Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Advice-of-Counsel Defense Extended

A ruling earlier this year by the Minnesota Supreme Court may have significant impact on the way lawyers interact with and advise clients in this state. In Sysdyne Corp. v. Rousslang, 860 N.W.2d 347 (Minn. 3/4/2015), the Court narrowly affirmed a ruling of the court of appeals immunizing a company from liability for tortious interference for hiring an employee who was subject to a valid non-compete contract with a competitor, on grounds that the company had received legal advice from its outside attorney that the restrictive provision probably was unenforceable due to over-breadth. Although a Hennepin County District Court trial found the employee liable for damages breach of the non-compete provision, it deemed the company not culpable because it relied on the erroneous advice from counsel, who also happened to represent it at trial, about the likely invalidity of the non-compete clause.

The Supreme Court, applying a rationale from another non-compete case, Kallok v. Medtronic, Inc., 573 N.W.2d 367 (Minn. 1998), articulated multi-pronged criteria for applying the advice-of-counsel defense, or “justification.” These considerations include whether the mistaken opinion was given by outside counsel, as distinguished from one in-house, whether the client made “reasonable inquiry,” and whether it “honestly followed” that guidance. In addition to exonerating the client from liability for transgressions of the non-compete, successful invocation of the defense probably defeats any potential legal malpractice claim for the mistaken legal advice.

The case extends the advice-of-counsel defense from its previous confinement largely to criminal cases. Although expressly framed as a ruling on “tortious interference” with contract claims, how the rationale may apply in other matters is a subject likely to be fleshed out in future litigation.

In the meantime, clients and their advocates seeking to raise the justification of advice-of counsel defense should show the efforts undertaken to obtain “outside” legal advice, and the justification for the client relying on it, such as the reputation of the attorney, the clarity or precision of the advice, and other surrounding circumstances. Litigants and their lawyers opposing the defense should attempt to establish the paucity of effort by the client to seek or obtain legal advice as well as any reason the “outside” advice may be tainted, such as prior relationships, financial considerations, conflicts of interest, or other defects.

Marshall H. Tanick
Hellmuth & Johnson, PLLC

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