(Reuters) – The 9th U.S. Circuit Court of Appeals has opted against a test for attorney-client privilege that would have broadened the scope of the shield for communications in which lawyers provide both legal and business advice to their clients.
Monday’s ruling in In re Grand Jury resolves a split among trial courts in the 9th Circuit over two different standards for deciding whether these so-called dual purpose documents are privileged.
A unnamed law firm and its client – a company whose owner is under a criminal investigation – urged Judges Mary Murguia, Bridget Bade and Kenneth Lee to adopt a broad attorney-client privilege test borrowed from work-product privilege doctrine. (I’m being cryptic because, as I’ll explain, the opinion is pretty much stripped of identifying details about the underlying case.) Under the “because of” test advocated by the law firm and the company, attorney-client privilege would apply to all communications created in anticipation of potential litigation, even if the documents also contained business advice.
The 9th Circuit instead chose the narrower “primary purpose” test, which asks whether the primary purpose of the communication was to provide business advice. If so, attorney-client privilege does not apply.
Monday’s decision aligns the 9th Circuit with the 2nd, 5th, 6th and D.C. Circuits, which have all explicitly adopted the primary-purpose test. No appellate court, by contrast, has directed trial judges to apply the broader test based on whether documents were created because of litigation risk.
The opinion, written by Lee, explains that the attorney-client and work-product privileges are based on different policy goals: The latter is intended to protect the adversarial process by giving litigators freedom to develop legal theories without worrying that the other side will learn of their strategy. Attorney-client privilege, on the other hand, allows free communication between lawyers and clients but is not rooted in litigation.
So, according to the 9th Circuit, it doesn’t make sense to adopt a work-product privilege test in the context of attorney-client privilege. “Applying a broader ‘because of’ test to attorney-client privilege might harm our adversarial system if parties try to withhold key documents as privileged by claiming that they were created ‘because of’ litigation concerns,” Lee wrote. “Indeed, it would create perverse incentives for companies to add layers of lawyers to every business decision in hopes of insulating themselves from scrutiny in any future litigation.”
The decision affirmed a ruling by U.S. District Court Judge John Kronstadt of Los Angeles, who found that the unnamed law firm and company were in contempt because they refused to turn over dual-purpose documents to a grand jury that had subpoenaed their communications. The entire lower court privilege dispute is sealed, as is appellate briefing. The only public filing in the case is Monday’s ruling on which test applies.
As I mentioned, there’s precious little identifying information about the underlying case in the opinion, presumably because it stems from a grand jury investigation. The grand jury appears to be scrutinizing the target’s taxes, given that the U.S. Justice Department lawyers who argued in defense of the subpoena are from the DOJ’s tax division. (The opinion also noted the lower court’s conclusion that the primary purpose of the disputed documents was for the company to obtain tax advice.) The Justice Department, according to the 9th Circuit, asked the appeals court to rule that dual-purpose documents offering tax advice can never be privileged, but the panel, citing circuit precedent that privilege may apply to legal advice about tax returns, refused to go that far.
The law firm and the company were represented by Thomas Carlucci from Foley & Lardner and Evan Davis from Hochman Salkin Toscher Perez. Davis declined to comment via email. Carlucci did not respond to my query.
Even as the 9th Circuit foreclosed uncertainty about which test applies to privilege claims for dual-purpose documents, it left open a question about whether courts must determine that business advice was the overriding purpose of the document.
The D.C. Circuit held in 2014’s In re Kellogg Brown & Root Inc that the primary-purpose test does not require a showing that business advice is the foremost purpose of a communication that addresses overlapping business and legal concerns. The D.C. appeals court said it’s simply “not useful or even feasible” to ask courts “to try to find the one primary purpose in cases where a given communication plainly has multiple purposes.” As long as business advice was a primary purpose of the document, the D.C. Circuit said, privilege doesn’t apply.
The 9th Circuit said it understood the Kellogg court’s rationale but did not need to resolve the issue in this case. The Kellogg decision, it said, arose from “the very specific context of corporate internal investigations,” Lee wrote. “Its reasoning does not apply with equal force in the tax context.”
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