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In re Grand Jury

Sabrina Solow

To what degree should work product or attorney client privilege afford protection to dual-purpose communications? As business organizations have grown in size and complexity, and as attorneys for and within these organizations serve as both lawyers and businesspersons, courts have struggled to articulate the proper standard to assess whether certain communications sought in the course of an investigation or litigation should be considered privileged information and thereby afforded protection from disclosure. Dual-purpose communications, or communications with “more than one purpose,” have proven at times slippery for courts to fit neatly into existing privilege jurisprudence. The Ninth Circuit recently confronted an intra-circuit split on the proper standard for assessing privilege of dual-purpose communications, squarely rejecting the broader test in favor of a narrower inquiry. Some district courts had hewed to the focused “primary purpose” test, which looks to the “primary” reason for creation of the communication. Meanwhile, other district courts had assessed claims of privilege under the broader “because of” standard, which inquired into the “causal connection” animating creation of the document. The Ninth Circuit determined that the “primary purpose” test governs, underscoring the distinction between work product and attorney client privilege. However, although the court rejected the “because of” test in this context, it punted on the precise contours of the privilege standard by which to assess dual-purpose communications—leaving business organizations potentially in the dark as to whether certain documents may properly be withheld under a privilege assertion.

To what degree should work product or attorney client privilege afford protection to dual-purpose communications? As business organizations have grown in size and complexity, and as attorneys for and within these organizations serve as both lawyers and businesspersons, courts have struggled to articulate the proper standard to assess whether certain communications sought in the course of an investigation or litigation should be considered privileged information and thereby afforded protection from disclosure. Dual-purpose communications, or communications with “more than one purpose,”11. In re Grand Jury, 13 F.4th 710 (9th Cir. 2021), opinion substituted by In re Grand Jury, Nos. 21-55085, 21-55145, 2021 U.S. App. LEXIS 39178 (9th Cir. Jan. 27, 2022), at *6 (referring to dual purpose tax documents in United States v. Sanmina Corp., 968 F.3d at 1118 (9th Cir. 2020)). have proven at times slippery for courts to fit neatly into existing privilege jurisprudence.22. See, e.g., Geoffrey C. Hazard, Jr., W. William Hodes, & Peter R. Jarvis 10-44, Law of Lawyering 2021-22 Supplement (Wolters Kluwer, 4th ed. 2022) (“One common problem that arises, most often when privilege claims are made by in-house counsel, is whether particular communications were made in connection with business rather than legal advice.”) The Ninth Circuit recently confronted an intra-circuit split on the proper standard for assessing privilege of dual-purpose communications, squarely rejecting the broader test in favor of a narrower inquiry.33. See In re Grand Jury, 13 F.4th at *12 (“[W]e 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.”). Some district courts had hewed to the focused “primary purpose” test, which looks to the “primary” reason for creation of the communication.44. See id. at *7 (“Under the ‘primary purpose’ test, courts look at whether the primary purpose of the document is to give or receive legal advice, as opposed to business or tax advice.”), citing In re County of Erie, 473 F.3d 413, 420 (2d Cir. 2007). Meanwhile, other district courts had assessed claims of privilege under the broader “because of” standard, which inquired into the “causal connection”55. Id. at *7. animating creation of the document. The Ninth Circuit determined that the “primary purpose” test governs, underscoring the distinction between work product and attorney client privilege. However, although the court rejected the “because of” test in this context, it punted on the precise contours of the privilege standard by which to assess dual-purpose communications—leaving business organizations potentially in the dark as to whether certain documents may properly be withheld under a privilege assertion.

Relevant Background

Attorney client privilege designates as sacrosanct certain communications, between a client and her lawyer, in which the client seeks legal advice.66. See, e.g., Samnina Corp., 968 F.3d at 1116 (“The attorney-client privilege protections confidential communications between attorneys and clients, which are made for the purpose of giving legal advice.”), citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981); Hazard, Hodes, & Jarvis, supra note 2, at 10-44 (“In order for attorney-client privilege to apply, the communication between attorney and client (or their respective representatives), must be in aid of the attorney’s provision of legal advice to the client—it must be about a legal matter, in other words.”). In federal courts, Rule 501 of the Federal Rules of Evidence77. The Rule reads precisely as:“Rule 501. Privilege in GeneralThe common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise:the United States Constitution;a federal statute; orrules prescribed by the Supreme Court.But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Fed. R. Evid. 501. cognizes the attorney client privilege as developed under federal common law.88. Ellen S. Pogdor & Jerold H. Israel, White Collar Crime in a Nutshell 387 (West, 4th ed. 2009). In the Ninth Circuit, the attorney client privilege is articulated by a functionally equivalent “eight-part test: (1) Where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal advisor, (8) unless the protection be waived.” Sanmina Corp., 968 F.3d at 1116, citing United States v. Graf, 610 F.3d 1148, 1156 (9th Cir. 2010). In order to invoke the privilege successfully and thereby shield a relevant communication from disclosure, one generally must demonstrate: “(1) a communication, (2) that was made by the client to a lawyer, (3) that was made in confidence, and (4) that was made for the purpose of obtaining professional legal advice (or services relating thereto).”99. Id. at § 22.02, at 389. Generally, those communications satisfying all four elements may be withheld on grounds that the privilege cloaks the communications in protection.1010. Id.

On the other hand, work product privilege seeks to protect from disclosure documents prepared by an attorney “in anticipation of litigation.”1111. Pogdor & Israel, supra note 8, at 426. Originally articulated in the seminal Supreme Court case Hickman v. Taylor,1212. 329 U.S. 495 (1947). work product privilege trains the perspective on the attorney’s actions in the face of litigation (or the threat of litigation).1313. Pogdor & Israel, supra note 8, at 427–29. Today, Rule 26(b)(3) of the Federal Rules of Civil Procedure also asserts the standard for work product privilege.1414. See Podgor & Israel, supra note 8, at 427–30 (describing how Rule 26(b)(3) incorporates Hickman and “sets forth a standard as to the showing needed to overcome work product protection”).

In sum: Both attorney client and work product privilege may be asserted properly for a given document or communication, but the two are distinct privileges justified on distinct grounds and focused on distinct inquiries.

These doctrines are relatively straightforward to apply—unless the communication was created by an attorney, but with more than one purpose in mind. Such communication, referred to as a dual purpose communication, may implicate thorny issues with respect to these two privileges. These dual purpose communications are often formed by an attorney “wear[ing] dual hats, serving as both lawyer and a trusted business advisor.”1515. In re Grand Jury, 13 F.4th, at *1. Moreover, dual purpose communications have become increasingly relevant over the years, in light of the “increasingly complex regulatory landscape”1616. Id. at *1. implicating the services of attorneys who can offer both legal and business advice.

The tax law context, for instance, is rife with opportunities for privilege issues relating to dual purpose communications. “[S]ome 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.’”1717. Id. at *6, citing Sanmina, 968 F.3d at 1118. However, privilege protects only certain communications; It will not apply to run-of-the-mill tax information relayed from client to attorney or memorialized by the attorney as part of standard tax practice.1818. Id. at *5-6 (“Generally, communications related to an attorney’s preparation of tax returns are not covered by attorney-client privilege. 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.’”), citing Olender v. United States, 968 F.3d 1107, 1116 (9th Cir. 2020), and quoting United States v. Abrahams, 905 F.2d 1276, 1284-84 (9th Cir. 1990), overruled on other grounds by United States v. Jose, 131 F.3d 1325 (9th Cir. 1997). In the scenario of standard tax information, there would be no valid claim of privilege as justification for withholding the communications.1919. Id. Courts, then, must grapple with the articulation of a standard against which privilege claims in the context of dual purpose communications may be assessed.2020. See In re Grand Jury, 13 F.4th, at *1 (“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.”).

