District Court Allows Derivative Advice of Counsel in Support of Good Faith Defense

On June 3, 2021, the Northern District of Texas ruled on a novel issue in U.S. v. Hagen (No. 3:19-CR-0146-B, 2021 U.S. Dist. LEXIS 104028 (N.D. Tex. June 3, 2021)). In a health care fraud conspiracy case against DME suppliers, the court held that a good faith defense premised on legal advice received by another, uncharged co-conspirator and passed along to the defendants may be introduced at trial. This ruling allows a defendant to introduce derivative advice of counsel to establish his own good faith, i.e., lacking knowledge of wrongdoing and an absence of intent to participate in the offense.

In Hagen, the government alleged that defendants Leah and Michael Hagen (the Hagens), who owned durable medical equipment businesses, conspired with a third, uncharged individual (Kimble) to defraud Medicare. The Court ordered the Hagens to provide notice of their intent to assert an advice of counsel defense, or any good faith defense that in any way related to advice of counsel, and the Hagens timely indicated they did not intend to raise that defense. Subsequently, the Hagens sought to call four of Kimble’s former attorneys to testify, and the government argued the Hagens were attempting to make an end run around the court’s order.

The court noted that the Hagens said their defense was not premised upon any legal advice received from their own counsel, and there was no indication they had received any legal advice from Kimble’s counsel. Neither the court nor the parties had found any case law for the particular issue of whether a defense premised on legal advice received by a person other than the defendant could constitute an “advice of counsel” defense warranting pretrial notice and disclosure of materials. The court said it could not create an advice of counsel defense where one could not exist. But it also ruled that, because the Hagens did not have an attorney-client relationship with Kimble’s former counsel, the Hagens could call Kimble’s four former attorneys as witnesses, and they also could present evidence of Kimble’s attorney-client communications, if admissible, to demonstrate their own good faith. (The court noted that Kimble had waived any attorney-client privilege with respect to these communications, apparently in connection with his cooperation with the government.)

This novel ruling can affect joint defense and common interest communications. When parties involved in a particular transaction or venture are each being advised by their own counsel, they should make known to one another that each is proceeding based on their counsel’s advice that no unlawful act is being committed. Also, in conspiracy cases Hagen raises another opportunity to show the government has failed to prove the key element of intent, where it was the defendant’s good faith understanding that he was transacting with an individual or entity who did not intend to violate the law.