Advice of Counsel as Affirmative Defense

Nobody likes to lose a lawsuit. But it does happen. And sometimes after a plaintiff has lost a particularly acrimonious action the defendant will sue back, arguing that the original lawsuit was frivolous, brought in bad faith, malicious, or otherwise improper. In this second action, the parties switch roles. The predator is now prey. The defendant (previously the plaintiff in the underlying matter) will typically defend by arguing that she did nothing wrong, and certainly did not prosecute her original action with malice or bad faith; she was simply following her attorney’s advice. This is not the Nuremberg defense. Rather this is known as the “advice of counsel” affirmative defense.

The advice of counsel affirmative defense is found largely in the context of insurance bad faith litigation, and malicious prosecution lawsuits. See, e.g., Dalrymple v. United Services Auto. Assn., 40 Cal. App. 4th 497, 514–515 (1995) (insurance bad faith); Hudson v. Zumwalt, 64 Cal. App. 2d 866, 875 (1944) (malicious prosecution). It works like this.

The defendant must prove that in filing and prosecuting her underlying claims she: (1) acted and relied on the (2) “advice of counsel” (3) “in good faith” (4) after full disclosure of all relevant facts. See Melorich Builders, Inc. v. Superior Court, 160 Cal. App. 2d 931, 936-37 (1984). “The burden of proving this affirmative defense is, of course, on the party seeking to benefit by it.” Bertero v. Nat’l Gen. Corp., 13 Cal. 3d 43, 54 (1974). “The defense of advice of counsel generally waives the attorney-client privilege as to communications and documents relating to the advice.” State Farm Mut. Auto. Ins. Co. v. Superior Ct., 228 Cal. App. 3d 721, 727 (1991). Often the “good faith” element will be the most difficult to prove.

While different authorities have interpreted the “good faith” element in different ways, at minimum, the advice of counsel must be sought and received by the client in “good faith.” Nunez v. Pennisi, 241 Cal. App. 4th 861, 876-77 (2015). The advice may not be sought simply as a “protective cloak” to shield bad acts. See Brinkley v. Appleby, 276 Cal. App. 2d 244, 247 (1969); Klots v. Alexander, 203 Cal. App. 2d 238, 243 (1962); Botero, 13 Cal. 3d at 53-54. Nor may “reliance on counsel’s opinion . . . be mere ‘wishful thinking,’ [nor] run obviously counter to the client's thoughtful independent analysis of the situation.” 16 Marc L. Sherman, Am. Jur. Proof of Facts 3d 419, § 11 (Sept. 2021 ed.); see Allen v. Allstate Ins. Co., 656 F.2d 487, 489 (9th Cir. 1981) (“In these circumstances . . . Allstate’s reliance on the advice of its attorney was the result of wishful thinking rather than a good faith balancing of its own and its insured’s interests.”).

Stated another way, the good faith element will be defeated where the client “know[s] or ha[s] reason to know that the action recommended by counsel was improper.” John K. DiMugno & Paul E.B. Glad, Cal. Ins. Law Handbook § 11:88 (Apr. 2021 ed.); see Bertero, 13 Cal. 3d at 53; Melorich Builders, Inc, 160 Cal. App. 3d at 936. Clients might lack knowledge as to the nature of improper counsel, for example, where the legal issue is highly “technical,” such as found in “mechanic’s liens and stop notice statutes.” Id. But where the legal issue is not so complicated, and a party of average intelligence would be expected to be able to exercise competent judgment, the advice of counsel defense is likely to prove less effective.

And, of course, any direct evidence of bad faith, improper motive, hate, animus, or malice either by the client or her attorney will defeat the party’s subsequent efforts to establish the good faith element. See, e.g., Bertero, 13 Cal. 3d at54 (finding no advice of counsel defense when the defendant “acted in bad faith” toward the plaintiff, taking an adversarial position against the plaintiff, and when defendant’s attorney “harbored deep feelings against” the plaintiff); 2 Martin D. Carr, Ann Taylor Schwing, Cal. Affirmative Def. § 41:27 (2d ed.) (“Thus, evidence of defendant’s prior ill will against the plaintiff may create difficulties in assertion of the defense. The more closely the ill will is related in time and in subject matter, the more difficult the element of good faith may be to establish.”).

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