Facts Underlying the Recent Ninth Circuit Decision

Although some details of the underlying case remain shrouded in secrecy, the general facts giving rise to the privilege dispute in In re Grand Jury2121. 13 F.4th 710 (9th Cir. 2021), opinion substituted by In re Grand Jury, Nos. 21-55085, 21-55145, 2021 U.S. App. LEXIS 39178 (9th Cir. Jan. 27, 2022).are as follows. A California federal grand jury sought information relating to the owner of a company, who was the target of a criminal investigation. Seeking specific communications, the grand jury issued subpoenas to the individual’s company (“Company”) and the individual’s law firm (“Law Firm”). Both Company and Law Firm (“appellants”) complied with some of the requests, but they refused to produce to the grand jury certain desired tax-related documents on grounds of work product and attorney client privilege.2222. Id. at *4. When the district court granted in part the government’s motion to compel production,2323. In granting the government’s motion to compel production, “the district court explained that these documents were either not protected by any privilege or were discoverable under the crime-fraud exception.” In re Grand Jury, 13 F.4th, at *4. Discussion of the crime-fraud exception and its bearing on the issues in In re Grand Jury is beyond the scope of this piece, in large part because the Ninth Circuit disposed of the assertion of the crime fraud exception “in a concurrently filed, sealed memorandum disposition.” Id. at *5 n.1. the appellants continued to assert both privileges and thereby refused to produce the withheld documents. The refusal to produce these communications ultimately landed the appellants in contempt, prompting the appellants’ appeal to decide the open question of the appropriate standard for assessing privilege of dual-purpose communications.2424. See In re Grand Jury, 13 F.4th at *4-5 (noting findings of contempt and appellants’ appeal). The Ninth Circuit granted appellants’ appeal.2525. See id. at *5 (appeal granted under 28 U.S.C. § 1291).

A year earlier, the Ninth Circuit in 2020 had declined an opportunity to decide this question, instead punting on the issue of a clear standard to assess attorney client privilege for dual purpose documents. In United States v. Sanmina Corp. & Subsidiaries,2626. Sanmina, 968 F.3d 1107 (9th Cir. 2020). the court heard a dispute focused in part on privilege claims with respect to dual purpose tax communications.2727. See id., at 1118–19 & n.5 (describing the communicates as “dual purpose” and weighing possible proper standards). The Sanmina Court chronicled the intra-circuit split on the question of the proper test to apply,2828. See Sanmina, 968 F.3d at 1118–19 n.5 (illustrating the Ninth Circuit intra-circuit split by pointing to, e.g., four district courts in the Ninth Circuit which applied the “primary purpose” test, and two other courts which applied the “because of” standard in an attorney client privilege claim). but ultimately declined to resolve the split given that the facts of the case did not demand a clear standard.2929. See id. at 1118-19 (“Notwithstanding this intra-circuit split, however, we need not decide the issue on the facts of this case.”). However, the open question materialized within a year and sat before the court on appeal, once again, in In re Grand Jury.

On appeal in In re Grand Jury, the government argued in favor of the “primary purpose” test, naturally seeking for the circuit to adopt a narrow privilege rule. As the Ninth Circuit explained of the primary purpose 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 natural implication of this inquiry is that a dual-purpose communication can only have a single ‘primary’ purpose.”3030. In re Grand Jury, at *6-7.

In fact, the government sought to narrow substantially the protection offered by decrees of privilege, “suggesting that dual-purpose communications in the tax advice context can never be privileged . . .”.3131. Id. at *7 (emphasis added). However, the court disposes of this contention in a footnote as inapposite with Ninth Circuit case law, citing to a case in which the Ninth Circuit neither resoundingly accepted the privilege claim of a dual-purpose tax advice communication nor rejected the possibility outright that privilege may apply under certain circumstances.3232. See id. at *7, n.2 (determining relevant case law does not support the government’s contention that dual purpose tax-related documents are never privileged) (citing Abrahams, 905 F.2d 1276, 1284 (9th Cir. 1990), overruled on other grounds by United States v. Jose, 131 F.3d 1325 (9th Cir. 1997)).

On the other hand, the appellants sought adoption of a privilege standard with as broad a reach as possible. The “because of” test proposed by appellants

“does not consider whether litigation was a primary or secondary motive behind the creation of a document.” 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.”3333. Id. at *7 (emphasis added).

However, the Ninth Circuit declines to adopt the “because of” test, finding the appellants’ alchemic arguments to transmute the work product “because of” test into the attorney client privilege inquiry in the context of dual-purpose communications unpersuasive.3434. See id. at *10 (“Appellants offer no persuasive reason to abandon the common law rule” with respect to privilege claims for dual-purpose communications). Interestingly, the opinion does not confront appellants’ claim of work product privilege, but instead views the argument only from the vantage of attorney client privilege.3535. See id. at *4 (setting forth that appellants withheld documents, “citing attorney-client privilege and the work-product doctrine); but see generally id. (failing to engage with the argument that the communications at issue were properly withheld pursuant to work product privilege, not attorney client privilege). In rejecting the “because of” test for purposes of dual-purpose communications privilege inquiries and affirming the lower court’s finding of contempt, the court explains that attorney client privilege focuses on “the purpose of the communication, not its relation to anticipated litigation,”3636. In re Grand Jury, 13 F.4th, at *10. thereby underscoring the distinction between work product and attorney client privilege.

Rationale of the Ninth Circuit’s Decision

The Ninth Circuit correctly homes in on the distinction between attorney client and work product privilege. The two privileges, although complementary, serve distinct purposes and trace distinct historical developments along separate threads of the common law. The court explains the goal of work product privilege as preservation of “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.”3737. Id. at *10 (citing United States v. Adlman, 134 F.3d 1194, 1196 (2d. Cir. 1998)). On the other hand, the sanctity of the relationship between a client and his attorney—as opposed to privacy in the face of litigation—animates the attorney client privilege. In fact, “the attorney-client privilege encourages ‘full and frank communication between attorneys and their clients and thereby promote[s] broader public interests in the observance of law and administration of justice.’”3838. Id. at *11 (citing Upjohn Company v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981)).

The Ninth Circuit did not myopically tether its rationale only to the importance of maintaining a clear demarcation between two privileges imported and developed from common law. It also considered the practical realities. In explicating the rationale for its holding, the Ninth Circuit considered the incentive structure for attorneys and firms that would inevitably develop in reaction to adoption of a “because of” standard governing attorney client privilege inquiries of dual-purpose communications. The court explained that the “because of” test as applied to attorney-client privilege “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,”3939. Id. at *12. and it expressed concern that the test “might harm our adversarial system if parties try to withhold key documents as privileged by claiming that they were created ‘because of’ litigation concerns.”4040. Id. at *11-12.

Finally, the panel considered the governing standard in other circuits for assertions of attorney client privilege of dual-purpose communications. Of those which have confronted the issue, sister circuits generally have declined to import the “because of” standard into attorney client privilege inquiries for dual purpose communications.4141. See In re Grand Jury, 13 F.4th, at *12 (“[M]ost, 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.”). However, one prominent circuit provides more granular guidance as to the precise contours of the privilege test which will govern dual-purpose communications—not merely rejecting one standard, as the Ninth Circuit did, and leaving open the issue of what exactly is the proper test.4242. In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).

The D.C. Circuit’s Kellogg Test

Nearly a decade ago, the D.C. Circuit set forth its “a primary purpose” standard.4343. See id. at 759–60 (describing “a primary purpose test” and its justification). Confronted with a privilege dispute centered on whether certain documents produced in the course of an internal investigation for a defense contractor constituted “legal advice”4444. Id. at 756. or “unprivileged business records,”4545. Id. the district court reviewed the disputed documents in camera and “determined that the attorney-client privilege protection did not apply because . . . [defendant] had not shown that ‘the communication would not have been made ‘but for’ the fact that legal advice was sought.”4646. Id. The defendant maintained its privilege claim over the dual-purpose communications and sought mandamus relief at the D.C. Circuit.

