'Advice of Counsel' Is No Silver Bullet

In a decision issued on Monday, June 2 in United States v. Denkberg, the U.S. Court of Appeals for the Second Circuit sent an important reminder that “advice of counsel,” while potentially a strong defense to civil or criminal accusations that require proof of willfulness, is no get-out-of-jail-free card. To the contrary, sometimes the advice can get the lawyers in trouble, too.

The defendants were charged with running an advertising scheme in which they sent “prize notices” to consumers, seemingly alerting them that they had won large cash prizes. To claim the prize, the recipients just needed to pay a small processing fee of $20-$40. When they did, the consumers instead received a “sweepstakes report” — described as a thin booklet containing publicly available information about third-party sweepstakes that they could enter to win cash prizes. All told, the defendants received more than $80 million from this business.

In their defense, the defendants pointed out the prize notices included disclaimers informing the recipients that they had not actually won a cash prize but had in fact received an “opportunity” to purchase a “sweepstakes report.”  Those disclaimers had been vetted by multiple lawyers, who provided the defendants with legal and compliance advice on advertising law and who specifically reviewed, approved, and in some cases edited the disclaimers. At least one of the lawyers testified to his advice at trial.

Still, the defendants were convicted of multiple counts of wire and mail fraud. In affirming the conviction, the Second Circuit rejected the argument that the advice of counsel defense negated the government's proof of willfulness. It also called for the record to be delivered to the state bar to review the lawyers' conduct — going so far as to hold that the jury could have concluded that one lawyer's testimony “was a pretext and a sham.”

Corporations and executives caught in consumer protection investigations, whether pursued by criminal authorities or civil regulatory agencies like the Federal Trade Commission (FTC), often receive advice from lawyers or compliance professionals concerning the disclosures in their advertising. But the advice of counsel defense is not a silver bullet; it simply raises a number of factual questions about the advertiser's intent. In this case, the court held that the legal advice did not overcome other evidence of fraudulent intent and even faulted the defendants because they “never consulted their attorneys for advice on criminal law.”  

While advice of counsel can be an extraordinarily powerful defense, it comes with risks. In the first place, to assert advice of counsel, a defendant must ordinarily waive attorney-client privilege. And even then, the defense can raise more questions than it answers depending on the facts and circumstances underlying the advice. A corporation engaged in mass or online advertising that seeks advice from compliance experts would be well-served by also asking a litigator — and perhaps a lawyer with criminal or FTC enforcement experience — to assess their practices and the underlying compliance advice through the lens of a courtroom.