?The U.S. Supreme Court heard oral arguments Jan. 9 in a case about the scope of attorney-client privilege when there are “dual-purpose communications”—discussions that are partly about legal matters and partly about business.
Once issued, the court’s decision “could be incredibly important to employers and HR professionals,” said Richard Kiely, an attorney with Holland & Hart in Denver and Jackson, Wyo.
Some of the examples referenced in the oral arguments were communications about settling claims against a company; internal investigations conducted by in-house counsel, such as employment-related investigations; and even the common situation when an attorney might sit in on a business meeting simply to observe and listen for potential legal issues, Kiely noted.
In addition, this issue comes up frequently in the context of tax advice, where the lawyer’s advice might include both a legal analysis of the tax code along with nonprivileged tax preparation or business-specific considerations. The dispute underlying this case, In re Grand Jury, itself arose in the context of tax advice.
Issue in the Case
The issue in In re Grand Jury is when are dual-purpose business and legal communications protected by the attorney-client privilege and when are they not, explained Mary-Christine “M.C.” Sungaila, an attorney with Buchalter in Irvine, Calif., and San Diego. The court will address the following question: Should the privilege encompass communications where the client’s single primary purpose was to seek legal advice, or should it extend to communications where a significant purpose was seeking legal advice?
The primary purpose test is a stricter test; it requires more exacting proof that a document was written for a particular purpose, noted Adam Shaw, an attorney with Boies Schiller Flexner in Albany, N.Y., in an interview. “If adopted, it stands to reason that fewer documents will be protected.”
At argument, many of the justices appeared skeptical of the significant purpose test, Sungaila told SHRM Online. “This is concerning, since companies would benefit from a test that mirrors the reality of mixed business and legal communications in the modern era,” she said.
Petitioner’s Argument
The 9th U.S. Circuit Court of Appeals used the primary purpose test. “This court should reverse the 9th Circuit and adopt the significant purpose test,” argued Daniel Levin, an attorney with Munger, Tolles & Olson in Los Angeles, who was representing the law firm in this case that was seeking to shield fewer than 50 documents that had dual-purpose communication from being turned over to the government by claiming the attorney-client privilege.
The significant purpose test protects clients’ ability to seek bona fide legal advice from lawyers in situations where legal and nonlegal purposes can’t be separated, he said. “The 9th Circuit’s primary purpose test denies the privilege to communications that have a legal purpose anytime a court later finds that the nonlegal purpose outweighs the legal purpose even by a little bit.”
He said that the primary purpose test requires parties and courts to disentangle competing purposes and identify the single most important one. “That is an inherently impossible exercise.”
The primary purpose test will “create a chill on that communication because a lawyer who takes the test seriously is going to need to say to her client, ‘I can’t be confident here that this is going to be privileged and a confidential communication,’ ” Levin said.
But Justice Sonia Sotomayor said, “The vast majority of states use the primary purpose test.” She later added, “I don’t know why lawyer advice that’s predominantly business should be protected simply because you sneak in some minor legal consideration.”
Levin countered that there are a few states, such as Texas, that use significant purpose.
Sotomayor responded, “The vast majority don’t.” She added, “We should be looking at what those state courts are doing, not dictating to them what to do.”
She noted, “You make this claim that it’s so difficult, but I really haven’t seen much to say that it’s difficult to administer.”
Justice Samuel Alito Jr. asked, “You’re not really arguing for a significant purpose; you’re arguing for any legitimate purpose?”
Levin said, “I read our position as saying, if it’s legitimate and bona fide, it would qualify as significant.” He added, “I understand the court could say no, there’s some higher quantum.”
Alito later said, “I think you’re trying to have it both ways. Significance concerns importance. Maybe it’s a lot lower perhaps than primary, but it does involve a certain quantum of importance.”
Justice Elena Kagan asked if Levin would comment on “the ancient legal principle, if it ain’t broke, don’t fix it.”
Government’s Argument
Masha Hansford, assistant to the solicitor general at the U.S. Department of Justice in Washington, D.C., said, “Reason and experience points to the primary purpose test, which has been used, as the discussion this morning indicates, for decades by a huge body of state and federal cases.”
She added that the petitioner introduced a so-called freestanding significant purpose test, which, in its reply brief and again, repeatedly this morning, the petitioner acknowledged is merely a bona fide legal purpose test. Under the petitioner’s standard, “any nonpretextual legal purpose, no matter how minor, will do,” Hansford said.
She warned that this approach “would vastly expand attorney-client privilege to communications that are currently available to grand juries and to courts.”
What’s wrong with requiring if there’s an important legal purpose for the communication to be privileged? Alito asked.
Hansford said it would be difficult for courts to define importance. Moreover, if the test were changed, “it would be very destabilizing,” as courts have been applying the primary test for years, she said.
However, she suggested a predominant purpose test might apply in tough cases, such as an internal investigation where it is difficult to disentangle business and legal purposes.
Nonetheless, she cautioned against a “sweeping sea change” that would result from abandoning the primary purpose test.
Levin countered that saying investigations are subject to the attorney-client privilege but tax matters aren’t “is a recipe for confusion.”
