ANALYSIS: Did Lawyers Miss Their Chance at A-C Privilege Reform?

In January, the US Supreme Court decided that the matter of altering attorney-client privilege for legal and business advice was essentially a non-starter. The court’s refusal to weigh in on the facts of In Re Grand Jury leaves corporate counsel navigating an uncertain landscape for attorney-client privilege where most, but not all, jurisdictions follow a “primary purpose” standard for dual-purpose legal and business communications.

This development served as an enormous disappointment for many in the legal community—specifically corporate counsel, who largely urged the court to enact a “significant purpose” standard for attorney-client privilege that would protect both legal and business communications. A favorable court decision, or at least the addition of some clarity to the current two-test landscape, would have likely bolstered the role of corporate counsel within business operations.

Instead, the court decided to dismiss the case “improvidently” in a one-sentence order, effectively stating that the highest court should never have even heard arguments on the matter in the first place.

The Two-Test Landscape Persists

For the present time, corporate counsel must continue navigating attorney-client privilege without guidance from the Supreme Court.

Corporate counsels inherently wear multiple hats when advising various departments on both legal and business matters. According to an amicus brief submitted by the Association of Corporate Counsel, in-house counsel often has to focus on a variety of legal concerns within other departments, such as compliance, risk assessments, human resources, and government affairs.

A communication that’s solely categorized as “business advice” is not shielded by attorney-client privilege, and therefore is discoverable and/or could be disclosed to outside parties under federal caselaw. However, a communication that includes both legal and business advice—commonly referred to as a “dual-purpose” communication—may evoke the privilege, depending on the jurisdiction and the specific purpose test evaluating the communication.

Most states and several federal judicial circuits apply the “primary purpose test.” This test evokes the attorney-client privilege only if a court determines that the purpose of the legal advice within a communication is predominant (or “primary”) when compared to its business advice. However, some jurisdictions follow a less prevalent, broader “significant purpose” test that protects any dual-purpose communication in which the purpose of the legal advice was at least “significant” to the communication, regardless of how it compared to the business advice.

Here is a table outlining which federal courts utilize which test—primary purpose or significant purpose—based on searches for both points of law in Bloomberg Law’s dockets.

The Push for a Clearer Standard

The Supreme Court’s dismissal of the matter overshadowed the surprisingly one-sided advocacy from lawyer groups asking the court to set the significant purpose test. All 13 amicus briefs filed by attorneys suggested that the court set in place the significant purpose standard for attorney-client privilege. Interestingly, these amici filers represented a variety of legal specializations—intellectual property, tax, general counsel, public-interest, civil and defense trials—but they all cited the need for more certainty for lawyers when determining the existence of attorney-client privilege in dual-purpose communications.

The amici noted several obstacles facing lawyers within the current landscape: 1) The two competing purpose standards for attorney-client privilege creates uncertainty. 2) There is a judicial burden post hoc to determine what communication is privileged. 3) A narrow privilege creates a “chilling effect” on the client’s forthcoming disclosure to their attorney.

Often when evaluating the purpose of mixed advice, a court must assign a percentage to the legal versus nonlegal portions of the communication. Even Supreme Court justices seemed to acknowledge the difficulty of this task. In oral arguments, Justice Neil Gorsuch said he was “struggling” to wrangle with the 60/40 legal-to-business percentage conundrum.

The primary purpose test creates a particular disadvantage for in-house counsel. Unlike outside counsel—whose communication with clients is largely categorized as legal advice, automatically evoking attorney-client privilege—in-house counsel’s day-to-day parceling out of legal advice in routine business activities is a uniquely difficult task.

Below is a table outlining common business activities, identified in federal case law, that would generally evoke attorney-client privilege under the significant purpose test but might not be shielded under the primary purpose test.

Maintaining the Status Quo

Prior to the oral arguments on Jan. 9, many in the legal community were hopeful the court would rule and offer clarity to attorney-client privilege for the first time since Upjohn vs. The United States 40 years ago. Also promising was then-D.C. Court of Appeals Judge Brett Kavanaugh’s decision in 2014’s In re Kellogg Brown & Root, Inc., which held that the attorney-client privilege would apply if legal advice was a “significant purpose” of the communications during an internal investigation.

Nonetheless, the justices in oral arguments asserted their general belief that the courts are not overly burdened when evaluating attorney-client privilege. Justice Elena Kagan mentioned “the ancient legal principle, if it ain’t broke, don’t fix it.” Also, Justice Sonia Sotomayor expressed skepticism about claims of “particular evidence of chill” of a client’s forthcoming disclosure to their attorney due to the uncertainty of the privilege. Justice Sotomayor further suggested that adopting a significant purpose standard would be complicated by Federal Rules of Evidence, Rule 501, which requires state law to govern privilege in a civil case—and most states use the primary purpose test. Lastly, Justice Kentanji Brown Jackson voiced concerns about entities abusing the privilege if the significant purpose test was adopted, such as companies shielding communications and avoiding liability by making sure lawyers are present in meetings or cc’d onto emails.

Future Reform Is Unlikely

The Supreme Court’s refusal to weigh in on the matter of In Re Grand Jury signals a green light to the two-test situation, and the fact that the court dismissed the case “improvidently” is a strong indication that the the prevailing primary purpose test will exist long-term.

Therefore, a strategic in-house counsel must continue to consider their jurisdiction’s purpose standard when offering mixed legal and business advice to the non-lawyers within the company. Additionally, the corporate counsel’s skill to parcel out their nonlegal advice must deepen over time as legal technology communication platforms evolve, such as the use of instant messaging chats or utilizing cloud-based share drives for contract drafting. An effective corporate counsel should likely disclose to non-lawyer employees that the mixed communication in business matters may not remain confidential.

Is there a chance the Supreme Court would consider another similar matter, asking to set a significant purpose standard for attorney-client privilege? It is not impossible, but the fact pattern of such a case would have to demonstrate that the primary purpose test has burdened the judicial system and that an attorney has a minimal likelihood to abuse the privilege with significant purpose. In the aftermath of this dismissal, both elements would be extremely steep hills to climb.

Bloomberg Law subscribers can find a variety of Practical Guidance documents, workflow tools, and reference materials for corporate counsel in our Corporate Practice Center resource.

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