Saturday, March 25, 2023 | Back issues
Courthouse News Service Courthouse News Service

Supreme Court to test the limits of attorney-client privilege

In a case at least nominally about tax law, the justices' decision could have far-reaching ramifications for how lawyers and their clients communicate.

WASHINGTON (CN) — An anonymous law firm faced an uphill battle at the Supreme Court on Monday as it argued that attorney-client privilege covers communications spanning both legal and nonlegal advice. 

Speaking for the firm at oral arguments this morning, Los Angeles-based attorney Daniel Levin called it “an inherently impossible exercise” for courts to tease out whether a communication’s primary purpose is for legal advice.

Masha Hansford, assistant to the solicitor general at the Department of Justice, meanwhile argued that reason and experience seem to suggest that courts should continue to use the “primary purpose test,” under which communications are protected under attorney-client privilege only if their primary purpose is legal.

“I think that the body of evidence rebuts petitioner’s assertion that it’s too hard to apply the primary purpose test,” Hansford told the court Monday.

“For the 54 documents at issue here, this really wasn’t a close case and petitioner’s effort to expand attorney-client privilege to encompass these documents should be rejected,” she added.

The dispute stems from a subpoena that the government served against a firm specializing in international tax issues, seeking information about a client of the firm that was under criminal investigation related to cryptocurrency assets. In 2014, the firm processed extrapolation tax requirement forms, prepared income tax returns and gave legal advice to the client about the tax consequences of its business out of the U.S. 

While filings related to the case before the U.S. Supreme Court are heavily redacted, they do note that the owner of the business under investigation is an “early promoter of bitcoin [who] expatriated from the United States in 2014.”

The firm and company produced more than 20,000 pages of records in response to the subpoena but withheld some documents on the basis of attorney-client privilege. For 54 of these documents, the federal government moved to compel disclosure, arguing that the communications centered mainly on how to file taxes on cryptocurrencies and that attorney-client privilege thus did not apply.

A federal judge backed the government’s stance, holding the firm and the company in contempt for failure to comply with the disclosure order. The Ninth Circuit affirmed in 2021, finding that the main objective of the dual-purpose communications at issue were providing advice around tax strategy, a purpose that is not protected.

With this opinion, the Ninth Circuit joined the Second, Fifth and Sixth Circuits in backing the “primary purpose” test. As the law firm argued in its petition for review, however, other appeals courts have split on the issue.

“In the D.C. Circuit, such a communication is privileged whenever it has a significant legal purpose,” the petition states, referencing 2014 precedent established by Justice Brett Kavanaugh when he was an appeals court judge.

“Clients and lawyers regularly engage in dual-purpose communications, and clients and lawyers need clear and predictable rules on when such communications will be deemed privileged. Yet, while lawyers frequently must assess privilege issues, this Court has few chances to clarify privilege law because of the limits on appellate review of privilege decisions,” the petition continued.

Levin asked the high court to reverse the Ninth Circuit ruling Monday. He clarified that if one copies a lawyer in on a business email or asks them to sit in on a meeting, such actions wouldn’t necessarily earmark the communications as privileged.

“I think you’re trying to have it both ways,” Justice Samuel Alito said.

Justice Clarence Thomas questioned Levin on how subsidiary a communication would have to be in order not to get attorney-client privilege under Levin’s proposed test. 

Justice Ketanji Brown Jackson also questioned Levin along these lines.

“What level are we doing this at?” she pondered.

“It can be segregable all the way down to the sentence level,” Levin replied.

Justice Thomas also questioned the government’s attorney on the primary purpose test, and how it would recommend the high court deal with truly multipurpose communications.

“What would you do if the legal and the nonlegal could not be disentangled?” he asked.

“We are fine with a tie goes to the runner rule in favor of the privilege in those cases,” Hansford said.

Chief Justice John Roberts seemed bothered that Hansford’s approach puts a lot of decision power and work in the hands of the judge.

“I think it’s important to keep in mind what the judges have to do here, which is go through these documents,” Roberts said.

“The way courts have been doing this for a very long time is the primary purpose test,” the Department of Justice’s attorney replied, adding that it could be very destabilizing to change rules at this point.

In reply to a question from Kagan about what the impact of changing to the significance test could be, Hansford said that her adversary’s test would result in extremely sweeping rulings, since the significance of all communications is in the eye of the beholder.

Justice Brett Kavanaugh noted that there are “a lot of cases where it's impossible to disentangle the two purposes and the question is what to do in those cases.”

“I understand your answer to be, ‘district courts do not need to try to do some sort of metaphysical parsing of those cases,’” he said.

Hansford agreed, adding that whether to intertwine business or legal advice is often in the client's control and that any more expansive test could lead to lawyers being brought in on all communications for the purpose of protective privilege.

“I think everybody agrees that, in an ideal world, clients would make their business communications and then they will send an email to the lawyers about the same issue, maybe in a little more detail, because of the special legal considerations that are likely to be chilled they don't want raised anywhere else,” Hansford said. “And in ideal world, I think we have those two emails, the legal one is withheld, the business one is produced, and I think that effective petitioner's rule would be to take us out of that world the vast majority of the time.”

Levin countered. 

“You have to reverse the Ninth Circuit because the Ninth Circuit said you need a single primary purpose and inherent in the word primary is the ordinary meaning the primary is first that means something has to be first something has to be second, something has to be third,” he surmised, countering that two things could be held in equipoise in a communication.

During his time on the D.C. Circuit, Justice Kavanaugh applied the “significant purpose test” in one of his rulings. He has previously critiqued the “primary purpose test,” saying that, because communications can have multiple purposes, trying to find a primary purpose can be an impossible task, making the test unfeasible.

The Seventh Circuit is the only federal appeals court that currently rejects both tests in this realm, finding that attorney-client privilege never attaches to dual-purpose communications regarding tax advice.

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.