In an opinion penned by then-Judge Kavanaugh, the Kellogg Court found that the district court had applied an incorrect standard—the “but for” test—in its determination that the defendant may not withhold the documents under a claim of attorney client privilege.4747. See id. at 759 (noting the District Court correctly set forth the “primary purpose” test, but “then said that the primary purpose of a communication is to obtain or provide legal advice only if the communication would not have been made ‘but for’ the fact that legal advice was sought”). The Circuit Court, instead, reasoned:

[T]rying 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. It is often not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B. It is thus not correct for a court to presume that a communication can have only one primary purpose. It is likewise not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes.4848. In re Kellogg Brown & Root, Inc., 756 F.3d at 759–60 (second emphasis added).

Thus, the Kellogg court soundly rejects “the primary purpose” standard as the appropriate test in questions of attorney client privilege claims for dual purpose communications. Instead, the D.C. Circuit explains that the following inquiry governs: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?”4949. Id. at 760.

Despite careful treatment of the issue and a seemingly unambiguous standard offered by the Kellogg court, commentators remain skeptical of Kellogg’s legacy: “[W]hether Kellogg represents a broad and significant development in attorney-client privilege remains to be seen.”5050. Hazard, Hodes, & Jarvis, supra note 2, at 10-46. On the other hand, the Kellogg “a primary test” standard has gained traction in a handful of district courts.5151. See, e.g., In re Grand Jury, 13 F.4th at *14 n.4 (listing cases, e.g., in the Southern District of New York, the District of Maryland, and the Eastern District of Michigan, as instances in which the Kellogg test was adopted). And the D.C. Circuit continues to apply this standard in its assessment of attorney client privilege for dual purpose communications.5252. See, e.g., FTC v. Boehringer Ingelheim Pharms., Inc., 892 F.3d 1264, at 1267-68 (then-Judge Kavanaugh applied the Kellogg test to a dual purpose communication, asking “whether obtaining or providing legal advice was one of the significant purposes of the communications at issue,” and upon an affirmative finding, held the documents were protected by attorney client privilege).

The Ninth Circuit, too, declined the opportunity to adopt the Kellogg test—despite arguments to the contrary made in In re Grand Jury. “Company” and “Law Firm” argued in the alternative that, should the court decline to adopt the “because of” test, the Kellogg “a primary purpose” test should govern.5353. In re Grand Jury, 13 F.4th, at *13. The Ninth Circuit side-stepped the issue.5454. Some advocates have attempted to characterize the Ninth Circuit’s opinion as an express rejection of the Kellogg test, and not merely as an open issue. See, e.g., Brief for Defendant-Appellee, Buckley LLP v. Series 1 of Oxford Insurance Company, NC LLC (Sup. Ct. N.C., Nov. 9, 2020). However, this seems to be a minority view; District courts in the Ninth Circuit have read the In re Grand Jury opinion as declining to arrive at an ultimate standard for the time being. See infra notes 48–55 and accompanying text. Although the Court admitted the “merits of the reasoning in Kellogg” and indicated that it may be inclined to adopt the Kellogg test in a future dispute, it declined “to adopt or apply the Kellogg formulation of the primary-purpose test here.”5555. Id. at *14. Hinting strongly that the context in which dual purpose communications are created is a dimension of the Court’s focus, the Ninth Circuit distinguished Kellogg on the ground that it was formulated in light of corporate internal investigations, not tax-related documents as in In re Grand Jury.5656. Id.

Implications of the Ruling

Where does this holding leave firms? Those subject to the Ninth Circuit’s jurisdiction will benefit from the clear rejection of the “because of” test in the context of attorney client privilege for dual-purpose communications. Both in-house and outside counsel should consider taking steps to designate the purpose for which documents meant to protect attorney client privilege in order to inoculate against potential future document requests. As some commentators have suggested:

“Regardless of how the purpose line is drawn by a court in a particular case, . . . attorneys and their clients may be able to influence—although perhaps not wholly control—the availability of the privilege by creating a record indicating why communications are occurring, or by segregating communications in aid of legal advice from those involving non-legal advice.”5757. Hazard, Hodes, & Jarvis, supra note 2, at 10-46.

Thus, critical examination by attorneys of existing processes may be warranted in order to protect client interests.

District courts in the Ninth Circuit already have relied upon In re Grand Jury in order to determine the validity of assertions of privilege in contexts beyond tax. In an employment discrimination dispute, a magistrate judge for the District of Oregon conducted an in camera review of two email documents withheld by defendants on grounds of attorney client privilege.5858. Walker v. Shangri-La Corp., No. 6:20-cv-01577-MK, 2022 U.S. Dist. LEXIS 16293 (D. Or. Jan. 28, 2022). Applying the “primary purpose test” as set forth in in re Grand Jury,5959. See id. at *3-4 (noting and applying the In re Grand Jury formulation of the “primary purpose” standard). the magistrate determined that “the primary purpose of the communication was to receive legal advice from an attorney employed with reference to that attorney's knowledge and discretion in the law”6060. Id. at *4. and concluded the documents were properly withheld on ground of attorney client privilege.6161. See id. (finding upon application of the primary purpose test that “any discoverable content in the two e-mail documents is protected from disclosure under the attorney-client privilege.”).

Interestingly, and perhaps hinting at the degree to which the recent decision clarified the proper standard for assessment of privilege claims, at least one district court in the Ninth Circuit cited to In re Grand Jury for its explication of the “because of” standard in the work product context.6262. Discovery Land Co. LLC v. Berkley Ins. Co., No. CV-20-01541-PHX-JJT, 2022 U.S. Dist. LEXIS 11604 (D. Ariz. Jan. 21, 2022). It is possible that the Arizona district court misconstrued In re Grand Jury, given that it did not cite to the “primary purpose” standard as set forth in In re Grand Jury in its treatment of attorney client privilege in the same decision. There, the Arizona District Court framed the “because of” standard as an emanation of the In re Grand Jury decision, and the court applied this test to a non-dual purpose communication to find that contested documents were protected by work product privilege.6363. See id. at *15-16 (“To determine whether a document qualifies for protection under the work-product protection, the Ninth Circuit has adopted a broad ‘because of’ test.”), citing In re Grand Jury, 13 F.4th 710 (9th Cir. 2021).

It remains possible that the Ninth Circuit will adopt the Kellogg test in a future dispute for which the difference between “a primary purpose” and “the primary purpose” carries weight. In fact, the Court signaled its openness to adoption of the Kellogg test—at least under circumstances closely mirroring those present in Kellogg, and for litigants for whom the difference in privilege application between “a primary purpose” and “the primary purpose” is meaningful.6464. In re Grand Jury, 13 F.4th, at *14-15 (noting that the Kellogg test “would save courts the trouble of having to identify a predominate purpose among two (or more) potentially equal purposes,” and positing that “the universe of documents in which the Kellogg test would make a difference is limited”). Compounding the potential for a future dispute to force the Ninth Circuit to rule decisively on the issue, district courts in the circuit continue to amplify that the precise standard remains an open question.6565. See, e.g., Meta Platforms v. Brandtotal Ltd., No. 20-cv-07182-JCS, 2022 U.S. Dist. LEXIS 4820, at *4-5 (N.D. Cal. Jan. 10, 2022) (“If a communication serves more than one purpose, the Ninth Circuit has declined to resolve whether legal advice must be ‘the primary purpose’ or merely ‘a primary purpose,’ but has affirmed a district court imposing contempt for failure to produce documents where ‘the district court did not clearly err in finding that the predominate purpose of the disputed communications was not to obtain legal advice.’”); Walker v. Shangri-La Corp., at *3 (noting in parentheses that the In re Grand Jury Court “declined to resolve whether its primary purpose test requires legal advice to “be ‘the primary purpose’ or merely ‘a primary purpose’”).

