In October 2022, the U.S. Supreme Court agreed to hear In Re Grand Jury, 13 F.4th 710 (9th Cir. 2021), from the Ninth Circuit Court of Appeals. The case dealt with the standards federal courts should use to determine what types of information exchanged between a lawyer and a business client are privileged and thus protected from disclosure during litigation.
In the case, the Ninth Circuit ruled in 2021 that a law firm must turn over requested tax-related records because its corporate client primarily sought business, not legal, advice.
This case arose from a criminal investigation the IRS conducted against the unnamed owner of an unnamed company. The company, through its unnamed law firm, produced some, but not all, the documents sought by a grand jury subpoena. The company’s lawyers argued that the attorney-client privilege protected the withheld documents.
The prosecutors moved to hold the company and the law firm in contempt for failure to fully comply with grand jury subpoenas.
Ultimately, the district court ruled the attorney-client privilege did not protect the documents as “dual-purpose communications “ and their “primary purpose” was to obtain tax advice, not legal advice.
The Ninth Circuit affirmed the decision of the lower court. The Ninth Circuit analyzed the dual-purpose communications at issue and agreed that the “primary purpose” of the communications was advising about tax strategy.
Therefore, the attorney-client privilege did not shield the withheld documents from disclosure.
Divided Circuit Courts
Currently, there is a split among the federal appellate courts on this issue. Circuit courts analyze the application of the attorney-client privilege to dual-purpose communications under one of two similar, but distinctly different, frameworks: Was legal advice the “primary purpose” of the communication versus was legal advice “a significant purpose” of the communication containing legal and business advice?
The Ninth Circuit joined the Second, Fifth, and Sixth Circuits in adopting the “primary purpose” test. Under this test, courts must determine the “primary purpose” of the communication. If the primary purpose of the communication is to provide or seek legal advice, the attorney-client privilege attaches. If not, the privilege does not protect the communication.
The Court of Appeals for the District of Columbia ruled in 2014 that if legal advice was “a significant purpose” for the dual-purpose communication, the entire communication is privileged (current Supreme Court Justice Brett Kavanaugh wrote that opinion). Then appellate Judge Kavanagh applied the “significant purpose” test in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). Under this framework, courts must ask, “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” In other words, if one of the significant purposes of the communication was to get or give legal advice, the privilege applies.
But that’s not all. The Seventh Circuit is the only federal appeals court to reject both tests in the context of tax advice. In the Seventh Circuit, attorney-client privilege never attaches to dual-purpose communications that involve tax advice; regardless of the primary or significant purpose of the communication, such communications are not protected.
It should be noted in-house lawyers continually confront this issue. In fact, the Kellogg case involved an internal investigation of a corporation by its in-house legal department.
But for companies who rely upon outside counsel for legal and business counseling, how the Supreme Court comes out on this issue will be very significant.
If the Court adopts the primary purpose test in a broader context, in-house counsel, outside counsel and their business clients may need to frequently prepare separate communications when giving and asking for legal advice in the context of business-related issues.
On the other hand, legal and business organizations would prefer the Court to adopt the D.C. Circuit’s significant purpose test (presumably, that’s where Justice Kavanaugh will fall). They argue that the primary purpose test fails to reflect the modern realities of law practice, in which lawyers offer advice to clients on diverse legal and business issues.
Conversely, the significant purpose approach also relieves courts of the burden of determining whether the legal advice in a dual-purpose communication was the primary purpose of the communication.
Current Status – The Divide Continues
The Court granted certiorari In October 2022 and heard oral arguments on January 9, 2023.
However, on January 23, 2023, the Court chose to “DIG” the case. In a one-sentence opinion the Court stated that the “writ of certiorari is dismissed as improvidently granted.”
What does this mean?
Well, the Supreme Court does not do this very often – but it is not unheard of.
Procedurally, the Court can dismiss a previously granted writ of certiorari at any time prior to issuing a decision.
In this instance, it means that the split among the Circuit Courts of Appeal which have addressed the issue – the primary purpose of the communication vs. a significant purpose – remains.
Why did the Court take this route?
One can only speculate. As you can see, they didn’t give a reason in their opinion dismissing the writ of certiorari. Supreme Court observers give several possible reasons. On further reflection, perhaps the Court thought this case, involving a grand jury subpoena and the secrecy surrounding grand jury proceedings, was not the right case to issue such a significant opinion.
Other commentators suggested this was not such a pressing issue; trial judges are not complaining or having trouble applying the law as they see it.
For instance, see this blog post from noted NYU professor Stephen Gillers.
All we can say is that, for now, the conflict stands (the Third Circuit, which covers New Jersey, has not issued an opinion on this issue).
New Jersey Business Litigation Attorneys
As a law firm representing various businesses throughout New Jersey, Schiller, Pittenger & Galvin, P.C., business litigation lawyers are acutely aware of the issues concerning the attorney-client privilege as it relates to their business clients.
We will continue to follow this issue and provide updates. The firm’s business litigation attorneys are available to discuss the current status of the attorney-client privilege as it relates to business communications.
Additionally, we can advise on how to protect your confidential communications with us and other attorneys.
If you have questions or concerns, call us at our Scotch Plains office at 908-490-0444 or email us here.