When Trusted Counsel Turns Whistleblower. Laura Laemmle-Weidenfeld Patton Boggs LLP Washington, DC Statutory Language

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1 When Trusted Counsel Turns Whistleblower Laura Laemmle-Weidenfeld Patton Boggs LLP Washington, DC Health care providers have long appreciated the irony that by conducting an audit or internal investigation to determine whether any wrongdoing occurred, or the extent to which it occurred, the provider may be creating a situation that enables an employee to become a whistleblower under the False Claims Act 1 (FCA). Few stop to consider that the consultant they hire to assist also may become a whistleblower, much less that their own lawyer may blow the whistle on them. The FCA does not preclude lawyers from becoming relators in actions against their clients, but state ethics rules may do so in practical terms. Statutory Language Congress wrote the FCA s qui tam 2 provisions very broadly in order to place as few restrictions as possible on who may file an FCA action. The statute provides, A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. 3 That person, called a relator under the statute, may pursue the case on the government s behalf if the United States declines to intervene, and is entitled to 15-25% of any government recovery if the Department of Justice (DOJ) intervenes in the matter, or 20-30% of any government recovery if the DOJ declines to intervene. The only limitations on this person imposed by the statute are that the person cannot be a current or former member of the armed forces in an action against another member of the armed forces; cannot base the FCA action upon allegations or transactions that already are the subject of a civil suit or administrative civil money penalty proceeding by the government; and cannot base the action upon publicly disclosed information unless the person is an original source. 4 Case law has clearly established that they also cannot proceed pro se since the United States is the real party in interest in these cases; they must be either licensed as or represented by a lawyer. 5 Thus, the FCA does not prohibit relator from being a lawyer even where the defendant is the lawyer s client. Ethical Limitations Lawyers, of course, are subject to ethics requirements and limitations to which ordinary citizens and employees are not. Attorneys are generally required to continue to protect their clients, or at least not oppose them, even after the representation has ended, particularly with respect to the 1 31 U.S.C et seq. 2 Qui tam is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means who pursues this action on our Lord the King s behalf as well as his own. Rockwell Int l Corp. v. United States, 549 U.S. 457, 463 n.2 (2007) U.S.C. 3730(b) U.S.C. 3730(e)(1), (3) and (4). 5 See, e.g., Georgakis v. Illinois State University, 722 F.3d 1075, 1076?(7 th Cir. 2013) ( to maintain a suit on behalf of the government, the relator (as the qui tam plantiff is termed) has to be either licensed as a lawyer or represented by a lawyer.... A nonlawyer can t handle a case on behalf of anyone except himself. )

2 same subject matter as to which the attorney provided counsel. The American Bar Association s (ABA) Model Rules of Professional Conduct 6 and state ethics rules prohibit attorneys from switching sides to oppose their former clients and from divulging their current or former clients confidences, with very narrow exceptions. With respect to switching sides, the ABA Model Rule 1.9 prohibits a lawyer from representing the client s adversary in a matter on which the lawyer represented the client, unless the lawyer obtains written consent from the first client: (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing. In addition, Model Rule 1.9 prohibits the lawyer from using, to the client s disadvantage, information the lawyer gained in the representation of the client, or otherwise revealing information relating to the lawyer s representation of the client: (c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or (2) reveal information relating to the representation except as these Rules would permit or require with respect to a client. Thus to paraphrase, Model Rule 1.9 requires the attorney to maintain a duty of loyalty to the client by continuing to protect the client s interests even after the representation has ended. ABA Model Rule 1.6 focuses more specifically on the lawyer s duty to protect client confidences. It requires the attorney to refrain from disclosing client confidences unless the client consents, the disclosure is implicitly authorized during the representation for the purposes of the representation, or a number of narrow exceptions apply: (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). Paragraph (b) of Model Rule 1.6 sets forth a number of limited circumstances in which the attorney may disclose the confidences of a former client without violating his/her ethical obligations. In addition to disclosures intended to prevent reasonably certain death or substantial bodily harm, to defend against legal action against the lawyer relating to the representation, to 6 The Model Rules are available on-line at publications/model_rules_of_professional_conduct/model_rules_of_professional_conduct_table_of_contents.html. 2