Although the likelihood is high for a dispute to emerge in the Ninth Circuit arguing in favor of the Kellogg standard, whether the Ninth Circuit will adopt the test remains opaque. Failure of the Kellogg “a primary purpose” test to gain traction since its 2014 promulgation suggests that sister circuits may be reluctant to broaden the attorney client inquiry at all. Moreover, many state courts have expressly rejected the Kellogg standard, favoring the narrower inquiry of “the primary purpose.”6666. See Thompson v. Polaris, Inc., 967 N.W.2d 397, 408 n.1 (Minn. S. Ct. 2021) (“Because we apply the attorney-client privilege narrowly, we agree with the overwhelming majority of state courts that have adopted the predominant purpose test and conclude that legal advice must be the primary purpose of the communication.”) (citing cases from other state courts in support). And the Ninth Circuit’s incremental rulings in the space of dual purpose communications hint at a reluctance to embrace fully the Kellogg test.6767. See, e.g., Sanmina Corp., 968 F.3d at 1118–19 (declining to decide the issue of proper standard in dual purpose communications context).

Conclusion

The Ninth Circuit’s In re Grand Jury holding clarifies the intra-circuit split left open by the Court a year prior in its Sanmina opinion. The In re Grand Jury court expressly rejects transporting the “because of” standard from the work product context to assess claims of attorney client privilege for dual purpose communications. Instead, the Ninth Circuit asserts that the “primary purpose” test reigns. But questions still linger as to the precise test that may be applied in future disputes. In the case of a dual purpose document formed with two equal purposes, what standard will apply? Will the Ninth Circuit ultimately join the D.C. Circuit in adopting the Kellogg “a primary purpose” framework? Or instead, will the Court reject Kellogg explicitly, or implicitly by choosing to characterize one of the purposes as “the primary purpose”? The Court’s signaling in In re Grand Jury of the existing open issue, and the lower courts’ amplification, with respect to adoption of Kellogg could not be clearer. The Ninth Circuit will likely confront this issue once again and preferably clarifies its stance on the Kellogg test.

Ninth Circuit Offers Incremental Guidance as to Proper Privilege Test for Dual-Purpose Communications, But Ultimately Punts on Adoption of Kellogg Standard

Ninth Circuit Offers Incremental Guidance as to Proper Privilege Test for Dual-Purpose Communications, But Ultimately Punts on Adoption of Kellogg Standard

To what degree should work product or attorney client privilege afford protection to dual-purpose communications? As business organizations have grown in size and complexity, and as attorneys for and within these organizations serve as both lawyers and businesspersons, courts have struggled to articulate the proper standard to assess whether certain communications sought in the course of an investigation or litigation should be considered privileged information and thereby afforded protection from disclosure. Dual-purpose communications, or communications with “more than one purpose,”11. In re Grand Jury, 13 F.4th 710 (9th Cir. 2021), opinion substituted by In re Grand Jury, Nos. 21-55085, 21-55145, 2021 U.S. App. LEXIS 39178 (9th Cir. Jan. 27, 2022), at *6 (referring to dual purpose tax documents in United States v. Sanmina Corp., 968 F.3d at 1118 (9th Cir. 2020)). have proven at times slippery for courts to fit neatly into existing privilege jurisprudence.22. See, e.g., Geoffrey C. Hazard, Jr., W. William Hodes, & Peter R. Jarvis 10-44, Law of Lawyering 2021-22 Supplement (Wolters Kluwer, 4th ed. 2022) (“One common problem that arises, most often when privilege claims are made by in-house counsel, is whether particular communications were made in connection with business rather than legal advice.”) The Ninth Circuit recently confronted an intra-circuit split on the proper standard for assessing privilege of dual-purpose communications, squarely rejecting the broader test in favor of a narrower inquiry.33. See In re Grand Jury, 13 F.4th at *12 (“[W]e 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.”). Some district courts had hewed to the focused “primary purpose” test, which looks to the “primary” reason for creation of the communication.44. See id. at *7 (“Under the ‘primary purpose’ test, courts look at whether the primary purpose of the document is to give or receive legal advice, as opposed to business or tax advice.”), citing In re County of Erie, 473 F.3d 413, 420 (2d Cir. 2007). Meanwhile, other district courts had assessed claims of privilege under the broader “because of” standard, which inquired into the “causal connection”55. Id. at *7. animating creation of the document. The Ninth Circuit determined that the “primary purpose” test governs, underscoring the distinction between work product and attorney client privilege. However, although the court rejected the “because of” test in this context, it punted on the precise contours of the privilege standard by which to assess dual-purpose communications—leaving business organizations potentially in the dark as to whether certain documents may properly be withheld under a privilege assertion.

Relevant Background

Attorney client privilege designates as sacrosanct certain communications, between a client and her lawyer, in which the client seeks legal advice.66. See, e.g., Samnina Corp., 968 F.3d at 1116 (“The attorney-client privilege protections confidential communications between attorneys and clients, which are made for the purpose of giving legal advice.”), citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981); Hazard, Hodes, & Jarvis, supra note 2, at 10-44 (“In order for attorney-client privilege to apply, the communication between attorney and client (or their respective representatives), must be in aid of the attorney’s provision of legal advice to the client—it must be about a legal matter, in other words.”). In federal courts, Rule 501 of the Federal Rules of Evidence77. The Rule reads precisely as:“Rule 501. Privilege in GeneralThe common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise:the United States Constitution;a federal statute; orrules prescribed by the Supreme Court.But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Fed. R. Evid. 501. cognizes the attorney client privilege as developed under federal common law.88. Ellen S. Pogdor & Jerold H. Israel, White Collar Crime in a Nutshell 387 (West, 4th ed. 2009). In the Ninth Circuit, the attorney client privilege is articulated by a functionally equivalent “eight-part test: (1) Where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal advisor, (8) unless the protection be waived.” Sanmina Corp., 968 F.3d at 1116, citing United States v. Graf, 610 F.3d 1148, 1156 (9th Cir. 2010). In order to invoke the privilege successfully and thereby shield a relevant communication from disclosure, one generally must demonstrate: “(1) a communication, (2) that was made by the client to a lawyer, (3) that was made in confidence, and (4) that was made for the purpose of obtaining professional legal advice (or services relating thereto).”99. Id. at § 22.02, at 389. Generally, those communications satisfying all four elements may be withheld on grounds that the privilege cloaks the communications in protection.1010. Id.

On the other hand, work product privilege seeks to protect from disclosure documents prepared by an attorney “in anticipation of litigation.”1111. Pogdor & Israel, supra note 8, at 426. Originally articulated in the seminal Supreme Court case Hickman v. Taylor,1212. 329 U.S. 495 (1947). work product privilege trains the perspective on the attorney’s actions in the face of litigation (or the threat of litigation).1313. Pogdor & Israel, supra note 8, at 427–29. Today, Rule 26(b)(3) of the Federal Rules of Civil Procedure also asserts the standard for work product privilege.1414. See Podgor & Israel, supra note 8, at 427–30 (describing how Rule 26(b)(3) incorporates Hickman and “sets forth a standard as to the showing needed to overcome work product protection”).

In sum: Both attorney client and work product privilege may be asserted properly for a given document or communication, but the two are distinct privileges justified on distinct grounds and focused on distinct inquiries.

