“My Lawyer Said It Was Legal!”

Judge Dan Hinde

Your client has been charged with money laundering. He wanted to set up a LLC to purchase real estate, and he could, you innocently advised. Buying property with funds transferred to the LLC from his generous parents? Of course, you said. But the funds, you now find, were illegally gotten. Can your client argue that he was only following his lawyer’s advice?

In three contexts, Minnesota courts have recognized the advice-of-counsel defense when it comes to malicious prosecution, criminal matters, and tortious interference with a contract. For example, legal advice may negate the mens rea requirement for specific intent crimes. State v. Jacobson. In contract disputes, advice of counsel may justify interfering with a contract. Recognizing that defense in Sysdyne Corp. v. Rousslang, the Minnesota Supreme Court explained that to assert the defense, a party must “fully disclose[] all material facts to the attorney, receive[] advice that his … conduct was legal, and act[] in good-faith reliance on that advice.” A client’s belief based on counsel’s advice, even if erroneous, however, “must be formed by something more than an infirm, conclusory legal opinion.” The defense “hinges on the reasonableness of the [client]’s inquiry.” But having established that the advice of counsel can operate as a defense, what are the implications to asserting the defense?

The Supreme Court in Sysdyne suggested that a party may be required to demonstrate that it disclosed all material facts that would allow counsel to appropriately advise the client. The court, focusing on the reasonableness of the party’s conduct, left open the issue of whether a party waives the attorney-client privilege by asserting the defense. In an unpublished opinion, the Minnesota Court of Appeals acknowledged this unresolved issue, but, in reaching its conclusion that the client had not placed the attorney’s advice at issue, declined to adopt a test. In re Truscott.

The trend in federal courts is to consider the attorney-client privilege as waived. For example, in Minn. Specialty Crops, Inc. v. Minn. Wild Hockey Club, L.P., the U.S. District Court for Minnesota explained that “parties asserting the advice-of-counsel defense may not selectively disclose privileged communications that it considers helpful while claiming privilege on damaging communications relating to the same subject.” Similarly, the U.S. District Court for Idaho rejected the parties’ stipulation to a limited waiver of the attorney-client privilege, concluding that:

It would be patently unfair for a party to assert that they relied upon the advice of counsel, yet deprive the opponent of the opportunity to understand why the advice was given, what other alternatives were looked at, why certain advice was rejected, and how the advice was interrelated to other business decisions. In re Fresh & Process Potatoes Antitrust Litig.

Other jurisdictions appear to adopt this “fairness” approach. Glenmede Trust Co. v. Thompson. But more recently, the Nevada Supreme Court, relying on Delaware case law, concluded that “a party is not required to waive the attorney-client privilege as the price for receiving the protection of the business-judgment rule.” Wynn Resorts, Ltd. v. Eighth Jud. Dist. Ct..

As a result, in Minnesota, while a party may raise the advice-of-counsel defense, the question remains open as to the extent that a party waives the attorney-client privilege. Verbal, undocumented advice of counsel may yet prove to be an effective aftrmative defense. But the client must be able to demonstrate that he or she, in seeking advice, disclosed all material information that would allow counsel to offer an informed opinion. Another question yet remains on whether the client, who asserted that he or she was relying on the advice of counsel, waives a later malpractice lawsuit. The answer should be “no” because reliance upon legal advice is distinct from whether the advice was bad.

Nonetheless, before asserting the defense, recognize that in doing so, the client risks waiving some, if not all, of his or her privileged communications. And attempts to delineate the scope of the waiver, moreover, do not necessarily insulate a party from later motions to compel production of those communications. Cha Xiong 

Cha Xiong

Cha Xiong is an attorney in Foley and Mansfield’s Minneapolis office. Xiong’s commercial litigation practice includes products liability defense, construction warranty, bankruptcy, and real estate disputes. He can be reached at (612) 216-0202 or via e mail at [email protected].

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