- Law firms
(Reuters) - The U.S. Supreme Court agreed on Monday to take up an issue with profound consequences for lawyers who advise clients on complex issues with both legal and business implications.
The justices granted review of In re Grand Jury, a January 2022 ruling in which the 9th U.S. Circuit Court of Appeals held that attorney-client privilege does not shield communications with the primary purpose of providing business advice, even if the communication also offers legal advice.
The 9th Circuit declined in Grand Jury to adopt the D.C. Circuit’s more expansive privilege test from 2014’s In re Kellogg Brown & Root Inc, which held that privilege applies to documents with a dual business and legal purpose as long as legal advice was a primary purpose of the communication between the lawyer and client.
Now the Supreme Court will presumably have to reconcile those two decisions.
The 9th Circuit case involved a grand jury subpoena to an unnamed law firm that specializes in international tax issues, including advising clients on the tax consequences of expatriation. The grand jury was conducting a criminal investigation of one of the firm’s clients. The firm, according to its petition for Supreme Court review, withheld certain documents, claiming that privilege shielded communications that served a dual purpose of providing the client with legal advice about taxes while also facilitating the preparation of the client’s tax returns.
The 9th Circuit disagreed, ordering the law firm to produce documents that had the primary purpose of providing business advice. The appeals court took note of the D.C. Circuit’s more expansive view of privilege in the Kellogg case, but said that it did not need to adopt the Kellogg standard — which arose in the context of an internal investigation — in a tax case, since precedent has already established that general tax preparation advice, even from lawyers, is not typically privileged.
The unnamed law firm told the Supreme Court that the 9th Circuit’s test is unworkable in real life, when clients routinely seek advice from their lawyers on issues with both business and legal considerations. Munger, Tolles & Olson, which represents the unnamed law firm, argued that the 9th Circuit’s Grand Jury decision puts trial courts in the unenviable position of having to weigh the legal and non-legal implications of individual communications in order to decide, after the fact, which purpose predominated.
The law firm said the D.C. Circuit’s Kellogg test is much more sensible because it asks only if legal advice was a primary reason for the communication, without requiring the trial court to weigh the relative significance of the document’s business and legal purposes.
The law firm’s petition for Supreme Court review was no doubt boosted by its frequent references to the author of the D.C. Circuit’s Kellogg opinion: Justice Brett Kavanaugh, who wrote Kellogg when he was a judge on the D.C. Circuit.
The petition also benefited from three strong amicus briefs asserting that the 9th Circuit test is ill-suited for the modern reality of representing clients in complex matters. The U.S. Chamber of Commerce, the Washington Legal Foundation and the California Lawyers Association told the Supreme Court that the competing 9th and D.C. Circuit privilege tests — as well as a wild-card 7th Circuit holding that tax advice is never privileged — have left practitioners scratching their heads about whether their client communications are susceptible to discovery.
“Most fundamentally, the 9th Circuit's single-purpose standard does not reflect the modern role that lawyers play in advising businesses,” wrote the Chamber’s lawyers at Williams & Connolly. “Legal issues often arise in analyzing larger business issues. When legal and business issues are discussed in the same communication, the reasons for protecting the confidentiality of legal communications do not suddenly evaporate.”
The Washington Legal Foundation’s amicus brief highlighted the role of in-house lawyers, whose advice to corporate executives frequently mingles business and legal considerations. The group argued that the 9th Circuit’s test will chill those discussions: “There is no reason,” the amicus brief said, “for in-house counsel to give legal advice if communications can later be disclosed during a government investigation or civil litigation.”
The U.S. Justice Department did not respond to my query on the Supreme Court’s grant of review. Its opposition brief focused on the tax context of the 9th Circuit case, arguing that courts already construe privilege narrowly in tax cases and the 9th Circuit’s decision was rooted in the particular facts of the tax advice provided to the unnamed client.
If you are a regular reader of my column, however, you know that the 9th Circuit’s Grand Jury test is not limited to tax cases. I told you last week about a fight between Apple Inc and shareholder lawyers over internal Apple documents, including emails between CEO Tim Cook and Apple’s general counsel as the company weighed an unusual public revision of revenue estimates in late 2018. The trial judge in the Apple class action, U.S. District Judge Yvonne Gonzalez Rogers of Oakland, held last month that the disputed documents are not privileged under the 9th Circuit’s Grand Jury test because their primary purpose was business advice, not legal counsel.
After Rogers refused to certify an interlocutory appeal, Apple on Friday filed a mandamus petition at the 9th Circuit. Its lawyers from Orrick, Herrington & Sutcliffe argued that Rogers misapplied the Grand Jury test — but, more broadly, urged the 9th Circuit to adopt the D.C. Circuit’s Kellogg test and clarify that privilege applies whenever legal advice is a primary purpose of corporate communications.
It's not clear how Monday’s Supreme Court grant will affect the privilege dispute in the Apple case, in which shareholders allege that the company deceived investors about weakening demand for iPhones in China. James Kramer of Orrick did not respond to my query about the justices agreeing to take up the Grand Jury case.
The Grand Jury case isn’t likely to inspire protests on the steps of the Supreme Court or to prompt headlines about ideological divisions among the justices, but for lawyers across a wide spectrum of practice areas, it’s actually one of the most important cases of the term.
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