The 9th Circuit recently clarified the bounds of the attorney-client privilege. While the basic assessment of the privilege is simple (it protects confidential communications between attorneys and clients made for the purpose of giving legal advice), there is some confusion over how to treat communications that also serve a business purpose. For example, in-house counsel may be copied on internal communications that serve business purposes but also have legal implications.
As explained below, the 9th Circuit held that the "primary purpose" of the communication must be legal advice in order to stay protected. Additionally, we offer tips for staying compliant with the "primary purpose" test.
Details of the 9th Circuit's Holding
On September 13, 2021, a three-judge panel of the 9th Circuit affirmed the district court's application of the "primary purpose" test as the controlling legal test for dual legal and business purpose communications in the 9th Circuit.1 The decision resolved an intra-circuit split among 9th Circuit district courts applying the "primary purpose" and the broader "because of" tests with regard to so called "dual-purpose" legal and business communications. In so holding, the 9th Circuit joined the 2nd, 5th, 6th, and D.C. Circuits, which also apply variations of the primary purpose test.
The panel recognized that, given our increasingly complex regulatory landscape, attorneys often serve clients as both legal and business advisors. Accordingly, communications to and from attorneys may involve a "dual-purpose" and contain both legal and non-legal analysis. For example, attorneys frequently offer advice regarding the propriety of a particular tax deduction or assist with compliance with a particular regulation.2
Under the primary purpose test the panel adopted, courts must analyze whether the primary purpose of such communications is to give or receive legal advice, as opposed to business advice. In contrast, the panel rejected the "because of" test, which "does not consider whether litigation was a primary or secondary motive behind the creation of a document." Rather, the "because of" test considers the totality of the circumstances and examines "whether a dual-purpose communication was made 'because of' the need to give or receive legal advice."
The panel rejected the "because of" test despite its use in the work-product context. In its reasoning, the court highlighted the different purposes between attorney-client privilege and the work-product doctrine. The panel observed the common-law justification for the attorney-client privilege doctrine set forth in Upjohn Co. v. United States—is to encourage full and frank communication between attorneys and their clients.3
In contrast, the work-product doctrine is not to encourage communication but rather to "preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy with an eye toward litigation, free from unnecessary intrusion by his adversaries."4 According to the panel, applying "the 'because of' test to attorney-client privilege might harm our adversarial system if parties try to withhold key documents as privileged by claiming that they were created 'because of' litigation concerns."
Finally, the court also suggested that a communication can have multiple but equal primary purposes. Specifically, the court noted that the D.C. Circuit in In re Kellogg Brown & Root, Inc. utilized a variation of the primary purpose test that would spare courts from struggling to identify the predominate purpose among potentially equal purposes. Under this version of the test, courts need only determine that providing legal advice was "a" primary purpose or one of the significant purposes of the communication. The Kellogg court noted that often it is "not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B."5
In considering whether to adopt the D.C. Circuit's formulation of the primary purpose test, the 9th Circuit panel stated that it sees the merits of the reasoning in Kellogg, but it would only make a difference in "truly close cases." Therefore, the panel saw no reason to adopt or apply the panel's formulation in Kellogg but left open the possibility that it could, in the future, adopt such a test in certain close cases.
Tips for In-House Counsel
The result of In re Grand Jury is especially significant given the many attorneys who serve clients in both a business and legal context, particularly since many practice areas involve highly regulated industries. Below we offer tips for in-house attorneys:
- Indicate privilege thoroughly and explicitly, but only where applicable. For example, the top of emails and all other document formats (including Word, Excel, PowerPoint, and handwritten notes) should include an indication of privilege. Such an indication, however, is not dispositive of privilege, and practitioners should avoid overusing notations for privilege that will dilute legitimate claims of privilege.
- Encourage business counterparts to use language that suggests the communication primarily concerns a legal matter. Alternatively, use language in replies or follow up communications that clarifies the purpose of the communication (e.g., "Thanks for raising these legal concerns with me"; "Thanks for this context, it helps me assess whether there are legal issues that we need to address.").
- Instruct business teams to send legal issues directly to the legal team. If an attorney is copied on a particular communication, suggest that internal clients explicitly direct a legal issue or question to the attorney.
- Advise business teams to avoid forwarding privileged communications to individuals beyond a "need to know basis." Consider adding "do not forward" notations on privileged emails and documents or use software that prohibits forwarding to prevent waiver of privilege.
- Separate legal and business aspects of communication where sensitive matters are involved. For example, limit reference to business reasons or company policy in legal investigations or other analysis/reports, or consider documenting that such non-legal considerations are beyond the scope of the analysis performed.
- Understand if other applicable state privilege law is more restrictive. The "primary purpose" test may not always apply if the dispute is in state court, certain federal cases,6 or outside the 2nd, 5th, 6th, 9th, and D.C. Circuits. Fortunately for California lawyers, California state courts use a test similar to the "primary purpose" test known as the "dominant purpose".7 In Washington, we are unaware of more restrictive law, though the situation is less clear.8
1 In re Grand Jury, No. 21-55085, 2021 WL 4143102, at *2 (9th Cir. Sept. 13, 2021).
2 The court noted that some tax compliance considerations are not considered legal advice (e.g., the proprietary of a tax deduction) but others are (e.g., seeking advice on what to do if the IRS challenged the deduction). Additionally, while some internal investigations are obviously to facilitate legal advice, others may be undertaken to comply with general corporate policy or regulations that specifically require the company to investigate (e.g., Department of Defense regulations require defense contractors to maintain compliance programs and conduct internal investigations into allegations of potential wrongdoing).
3 449 U.S. 383, 389 (1981).
4 In re Grand Jury, No. 21-55085, 2021 WL 4143102, at *4 (citing United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998)).
5 Id. at 759 (emphasis added).
6 Federal privilege law does not apply to federal courts sitting in diversity, Thelen Reid & Priest LLP v. Marland, 2007 WL 578989, at *5 (N.D. Cal. Feb. 21, 2007), and federal courts are split in applying federal law to claims of privilege in federal question actions with pendant state law claims. Williams & Cochrane, LLP v. Rosette, 2020 WL 3433074, at *4 (S.D. Cal. June 23, 2020).
7 See, e.g., Travelers Ins. Companies v. Superior Ct., 143 Cal. App. 3d 436, 452 (1983) ("Where it is clear that the communication has but a single purpose, there is little difficulty in concluding that the privilege should be applied or withheld accordingly. If it appears that the communication is to serve a dual purpose, one for transmittal to an attorney 'in the course of professional employment' and one not related to that purpose, the question presented to the trial court is as to which purpose predominates.").
8 Washington has not explicitly adopted the primary purpose test but courts encountering dual purpose documents hold that the privilege only covers those communications made for the purpose of giving or receiving legal advice. See, e.g., Doehne v. EmpRes Healthcare Mgmt., LLC, 190 Wn. App. 274, 280-81 (2015) (attorney-client privilege protected risk management report prepared to assist in-house counsel in addressing issues of liability and potential litigation); Kammerer v. W. Gear Corp., 27 Wn. App. 512, 518 (1980), aff'd, 96 Wn.2d 416 (1981) (holding that documents related to a business decision related only in part to legal advice and thus were not privileged); Dike v. Dike, 75 Wn.2d 1, 11 (1968) ("[T]he privilege cannot be treated as absolute; but rather, must be strictly limited to the purpose for which it exists.").