Why the Supreme Court Should Rule This Way on Client Privilege

Protecting privileged communications with your colleagues may get a lot harder for in-house counsel. For the first time in 40 years, in In re Grand Jury, the US Supreme Court will set the standard for when legal and business communications are covered by attorney-client privilege.

Oral arguments will take place in January when the Supreme Court works to resolve the split in how dual-purpose communications should be evaluated. Here’s why the case’s outcome will be relevant to corporate counsel, and the potential impact of a ruling.

Case at Hand

The issue is before the Supreme Court now because of a grand jury subpoena issued to an unnamed law firm that provided tax advice to a client who later came under criminal investigation. The subpoena sought communications about international tax issues and the tax implications of expatriating funds. The law firm resisted turning over documents that it claimed reflected legal advice provided to its client.

The government moved to compel the disclosure and hold the law firm in contempt. The district court granted the requests. The dispute made its way to the Ninth Circuit, which also ordered the materials to be turned over.

The Ninth Circuit analyzed the dual purpose of the communications and determined that the materials were not privileged because the “primary purpose” of the communications was to provide business tax advice, not legal advice.

Purpose Matters

Courts use two different tests to evaluate claims of attorney-client privilege where communications involve both business and legal advice.

At issue is whether the “primary purpose” of a communication is to provide legal advice, or whether it is enough if the legal advice was only a “significant purpose” of the dual-purpose communication. If the “primary purpose” test holds, it will be harder to invoke attorney-client privilege because it requires parsing out and then proving the main reason for a communication.

The “significant purpose” test, on the other hand, better comports with the practical workings of today’s in-house counsel and alleviates the judicial burden of unpacking and weighing the relative implications of the messages in a communication.

One test, the “primary purpose” test used by the Second, Fifth, Sixth, and Ninth Circuits, requires the court to find the main and primary reason for the communication. If the primary purpose is to provide legal advice, and the other requirements for an attorney-client privilege are present, then the communication is protected.

The “significant purpose” test applies a somewhat broader view and serves to protect more communications. Then-D.C. Court of Appeals Judge Brett Kavanaugh articulated the test in In re Kellogg Brown & Root, Inc. He asked whether providing legal advice was one of the primary purposes of the communication. In other words, “if one of the significant purposes of the [communication] was to obtain or provide legal advice,” the privilege will apply.

As Kavanaugh noted, trying to find one primary purpose in a communication conveying overlapping legal and business advice can be an “impossible task” such that it is not even “correct for a court to presume that a communication can have only one primary purpose.” Often it is “not useful or even feasible to try.”

While broader, the significant purpose tests still have limits, and courts using it have still required the legal purpose to be significant, along with all the other required attributes necessary to warrant attorney-client protection.

Importance to In-House Counsel

The issue matters to in-house counsel and all counsel because attorney-client privilege is sacrosanct. It promotes “full and frank communication between attorneys and their clients,” which is the linchpin of an attorney’s service and “thereby promote[s] broader public interest in the observance of law and administration of justice,” according to the majority opinion in Upjohn vs. the United States (1981).

Unlike other confidentiality doctrines, once attached, attorney-client privilege is ironclad. It does not give way to overriding policy reasons for revealing the information. An attorney’s work product may be turned over where necessary under certain circumstances; attorney-client material may not be turned over.

It is also an important part of everyday in-house work. Corporate counsel play significant legal and business roles and regularly create communications that contain both legal and business advice. It would be burdensome and futile to try and keep those roles and purposes separate.

At the same time, there is a legitimate interest in protecting attorney-client privilege from being abused, and ensuring that properly discoverable information is not being shielded merely because an attorney played some part in the communication.

The Supreme Court has the opportunity to recognize the way modern in-house attorneys work and protect their communications without overly burdening the courts as they evaluate claims of privilege.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Adam Shaw is administrative partner at Boies Schiller Flexner. He solves complex business and consumer disputes in courts and regulatory proceedings nationwide, tries cases to verdict before juries and judges, and advises general counsel and corporate boards about duties and responsibilities.