Attorney-Client Privilege: The Fundamentals
Since its inception, the attorney-client privilege has served as a foundational element of our legal system by encouraging “full and frank communication between attorneys and their clients.” This privilege “rests on the need for the advocate and counselor to know all that relates to the client’s reasons for seeking representation if the professional mission is to be carried out.” Narrower than the attorney work-product doctrine, the attorney-client privilege protects “only those disclosures necessary to obtain informed legal advice which might not have been made absent the privilege.” In other words, the attorney-client privilege protects from disclosure communications made in confidence between attorneys and clients for the purpose of obtaining or providing legal services or advice.
Are Workplace Investigations Privileged?
Employers often retain outside counsel for advice and direction as they conduct investigations regarding workplace-related incidents. Even before any litigation has commenced, outside counsel may aid in the collection of facts throughout the investigation or assist in preparing for an anticipated lawsuit. When workplace-related incidents bud into lawsuits, claimants often seek to discover information collected by the employer’s workplace investigation, including underlying communications, frequently placing courts in the position to evaluate whether prelitigation communications disclosed throughout the internal investigation are protected by the attorney-client privilege.
The California Court of Appeal ruled on this issue in City of Petaluma v. Superior Court (Petaluma). In Petaluma, Waters, a female firefighter and paramedic employed by the city, voluntarily resigned, alleging that she was subjected to harassment and discrimination after she became the first and only woman to hold her position. Once Waters filed charges with the EEOC, the city attorney retained outside counsel to perform an internal investigation. The retention agreement between the city and outside counsel stated that outside counsel would “interview witnesses, collect and review pertinent information, and report to [the city] on that information.” The agreement also stated that it created “an attorney/client relationship” between the city and its outside counsel, who would use their “employment law and investigation expertise to assist [the city] in determining the issues to be investigated and conduct impartial fact-finding,” and that the investigation would be subject to the attorney-client privilege. The agreement further specified that outside counsel “will not render legal advice” based on the findings of the internal investigation.
After filing suit, Waters propounded various discovery requests seeking documents and testimony relating to the investigation, to which the city objected on the basis that these items were protected by the attorney-client privilege. The trial court granted Waters’s motion to compel, concluding that the investigation and resulting investigation report could not be protected by the attorney-client privilege because (1) the terms of the retention agreement specified that outside counsel would not render legal advice and (2) any applicable privilege had been waived because the city put the investigation at issue by asserting an avoidable consequences affirmative defense. The California Court of Appeal reversed, holding that the city had an attorney-client relationship with outside counsel, “even though counsel’s role was limited to a factual investigation and did not extend to providing legal advice” based on the results of the internal investigation. After affirming that “fact-finding which pertains to legal advice” counts as professional legal services, the court found that the factual investigation was protected by the attorney-client privilege because the “dominant purpose” of outside counsel’s representation was to provide professional legal services to the city.
Ultimately, the court in Petaluma concluded that per California state law, “an attorney-client relationship may exist when an attorney provides a legal service without also providing advice. The rendering of legal advice is not required for the privilege to apply.” The applicability of the attorney-client privilege in Petaluma ultimately turned on one factor: whether the purpose of the outside counsel’s representation could be merely to provide a legal service as opposed to legal advice. However, would the court’s analysis have changed if, in addition to legal services, the outside counsel’s representation served a nonlegal purpose? The federal circuits have yet to reach a unified approach to answering this very question.
What Are Dual-Purpose Communications?
Attorneys often wear dual or multiple hats, serving not only as lawyers but also as tax advisors, negotiators, or business consultants, just to name a few. Indeed, the ABA Model Rules of Professional Conduct, which have been adopted by most jurisdictions, task lawyers to advise their clients on nonlegal matters. Per Model Rule 2.1, “in rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation.” When communications between attorney and client serve both legal and any of the foregoing nonlegal purposes, they are considered dual-purpose communications.
Are Dual-Purpose Communications Privileged?
Presently, whether dual-purpose communications are protected by the attorney-client privilege is inconsistently analyzed, as different courts in different jurisdictions apply different tests to determine whether the privilege applies. For over a decade, there has been a three-way split among the federal circuits on dual-purpose communications: (1) they are not privileged, at least when the nonlegal purpose of the communications is to provide tax advice; (2) they are privileged if legal advice is “a primary purpose” of the communications; and (3) they are privileged if legal advice is “the primary purpose” of the communications. Additional tests are applied among state courts.