These doctrines are relatively straightforward to apply—unless the communication was created by an attorney, but with more than one purpose in mind. Such communication, referred to as a dual purpose communication, may implicate thorny issues with respect to these two privileges. These dual purpose communications are often formed by an attorney “wear[ing] dual hats, serving as both lawyer and a trusted business advisor.”1515. In re Grand Jury, 13 F.4th, at *1. Moreover, dual purpose communications have become increasingly relevant over the years, in light of the “increasingly complex regulatory landscape”1616. Id. at *1. implicating the services of attorneys who can offer both legal and business advice.

The tax law context, for instance, is rife with opportunities for privilege issues relating to dual purpose communications. “[S]ome 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.’”1717. Id. at *6, citing Sanmina, 968 F.3d at 1118. However, privilege protects only certain communications; It will not apply to run-of-the-mill tax information relayed from client to attorney or memorialized by the attorney as part of standard tax practice.1818. Id. at *5-6 (“Generally, communications related to an attorney’s preparation of tax returns are not covered by attorney-client privilege. 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.’”), citing Olender v. United States, 968 F.3d 1107, 1116 (9th Cir. 2020), and quoting United States v. Abrahams, 905 F.2d 1276, 1284-84 (9th Cir. 1990), overruled on other grounds by United States v. Jose, 131 F.3d 1325 (9th Cir. 1997). In the scenario of standard tax information, there would be no valid claim of privilege as justification for withholding the communications.1919. Id. Courts, then, must grapple with the articulation of a standard against which privilege claims in the context of dual purpose communications may be assessed.2020. See In re Grand Jury, 13 F.4th, at *1 (“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.”).

Facts Underlying the Recent Ninth Circuit Decision

Although some details of the underlying case remain shrouded in secrecy, the general facts giving rise to the privilege dispute in In re Grand Jury2121. 13 F.4th 710 (9th Cir. 2021), opinion substituted by In re Grand Jury, Nos. 21-55085, 21-55145, 2021 U.S. App. LEXIS 39178 (9th Cir. Jan. 27, 2022).are as follows. A California federal grand jury sought information relating to the owner of a company, who was the target of a criminal investigation. Seeking specific communications, the grand jury issued subpoenas to the individual’s company (“Company”) and the individual’s law firm (“Law Firm”). Both Company and Law Firm (“appellants”) complied with some of the requests, but they refused to produce to the grand jury certain desired tax-related documents on grounds of work product and attorney client privilege.2222. Id. at *4. When the district court granted in part the government’s motion to compel production,2323. In granting the government’s motion to compel production, “the district court explained that these documents were either not protected by any privilege or were discoverable under the crime-fraud exception.” In re Grand Jury, 13 F.4th, at *4. Discussion of the crime-fraud exception and its bearing on the issues in In re Grand Jury is beyond the scope of this piece, in large part because the Ninth Circuit disposed of the assertion of the crime fraud exception “in a concurrently filed, sealed memorandum disposition.” Id. at *5 n.1. the appellants continued to assert both privileges and thereby refused to produce the withheld documents. The refusal to produce these communications ultimately landed the appellants in contempt, prompting the appellants’ appeal to decide the open question of the appropriate standard for assessing privilege of dual-purpose communications.2424. See In re Grand Jury, 13 F.4th at *4-5 (noting findings of contempt and appellants’ appeal). The Ninth Circuit granted appellants’ appeal.2525. See id. at *5 (appeal granted under 28 U.S.C. § 1291).

A year earlier, the Ninth Circuit in 2020 had declined an opportunity to decide this question, instead punting on the issue of a clear standard to assess attorney client privilege for dual purpose documents. In United States v. Sanmina Corp. & Subsidiaries,2626. Sanmina, 968 F.3d 1107 (9th Cir. 2020). the court heard a dispute focused in part on privilege claims with respect to dual purpose tax communications.2727. See id., at 1118–19 & n.5 (describing the communicates as “dual purpose” and weighing possible proper standards). The Sanmina Court chronicled the intra-circuit split on the question of the proper test to apply,2828. See Sanmina, 968 F.3d at 1118–19 n.5 (illustrating the Ninth Circuit intra-circuit split by pointing to, e.g., four district courts in the Ninth Circuit which applied the “primary purpose” test, and two other courts which applied the “because of” standard in an attorney client privilege claim). but ultimately declined to resolve the split given that the facts of the case did not demand a clear standard.2929. See id. at 1118-19 (“Notwithstanding this intra-circuit split, however, we need not decide the issue on the facts of this case.”). However, the open question materialized within a year and sat before the court on appeal, once again, in In re Grand Jury.

On appeal in In re Grand Jury, the government argued in favor of the “primary purpose” test, naturally seeking for the circuit to adopt a narrow privilege rule. As the Ninth Circuit explained of the primary purpose 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 natural implication of this inquiry is that a dual-purpose communication can only have a single ‘primary’ purpose.”3030. In re Grand Jury, at *6-7.

In fact, the government sought to narrow substantially the protection offered by decrees of privilege, “suggesting that dual-purpose communications in the tax advice context can never be privileged . . .”.3131. Id. at *7 (emphasis added). However, the court disposes of this contention in a footnote as inapposite with Ninth Circuit case law, citing to a case in which the Ninth Circuit neither resoundingly accepted the privilege claim of a dual-purpose tax advice communication nor rejected the possibility outright that privilege may apply under certain circumstances.3232. See id. at *7, n.2 (determining relevant case law does not support the government’s contention that dual purpose tax-related documents are never privileged) (citing Abrahams, 905 F.2d 1276, 1284 (9th Cir. 1990), overruled on other grounds by United States v. Jose, 131 F.3d 1325 (9th Cir. 1997)).

On the other hand, the appellants sought adoption of a privilege standard with as broad a reach as possible. The “because of” test proposed by appellants

“does not consider whether litigation was a primary or secondary motive behind the creation of a document.” 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.”3333. Id. at *7 (emphasis added).

However, the Ninth Circuit declines to adopt the “because of” test, finding the appellants’ alchemic arguments to transmute the work product “because of” test into the attorney client privilege inquiry in the context of dual-purpose communications unpersuasive.3434. See id. at *10 (“Appellants offer no persuasive reason to abandon the common law rule” with respect to privilege claims for dual-purpose communications). Interestingly, the opinion does not confront appellants’ claim of work product privilege, but instead views the argument only from the vantage of attorney client privilege.3535. See id. at *4 (setting forth that appellants withheld documents, “citing attorney-client privilege and the work-product doctrine); but see generally id. (failing to engage with the argument that the communications at issue were properly withheld pursuant to work product privilege, not attorney client privilege). In rejecting the “because of” test for purposes of dual-purpose communications privilege inquiries and affirming the lower court’s finding of contempt, the court explains that attorney client privilege focuses on “the purpose of the communication, not its relation to anticipated litigation,”3636. In re Grand Jury, 13 F.4th, at *10. thereby underscoring the distinction between work product and attorney client privilege.

Rationale of the Ninth Circuit’s Decision

The Ninth Circuit correctly homes in on the distinction between attorney client and work product privilege. The two privileges, although complementary, serve distinct purposes and trace distinct historical developments along separate threads of the common law. The court explains the goal of work product privilege as preservation of “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.”3737. Id. at *10 (citing United States v. Adlman, 134 F.3d 1194, 1196 (2d. Cir. 1998)). On the other hand, the sanctity of the relationship between a client and his attorney—as opposed to privacy in the face of litigation—animates the attorney client privilege. In fact, “the attorney-client privilege encourages ‘full and frank communication between attorneys and their clients and thereby promote[s] broader public interests in the observance of law and administration of justice.’”3838. Id. at *11 (citing Upjohn Company v. United States, 449 U.S. 383, 389, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981)).

