In depth

Background

On 3 October 2022, the United States Supreme Court granted certiorari in In re Grand Jury, 13 F.4th 710 (9th Cir. 2021). As part of a criminal investigation by the US Department of Justice, a law firm specializing in international taxation, whose client was the target of the investigation, received a grand jury subpoena.  The law firm produced more than 20,000 pages of non-privileged documents, but asserted attorney-client privilege over certain other documents.  

The documents at issue were communications regarding both the client's tax returns as well as non-tax legal advice. The US District Court for the Central District of California, after applying the Ninth Circuit’s "primary purpose" test to determine whether attorney-client privilege applies to dual-purpose communications, found that the documents were not protected by the attorney-client privilege and thus ordered the firm to produce them to the grand jury. When the firm refused to comply with the district court's order, the government successfully moved to hold the firm in contempt. On appeal, the Ninth Circuit affirmed the district court’s contempt order.

Legal Framework

As a general matter, confidential communications between a client and their attorney, when made for the purpose of seeking legal advice, are covered under attorney-client privilege.¹ The attorney-client privilege is intended to encourage compliance with the law by allowing persons to speak with their attorneys about the law without fear that those communications will be made public.² The attorney-client privilege is a right belonging to the client, which allows the client to refuse to disclose any confidential communications between themselves and their attorney. Communications relating to preparing tax returns, in contrast, are not protected by the attorney-client privilege.³ This is because there is no expectation of confidentiality, since tax returns are intended to be disclosed to a third party, i.e., the IRS. 

Nevertheless, the real world does not always present clear delineations. One such complexity arises with respect to communications made for both privileged and non-privileged purposes, so-called “dual-purpose” communications. Although not unique to taxation, dual-purpose communications often involve communications about both tax return preparation and legal advice. For example, a client may ask their attorney to prepare their tax return, while at the same time asking them a legal question relating to tax law. To determine whether such a communication is covered under the attorney-client privilege, many, though not all, circuit courts of appeal apply the "primary purpose" test. The result is a circuit split with three different approaches concerning how to handle dual-purpose documents.

The Seventh Circuit applies the simplest approach: dual-purpose documents are never privileged. In United States v. Frederick, 182 F.3d 496 (7th Cir. 1999), Judge Posner found that the inclusion of any non-legal advice, no matter how small or inconsequential, destroyed the privilege. 

A second, less severe, approach is followed in the Ninth Circuit and was the approach applied in In re Grand Jury. Under this formulation of the primary purpose test, a court weighs all the purposes of the communication in question. If the court finds that the communication's legal purpose is at least as great as any of the non-legal purposes, then the communication will be privileged. Otherwise, the communication is not subject to attorney-client privilege.

Finally, the D.C. Circuit follows a third approach, articulated in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014), authored by then-Judge Kavanaugh. Under this version of the primary purpose test, sometimes referred to as the "significant purpose" test, the court will determine whether a significant purpose of the communication was to obtain or provide legal advice. If so, then the entire communication is privileged. The significant purpose test is not relative, meaning that the importance of other non-privileged purposes behind the communication will not destroy privilege so long as the privileged purpose itself is significant. 

Implications

The US Supreme Court’s decision in In re Grand Jury has implications for ongoing and future privilege disputes, privilege best practices, and day-to-day communications between lawyers and clients. Depending on the ultimate outcome, the Court’s decision may expand or contract the scope of communications covered by attorney-client privilege.  

The DC Circuit’s Kellogg approach affords the broadest protection to claimants of attorney-client privilege for dual-purpose documents.  Because the decision was authored by then-Judge Kavanaugh, it is likely to gain favor with at least one of the Justices that will hear the case before the US Supreme Court.

A broad adoption of the Kellogg significant purpose test may ultimately provide additional clarity for planning purposes. As the opinion emphasized, attempting to find the one and only one primary purpose behind a communication may be an "inherently impossible task" and it can be intellectually dishonest to suppose that "a communication can have only one primary purpose."⁴ Both the Kellogg opinion and the petition emphasize that a practical advantage of the significant purpose standard is to increase certainty in an area of law currently lacking such certainty. 

On the other end of the spectrum, the Court may adopt the Seventh Circuit’s draconian approach, denying privilege protection for all communications made — even in part — for non-legal purposes. Such an opinion would place significant burdens on taxpayers to avoid injecting any non-privileged purpose into a communication in fear that so doing will expose the entire communication to public disclosure.

Finally, the Court may ultimately adopt the Ninth Circuit’s application of the primary purpose standard as a potential middle-ground — an acknowledgement of the fact that clients often have a multitude of purposes when seeking legal advice — while upholding a historic desire to construe privileges narrowly. Under such a framework, privilege claimants would be incentivized to memorialize the importance of the confidential legal purpose of the communication to ensure that purpose is considered primary relative to any other purposes the party seeking discovery might suggest. Still, the Ninth Circuit's primary purpose standard creates uncertainty by forcing privilege claimants to anticipate a court's relative weighing analysis. Concerns regarding how a court will interpret communications after the fact can chill attorney-client communications and undermine the purpose of the attorney-client privilege, as clients may fear that communications they believed to be protected might ultimately see the light of day during discovery. Accordingly, three amicus curiae briefs have been filed supporting the law firm, all of which argue that the Ninth Circuit's decision impedes frank and honest communication between attorneys and clients. 

A decision is expected by the end of June 2023.

1 Upjohn Co. v. United States, 449 U.S. 383 (1981)
2 Id. at 389
3 Couch v. United States, 409 U.S. 322 (1973)
4 Kellogg, 756 F.3d at 759