Do In-House Attorneys Talk ‘Two’ Much? – SCOTUS Will Decide

When in-house counsel gives legal advice mixed with business advice, their two roles open themselves up to potentially discoverable communications. Although, at least in the United States, in-house attorney-client communications are privileged, the communications must be “legal” in nature. Unfortunately for counsel, courts do not agree on what constitutes a legal communication – particularly when the communications have a mixed purpose. Under the current state of confusion, the uncertainty many in-house lawyers have about whether they are speaking or writing too much is understandable. At long last, the Supreme Court seems poised to add some clarity to the situation.

The recent grant of certiorari in the Ninth Circuit’s decision, In re Grand Jury, presents the opportunity for SCOTUS to provide guidance on the scope of attorney-client privilege for “dual purpose” communications – those communications that provide both legal and non-legal advice. Although In re Grand Jury does not involve in-house lawyers, the question before the Court applies to all attorneys but may be particularly meaningful to those who practice in house: if a communication involves both legal and non-legal advice, when is it protected by attorney-client privilege? As most in-house counsel know, dual purpose communications arise frequently in today’s business landscape. Company counsel often wear multiple hats, participate in business discussions, and rely on business matters to provide informed legal guidance. As we await the Supreme Court’s decision in In re Grand Jury, in-house counsel should remain nimble and aware of available preventative steps to protect their mixed communications from exposure under both U.S. and foreign law.

In re Grand Jury

Earlier this month, the Supreme Court decided to review In re Grand Jury, 23 F.4th 1088 (9th Cir. 2021), which arises from a grand jury subpoena issued to an unnamed tax law firm in connection with the DOJ’s criminal investigation of the law firm’s client. In response to the subpoena, the law firm produced more than 20,000 pages but withheld certain documents pursuant to an assertion of attorney-client privilege. These withheld communications related to the preparation of the client’s tax returns, as well as legal advice pertaining to taxes.

Practitioners remain hopeful that the High Court’s decision in In re Grand Jury will resolve a three-way circuit split concerning the proper test courts should apply to determine privilege for dual purpose communications, like those in which in-house counsel often participate. The three tests are referred to – somewhat confusingly – as (1) “the primary purpose test,” adopted by the Second, Fifth, Sixth and Ninth Circuits; (2) “a primary purpose test,” adopted by the D.C. Circuit; and (3) a “per se test,” adopted by the Seventh Circuit. In practice, “the primary purpose test,” applied by the trial court and affirmed by the Ninth Circuit in In re Grand Jury, conducts a fact-specific examination to determine whether the predominant purpose of the communication is to seek or provide legal advice. The In re Grand Jury court found the primary purpose of the withheld documents was to facilitate the preparation of the client’s tax returns (not legal advice) and ordered the law firm to produce the documents.

The D.C. Circuit has adopted a more encompassing version called “a primary purpose test,” which in effect permits more in-house attorney communications to receive privilege protection. The D.C. Circuit’s test considers whether legal advice is one of the significant purposes of a multipurpose communication, without requiring that legal advice is the leading purpose. For example, in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014), documents arising from an internal investigation led by company lawyers were eligible for privilege despite the fact that the investigation was conducted pursuant to a company compliance program and company policy. Under “a primary purpose test,” communications such as these that have a predominant business purpose still receive protection if a significant purpose of the investigation was to obtain or provide legal advice.

The Seventh Circuit’s “per se test,” adopted in United States v. Frederick, 182 F.3d 496 (7th Cir. 1999), is the most restrictive. Whether this test applies outside of the tax context remains an open question in the Seventh Circuit. Under this test, a communication that serves both legal and non-legal purposes, even if the legal purpose is dominant, per se is not privileged.

This three-way circuit split has persisted for years in part because these kinds of privilege issues do not often get litigated. Multiple tests pose particular challenges for in-house counsel whose companies operate across the U.S. Communications that may be protected in one state may not be privileged in another. In re Grand Jury is poised to resolve the split.

Potential Prospects for the Supreme Court’s Decision

The Supreme Court can adopt one of the three existing tests for dual purpose communication privilege or – as is often its wont – create its own. For instance, the Court may adopt its own version of the “because of” test and analyze whether, under the totality of circumstances, the communication was made because of the need to give or receive legal advice. Another possibility is the Court declines the opportunity to clarify privilege law generally and limits its holding to tax-related communications based on the facts at issue in In re Grand Jury. Practitioners – particularly those that work in-house – remain hopeful that because of the broad nature of the question presented to the Supreme Court and the potential adoption of the D.C. Circuit test, one which was applied to in-house counsel communications by then-Judge Kavanaugh in In re Kellogg Brown, the In re Grand Jury decision will provide much needed clarity concerning dual purpose communication privilege across industries.