The Ninth Circuit did not myopically tether its rationale only to the importance of maintaining a clear demarcation between two privileges imported and developed from common law. It also considered the practical realities. In explicating the rationale for its holding, the Ninth Circuit considered the incentive structure for attorneys and firms that would inevitably develop in reaction to adoption of a “because of” standard governing attorney client privilege inquiries of dual-purpose communications. The court explained that the “because of” test as applied to attorney-client privilege “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,”3939. Id. at *12. and it expressed concern that the test “might harm our adversarial system if parties try to withhold key documents as privileged by claiming that they were created ‘because of’ litigation concerns.”4040. Id. at *11-12.

Finally, the panel considered the governing standard in other circuits for assertions of attorney client privilege of dual-purpose communications. Of those which have confronted the issue, sister circuits generally have declined to import the “because of” standard into attorney client privilege inquiries for dual purpose communications.4141. See In re Grand Jury, 13 F.4th, at *12 (“[M]ost, 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.”). However, one prominent circuit provides more granular guidance as to the precise contours of the privilege test which will govern dual-purpose communications—not merely rejecting one standard, as the Ninth Circuit did, and leaving open the issue of what exactly is the proper test.4242. In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014).

The D.C. Circuit’s Kellogg Test

Nearly a decade ago, the D.C. Circuit set forth its “a primary purpose” standard.4343. See id. at 759–60 (describing “a primary purpose test” and its justification). Confronted with a privilege dispute centered on whether certain documents produced in the course of an internal investigation for a defense contractor constituted “legal advice”4444. Id. at 756. or “unprivileged business records,”4545. Id. the district court reviewed the disputed documents in camera and “determined that the attorney-client privilege protection did not apply because . . . [defendant] had not shown that ‘the communication would not have been made ‘but for’ the fact that legal advice was sought.”4646. Id. The defendant maintained its privilege claim over the dual-purpose communications and sought mandamus relief at the D.C. Circuit.

In an opinion penned by then-Judge Kavanaugh, the Kellogg Court found that the district court had applied an incorrect standard—the “but for” test—in its determination that the defendant may not withhold the documents under a claim of attorney client privilege.4747. See id. at 759 (noting the District Court correctly set forth the “primary purpose” test, but “then said that the primary purpose of a communication is to obtain or provide legal advice only if the communication would not have been made ‘but for’ the fact that legal advice was sought”). The Circuit Court, instead, reasoned:

[T]rying 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. It is often not useful or even feasible to try to determine whether the purpose was A or B when the purpose was A and B. It is thus not correct for a court to presume that a communication can have only one primary purpose. It is likewise not correct for a court to try to find the one primary purpose in cases where a given communication plainly has multiple purposes.4848. In re Kellogg Brown & Root, Inc., 756 F.3d at 759–60 (second emphasis added).

Thus, the Kellogg court soundly rejects “the primary purpose” standard as the appropriate test in questions of attorney client privilege claims for dual purpose communications. Instead, the D.C. Circuit explains that the following inquiry governs: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?”4949. Id. at 760.

Despite careful treatment of the issue and a seemingly unambiguous standard offered by the Kellogg court, commentators remain skeptical of Kellogg’s legacy: “[W]hether Kellogg represents a broad and significant development in attorney-client privilege remains to be seen.”5050. Hazard, Hodes, & Jarvis, supra note 2, at 10-46. On the other hand, the Kellogg “a primary test” standard has gained traction in a handful of district courts.5151. See, e.g., In re Grand Jury, 13 F.4th at *14 n.4 (listing cases, e.g., in the Southern District of New York, the District of Maryland, and the Eastern District of Michigan, as instances in which the Kellogg test was adopted). And the D.C. Circuit continues to apply this standard in its assessment of attorney client privilege for dual purpose communications.5252. See, e.g., FTC v. Boehringer Ingelheim Pharms., Inc., 892 F.3d 1264, at 1267-68 (then-Judge Kavanaugh applied the Kellogg test to a dual purpose communication, asking “whether obtaining or providing legal advice was one of the significant purposes of the communications at issue,” and upon an affirmative finding, held the documents were protected by attorney client privilege).

The Ninth Circuit, too, declined the opportunity to adopt the Kellogg test—despite arguments to the contrary made in In re Grand Jury. “Company” and “Law Firm” argued in the alternative that, should the court decline to adopt the “because of” test, the Kellogg “a primary purpose” test should govern.5353. In re Grand Jury, 13 F.4th, at *13. The Ninth Circuit side-stepped the issue.5454. Some advocates have attempted to characterize the Ninth Circuit’s opinion as an express rejection of the Kellogg test, and not merely as an open issue. See, e.g., Brief for Defendant-Appellee, Buckley LLP v. Series 1 of Oxford Insurance Company, NC LLC (Sup. Ct. N.C., Nov. 9, 2020). However, this seems to be a minority view; District courts in the Ninth Circuit have read the In re Grand Jury opinion as declining to arrive at an ultimate standard for the time being. See infra notes 48–55 and accompanying text. Although the Court admitted the “merits of the reasoning in Kellogg” and indicated that it may be inclined to adopt the Kellogg test in a future dispute, it declined “to adopt or apply the Kellogg formulation of the primary-purpose test here.”5555. Id. at *14. Hinting strongly that the context in which dual purpose communications are created is a dimension of the Court’s focus, the Ninth Circuit distinguished Kellogg on the ground that it was formulated in light of corporate internal investigations, not tax-related documents as in In re Grand Jury.5656. Id.

Implications of the Ruling

Where does this holding leave firms? Those subject to the Ninth Circuit’s jurisdiction will benefit from the clear rejection of the “because of” test in the context of attorney client privilege for dual-purpose communications. Both in-house and outside counsel should consider taking steps to designate the purpose for which documents meant to protect attorney client privilege in order to inoculate against potential future document requests. As some commentators have suggested:

“Regardless of how the purpose line is drawn by a court in a particular case, . . . attorneys and their clients may be able to influence—although perhaps not wholly control—the availability of the privilege by creating a record indicating why communications are occurring, or by segregating communications in aid of legal advice from those involving non-legal advice.”5757. Hazard, Hodes, & Jarvis, supra note 2, at 10-46.

Thus, critical examination by attorneys of existing processes may be warranted in order to protect client interests.

District courts in the Ninth Circuit already have relied upon In re Grand Jury in order to determine the validity of assertions of privilege in contexts beyond tax. In an employment discrimination dispute, a magistrate judge for the District of Oregon conducted an in camera review of two email documents withheld by defendants on grounds of attorney client privilege.5858. Walker v. Shangri-La Corp., No. 6:20-cv-01577-MK, 2022 U.S. Dist. LEXIS 16293 (D. Or. Jan. 28, 2022). Applying the “primary purpose test” as set forth in in re Grand Jury,5959. See id. at *3-4 (noting and applying the In re Grand Jury formulation of the “primary purpose” standard). the magistrate determined that “the primary purpose of the communication was to receive legal advice from an attorney employed with reference to that attorney’s knowledge and discretion in the law”6060. Id. at *4. and concluded the documents were properly withheld on ground of attorney client privilege.6161. See id. (finding upon application of the primary purpose test that “any discoverable content in the two e-mail documents is protected from disclosure under the attorney-client privilege.”).

