The US Supreme Court heard oral arguments on January 9, 2023, regarding how federal courts should determine when the attorney-client privilege applies to dual-purpose communications. The central question in the case before the Court is whether dual-purpose communications are protected by the attorney-client privilege. The Court’s ruling could impact the ability of attorneys to advise clients based on their legal, business, and other related needs.
The attorney-client privilege protects confidential communications between attorneys and their clients made with the purpose of providing legal advice. In In re Grand Jury, a grand jury subpoenaed an unnamed company and law firm to produce communications pertaining to a criminal investigation. The company and law firm withheld some of the requested documents, arguing that they were protected by the attorney-client privilege because the communications concerned both the law firm’s preparation of the company’s tax returns and its legal advice to the company.
A federal district court held that the withheld documents either were not protected by any privilege or were subject to the crime-fraud exception to privilege rules and thus production could be compelled. On appeal, the US Court of Appeals for the Ninth Circuit affirmed the district court’s holding, maintaining that the proper measure for privilege in dual-purpose communications is the single primary purpose of the communication.
Typically, the privilege does not extend to nonlegal communications, including certain communications regarding an attorney’s preparation of tax returns. Determining whether the attorney-client privilege applies to dual-purpose communications can be difficult—particularly in the case before the Court, where an attorney advises a client on both general tax preparation and what the client should claim on its tax return. As several amici groups, the parties, and the Court have noted, and as described below, the impact of the Court’s ruling could extend well beyond tax advice.
Currently, there is a three-way circuit split among federal courts regarding whether, and to what extent, a dual-purpose communication is protected by the attorney-client privilege. The Ninth Circuit has used a “primary purpose” test, in which a communication is privileged if its single primary purpose is to obtain or provide legal advice. Conversely, the DC Circuit has used a “significant purpose” test, wherein a communication is privileged if one of its significant purposes is providing or obtaining legal advice. Finally, the Seventh Circuit has held that dual-purpose communications used for both litigation and tax preparation are never privileged.
State courts typically adopt one of the three approaches stated above. For example, many states such as New York and Pennsylvania apply the “primary purpose” test, considering whether the primary purpose of a communication was legal in nature. Other state courts, such as Illinois, have adopted an approach closer to the “significant purpose” test, finding dual-purpose communications privileged if giving or receiving legal advice was at least one significant purpose of the communication.
The company and law firm in In re Grand Jury argue that the Supreme Court should adopt the DC Circuit’s “significant purpose” test to determine whether the attorney-client privilege protects dual-purpose communications. They contend that the Ninth Circuit’s standard renders determinations of privilege unreasonably unpredictable, as the “primary purpose” test requires judges to parse the legal and nonlegal purposes of a communication and weigh their comparative significance. As a result, they argue, attorneys are unable to provide complete guidance to clients who feel unable to fully share their business concerns out of fear that such communications are not protected.
By contrast, the United States argues that the “primary purpose” test is the appropriate analysis for dual-purpose communications. The “significant purpose” test, the United States contends, would shield many communications to which principles of privilege are not essential. Adopting the “significant purpose” test, the government argues, would call into question existing federal court precedent and extend the privilege to primarily nonlegal communications regarding issues such as tax or business planning.
The United States further argues that the Ninth Circuit’s approach does not significantly harm attorney-client communications because courts, as the district court did below, would simply redact any legal advice included in the communications.
ISSUES RAISED AT ORAL ARGUMENT
During oral arguments, the justices focused on several issues in their questions, including:
- If the Court adopts the Ninth Circuit’s “primary purpose” test, how would a court consider a document in which legal and nonlegal purposes are in equipoise? The justices closely questioned how a court could be expected to properly analyze documents in which legal and nonlegal purposes were of approximately equal primacy. The government noted that in such close cases, courts should adopt a “tie goes to the runner” approach, erring on the side of upholding the attorney-client privilege.
- How should a court determine whether an underlying purpose for a communication is “significant”? Multiple justices sought clarification on what litmus test a court should be expected to use in determining a given purpose’s “significance.” The justices further questioned whether the “significant purpose” test would present opportunities for attorneys and clients to abuse the privilege by using infinitesimal legal considerations in a communication as a shield against production.
- What impact will the Court’s decision have on state courts? The justices highlighted that state courts typically use the “primary purpose” test and questioned whether adopting the “significant purpose” test would contribute to a lack of cohesion between state and federal courts. Moreover, Justice Sotomayor noted that there was no evidence among state courts that the “primary purpose” test was difficult to administer, as the petitioner argued.
- How might the holding of this case impact circumstances beyond tax preparation and advice? Justice Kavanaugh questioned whether the holding of this case could impact other communications, such as those pertaining to internal investigations. Both parties appeared to agree that, generally, the attorney-client privilege should protect internal investigations.
IMPLICATIONS FOR ATTORNEYS AND THEIR CLIENTS
Depending on how the Court rules, the outcome of this case could significantly impact the extent to which clients feel comfortable disclosing important business information to their attorneys. The Court’s decision will most likely have consequences beyond the tax context, as courts in the Ninth Circuit have also applied the “primary purpose” test to communications relating to internal investigations and public relations concerns. Additionally, given that state courts often follow federal courts on this issue, a lack of cohesion in this area could create further confusion as to which communications are protected.
Amicus organizations representing the interests of businesses and employers, including the US Chamber of Commerce, urge the Supreme Court to adopt the DC Circuit’s “significant purpose” test. These organizations contend that the “significant purpose” test is more responsive to business needs because attorneys must consider both the legal and the business aspects of a client’s circumstances to provide accurate advice. Adopting the Ninth Circuit approach would ultimately upset attorney-client communications and diminish the quality of legal advice.
No amicus briefs were filed in support of the government’s position.
The Supreme Court could issue a decision in this case between March and July 2023.
Given that the justices highlighted several distinctions between both parties’ oral arguments and their submitted briefs, the impact and implications of this case will heavily depend on the focus of the Court’s written opinion.