Walking the Regulatory Tightrope: The Attorney-Client Privilege in an Intertwined World
January 27, 2023
By Brett W. Johnson, John F. Lomax, Ryan P. Hogan, and Caitlin E. White
Whether or not a client is involved in civil litigation, the target of a grand jury subpoena or some other request to produce documents, the attorney-client privilege serves as a powerful tool to shield sensitive matters from potentially prying eyes. The sanctity of the privilege is pivotal to allow individuals and entities to provide candid facts and receive unvarnished counseling about a legal issue. The privilege, however, is often disputed and care must be taken to properly preserve it. The U.S. Supreme Court granted certiorari to provide more clarity on the subject in In re Grand Jury. We have previously touched on how this case underscores the importance of utilizing attorneys for internal investigations and compliance advice.1 In a surprising move, after granting certiorari and holding oral argument, the Court dismissed the case as improvidently granted on January 23, 2023. Despite the dismissal, we learned some valuable insights as to how the Justices on this Court think about the privilege and how individuals and entities may want to ensure the privilege is maintained.
Primarily, continued caution is warranted. It is tempting to view consulting firms as a more financially expedient option to advise on regulatory compliance, for example. Reliance on consultants alone to advise on or investigate sensitive matters can potentially lead to significant risk exposure, as the attorney-client privilege generally does not protect documents generated by such consultants from parties seeking access to them. Instead, the time-tested path to protecting information from disclosure—whether from grand jury subpoena or a business rival in civil litigation—remains the same: hire an attorney.2
The same is true for what might be thought of as more routine communications with in-house counsel. Businesses asserting the attorney-client privilege for these communications in Ninth Circuit courts should be aware that communications with an in-house attorney are privileged only if the primary purpose of the communication was to obtain legal advice. Thus, it is not enough to simply copy an attorney on an e-mail and hope the privilege applies. Rather, counsel must be asked to provide or provide meaningful legal advice to avoid disclosure. If it is solely an e-mail about business strategy or operational issues, it may not be considered protected.
In re Grand Jury Recapped
To briefly recap, In re Grand Jury involved an unnamed law firm’s (the “Firm”) assertion of privilege in response to a grand jury subpoena seeking records containing both legal and tax advice.3 In ruling on the assertion of privilege for these dual-use records, the Ninth Circuit Court of Appeals looked to whether “the primary purpose of the communication is to give or receive legal advice” as opposed to business advice.4 This test differed from the one articulated by the D.C. Circuit Court of Appeals in In re Kellogg Brown & Root, Inc., which looked to whether obtaining or providing legal advice was “one of the significant purposes of the communication.”5 When the Supreme Court accepted In re Grand Jury for review, there was a hope that it could bring clarity to the increasingly blurry line between legal and business advice.
Impacts on Risk Management for Internal Investigations and Compliance Obligations
While the Court (or even the parties) did not provide a clear answer as to whether a primary or significant purpose test applies to assertions of privilege across federal courts, the Justices’ questions—and the ultimate dismissal of the case—provide some understanding as to how the Court is currently thinking about how the privilege applies to communications generated as part of an internal audit or investigation.
Internal investigations loomed large over oral argument because, as the government’s attorney conceded, an internal investigation poses “a classic situation where it’s really hard to extricate the purposes.”6 Because of the many purposes that can drive an internal investigation, requiring a single primary purpose might have led to lesser protections for internal investigations. Fortunately, the Justices and the advocates appeared to agree that investigations would be safe from disclosure so long as those investigations have a meaningful legal purpose and are conducted under the direction of an attorney.
As the attorney representing the Firm underscored, sound policy reasons favor encouraging companies to talk to their lawyers particularly in the increasingly complex regulatory environment.7 Under this view, where an accountant prepares a form for a client and an attorney reviews and makes edits to that form, the lawyer’s work would be privileged.8 The attorney arguing for the government appeared to agree, explaining that while dual-use records might pose a close call in some cases, internal investigations conducted by counsel and motivated by a legal purpose should remain protected.9 Justice Kavanaugh (who notably authored In re Kellogg during his time on the D.C. Circuit Court of Appeals) seemed particularly concerned with preserving the privilege applicable to attorney-conducted investigations, asking about the status of investigations throughout the argument.