Interestingly, and perhaps hinting at the degree to which the recent decision clarified the proper standard for assessment of privilege claims, at least one district court in the Ninth Circuit cited to In re Grand Jury for its explication of the “because of” standard in the work product context.6262. Discovery Land Co. LLC v. Berkley Ins. Co., No. CV-20-01541-PHX-JJT, 2022 U.S. Dist. LEXIS 11604 (D. Ariz. Jan. 21, 2022). It is possible that the Arizona district court misconstrued In re Grand Jury, given that it did not cite to the “primary purpose” standard as set forth in In re Grand Jury in its treatment of attorney client privilege in the same decision. There, the Arizona District Court framed the “because of” standard as an emanation of the In re Grand Jury decision, and the court applied this test to a non-dual purpose communication to find that contested documents were protected by work product privilege.6363. See id. at *15-16 (“To determine whether a document qualifies for protection under the work-product protection, the Ninth Circuit has adopted a broad ‘because of’ test.”), citing In re Grand Jury, 13 F.4th 710 (9th Cir. 2021).

It remains possible that the Ninth Circuit will adopt the Kellogg test in a future dispute for which the difference between “a primary purpose” and “the primary purpose” carries weight. In fact, the Court signaled its openness to adoption of the Kellogg test—at least under circumstances closely mirroring those present in Kellogg, and for litigants for whom the difference in privilege application between “a primary purpose” and “the primary purpose” is meaningful.6464. In re Grand Jury, 13 F.4th, at *14-15 (noting that the Kellogg test “would save courts the trouble of having to identify a predominate purpose among two (or more) potentially equal purposes,” and positing that “the universe of documents in which the Kellogg test would make a difference is limited”). Compounding the potential for a future dispute to force the Ninth Circuit to rule decisively on the issue, district courts in the circuit continue to amplify that the precise standard remains an open question.6565. See, e.g., Meta Platforms v. Brandtotal Ltd., No. 20-cv-07182-JCS, 2022 U.S. Dist. LEXIS 4820, at *4-5 (N.D. Cal. Jan. 10, 2022) (“If a communication serves more than one purpose, the Ninth Circuit has declined to resolve whether legal advice must be ‘the primary purpose’ or merely ‘a primary purpose,’ but has affirmed a district court imposing contempt for failure to produce documents where ‘the district court did not clearly err in finding that the predominate purpose of the disputed communications was not to obtain legal advice.’”); Walker v. Shangri-La Corp., at *3 (noting in parentheses that the In re Grand Jury Court “declined to resolve whether its primary purpose test requires legal advice to “be ‘the primary purpose’ or merely ‘a primary purpose’”).

Although the likelihood is high for a dispute to emerge in the Ninth Circuit arguing in favor of the Kellogg standard, whether the Ninth Circuit will adopt the test remains opaque. Failure of the Kellogg “a primary purpose” test to gain traction since its 2014 promulgation suggests that sister circuits may be reluctant to broaden the attorney client inquiry at all. Moreover, many state courts have expressly rejected the Kellogg standard, favoring the narrower inquiry of “the primary purpose.”6666. See Thompson v. Polaris, Inc., 967 N.W.2d 397, 408 n.1 (Minn. S. Ct. 2021) (“Because we apply the attorney-client privilege narrowly, we agree with the overwhelming majority of state courts that have adopted the predominant purpose test and conclude that legal advice must be the primary purpose of the communication.”) (citing cases from other state courts in support). And the Ninth Circuit’s incremental rulings in the space of dual purpose communications hint at a reluctance to embrace fully the Kellogg test.6767. See, e.g., Sanmina Corp., 968 F.3d at 1118–19 (declining to decide the issue of proper standard in dual purpose communications context).

Conclusion

The Ninth Circuit’s In re Grand Jury holding clarifies the intra-circuit split left open by the Court a year prior in its Sanmina opinion. The In re Grand Jury court expressly rejects transporting the “because of” standard from the work product context to assess claims of attorney client privilege for dual purpose communications. Instead, the Ninth Circuit asserts that the “primary purpose” test reigns. But questions still linger as to the precise test that may be applied in future disputes. In the case of a dual purpose document formed with two equal purposes, what standard will apply? Will the Ninth Circuit ultimately join the D.C. Circuit in adopting the Kellogg “a primary purpose” framework? Or instead, will the Court reject Kellogg explicitly, or implicitly by choosing to characterize one of the purposes as “the primary purpose”? The Court’s signaling in In re Grand Jury of the existing open issue, and the lower courts’ amplification, with respect to adoption of Kellogg could not be clearer. The Ninth Circuit will likely confront this issue once again and preferably clarifies its stance on the Kellogg test.

Should a Parent Company Be Liable for the Misdeeds of Its Subsidiary? Agency Theories Under the Foreign Corrupt Practices Act

Marcela E. Schaefer

In an effort to increase accountability and compliance with the Foreign Corrupt Practices Act (FCPA), in recent years both the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have held parent companies liable for the anti-bribery violations of their subsidiaries. Scholars and practitioners have argued that the two government agencies are applying an aggressive enforcement policy based on an overly expansive understanding of agency principles. However, because most investigations settle with deferred or non-prosecution agreements, a paucity of FCPA case law prevents corporations, prosecutors, and even judges from clearly understanding what the correct standards are for determining when a parent company is liable for the actions of its subsidiaries—especially under a principal-agent theory of liability. This Note is the first to challenge the narrative that the DOJ and SEC are improperly enforcing the FCPA anti- bribery provisions. It delineates the ways in which a parent can be liable for the misconduct of its subsidiaries before analyzing liability predicated on a principal-agent relationship and the amount of control required to establish such a relationship. It then provides a novel formulation of the correct standard to use in assessing whether an agency relationship exists, based on the Third Restatement of Agency and corporate case law. This Note then assesses DOJ and SEC cases before concluding that while the agencies are correct in holding parent companies liable for the misconduct of their subsidiaries, they are applying agency theories inconsistently, exacerbating the existing confusion as to what the correct standards are for parent companies. 

Engineered Credit Default Swaps: Innovative or Manipulative?

Gina-Gail S. Fletcher

Credit default swaps (CDS) are, once again, making waves. Maligned for their role in the 2008 financial crisis and condemned by the Vatican, investors are once more utilizing CDS to achieve results of questionable market benefit. A CDS is a financial contract that allows investors to “bet” on whether a borrower will default on its loan. However, rather than waiting to see how their bets pan out, some CDS counterparties are collaborating with financially distressed borrowers to guarantee the profitability of their CDS positions—“engineering” the CDS’ outcome. Under the CDS contract, these collaborations are not prohibited, yet they have roiled the CDS market, leading some market participants to view the collaborations as a sign that CDS are little more than a rigged game. Conversely, some view “engineered CDS transactions” as an innovative form of financing for distressed companies. As engineered CDS transactions proliferate in the market, it becomes increasingly prudent to look beyond their contractual acceptability to assess whether, from a legal point of view, these transactions are permissible. 

Engineered CDS transactions demonstrate the challenges that the existing legal and non-legal framework face in effectively responding to new forms of market distortion. This Article examines the costs and benefits of engineered CDS transactions on the market as a precursor to determining whether legal intervention is needed. Assessment of the relative costs and benefits of engineered transactions indicates that despite their innovativeness, engineered CDS transactions are largely detrimental to the markets because they impose costs on actors unaffiliated with the CDS market and, more broadly, destroy public trust in the financial markets. Yet, despite their associated harms, legally, engineered transactions exist in a gray space. This Article analyzes the phenomenon of engineered CDS transactions, assessing the capacity of applicable legal frameworks, private standards, and market discipline to address these transactions, and finds each to be lacking. Consequently, this Article proposes a range of responses, including modernization of the existing anti- manipulation framework, to mitigate the harm and collateral consequences that stem from engineered CDS transactions. 

The Case for Do-Over Derivative Shareholder Suits in Delaware Chancery Court

Alice Hong

Most of the literature addressing shareholder derivative litigation has emphasized the perils of excessive multi-forum shareholder litigation, proposing various solutions to sidestep the problems encountered in cases like California State Teachers’ Retirement System v. Alvarez (Wal-Mart II). This Note addresses a separate and distinct problem—a long overlooked inquiry into the due process implications of using nonparty issue preclusion to curb what is seen as an overgrowth of shareholder derivative litigation. 

