Key Takeaways:

• On January 23, 2023, two weeks after hearing oral argument, the U.S. Supreme Court did an about-face in a closely watched case about the scope of attorney-client privilege. The Court said that certiorari was “improvidently granted.”
• The Court’s decision to pass on this case leaves the status quo in place. As a result, the test used to evaluate whether “dual purpose” communications can properly be withheld as privileged varies by jurisdiction, with most of the states and Circuits that have addressed this issue applying the “primary purpose” test that was before the Court.

Background and Discussion

In re Grand Jury concerns a dispute between an unnamed company together with its unnamed law firm and the Government over whether the law firm was required to produce certain “dual purpose” communications—communications that had both privileged and non-privileged purposes—in a criminal tax investigation of the company.[1]

The withheld communications had a dual purpose: they allowed the firm to provide the company with legal advice concerning how to comply with tax laws, and facilitated the law firm’s “mechanical preparation” of the company’s tax returns. According to the firm, “these ‘dual-purpose’ communications included … interpretations of unsettled statutory requirements regarding whether certain assets are subject to Treasure Department foreign reporting requirements, strategies for filing amended income tax returns, and the Client’s questions about and comments on drafts submissions to the IRS advocating for the abatement of a penalty assessment.”[2]

The law firm maintained that the dual-purpose documents were privileged and the Government moved to compel their production.[3] After in camera review, the district court granted the Government’s motion in part. The Central District of California judge explained that “although communications that are only about tax return preparation are not covered by the attorney-client privilege, communications seeking legal advice about what to claim on tax returns or other tax-related legal advice may be privileged” when “the primary purpose of the communication was to obtain or provide such legal advice.”[4] The firm appealed, where the principle issue was what test to apply,[5] and the Ninth Circuit affirmed the district court’s use of the “primary purpose test.”[6]

This “primary purpose” test stands in contrast to the “significant purpose test” adopted by the D.C. Circuit in its 2014 In re Kellogg Brown & Root, Inc. decision, authored by then Circuit Judge Kavanagh.[7] There, the D.C. Circuit rejected the “primary purpose” test in favor of the more lenient “significant purpose” test, holding that a dual-purpose communication is properly withheld as attorney-client privilege if “one of the significant purposes” of the communication between the client and lawyer was to obtain or provide legal advice.[8]

On April 5, 2022, the law firm filed a petition for certiorari seeking review of the Ninth Circuit’s decision.[9] This petition described the issue as “whether a communication involving both legal and non-legal advice is protected by attorney-client privilege where obtaining or providing legal advice was one of the significant purposes behind the communication” and argued that the Supreme Court should take on the case in view of the circuit split.[10] Notably, although the briefing in In re Grand Jury largely focused on the split between the “primary purpose” and “significant purpose” tests, the Seventh Circuit has taken a different but more stringent approach – at least in the context of tax-related documents – concluding that a dual purpose tax-related document can never be privileged.[11] The Supreme Court granted certiorari on October 3, 2022.

During the January 9, 2023 oral argument, Justice Sonia Sotomayor noted that “the vast majority of states use the primary purpose test,” and Justice Elena Kagan noted that no federal appeals court until 2014 had used a different standard. Justice Kagan also asked the lawyer representing the unnamed law firm to comment on “the ancient legal principle of ‘if it ain’t broke, don’t fix it’.” Two weeks later, on January 23, 2023, the Supreme Court issued an unsigned, one-sentence Order dismissing the case, stating that certiorari was improvidently granted. As a result, there is no change to the status quo – the test used to evaluate whether “dual purpose” communications can properly be withheld as privilege varies by jurisdiction with most states and Circuits that have addressed this issue applying the “primary purpose” test.