Ninth Circuit Adopts Primary Purpose Test for Attorney-Client Privilege (9/14/21; 1/28/22)

Caveats: 

1. The Supreme Court granted the taxpayer's petition for writ of certiorari in this case.  See Supreme Court Grants Cert to Determine Whether Dual-Purpose Communications Involving Legal and Non-Legal Advice (in Tax Return Preparation Setting) is Protected by Attorney-Client Privilege (10/3/22), here; and On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

2. The original discussed in this blog entry was revised and republished (as revised) by Order and Amended Opinion dated 1/27/22, here.  The Order and Amended Opinion changed the term "tax advice" in footnote 5 to "tax return preparation assistance" (see Slip Op. 14 n. 5 of the Amended Opinion).  As revised the footnote is (with revised text in red):

   n5 We are aware, for example, that normal tax return preparation assistance—even coming from lawyers—is generally not privileged, and courts should be careful to not accidentally create an accountant’s privilege where none is supposed to exist. See Frederick, 182 F.3d at 500 (“There is no common law accountant’s or tax preparer’s privilege, and a taxpayer must not be allowed, by hiring a lawyer to do the work that an accountant, or other tax preparer, or the taxpayer himself or herself, normally would do, to obtain greater protection from government investigators than a taxpayer who did not use a lawyer as his tax preparer would be entitled to.” (cleaned up)). Thus, it is not clear whether a more protective version of the primary-purpose test is appropriate in this context.

The original blog entry is below.  The revision and Amended Opinion do not affect the issues discussed in the original blog entry.

In In re Grand Jury, 13 F.4th 710 (9th Cir. Sep. 13, 2021), CA 9 here, the Court held that the “because of” test imported from the work-product context did not apply to the attorney-client privilege and instead applied a predominant purpose test for dual-purpose communications.  The opinion is short (14 pages) and the summary offered by the Court is good, so I just copy and paste the summary here.

Grand Jury Subpoenas

            The panel affirmed the district court’s orders holding appellants, a company and a law firm, in contempt for failure to comply with grand jury subpoenas related to a criminal investigation, in a case in which the district court ruled that certain dual-purpose communications were not privileged because the “primary purpose” of the documents was to obtain tax advice, not legal advice.

            Appellants argued that the district court erred in relying on the “primary purpose” test and should have instead relied on a broader “because of” test. Under the “primary purpose” test, courts look at whether the primary purpose of the communication is to give or receive legal advice, as opposed to business or tax advice. The “because of” test—which typically applies in the work-product context—considers the totality of the circumstances and affords protection when it  can fairly be said that the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of that litigation. The panel rejected appellants’ invitation to extend the “because of” test to the attorney-client privilege context, and held that the “primary purpose” test applies to dual-purpose communications.

            The panel left open whether this court should adopt “a primary purpose” instead of “the primary purpose” as the [*3] test, as the D.C. Circuit did in In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014). The panel wrote that Kellogg’s reasoning in the very specific context of corporate internal investigations does not apply with equal force in the tax context, and that the disputed communications in this case do not fall within the narrow universe where the Kellogg test would change the outcome of the privilege analysis.

            The panel addressed remaining issues in a concurrently filed, sealed memorandum disposition.

 JAT Comments:

1. This footnote caught my attention (p. 8 n2):

   n2 The government suggests that dual-purpose communications in the tax advice context can never be privileged, but we reject that argument. The case law, at least in the Ninth Circuit, does not go so far. See Abrahams, 905 F.2d at 1284 (holding that attorney-client privilege might apply to legal advice about what to claim on a tax return, even if it does not apply to the numbers themselves). But see United States v. Frederick, 182 F.3d 496, 501 (7th Cir. 1999) (“Put differently, a dual-purpose document—a document prepared for use in preparing tax returns and for use in litigation—is not privileged. . . .”).

I think there is a lot to unpack in that footnote.  Unfortunately, I am in travel status and may not be able to do any unpacking for a while.  As always, I invite comments on the footnote and any other aspect of the opinion