The Delaware Chancery Court’s recent decision in Wal-Mart II illustrates a conceptual puzzle in the application of issue preclusion rules in the context of derivative shareholder suits. In Wal-Mart II, a separate federal suit was dismissed on the grounds that the plaintiffs had failed to satisfy the demand requirement, a crucial step for establishing the plaintiffs’ authority to bring a derivative suit on behalf of the corporation. The Delaware courts gave preclusive effect to the federal court’s ruling in barring a derivative action by different shareholders. But how can such a judgment—finding that a shareholder plaintiff seeking to bring a derivative action lacks authority to bring suit on behalf of the corporation—be given preclusive effect to bar a future suit by other shareholders? A rule that would resolve this inconsistency was proposed by Chancellor Bouchard’s decision for the Chancery Court late in 2017, In re Wal-Mart Stores Delaware Derivative Litigation (Wal- Mart I). While the Delaware Supreme Court declined to adopt the proposal, an analysis of the Delaware Supreme Court’s decision suggests that Chancellor Bouchard’s proposal may have been the right rule at the wrong time. This Note proposes adoption of the rule proposed in Wal-Mart I as Delaware’s preclusion law, arguing that the current treatment of nonparty preclusion in derivative share- holder suits is incompatible with the strong presumption against nonparty preclusion and inconsistent with the treatment of a related mechanism: the class action. In doing so, this Note advocates for an approach to nonparty issue preclusion that would deny preclusive effect to putative derivative suits dismissed prior to satisfaction of the demand requirement. 

The Death of Corporate Law

Zohar Goshen, Sharon Hannes

For decades, corporate law played a pivotal role in regulating corporations across the United States. Consequently, Delaware, the leading state of incorporation, and its courts came to occupy a central and influential position in corporate law and governance. This, however, is no longer the case: The compositional shift in equity markets from retail to institutional ownership has relocated regulatory power over corporations from courts to markets. Corporate law has, as a result, and as illustrated by the declined role of the Delaware courts, lost its pride of place and is now eclipsed by shareholder activism.

What explains the connection between the rise of institutional ownership and the death of corporate law? We answer this question by unpacking the relationship between market dynamics and the role of corporate law. Our analysis uncovers a critical, yet hitherto unnoticed, insight: The more competent shareholders become, the less important corporate law will be. Increases in shareholder competence reduce management agency costs, intensify market actors’ preference for private ordering outside of courts, and, ultimately, drive corporate law into the shadow.

The Infrastructure Ratchet Effect

Shlomit Azgad-Tromer

This article identifies a profound and previously overlooked incentive for excessive risk- taking by infrastructure providers. The magnitude and critical nature of infrastructure implies that negative externalities potentially far exceed the net assets of the infrastructure provider. The nonconsensual relationship of infrastructure providers with their stakeholders implies that excessive risks cannot be contracted for and incorporated into price. Shareholders of infrastructure providers thus develop asymmetric preferences towards excessive risk-taking: They could gain from risks if things go well but are shielded by limited liability rules if things do not. The article identifies this moral hazard and terms it “The Infrastructure Ratchet Effect.”

This Article shows that normal market forces and legal mechanisms fail to counter these distorted incentives in infrastructure providers: Regulation, reputation, litigation, and debt pricing all fail to deter excessive risk-taking in infrastructure. Project finance, leverage, executive compensation, and behavioral tendencies exacerbate the problem.

To illustrate the infrastructure ratchet effect, this Article presents the 2017 data breach at Equifax as a case study, arguing that Equifax is a data public utility and should be considered an infrastructure provider. It surveys the events leading to the massive Equifax data breach and shows that despite cataclysmic implications, Equifax eschewed adequate controls to ensure the security of its data. This Article proposes the infrastructure ratchet effect as a possible explanation for this series of events.

In addition to shedding new light on the infrastructure ratchet effect as a potential source of cataclysmic risks caused by infrastructure providers, this Article considers possible tools to tackle these distorted incentives. Insight is drawn from literature surrounding banking-risk regulation, where a similar moral hazard is well understood.

Agency Costs of Venture Capitalist Control in Startups

Jesse M. Fried, Mira Ganor

Venture capitalists investing in U.S. startups typically receive preferred stock and extensive control rights. Various explanations for each of these arrangements have been offered. However, scholars have failed to notice that these arrangements, when combined, often lead to a highly unusual corporate governance structure: one where preferred shareholders, rather than common shareholders, control the board and therefore the firm itself The purpose of this Article is threefold: (1) to highlight the unusual governance structure of these VC-backed startups; (2) to show that preferred shareholder control can give rise to potentially large agency costs; and (3) to suggest legal reforms that may help VCs and entrepreneurs reduce these agency costs and improve corporate governance in startups.

Deterring Fraud: Mandatory Disclosure and the FDA Drug Approval Process

Liora Sukhatme

The valuation of a pharmaceutical company often depends on its ability to bring a drug to market, making information about the likelihood of Food and Drug Administration (FDA) approval critical to investors and a highly sensitive issue for the company. Since the FDA drug approval process is not public, investors must rely on company disclosures to evaluate the likelihood of FDA approval. Currently, the FDA will not disclose the content of action letters sent to sponsor companies, giving company executives dangerous discretion over whether to disclose the information and how to present it. This discretion, coupled with a lack of oversight over the content of the disclosures, has resulted in several recent cases of fraud among pharmaceutical companies. As a way to curb such company discretion and prevent future fraud, this Note proposes mandatory public disclosure of action letters sent by the FDA to sponsor companies.

Finding a Reasonable Approach to the Extension of the Protective Sweep Doctrine in Non-Arrest Situations

Leslie A. O’Brien

Under the Supreme Court’s current protective sweep doctrine, it is constitutional for law enforcement officers to conduct a cursory sweep of a home incident to arrest where they have reasonable suspicion to believe the home may harbor a dangerous third party. The Supreme Court, however, has not clarified whether the protective sweep doctrine applies where there is no arrest. While at least one federal circuit court currently holds the view that protective sweeps are invalid absent an arrest, most circuits have indicated that protective sweeps may be valid even when they are not incident to an arrest. This Note argues that neither side of this circuit split has struck the right balance. By focusing too much attention on the “incident to arrest” language in Maryland v. Buie and not enough attention on the Court’s express concern for officer safety, the decisions refusing to extend the protective sweep doctrine to any non-arrest situations prohibit protective sweeps in cases where they would be reasonable and, thus, constitutional. In contrast, by failing to respect the Court’s repeated affirmations that exceptions to the warrant and probable cause requirements should be limited, and by brushing aside the importance of the arrest in Buie, the decisions extending the protective sweep doctrine to non-arrest situations either sanction unconstitutional searches or provide insufficient guidance to lower courts and the police, leaving Fourth Amendment privacy rights vulnerable. This Note argues that, to strike the right balance between protecting government interests and Fourth Amendment privacy rights, courts must incorporate a proper inquiry into the “need to search” into their reasonableness analysis. Specifically, they should require a compelling need for officers’ initial lawful entry into a home for protective sweeps to be valid. In applying this standard, courts should draw a bright line according to the type of entry involved, extending the protective sweep doctrine to situations where officers have entered a home pursuant to exigent circumstances or a court order, but not where officers have entered a home pursuant to consent. Such an approach will maintain the limited nature of this exception to the warrant and probable cause requirements while allowing officers to protect themselves when the public interest so requires. It will also provide lower courts and officers with clear guidelines on how to apply the law. As an ancillary benefit, this approach will also minimize the risk of pretextual searches.

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