In Re Grand Jury ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE GRAND JURY. Nos. 21-55085
21-55145
D.C. Nos.
2:20-cm-00046-UA-1
2:18-cm-01758-UA-1
OPINION
Appeal from the United States District Court
for the Central District of California
John Kronstadt, District Judge, Presiding
Argued and Submitted June 7, 2021
Pasadena, California
Filed September 13, 2021
Before: Mary H. Murguia, Bridget S. Bade, and
Kenneth K. Lee, Circuit Judges.
Opinion by Judge Lee
2 IN RE GRAND JURY
SUMMARY *
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
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
IN RE GRAND JURY 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.
COUNSEL
Thomas F. Carlucci (argued), Foley & Lardner LLP, San
Francisco, California; Evan J. Davis (argued), Hochman
Salkin Toscher Perez P.C., Beverly Hills, California; for
Movants-Appellants.
Mark S. Determan (argued) and Joseph B. Syverson,
Attorneys; S. Robert Lyons, Chief, Criminal Appeals & Tax
Enforcement Policy Section; David A. Hubbert, Acting
Assistant Attorney General; Tracy Wilkison, Acting United
States Attorney; Tax Division, United States Department of
Justice, Washington, D.C.; for Plaintiff-Appellee.
4 IN RE GRAND JURY
OPINION
LEE, Circuit Judge:
Given our increasingly complex regulatory landscape,
attorneys often wear dual hats, serving as both a lawyer and
a trusted business advisor. Our court, however, has yet to
articulate a consistent standard for determining when the
attorney-client privilege applies to dual-purpose
communications that implicate both legal and business
concerns.
In this case, the grand jury issued subpoenas related to a
criminal investigation. The district court held Appellants—
whom we identify as “Company” and “Law Firm”—in
contempt after they failed to comply with the subpoenas.
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 argue that the district court erred in
relying on the “primary purpose” test and should have
instead relied on a broader “because of” test. We affirm and
conclude that the primary-purpose test governs in assessing
attorney-client privilege for dual-purpose communications. 1
BACKGROUND
Company and Law Firm were each served with grand
jury subpoenas requesting documents and communications
related to a criminal investigation. The target of the criminal
investigation is the owner of Company as well as a client of
Law Firm. In response to the grand jury subpoenas,
1
This opinion only addresses the issue of dual-purpose
communications. The remaining issues on appeal are resolved in a
concurrently filed, sealed memorandum disposition.
IN RE GRAND JURY 5
Company and Law Firm each produced some documents but
withheld others, citing attorney-client privilege and the
work-product doctrine.
The government moved to compel production of the
withheld documents, which the district court granted in part.
In those orders, the district court explained that these
documents were either not protected by any privilege or
were discoverable under the crime-fraud exception.
Company and Law Firm disagreed with the district court’s
privilege rulings, so they continued to withhold the disputed
documents. The government followed up with motions to
hold Company and Law Firm in contempt, both of which the
district court again granted. These appeals followed, and we
have jurisdiction under 28 U.S.C. § 1291.
STANDARD OF REVIEW
Whether the attorney-client privilege applies to specific
documents represents “a mixed question of law and fact
which this court reviews independently and without
deference to the district court.” United States v. Richey,
632 F.3d 559, 563 (9th Cir. 2011) (cleaned up). The district
court’s legal rulings about the scope of the privilege are
reviewed de novo. Id. So is the district court’s choice of the
applicable legal standard. Fjelstad v. Am. Honda Motor Co.,
762 F.2d 1334, 1337 (9th Cir. 1985). We review the district
court’s factual findings for clear error. Richey, 632 F.3d at
563.
6 IN RE GRAND JURY
ANALYSIS
I. District Courts in Our Circuit Have Applied Both the
“Primary Purpose” and “Because Of” Tests for
Attorney-Client Privilege Claims for Dual-Purpose
Communications.
“The attorney-client privilege protects confidential
communications between attorneys and clients, which are
made for the purpose of giving legal advice.” United States
v. Sanmina Corp., 968 F.3d 1107, 1116 (9th Cir. 2020).
