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Litigation News

Litigation News | 2023

Dual-Purpose Communications: Separating Legal and Business Advice

Onika K. Williams

Dual-Purpose Communications: Separating Legal and Business Advice
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The primary purpose of a dual-purpose communication must be to give or receive legal advice, as opposed to business advice, to be protected by the attorney-client privilege, a federal appellate court has held. The ruling resolved a split among that circuit’s lower courts regarding which test to apply to privilege claims for dual-purpose communications. However, the decision adds to a circuit split of competing privilege analyses of dual-purpose communications. ABA Litigation Section leaders see this case as a reminder to endeavor to differentiate legal advice from business advice to establish definitive boundaries for privileged communications.

Attorney-Client Privileged Communications or Not?

The conflict in In re Grand Jury began when a company and a law firm were served with grand jury subpoenas requesting documents and communications related to a criminal investigation. The person of interest in the investigation was the owner of the company and a client of the law firm. In response to the subpoenas, the company and law firm each produced some documents but withheld others, claiming attorney-client privilege and the work-product doctrine.

The government moved to compel production of the withheld documents. The U.S. District Court for the Central District of California granted the motion in part, finding that the documents were either not protected by any privilege or were discoverable pursuant to the crime-fraud exception. The company and the law firm disregarded the court’s ruling and continued to withhold the disputed documents.

Subsequently, the government filed motions to hold both the company and the law firm in contempt. The district court again granted these motions, and the company and the law firm both appealed to the U.S. Court of Appeals for the Ninth Circuit.

“Primary Purpose” Test for Dual-Purpose Communications

The Ninth Circuit examined two tests that courts have adopted to analyze whether the attorney-client privilege applies to dual-purpose communications: the “primary purpose” and “because of” tests. Under the “primary purpose” test, courts examine “whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice.”

The “because of” test typically applies to the work-product doctrine and does not consider whether litigation was a primary or secondary purpose for a communication. Instead, the “because of” test “considers the totality of the circumstances and affords protection when it can fairly be said that the document was created because of anticipated litigation and would not have been created in substantially similar form but for the prospect of that litigation.”

The Ninth Circuit held “that the primary-purpose test applies to attorney-client privilege claims for dual-purpose communications” and affirmed the district court’s order holding the company and the law firm in contempt. The court rejected the company and the law firm’s argument that the “because of” test should be used. It concluded that this would be a new test for attorney-client privilege in the context of dual-purpose communications, and the company and the law firm provided no persuasive reason for the court to abandon the common-law rule of the privilege, “which focuses on the purpose of communication” and “not its relation to anticipated litigation.”

The appellate court also rejected the company and the law firm’s argument that it should adopt “a primary purpose” test instead of “the primary purpose” test, relying on the U.S. Court of Appeals for the District of Columbia’s articulation of that test in In re Kellogg Brown & Root, Inc. In Kellogg, a case involving a corporate internal investigation for both legal and business reasons, the D.C. Circuit used the “significant purpose” test to evaluate whether the attorney-client privilege applied to dual-purpose documents and asked, “Was obtaining or providing legal advice a primary purpose of the communication?” The D.C. Circuit stated that it may not be “useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B.”

The Ninth Circuit stated that while it saw the merits of the Kellogg decision and the “significant purpose” test, it saw no need to adopt it, as Kellogg specifically dealt with a corporate internal investigation, and its reasoning did not apply equally in the tax context. Additionally, the Ninth Circuit pointed out that none of the other circuits have openly adopted Kellogg, and the “substantial purpose” test would change the outcome only in close cases where the legal purpose was just as significant as the nonlegal purpose, which was not the case in In re Grand Jury.

Last, the court rejected the government’s suggestion that dual-purpose communications in the tax context could never be privileged. The Ninth Circuit acknowledged that the U.S. Court of Appeals for the Seventh Circuit has expressed this view in United States v. Frederick, but stated that the case law in the Ninth Circuit does not take this view.

The company and the law firm filed for a writ of certiorari before the U.S. Supreme Court. The high court granted certiorari and oral arguments were held in the case. Subsequently, the Supreme Court dismissed the case as improvidently granted.

Clear Boundaries Needed for Privileged Communications

Litigation Section leaders observe that this case recognizes the nuances of practicing law in today’s complex regulatory environment. “This decision underscores the importance of recognizing the unique policy goals of the attorney-client privilege, which is rooted in fostering open, honest communication between a client and their attorney to facilitate the provision of sound legal advice,” states Robin Nunn, New York, NY, cochair of the Distance Learning Subcommittee for the Litigation Section’s Pretrial Practice & Discovery Committee.

The regulatory environment is further complicated because lawyers may be asked to offer legal advice and serve as business advisors to clients. “Lawyers, and those communicating with them, often misunderstand the scope of the attorney-client privilege. This is particularly true when lawyers are regularly asked to wear dual hats and advise on intertwined legal and business decisions,” explains Anne Marie Seibel, Birmingham, AL, the Section’s Chair-Elect.

Section leaders advise practitioners to specifically document their legal role and legal advice in communications early and often to help identify privileged communications. “As outside counsel, it is a best practice when entering into an engagement that could have dual business and legal purposes to document your legal role at the outset,” advises Seibel.

This advice applies to in-house attorneys as well. “It can be a common misconception among business teams that adding a lawyer to the conversation makes the communication privileged. Therefore, it is important to explain the realities of how nuanced privilege decisions are to your business team so that they can consider the framework courts use when communicating,” warns Seibel. If you are in-house counsel and you have been added to an email chain, “if you do have legal advice to provide, it is helpful to document in writing that you acknowledge your inclusion was a request for legal advice and are responding for that purpose,” she illustrates.

When it comes to protecting privileged communications, it is almost impossible to be too careful. “Practitioners should strive to differentiate legal advice from business advice, keeping them in separate communications to allow a clear demarcation of privileged content. Legal advice should be explicitly flagged, using clear language, headers, labels, or other distinguishing methods,” counsels Nunn.