On the other side of the spectrum, there appeared to be agreement that no similar protection applied for documents generated by consultants even to further regulatory compliance. As Justice Sotomayor explained, “accountants don’t have privilege” and neither would an attorney offering primarily accounting (as opposed to legal) advice.10 Businesses also cannot shield these documents from disclosure by simply cc’ing a lawyer, as even the attorney for the Firm resisting disclosure explained that “everyone agrees you can’t just copy a lawyer on a communication, you can’t just have a lawyer sit in the corner of a meeting and say the whole thing’s privileged.”11 When the lawyer’s involvement is merely a façade, communications and documents also will not enjoy the protection of the privilege.12 Thus, one of the few areas of agreement in In re Grand Jury was that attorney-conducted internal investigations merit protection, while communications with consultants generally do not.
Although the Supreme Court’s procedural dismissal leaves the split among the circuits on questions of privilege unresolved, this only drives home the takeaway from our prior analysis. To help avoid issues with respect to disclosure—and the hair-splitting distinctions drawn by the advocates and Justices in In re Grand Jury—attorneys should be involved with compliance initiatives early, often, and in a meaningful way. Resisting the temptation to act on the belief that consultants offer an inexpensive source of expertise may avoid these headaches, in addition to the potentially serious long-term exposure stemming from the discovery of confidential information. Steering clear of significant liability and possible embarrassment may be well worth it in the end.
Impacts on the Test for Privileged Communications With In-House Legal Counsel in the Ninth Circuit
Beyond highlighting the perils of reliance on outside consultants over attorneys, In re Grand Jury’s discussion of dual-use records has consequences for communications for in-house counsel who frequently serve as both a trusted legal advisor and business advisor. Advice from in-house counsel may combine both business strategy and legal advice, which blurs the line of the attorney-client privilege.
After the Supreme Court’s dismissal of In re Grand Jury, Ninth Circuit courts must follow the primary purpose test to determine whether communications enjoy the protections of the attorney-client privilege. When a client objects to the production of communications in federal court because of the attorney-client privilege, the communications are only privileged in the Ninth Circuit if the “primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice.”13
As the Ninth Circuit Court of Appeals has recognized, adding lawyers to communications concerning purely business decisions does not satisfy the primary purpose test.14 Thus, advising employees to copy in-house counsel on every e-mail, regardless of whether legal advice is requested, will not shield these communications from disclosure. The focus will be on the purpose and content of the communications, including whether there was a request for, or the giving of, legal advice, as opposed to communications where an employee simply cc’d the in-house counsel to claim the privilege without seeking any legal advice. In general, such a practice will not be sufficient to support a privilege in any forum or court.
In re Grand Jury drives home an important lesson. While the attorney-client privilege is easy enough to describe in the abstract, businesses and entities need to consider their actions carefully in order to preserve the privilege in response to future document requests. While there are always disputes at the margins, the simplest way to help shield potentially sensitive information uncovered during matters like internal investigations from disclosure is to retain an attorney to conduct that investigation. Moreover, employees should be cautioned about cc’ing in-house counsel on sensitive communications unless they have a meaningful legal purpose for doing so. Individuals or organizations with questions about how to best protect themselves before undertaking an internal investigation or other regulatory compliance initiative should consult with legal counsel.
See Snell & Wilmer’s Legal Alert (Nov. 29, 2022).
In re Kellogg Brown & Root, Inc., 756 F.3d 754, 759–60 (D.C. Cir. 2014).
In re Grand Jury, 23 F.4th 1088, 1091 (9th Cir. 2021).
Id. at 1091.
In re Kellogg, 756 F.3d at 757.
Trans. at 55:22–56:7.
Trans. at 27:5–28:2.
Trans. at 30:8–32:4.
Trans. at 61:12–63:17
Trans. at 15:15–20.
Trans. at 9:11–17, 25:16–23.
Trans. at 24:1–11.
In re Grand Jury, 23 F.4th at 1091 (emphasis added).
See id. at 1093–94 (rejecting a broader privilege test that would “create perverse incentives for companies to add layers of lawyers to every business decision in hopes of insulating themselves from scrutiny in any future litigation”).
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