Generally, communications related to an attorney’s
preparation of tax returns are not covered by attorney-client
privilege. Olender v. United States, 210 F.2d 795, 806 (9th
Cir. 1954). So, for example, “a client may communicate the
figures from his W-2 Form to an attorney while litigation is
in progress, but this information certainly is not privileged.”
United States v. Abrahams, 905 F.2d 1276, 1283–84 (9th
Cir. 1990), overruled on other grounds by United States v.
Jose, 131 F.3d 1325 (9th Cir. 1997). On the other hand, if a
client seeks a lawyer’s legal advice to figure out what to
claim on a tax return, then that advice may be privileged.
Abrahams, 905 F.2d at 1284.
But some communications might have more than one
purpose, especially “in the tax law context, where an
attorney’s advice may integrally involve both legal and non-
legal analyses.” Sanmina, 968 F.3d at 1118. Sanmina, for
example, involved communications about the propriety of a
particular tax deduction, which could have both a non-legal
purpose (tax compliance considerations) as well as
potentially a legal purpose (seeking advice on what to do if
the IRS challenged the deduction). Id. at 1117–18.
When dual-purpose communications are involved, there
are two potential tests that courts have adopted: the “primary
IN RE GRAND JURY 7
purpose” test and the “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. See In re County of Erie,
473 F.3d 413, 420 (2d Cir. 2007) (“We consider whether the
predominant purpose of the communication is to render or
solicit legal advice.”). The natural implication of this
inquiry is that a dual-purpose communication can only have
a single “primary” purpose.
On the other hand, the “because of” test—which
typically applies in the work-product context—“does not
consider whether litigation was a primary or secondary
motive behind the creation of a document.” In re Grand Jury
Subpoena (Mark Torf/Torf Env’t Mgmt.), 357 F.3d 900, 908
(9th Cir. 2004). It instead “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.” Id.(cleaned up). It is a broader test than the “primary purpose”
test because it looks only at causal connection, and not a
“primary” reason. See Visa U.S.A., Inc. v. First Data Corp.,
No. C-02-1786JSW(EMC), 2004 WL 1878209, at *4 (N.D.
Cal. Aug. 23, 2004). In the attorney-client privilege context,
the “because of” test might thus ask whether a dual-purpose
communication was made “because of” the need to give or
receive legal advice.
As the Sanmina court recently noted, the Ninth Circuit
has not explicitly adopted either the “primary purpose” test
or the “because of” test in determining whether dual-purpose
communications are entitled to attorney-client privilege.
8 IN RE GRAND JURY
Sanmina, 968 F.3d at 1118. 2 And Sanmina itself declined to
resolve this issue because the district court there had made a
factual finding that the communications were not dual-
purpose. Id. at 1119. Without guidance from our court,
district courts in this circuit have split, applying both tests
for attorney-client privilege claims. Id. at 1118 n.5
(summarizing district court cases).
II. The Primary-Purpose Test Applies to Dual-Purpose
Communications in the Attorney-Client Privilege
Context.
Because this case squarely involves dual-purpose
communications, we now answer the question that Sanmina
left open. We hold that the primary-purpose test applies to
attorney-client privilege claims for dual-purpose
communications.
To start, the “interpretation of the privilege’s scope is
guided by ‘the principles of the common law . . . as
interpreted by the courts . . . in the light of reason and
experience.’” Swidler & Berlin v. United States, 524 U.S.
399, 403 (1998) (quoting Fed. R. Evid. 501). At common
law, the attorney-client privilege extends only to
communications made “for the purpose of facilitating the
rendition of professional legal services.” See United States
2
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. . . .”).
IN RE GRAND JURY 9
v. Rowe, 96 F.3d 1294, 1296 (9th Cir. 1996) (citation
omitted); Restatement (Third) of the Law Governing
Lawyers § 68 (Am. L. Inst. 2000) (stating that
communication must be “for the purpose of obtaining or
providing legal assistance for the client” to qualify for
protection under attorney-client privilege). Thus, the “client
must consult the lawyer for the purpose of obtaining legal
assistance and not predominantly for another purpose.”
