Legal Definitions - advice of counsel

Advice of counsel refers to the guidance and recommendations provided by a lawyer to their client regarding legal matters. More specifically, it can serve as a legal defense where a party claims they acted reasonably and in good faith based on the professional advice received from their attorney.

To successfully use this defense, the party must typically demonstrate that they fully and honestly disclosed all relevant facts to their attorney and then genuinely followed the advice given. This defense is often employed to counter claims of bad faith, malice, or lack of probable cause, particularly in cases like malicious prosecution, or to avoid punitive damages. However, invoking this defense usually requires waiving the attorney-client privilege concerning the advice received, meaning the details of the communication with the attorney might become public.

Here are some examples of how "advice of counsel" might apply:

• Business Compliance: A technology startup is developing a new mobile application that collects user data. Before launching, the CEO consults with the company's legal team, providing them with a comprehensive overview of the app's data collection methods, storage practices, and intended uses. The lawyers advise on specific language for the privacy policy and recommend certain data handling protocols to comply with evolving data protection regulations. The company implements these recommendations precisely.

  Explanation: If the company is later sued for privacy violations, they could use "advice of counsel" as a defense. By demonstrating that they fully disclosed all relevant information to their attorneys and acted in good faith by following their legal team's guidance to ensure compliance, they can argue they took reasonable steps to avoid wrongdoing.

• Tax Reporting: An individual receives a complex inheritance involving foreign assets and various investment vehicles. Unsure how to accurately report this on their annual tax return, they hire a specialized tax attorney. The individual provides the attorney with all financial statements, asset valuations, and inheritance documents, and then follows the attorney's detailed instructions for preparing and filing their tax return.

  Explanation: If the tax authorities later audit the individual and identify an error, the individual could potentially use "advice of counsel" as a defense against charges of intentional tax evasion or severe penalties. By showing they made a good-faith effort to comply with tax law based on expert legal guidance after full disclosure, they can demonstrate a lack of intent to defraud.

• Reporting Suspected Misconduct: A small business owner discovers discrepancies in their accounting records that suggest a former bookkeeper may have embezzled funds. Before contacting law enforcement, the owner consults with their attorney, presenting all available financial documents, bank statements, and internal audit reports. After reviewing the evidence, the attorney advises the owner that there appears to be sufficient probable cause to report the matter to the police. The owner then proceeds to file a police report.

  Explanation: If the former bookkeeper is eventually acquitted and subsequently sues the business owner for malicious prosecution, the owner could use "advice of counsel" as a defense. By demonstrating that they fully disclosed all facts to their attorney and acted upon their attorney's assessment of probable cause, the owner can argue they did not act with malice or without reasonable grounds when initiating the legal process.