By Carol O’Riordan and Jay Shah
In our last blog post, we discussed a recent New Mexico case in which the court wrestled with the question of how to determine whether a communication was primarily made for business purposes or for legal purposes. This question was important because it was the deciding factor in showing that a memo containing primarily business advice was not privileged, even though it was written by in-house counsel. Adding confusion to this already complex factual and legal landscape, other courts have handled this sort of situation differently.
To recap, the Bhandari court used a series of considerations, including the purpose of the communication, and concluded that when the purpose of the communication was to provide both business and legal advice, the court would deny privilege unless it could be shown that the legal advice “clearly outweighs” the business advice.
For example, some courts follow the “because of” standard, which provides that a mixed business and legal communication will receive attorney-client privilege if the communication, under the totality of the circumstances, was prepared because of litigation or for a legal purpose. The U.S. Court of Appeals for the 9th Circuit, in In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management), 357 F.3d 900 (9th Cir. 2004), stressed that it looks at more than the primary or secondary purposes of a communication in deciding whether a work was prepared “because of” litigation. Though the circuit was specifically addressing attorney work product privileges, other courts have recently extended the “because of” standard to the assertion of attorney-client privilege for mixed business and legal advice.
Other courts have applied similar logic as in Bhandari, and have required a higher standard of proof: namely, that attorney-client privilege only applies if the “primary purpose” of the communication was to render legal advice. These courts do not go as far as Bhandari , though, as they look for the “primary purpose” of the communication and do not require proof that the legal advice “clearly outweighs” the business advice.
So we have two, potentially three, different standards at play: the “because of” standard, the “primary purpose” standard, and the slightly more demanding cousin of the primary purpose standard, the “clearly outweighs” standard. Courts have struggled over which is most appropriate: a federal court in Nevada, in Phillips v. C.R. Bard, Inc., 290 F.R.D. 615 (D. Nev. 2013), observed that the federal and state courts in the Ninth Circuit were split between the “because of” and “primary purpose” tests, though courts were trending towards the “because of” test. That court chose to apply the “because of” test because it was unconvinced that the work product decision in In re Grand Jury Subpoena applied to attorney-client privileges.
As Phillips shows, the particular legal standard that a court will use to determine privilege cannot always be predicted with ease. A corporation can face a fairly lax “because of” standard, or a more rigorous “primary purpose” or “clearly outweighs” standard without knowing in advance which might apply.
In fact, what works in one state may not work in another. This is a particularly complicated and fact-specific area of the law, where different states have different rules. If you ae interested in how things will work in your state, with a particular piece of legal/business advice, you’d do well to consult a law firm like ours that follows these matters on a constant basis.