As a practical matter, the Supreme Court’s adoption of the D.C. Circuit’s “a primary purpose test” has the most appeal. The test is less subjective than the Ninth Circuit’s test, meaning that it facilitates greater predictability and is easier for practitioners to implement. Counsel’s communications often have multiple equal and prevailing purposes, and a less subjective test would reduce the costs and time of litigation caused by privilege disputes. The effect of this test in practice will allow in-house counsel to address multifaceted issues without making a conscious, and often impossible, effort to separate legal from non-legal advice. In-house counsel wearing multiple hats will be able to provide fully informed guidance – the very reason American law protects attorney-client communications. A criticism of the D.C. Circuit’s test, however, is that its application might allow companies to funnel information through in-house lawyers and shield it from disclosure.

If the Court adopts the Ninth Circuit’s “the primary purpose test” for dual purpose communications, business organizations with attorneys fulfilling two or more roles – “dual hatted” counsel – may possibly forfeit privilege when counsel’s legal communications mix with business or other non-legal advice. The Seventh Circuit’s “per se test” leaves no ambiguity – any mix of legal and non-legal advice destroys the privilege and permits discovery. These two tests are particularly problematic for today’s company counsel that often fill both legal counsel and compliance officer roles, as well as offer advice on business development, regulatory, risk management, and employment matters. Counsel may also be copied on communications seeking business advice with legal implications or be asked to weigh in on the company’s compliance with a particular regulation or decision to terminate an employee. Options exist, however, to mitigate the loss of privilege even under these more restrictive tests.

Proactive Steps to Mitigate Loss of Privilege

As we await the Supreme Court’s decision, business organizations and their attorneys can take steps to mitigate the risk of creating discoverable communications regardless of which test may apply. The safest, but perhaps most difficult, solution is for counsel to create separate communications for legal and non-legal advice. For example, if counsel is asked a question about a business matter that implicates legal considerations, counsel can create one email thread concerning the business matter and one addressing legal guidance. To execute this approach, counsel will be required to pause and consider which hat they have on before providing a response.

Companies also may assist counsel by instructing employees and clients to resist copying counsel on non-legal emails and direct to counsel only legal questions. Aside from the risk of incorrect assessments by business counterparts and the added inefficiencies of this approach, the reality is that legal advice often cannot be separated from business concerns. Under these circumstances, communications with counsel should include language that reflects a primary legal purpose. For example, the request should explicitly state it is one for legal advice and counsel’s response should clarify the purpose, such as “Thank you for raising these legal issues.”

A safety-net approach, and one which is not guaranteed to protect communications, but nevertheless may tip the scales, is for businesses to include a notation of legal purpose on relevant emails and company documents. The language could read “This communication is intended to seek (or provide) legal advice.” Because, however, a designation of attorney-client privilege on a document is not dispositive, this description of purpose on its own is unlikely to prevail under the Ninth Circuit’s test. Such notations also run the risk of overuse, which could weaken legitimate claims of privilege. In a close case and with proper usage, however, legal purpose language could assist a court’s determination of subjective intent.

Additional Considerations for Today’s In-House Counsel

The Supreme Court’s expected privilege decision for dual-purpose communications leaves open the question of whether international courts also may apply attorney-client privilege to such communications. As privilege law evolves in the U.S., today’s in-house counsel must remain up to date on the privilege laws of the nations in which their business organization operates. Many companies have international offices or business operations, or service clients based in multiple foreign jurisdictions. This multinational business landscape raises the possibility that foreign law may apply to in-house counsel’s communications. Application of foreign privilege law to attorney communications has often been the subject of analysis by commentators. See Latest International Assault on Attorney-Client Privilege Causes Headaches for Corporations’ Lawyers; Clients in Cross-Border Investigations; Considerations Relating to Privilege; Attorney-Client Privilege in International Investigations.

Although business organizations benefit by utilizing company counsel for multiple roles and across jurisdictions, the reward does not come without significant risks. Executives may assume that despite dual roles or operations in multiple countries, all communications with in-house counsel will be protected by attorney-client privilege. This assumption leaves counsel on the front lines to protect against creating discoverable information. An argument date for In re Grand Jury has not been set. As in-house counsel await the Court’s decision this term, however, preventative steps and counsel’s fully informed understanding of the evolving nature of privilege law will be paramount to avoid opening up their communications and sensitive business information to exposure.

To read more from Robert Anello, please visit www.maglaw.com.

Emily Smit, an associate at the firm, assisted in the preparation of this blog.