Earlier this week, the Supreme Court heard oral argument in In re Grand Jury, a case you may not have heard much about, but one that may have important implications for attorneys and businesses nationwide.
The fact pattern may sound familiar. A client retained a law firm to advise on potential criminal liability. As part of that engagement, the firm provided advice that simultaneously constituted legal advice and non-legal (business) advice. In particular, the firm both advised the client on how to comply with tax laws (the legal advice) and instructed the client on how to prepare its tax returns (the business advice). In assessing whether these “dual-purpose” communications were privileged, the Ninth Circuit applied a “primary-purpose” test, which treats as privileged only those communications where it is later determined that the primary purpose of the communication was to seek or render legal advice. The primary-purpose test is rooted in common law, and while there are different variations of the test, this test is the most common test used by lower courts to determine if dual-purpose communications are privileged.
At the Supreme Court, the law firm argued that this primary-purpose test is a poor fit for the reality of modern legal practice. The primary-purpose test requires a judge to compare the relative significance of the legal purpose to the non-legal purpose of the communication, and only if the legal purpose significantly outweighs the non-legal purpose may the communication be deemed privileged. The law firm instead urged the Supreme Court to adopt the “significant-purpose” test, which treats as privileged communications for which legal advice was a significant purpose, even if not the primary one. This test was established by a 2014 D.C. Circuit opinion, In re Kellogg Brown & Root, written for the court by then-Judge Brett Kavanaugh. Under the significant-purpose test, the firm argues, the documents at issue in In re Grand Jury would have been deemed to be privileged, because a court reviewing the documents could find that the rendering of legal advice was a significant purpose for the communication, without the need to draw a rigid line between legal and non-legal purposes.
The decision in In re Grand Jury will have important practical consequences. Attorneys who represent businesses and businesspeople often advise their clients in areas where their legal communications have a dual purpose. It’s easy to think of examples: when a lawyer advises a company on when to announce a negative event, the lawyer may be considering both the business implications of when to time the announcement, to avoid negative publicity and potential harm to the stock price, as well as ensuring that the disclosure is not made so late that it triggers legal liability under the securities law. Likewise, a lawyer advising a client on a potential compliance breach, particularly one that could result in regulatory interest, might give advice on the scope of the client’s exposure along with recommendations for the client to enhance its compliance and internal-controls functions for the future. If the Court endorses the primary-purpose test that the district court and Ninth Circuit applied, attorneys will need to carefully assess whether their communications are primarily about legal advice. If it’s a close call, attorneys who are especially risk averse may want to place their legal advice in a separate communication in order to dispel any doubt over whether the communication has multiple purposes. But as anyone who’s practiced in a fast-paced corporate environment knows, that’s often easier said than done. Clients often need advice quickly and cogently, and there’s not always time to scrutinize client communications and hive off any advice that might later be found by a court to constitute business advice.
Beyond the additional work for attorneys, and as Chief Justice John Roberts noted during oral argument, the primary-purpose test may also create additional work for courts. On the other hand, Justice Elena Kagan took a different view, saying, “if it ain’t broke, don’t fix it.” Justice Kagan added that before then-Judge Kavanaugh’s opinion in 2014, first suggesting an alternative significant-purpose test, no one questioned what the correct test was; so, she asked, why should courts change it now?
If the primary-purpose test becomes the official test for privilege under federal law, businesses will have to adapt. They may, for instance, look to implement or update internal policies and training for all employees in order to ensure privileged information is not put at risk by the crossing of legal and non-legal communications. Whatever the outcome, we are staying on top of the case and will have a comprehensive summary, along with practical recommendations for clients, when the Court issues its decision.