The Tax Advice Approach
In United States v. Frederick, the Seventh Circuit adopted the first of these federal approaches to dual-purpose communications, finding that dual-purpose communications are not privileged, at least when the nonlegal purpose of the communications is to provide tax advice. Frederick, a lawyer and accountant, provided both legal representation and tax preparation services to his client, the Lenzes. As part of its investigation into the Lenzes, the Internal Revenue Service summonsed various documents related to Frederick’s services, including the Lenzes’ tax returns, drafts of the returns, worksheets, and correspondence relating to the returns. Frederick objected that the dual-purpose communications between him and his client were protected by the attorney-client privilege. The Seventh Circuit disagreed, finding that “a dual-purpose document—a document prepared for use in preparing tax returns and for use in litigation—is not privileged.”
The “A” Primary Purpose Approach
In In re Kellogg Brown & Root, Inc., the D.C. Circuit adopted the second approach to dual-purpose communications, finding that they are privileged if legal advice is “a primary purpose” of the communications. In Kellogg, defense contractor KBR conducted an internal investigation overseen by the company’s in-house legal department. KBR argued that the internal investigation was conducted for the purpose of obtaining legal advice and that various internal investigation documents were, therefore, protected by the attorney-client privilege. Attempting to apply the “primary purpose” test, the trial court erroneously applied a more stringent “but for” standard to resolve the privilege dispute, reasoning that “the primary purpose of a communication is to obtain or provide legal advice only if the communication would not have been made ‘but for’ the fact that legal advice was sought.” Seeking to rectify the trial court’s erroneous application of the “primary purpose” test, the D.C. Circuit laid the framework for a new dual-purpose communications test. The court articulated its new test as follows: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” Applying this broader test, the D.C. Circuit found that because “one of the significant purposes” of KBR’s internal investigation was to obtain legal advice, the internal investigation files were protected by the attorney-client privilege.
The “The” Primary Purpose Approach
The third and final of the federal circuit approaches was utilized in In re Grand Jury, wherein the Ninth Circuit held that dual-purpose communications are privileged when legal advice is “the primary purpose” of the communications. Met with a dispute over whether the attorney-client privilege protected a law firm’s dual-purpose communications containing both legal advice and tax advice, the Ninth Circuit set out to establish a consistent standard for determining when the attorney-client privilege applies to such communications, as district courts throughout the Ninth Circuit previously applied multiple tests such as the “because of” and “primary purpose” tests to resolve these disputes. In In re Grand Jury, the Ninth Circuit rejected use of the “because of” test (i.e., dual-purpose communications are privileged when they are made “because of” anticipated litigation), reasoning that its broader approach would “create perverse incentives for companies to add layers of lawyers to every business decision” to avoid disclosing key documents in future litigation. Rather, the court adopted the majority view that the “the primary purpose” test should be applied to dual-purpose communications, requiring courts to balance the various legal and nonlegal purposes of dual-purpose communications to evaluate whether “the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice.”
Following the Ninth Circuit’s ruling, the law firm in In re Grand Jury petitioned for writ of certiorari, which the U.S. Supreme Court granted on October 3, 2022. After certiorari filings were exchanged, on January 9, 2023, the Supreme Court held oral argument. Throughout the roughly one-hour-long proceeding, even the best and brightest legal minds struggled to pin down the implications of selecting one dual-purpose test over another. At one point, Justice Gorsuch pled for clarification, “I’ll be honest, I’m struggling this morning.” After receiving that clarification, he jokingly admitted, “I am really confused now.” Two weeks later, the Supreme Court dismissed the previously granted writ of certiorari as improvidently granted, leaving courts across all jurisdictions with more questions than answers.
Industry-Specific Considerations
The ambiguity left behind in the wake of In re Grand Jury has particularly potent implications on practitioners in the sports and entertainment industries, particularly for in-house attorneys conducting internal workplace investigations. Given the increasingly complex regulatory landscape in these industries, the various services provided by in-house counsel often blur the lines between legal and nonlegal, as sports and entertainment lawyers frequently juggle a whole host of considerations when they render legal advice, ranging from business to public relations to taxes and beyond. For example, practitioners in collegiate sports must consider a variety of responsibilities, including maintaining regulatory compliance, conducting workplace and Title IX investigations, and balancing public relations considerations.
