A lawyer’s role and duty is to give legal advice, including:
- Advice that may not be well received
- Advice that, when followed, may not result in the best outcome and
- Advice that, though objectively correct, ends up placing the lawyer in a defensive posture
It is simply the cost of the business of law.
In fact, the risks associated with giving advice are inherent in all businesses. Your landscaper can advise you to plant a particular tree or shrub that dies, or your plumber can advise you to fix a leaky pipe with a “permanent seal” that ends up being no so permanent.
Yet, lawyers are held to a very high standard. The average person may not understand that law is not a science and that there are no perfect solutions to any one legal problem. Moreover, clients often expect attorneys to give legal advice as well as general counsel. And, more often than not, that general counsel is given without second thought.
But what about business advice? Is there any difference? Business clients might expect the lawyer to provide business advice along with legal advice, without understanding the difference. A client might ask about a certain business course of action that could lead to legal risk. Of course, the lawyer will explain the legal risks. Giving advice on taking a certain course of action, however, is another matter.
Beware of Losing the Privilege
Just because advice flows from a lawyer to a client does not automatically place it under the umbrella of attorney-client privilege. The attorney-client privilege is premised on the idea that only a lawyer is qualified to advise on matters of the law.
To advise on the matters of law, the attorney must know the details of the client’s legal issue. This awareness can occur only if a client communicates the sensitive facts and circumstances surrounding the issue with complete candor.1 Therefore, the evidentiary protections surrounding these communications are great, but attorneys tread on dangerous ground when providing advice outside of the scope of the law.
“What is vital to the privilege is that the communication be made in confidence for the purpose of obtaining legal advice from the lawyer.”2 Consequently, if the advice sought is in the domain of business policy or judgement, rather than law, it will not necessarily be protected by the privilege, and the communications might be subject to discovery even though a lawyer is the source of the advice.
Accordingly, a lawyer should consider the purpose of communication before making it, which is not always an easy thing to do in client communications.
Beware of Losing Coverage
Migrating into the domain of advising on business interests can also affect a lawyer’s professional liability coverage by falling into the business enterprise exclusion of the policy. This exclusion can apply where an attorney providing counsel has control or an interest in the business enterprise or where the attorney represents both the corporation and the individual shareholder.3
Even if the attorney provides strictly legal advice, the business enterprise exclusion could apply where the attorney owns the business enterprise for which they serve as counsel.4 The exclusion can even apply where the attorney is only a three percent limited partner of the entity for which they provided formation services.5
Regardless of what a client might expect as to receiving business advice, lawyers must exercise caution when approaching these requests. The duties and privileges that lawyers hold dear, must rise above any expectations of a client for business advice.
This article was authored for the benefit of CNA by: Loren R. Barron, Esq. Loren Baron is a partner at Elzufon Austin & Mondell, P.A., in their Litigation Department practicing business litigation and professional liability defense.
1 Upjon Co. v. United States, 449 U.S. 383,389 (1981).
2 United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961)(emphasis added).
3 Minnesota Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, 2010 WL 4853300, at *1 (E.D. Va. Nov. 18, 2010), aff’d, 472 Fed. Appx. 219 (4th Circ. 2012); Cont’l Cas. Co. v. Smith, 243 F. Supp. 2d 576, 578 (E.D. La. 2003).
4 Senger vs. Minnesota Lawyers Mut. Ins. Co. 415 N.W.2d 364, 369 (Minn. Ct. App. 1987).
5 Cont’l Cas. Co. v. Flomenhoft, 640 N.E.2d 290, 293 (Ill. App. Ct. 1994).