| Of Interest

A&B Abstract:

On Monday, January 9, 2023, the United States Supreme Court heard argument in a case with potentially major implications for companies and individuals alike. In re Grand Jury asks the Court to give trial courts a definitive standard for determining if dual-purpose client communications containing both legal and nonlegal advice are protected under the attorney-client privilege.

The Case

In re Grand Jury is a unique case. A person, whose identity is not publicly known, wished to expatriate from the United States and hired a law firm, whose identity is also not publicly known, for advice on how to do so.

The federal government suspected that the unknown individual was engaged in criminal activity, so it convened a grand jury, which subpoenaed records related to the law firm’s work. The law firm produced more than 1,700 documents but withheld others as protected by the attorney-client privilege, which protects communications exchanged between clients and their lawyers for the purpose of seeking legal advice. When the law firm refused to produce the withheld documents, the government moved to compel.

The California district court performed an in camera review of the documents using the “primary-purpose test.” Under the “primary-purpose” test, a communication is protected by the attorney-client privilege only if the “primary purpose” of the communication is to obtain or give legal advice. If the communication’s primary purpose is non-legal, such as business advice, then the communication is not privileged, even if the communication also conveys legal advice.

Following its review, the California district court ordered the law firm to produce approximately fifty additional documents. The law firm refused to comply with the order, and the district court held it in contempt.

The Ninth Circuit affirmed the lower-court decision, holding the primary purpose of the documents was to provide tax advice. In doing so, the court declined to adopt the “significant purpose” test of a 2014 opinion by then-Judge Brett Kavanaugh of the D.C. Circuit. Under the “significant purpose” test, a dual-purpose communication may be protected by the attorney-client privilege so long as legal advice represents a significant purpose for the communication, even if not the primary purpose.

In its petition, the unknown law firm asked the Court to cure the circuit split and observed that the approaches of both the Ninth and D.C. Circuits also conflict with the Seventh Circuit, in which a dual-purpose communication is never privileged. The Supreme Court granted certiorari.

Argument

Daniel B. Levin of Munger Tolles & Olson LLP, who argued on behalf of the unnamed firm, initially urged the court to adopt a test along the lines of the D.C. Circuit’s “significant purpose” test. But at oral argument, Levin expanded his definition of the word “significant.” He said if seeking legal advice was a client’s bona fide purpose then the dual-purpose communication should be protected.

Several justices took issue with this argument and Levin received several questions regarding proportionality. In particular, Justices Sotomayor and Jackson focused on Levin’s position that even if nonlegal advice far exceeded the lawyer’s legal advice, the entire communication would be privileged. They expressed concern that such a sweeping view of privilege would allow sophisticated clients to cloak nearly all of their internal communications with the privilege.

In response to this concern, Levin argued that a primary-purpose test would require courts to disentangle competing purposes and identify the single most important one, which would unnecessarily burden district courts. Chief Justice Roberts seemingly agreed with this argument and stated that the primary purpose test “really puts a lot of work on the judge.”

Justice Kagan, however, pushed back on this argument by noting that an overwhelming number of lower and state courts have adopted the “primary purpose” test for decades and there has not been an outcry from lower courts stating that the test is impractical or unwieldy. In that vein, Justice Kagan asked why the “ancient legal principle” of “if it ain’t broke, don’t fix it” should not apply. Justices Sotomayor, Barrett, and Jackson seemed to echo the same sentiments through their questions as well.

Masha Hansford argued on behalf of the Government that the “primary-purpose” test is the de facto test in nearly all jurisdictions, district judges have been able to implement the primary-purpose test for decades without issue, and a change to that test would be “destabilizing.”

Hansford faced a series of questions trying to tease out the difference between the words “primary” and “significant,” such as: how does a district judge decide whether legal advice was the primary purpose? In particular, Justice Gorsuch asked to what degree a communication needed to be for a legal purpose for the legal purpose to be primary. For example, he wanted to know if it had to be 60/40 or 51/49 in favor of a legal purpose, or if it would be sufficient if legal and non-legal purposes were “in equipoise.”

Hansford pushed back and said that “judges don’t do math,” but even if they did, in most cases, district judges have been able to make that determination without too much difficulty. Hansford pointed out that there are very few opinions from district courts decrying the application of the primary purpose test. But the Government did concede that if there were a hard case, where the district judge was truly “stuck” and unable to determine the primary purpose of a communication, then the Government would be fine with a “tie goes for the runner” rule in favor of finding the communication privileged.

Takeaways

The questioning at oral argument indicated that the Justices are wrestling with the standard. We will be on the watch for the opinion to provide guidance across the Circuits.

A&B Abstract:

In November, the Consumer Financial Protection Bureau (“CFPB”) filed a petition for a writ of certiorari in connection with the Fifth Circuit’s recent decision in Community Financial, which held that the CFPB’s funding structure violated the Constitution’s Appropriations Clause. (For a full discussion of the Community Financial decision, click here; for a full discussion of the CFPB’s petition, click here.).

One month later, thirty-eight state attorneys general have joined one of two separate amicus briefs asking the nation’s highest court to weigh in. While both amicus briefs support granting the CFPB’s petition, the similarities end there.

The Amicus Briefs

The first brief, filed by a coalition of twenty-two Democratic attorneys general, argues that the Fifth Circuit’s Community Financial decision created “confusion and regulatory chaos” by “stepp[ing] in to create a conflict between [Congress and the Executive branch] that did not otherwise exist.” Focusing principally on the Fifth Circuit’s decision to vacate the challenged CFPB rule it its entirety, these amici argue that Supreme Court precedent specifically rejects that challenged agency action must be completely undone just because the agency operated with a constitutional defect at the time of the action. Emphasizing the threat that Community Financial poses to many of the CFPB’s actions taken over the last decade, these amici suggest that a “‘judge made remedy’ that aligns with traditional remedial principles would address the specific constitutional defects in the CFPB’s funding” in a more tailored way. They ask that the Supreme Court “grant certiorari and confirm that the absence of valid appropriations does not make void a prior unfunded action.” These attorneys general represent the states of New York, California, Colorado, Connecticut, Delaware, Hawai’i, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington, Wisconsin, and the District of Columbia.

The second amicus brief, filed by sixteen Republican attorneys general, takes a very different approach. To start, these amici contend that the Court should grant the petition for review not because Community Financial was wrongly decided but because the Fifth Circuit’s ruling should apply nationwide. Referring to the CFPB as a “failed experiment,” these amici stress that the Appropriations Clause “serves a critically necessary purpose by giving States insight into agency action” that must be recognized. And because, in their view, the CFPB has “not convincingly explain[ed]” how the CFPB could act without appropriations, these amici conclude that the Fifth Circuit correctly elected to vacate the CFPB’s action altogether. Applauding the Fifth Circuit’s opinion as “right in every regard,” these amici request that the Court grant certiorari and confirm the Fifth Circuit’s reasoning. These attorneys general represent the states of West Virginia, Alabama, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia.

Takeaways

The Fifth Circuit’s decision in Community Financial posed an existential threat to the CFPB. Now, leaders across the nation have asked the Supreme Court to take a side. If the Court accepts this invitation, its ultimate ruling will have important implications on the future of the CFPB.

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