Restatement, supra, § 72 cmt. c; see Swidler & Berlin,
524 U.S. at 406–07 (discussing scholarly commentary in
describing the contours of privilege at common law). As the
Supreme Court has recognized, the attorney-client privilege
“protects only those disclosures necessary to obtain
informed legal advice which might not have been made
absent the privilege.” See Fisher v. United States, 425 U.S.
391, 403 (1976) (citation omitted). Thus, the scope of the
attorney-client privilege is defined by the purpose of the
communication consistent with the common law. See
Swidler & Berlin, 524 U.S. at 410–11; Fed. R. Evid. 501.
Appellants assert, however, that we should instead
borrow the test from the work-product doctrine when a
communication has a dual purpose. In Appellants’ view, the
attorney-client privilege should apply “when it can be fairly
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.” See In
re Grand Jury Subpoena (Mark Torf/Torf Env’t Mgmt.),
357 F.3d 900, 908 (9th Cir. 2004) (describing when work-
product doctrine applies). Appellants thus ask us to depart
from the holdings of most courts and adopt a new test for
attorney-client privilege—at least in the context of dual-
purpose communications. But, as in Swidler & Berlin,
Appellants offer no persuasive reason to abandon the
common-law rule, 524 U.S. at 410–11, which focuses on the
10 IN RE GRAND JURY
purpose of the communication, not its relation to anticipated
litigation. While the dual-purpose nature of Law Firm’s
representation can complicate the analysis of whether the
communication was made to obtain legal advice, we see no
reason to tinker with the privilege’s scope and deviate from
its common-law form to accommodate that concern.
While the attorney-client privilege and work-product
doctrine are typically mentioned together, attorney-client
privilege and the work-product protection doctrine are
animated by different policy goals. It thus makes sense to
have different tests for the two. See id. at 404–05 (discussing
policy rationale behind common-law scope of privilege in
declining to adjust privilege’s scope).
In the work-product context, the concern is “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.” United
States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998)
(cleaned up). In short, the work-product doctrine upholds
the fairness of the adversarial process by allowing litigators
to creatively develop legal theories and strategies—without
their adversaries invoking the discovery process to pry into
the litigators’ minds and free-ride off them. See, e.g., Allen
v. Chi. Transit Auth., 198 F.R.D. 495, 500 (N.D. Ill. 2001)
(explaining that the intent of the work-product doctrine “is
to protect the adversarial process by providing an
environment of privacy” and insure “that the litigator’s
opponent is unable to ride on the litigator’s wits”). Given
this goal, it makes sense to have a broader “because of” test
that shields lawyers’ litigation strategies from their
adversaries.
In contrast, the attorney-client privilege encourages “full
and frank communication between attorneys and their clients
IN RE GRAND JURY 11
and thereby promote broader public interests in the
observance of law and administration of justice.” Upjohn
Co. v. United States, 449 U.S. 383, 389 (1981). Unlike the
work-product doctrine, the privilege is not necessarily tied
to any adversarial process, and it is not so much concerned
with the fairness of litigation as it is with providing a
sanctuary for candid communication about any legal matter,
not just impending litigation. Applying a broader “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. Indeed, it 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. Because of these different
aims, it makes sense to apply different tests for the attorney-
client privilege and the work-product doctrine. See
Sanmina, 968 F.3d at 1120 (“[W]ork-product protection is
not as easily waived as the attorney-client privilege based on
the distinct purposes of the two privileges.” (cleaned up)).
Further, Appellants only point to two district court cases
to support their position, but most, if not all, of our sister
circuits that have addressed this issue have opted for some
version of the “primary purpose” test instead of the “because
of” test. 3 See Swidler & Berlin, 524 U.S. at 404 (rejecting
3
See County of Erie, 473 F.3d at 420 (“We consider whether the
predominant purpose of the communication is to render or solicit legal
advice.”); United States v. Robinson, 121 F.3d 971, 974 (5th Cir. 1997)
(requiring communication to be made “for the primary purpose of
securing either a legal opinion or legal services, or assistance in some
legal proceeding” (cleaned up)); Alomari v. Ohio Dep’t of Pub. Safety,
626 F. App’x 558, 572–73 (6th Cir. 2015) (applying primary purpose
test); In re Kellogg Brown & Root, Inc., 756 F.3d 754, 760 (D.C. Cir.
