.

Circuit Split

There is a three-way circuit split about how courts assess privilege claims for dual-purpose communications.

At one end of the split is the Seventh Circuit, adopting a bright-line rule that “a dual-purpose document — a document prepared for use in preparing tax returns and for use in litigation — is not privileged.”3 This rule, at least for tax preparation advice, cabins dual-purpose communications outside the attorney-client privilege.

At the other end of the split is the D.C. Circuit, extending the attorney-client privilege to a wide range of dual-purpose communications. Then-Judge Brett Kavanaugh held in a corporate internal investigation case that a court need only decide “whether obtaining or providing legal advice was one of the significant purposes of the attorney-client communication.”4Later, in another Judge Kavanaugh opinion, the D.C. Circuit applied the same test to assess privilege claims for dual-purpose communications sought in a subpoena enforcement proceeding.5

In the middle of the split is the Ninth Circuit, rejecting the Seventh Circuit’s far-reaching standard but declining to adopt the D.C. Circuit’s test despite “see[ing] the merits of the reasoning.”6 Instead, the panel pigeonholed the D.C. Circuit’s test to apply in “the very specific context of corporate internal investigations,” rather than “the tax context.”7 As it stands, the Second, Fifth and Sixth Circuits each use similar versions of the Ninth Circuit’s test.

Oral Argument Highlights

Several Supreme Court Justices appeared to question whether the Ninth Circuit’s test was difficult for lower courts to apply, given that state courts have applied similar tests for years without difficulty. Other Justices questioned whether adopting the Ninth Circuit’s test would chill legal advice when the advice would otherwise be discoverable in state courts that apply a more expansive privilege test. Near the middle of the argument, Chief Justice Roberts noted that the parties appear to be arguing more over labels than substance, and even Justice Gorsuch conceded that he was confused by how the parties labeled and differentiated the tests.

Four Ways the Supreme Court’s Ruling May Affect Businesses

The Court’s ultimate decision may affect how businesses rely on their counsel for dual-purpose advice in four ways.

  1. If the Court reverses the Ninth Circuit, businesses and their counsel will have more certainty about which dual-purpose communications are privileged. The practical problem with the Ninth Circuit’s test, as then-Judge Kavanaugh noted, is that finding “the one primary purpose for a communication motivated by two sometimes overlapping purposes . . . can be an inherently impossible task” for judges.8 Taking the guesswork out of privilege assessments could guide general counsel to offer better advice to clients and also reduce privilege disputes in litigation.
  2. If the Court affirms the Ninth Circuit, then businesses seeking to avoid any chilling effects of the decision may face greater costs for obtaining legal advice. The U.S. Chamber of Commerce has stressed that the Ninth Circuit’s test will cause businesses to engage in more “siloed” communications with their counsel or seek more advice from outside counsel.
  3. If the Court issues a narrow opinion focused on unique tax-related situations, businesses may face more uncertainty. A narrow ruling may create a uniform standard for tax-related advice. But it may also create more questions and less uniformity about how federal courts resolve all other privilege disputes involving dual-purpose communications.
  4. If the Court issues an expansive ruling, businesses will gain certainty from the newfound uniformity among the federal courts. An expansive ruling could, for example, adopt one test for courts to assess privilege for all kinds of dual-purpose communications. Without this expansive ruling, businesses litigating related disputes in several federal jurisdictions may face different privilege outcomes for the same underlying communications. That said, any Supreme Court ruling will have no more than a persuasive effect on state-specific privilege rules. Thus, businesses litigating in state courts will still need to know state-specific rules that may differ from the federal standard.

What Businesses Can Do to Prepare

Businesses should plan with their counsel how to discuss legal advice — especially about tax-related issues — if the Court resolves the three-way circuit split by adopting any of the existing tests. These plans should also consider that the Court’s holding will not affect state privilege rules. Lastly, businesses that currently have privilege disputes in federal court relating to dual-purpose communications should consider whether they can table or stay those disputes until after the Court’s decision next year.

  1. In re Grand Jury, 23 F.4th 1088, 1090 (9th Cir. 2021).
  2. In re Grand Jury, 23 F.4th at 1091 (citation omitted).
  3. United States v. Frederick, 182 F.3d 496, 501 (7th Cir. 1999) (emphasis in original).
  4. In re Kellogg Brown & Root, Inc., 756 F.3d 754, 759–60 (D.C. Cir. 2014).
  5. FTC v. Boehringer Ingelheim Pharms., Inc., 892 F.3d 1264, 1268 (D.C. Cir. 2018).
  6. In re Grand Jury, 23 F.4th at 1092 n.2, 1094.
  7. In re Grand Jury, 23 F.4th at 1094–95.
  8. In re Kellogg Brown & Root, Inc., 756 F.3d at 759 (emphasis in original).

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