“If It Ain’t Broke, Don’t Fix It” – SCOTUS Examines Expanding the Attorney-Client Privilege for Dual Purpose Communications

The Supreme Court is currently considering a case that could expand the scope of the attorney-client privilege in the context of dual-purpose communications – such as, in this case, communications made to a law firm that also prepares tax returns. The question before the Court is: what is the appropriate test to determine whether a communication involving both legal and non-legal advice is protected by the attorney-client privilege? This case, In re Grand Jury, concerns documents that the Petitioner, a law firm specializing in tax law, claims are privileged. Petitioner asserts that these allegedly privileged materials concern tax law issues that arise upon expatriation from the United States and include legal advice regarding determining ownership of cryptocurrency assets, appropriate methods for asset valuation, and tax filing strategies. The Petitioner law firm also prepared filings for the client, an early promoter of bitcoin, including a certification of compliance with expatriation tax requirements.

In the case below, Petitioner law firm and its client were served with a grand jury subpoena seeking documents in connection with a criminal tax investigation of the firm’s client. The law firm and the client produced records but also invoked the attorney-client privilege and work product doctrine to withhold documents. The government moved to compel the law firm to produce the withheld records, and, following in camera review, the district court granted the government’s motion in part. Notably, the district court explained that it considered advice regarding potentially unsettled accounting questions like the tax treatment of cryptocurrencies to be legal, rather than accounting, advice. The district court ordered the production of documents where the primary or predominate purpose was about the procedural aspects of preparing the client’s tax return. The law firm and client disagreed and continue to withhold the documents. The district court granted the government’s motions to hold the law firm and its client in contempt, and Petitioner appealed to the Ninth Circuit.

The Ninth Circuit affirmed the contempt orders and applied the “primary-purpose” test to assess the law firm and client’s claims of attorney-client privilege for their dual-purpose communications. Petitioner sought a writ of certiorari, and the Supreme Court granted the petition on October 3, 2022.

In its brief, Petitioner argues that the Court should adopt the “significant purpose” standard articulated by the D.C. Circuit in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) and should reject the single “primary purpose” standard adopted by the Ninth Circuit in the case below. The government asserts that advice about tax-return preparation is not privileged unless it requires an attorney’s legal expertise and that the Court should reject the “significant purpose” test.

This parties argued before the Supreme Court on January 9, and the Court asked pointed questions of both Petitioner’s and the government’s counsel about the scope of their proposed tests, the impact of a decision on state court interpretations of the attorney-client privilege, and examples of how district courts would apply the proposed tests to specific hypotheticals. The Court also asked counsel to parse the difference, if any, between “significant” and “primary.”

Petitioner’s counsel advocated for a test that would protect the communications made by a client to an attorney, including the communication of facts that could be obtained from another source. Petitioner’s counsel also pointed to additional guardrails against the abuse of the attorney-client privilege, such as the crime fraud exception and the proponent’s burden of persuasion.

The government argued that the public has a right to evidence and that a more expansive test could give litigants an incentive to combine two requests to their counsel to ensure the entire communication is privileged. The government also emphasized that whether to intertwine a business communication and a request for legal advice is in the client’s control.

This case is significant because the Supreme Court has an opportunity to set a uniform test for courts to assess attorney-client privilege protections for dual purpose communications. The Court’s decision could also impact the practice of tax attorneys in terms of better defining the scope of the attorney-client privilege over advice regarding tax preparation or filing strategies. Ultimately, however, the Court may decline to make any significant changes to the scope of the attorney-client privilege for dual purpose communications, given Justice Kagan’s question to Petitioner’s counsel to comment on the adage, “If it ain’t broke, don’t fix it.”

Bailey & Glasser’s ESI Team is monitoring this case and will be writing additional blogs on this matter as it proceeds, so please follow us for updates. Additionally, please reach out to either Kate Charonko or Elizabeth Stryker with any questions regarding privilege or other discovery issues you may have.