Workplace Investigations Directed by In-House Counsel
This balancing act frequently performed by in-house counsel was put on full display in U.S. Equal Employment Opportunity Commission v. George Washington University (George Washington). This case stems from a university employee’s gender discrimination complaint wherein Williams, who served as executive assistant to the university’s former athletic director, alleged that the athletic director gave preferential treatment to another male employee in the university’s Athletics Department. In March 2016, Williams filed an internal grievance with the university’s Equal Employment Opportunity Office. Fair, an attorney, served as the assistant vice president of equal employment opportunity and employee relations, a position in which she did not represent the university as counsel. After receiving and reviewing Williams’s internal grievance, Fair, suspecting litigation would ensue, contacted the Office of the General Counsel to obtain legal advice on how to approach an internal investigation into Williams’s allegations. The general counsel advised Fair throughout the interview process and discussed Fair’s preliminary findings. In July 2016, the university hired outside counsel Saul Ewing to take over Fair’s internal investigation and draft a confidential report.
In the resulting litigation, the EEOC, which filed suit against the university on behalf of Williams, moved to compel the university to produce all documents related to the university’s internal investigation. The EEOC argued that none of these documents were privileged because the internal investigation “was not conducted for the purpose of securing legal advice” but rather was “conducted in the regular business of the [Equal Employment Opportunity] Office.” Applying the “a primary purpose” test for dual-purpose communications as applied by the D.C. Circuit in Kellogg, the George Washington court found that “obtaining legal advice was, at least, ‘a primary purpose’ of the internal investigation and the documents from that investigation.” The court went as far as to conclude that Fair’s interview notes were privileged because “the investigation was conducted at the direction of attorneys.” Would this result have been different if the court had used an alternative dual-purpose communications standard such as the majority “the primary purpose” test? How would the George Washington court’s analysis have changed if the entire investigation was conducted by outside counsel? By looking at a similar case situated in a different jurisdiction using an alternative dual-purpose communications test, we can get closer to answering these questions.
Workplace Investigations Directed by Outside Counsel
Doe 1 v. Baylor University (Baylor University) is yet another college athletics case wherein a claims investigation sparked such a privilege dispute, this time in the Western District of Texas. As one Baylor football player was convicted of raping a former Baylor soccer player, rumors and questions began to swirl about what the University’s football and athletic programs knew and when they knew it. As a response to this public backlash, the Baylor University Board of Regents (Baylor) retained outside counsel at Pepper Hamilton, LLP to conduct an independent investigation of “Baylor’s institutional responses to Title IX and related compliance issues.” Following the Pepper Hamilton investigation, Baylor disclosed a two-document press release summarizing so-called “salient findings, which are being shared publicly to reflect transparency and accountability.”
Seeking production of materials Baylor provided to Pepper Hamilton in connection with the investigation, the plaintiff argued that the materials were not subject to the attorney-client privilege “because Pepper Hamilton was not providing legal services in anticipation of litigation, but conducting an external investigation to deal with a public relations scandal.” Looking to Baylor’s engagement letter, which indicated that Pepper Hamilton was hired to review “compliance issues” with federal laws, the court found that Baylor retained Pepper Hamilton “to obtain legal advice.” To further evaluate the purpose of Pepper Hamilton’s representation for purposes of the attorney-client privilege, the court gave weight to several declarations from Baylor and Pepper Hamilton personnel, which affirmed that “communications with Pepper Hamilton in connection with its investigation were made for the purpose of facilitating the rendition of professional legal services for Baylor.” Weighing this evidence, the court found that the communications between Baylor and Pepper Hamilton were subject to the attorney-client privilege.
Press Releases and Waiver of Privileged Investigations
If Baylor’s communications with Pepper Hamilton were deemed privileged, how could Baylor nonetheless be ordered to produce these materials? Recall Baylor’s press release. The court found that Baylor’s press release “disclosed, among other things, attorney-client communications” and that this disclosure amounted to a waiver of the attorney-client privilege. Even though Baylor’s press release contained a summary of “salient” factual and legal findings and not the substance of the communications themselves, the court nonetheless found that the exact contents of privileged communications need not be revealed to constitute waiver.
Conclusion
The decisions in George Washington and Baylor are only the tip of the iceberg in demonstrating the complexity judges and practitioners alike face in determining the applicability of the attorney-client privilege to dual-purpose communications derived from internal investigations in the sports and entertainment industries. As these industries continue to shift and implement new developments and technologies, an increasingly complex regulatory landscape requires attorneys to make more extralegal considerations than ever before when providing legal advice. That said, without a unilateral approach following the Supreme Court’s dismissal of In re Grand Jury, federal and state courts will continue to take diverse approaches to solve these complicated privilege disputes. Both in-house and outside counsel advising clients in the sports and entertainment industries must take all of these diverse approaches in mind, closely follow this continuously developing area of the law, and err on the side of caution when drafting engagement letters, advising on the creation of press releases, or directing internal workplace investigations.