2014).
12 IN RE GRAND JURY
invitation to change scope of privilege from its common law
form after noting that majority view tracked common law).
The great weight of the authority goes against Appellants’
position, which counsels against adopting it.
In sum, we reject Appellants’ invitation to extend the
“because of” test to the attorney-client privilege context, and
hold that the “primary purpose” test applies to dual-purpose
communications.
III. We Leave Open Whether the “A Primary
Purpose Test” Should Apply.
Even if the “primary purpose test” applies here,
Appellants argue that we should adopt “a primary purpose”
as the test instead of “the primary purpose,” relying on the
D.C. Circuit’s decision in In re Kellogg Brown & Root, Inc.,
756 F.3d 754 (D.C. Cir. 2014). The D.C. Circuit articulated
its version of the primary-purpose test: “Was obtaining or
providing legal advice a primary purpose of the
communication, meaning one of the significant purposes of
the communication?” Id. at 760. As Kellogg explained,
“trying to find the one primary purpose for a communication
motivated by two sometimes overlapping purposes (one
legal and one business, for example) can be an inherently
impossible task” because, 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.” Id. at 759.
In the eyes of the Kellogg court, “the primary purpose
test, sensibly and properly applied, cannot and does not draw
a rigid distinction between a legal purpose on the one hand
and a business purpose on the other.” Id. Even though it
theoretically sounds easy to isolate “the primary or
predominant” purpose of a communication, the exercise can
quickly become messy in practice. That was the case in
IN RE GRAND JURY 13
Kellogg in which the company conducted an internal
investigation for both legal (e.g., to obtain legal advice) and
business reasons (e.g., to comply with regulatory
requirements and corporate policy). A test that focuses on a
primary purpose instead of the primary purpose would save
courts the trouble of having to identify a predominate
purpose among two (or more) potentially equal purposes.
We see the merits of the reasoning in Kellogg. But we
see no need to adopt that reasoning in this case. None of our
other sister circuits have openly embraced Kellogg yet. 4 We
also recognize that Kellogg dealt with the very specific
context of corporate internal investigations, and its reasoning
does not apply with equal force in the tax context. 5 Nor are
4
That said, some district courts have adopted Kellogg’s “significant
purpose” analysis. See In re Gen. Motors LLC Ignition Switch Litig., 80
F. Supp. 3d 521, 530 (S.D.N.Y. 2015) (“To be sure, the D.C. Circuit’s
decision in Kellogg Brown & Root is not binding on this Court.
Nevertheless, its analysis of the ‘primary purpose’ test as applied to
internal investigations in the corporate setting is consistent with the
Second Circuit’s analysis in County of Erie . . . .”); In re Smith &
Nephew Birmingham Hip Resurfacing Hip Implant Prods. Liab. Litig.,
No. 1:17-md-2775, 2019 WL 2330863, at *2 (D. Md. May 31, 2019);
Edwards v. Scripps Media, Inc., No. 18-10735, 2019 WL 2448654, at
*1–2 (E.D. Mich. June 10, 2019).
5
We are aware, for example, that normal tax advice—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.
14 IN RE GRAND JURY
we persuaded that the facts here require us to reach the
Kellogg question. Moreover, the universe of documents in
which the Kellogg test would make a difference is limited.
The Kellogg test would only change the outcome of a
privilege analysis in truly close cases, like where the legal
purpose is just as significant as a non-legal purpose.
Because the district court did not clearly err in finding that
the predominate purpose of the disputed communications
was not to obtain legal advice, they do not fall within the
narrow universe where the Kellogg test would change the
outcome of the privilege analysis. See Sanmina, 968 F.3d at
1119 (affirming the district court’s finding about the purpose
of a communication because it was not clearly erroneous).
We thus see no need to adopt or apply the Kellogg
formulation of the primary-purpose test here.
CONCLUSION
The district court’s orders holding Company and Law
Firm in contempt are AFFIRMED. 6
6
The motion for immediate issuance of the mandate [Dkt. 60] is
DENIED.