3 comply with law or a court order, and to seek legal advice regarding the lawyer s obligations under this Rule, the exceptions permit an attorney to disclose client confidences (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services; [and] (3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services[.] Model Rule 1.6(b). Note that both subsections require both (a) a significant threat or presence of substantial injury to another s financial or property interests, and (b) that the lawyer s services were used in furtherance of the client s crime or fraud. Under these Model Rules, it is difficult to envision a situation in which an attorney could bring a qui tam action against his former client while remaining in compliance with his ethical obligations. Model Rule 1.9 would prohibit him from using information about the client s misconduct that the lawyer gained in the course of his representation, to bring an action against that former client (which clearly would be to the former client s disadvantage). Representing a client and then turning around and bringing a fraud action against the same client, with the prospect of financial benefit to the lawyer, would seem to be exactly the type of side-switching that the rule prohibits. Similarly, filing a qui tam against a former client would appear to violate Model Rule 1.6 in nearly all situations. Federal Rule of Civil Procedure 9(b) requires that all claims of fraud be pled with particularity by the plaintiff, and the FCA requires that the relator provide the government with a written disclosure of substantially all material evidence and information the person possesses relating to the allegations. 7 Thus, to meet the requirements of the pleading rules and more specifically of the FCA s statutory requirements, the attorney relator could not simply allege that the former client had submitted false claims, but would need to provide specific information about the alleged fraud, which almost inevitably would require the lawyer/relator to reveal information relating to the representation of [the] client as prohibited under Model Rule 1.6(a). None of the exceptions under Model Rule 1.6(b) typically would apply, since they require a substantial certainty of substantial bodily harm or death, OR that the ongoing conduct is likely to cause significant injury to another s financial or property interests and that the lawyer s representation was used in furtherance thereof. Although it certainly is possible for a lawyer to participate in a client s fraud and then subsequently have regrets and blow the whistle, most lawyers will not want to bring the government s attention to the fact that they were complicit in the fraud. That would open the door to potential criminal prosecution of the lawyer (depending on the circumstances), the reduction of the relator s reward under the FCA 8, and/or the loss of the lawyer s license for assisting in the fraud U.S.C. 3730(b)(2). 8 The FCA permits the court to reduce the relator s award when the relator planned and initiated the violation of [the FCA] upon which the action was brought. 31 U.S.C. 3730(d)(3). 3

4 One can imagine, however, a narrow band of circumstances in which a lawyer could file a qui tam without violating these rules. At least in theory, the lawyer could learn of FCA violations outside of his representation of the client, for example from other individuals within the client organization, or even from persons outside the client subsequent to the representation. In that situation, he would not be switching sides with respect to any aspect of the representation itself, and he would not be using any client confidences that he gained in the course of his representation. Thus neither Model Rule 1.9 nor 1.6 would be implicated. Alternatively, a lawyer could provide advice to his client in good faith, based on the facts known to the lawyer, but the client could withhold facts that would be material to the advice given or misuse the lawyer s good faith advice. In such situations, the client would be using the lawyer s services in furtherance of the fraud, which could trigger one of the exceptions in Model Rule 1.6(b). Note that these hypothetical situations that could fall within an exception, thus allowing the attorney to ethically file a qui tam against the former client, would involve the client either not consulting the lawyer at all as to the conduct at issue or misusing the lawyer s counsel. A lawyer who was retained in good faith to help the client solve a potential compliance problem should not be able, under the Model Rules, to later file a qui tam action against the client relating to that potential compliance problem. Thus, the Model Rules appear to protect clients who engage counsel in good faith to obtain compliance advice or to otherwise obtain legitimate legal counsel. While nearly all the states have adopted some version of the Model Rules, many have modified them slightly. Thus the analysis that lawyers and courts will apply may vary somewhat from this analysis. The few courts to have considered this question of attorney as relator have considered the state ethical rules and have used slightly different reasoning to reach the same result of prohibiting the attorney relator from proceeding with the action or sharing in the government s proceeds. Applicable Case Law Very few cases involving attorneys as relators have been considered and decided by the courts. In those few that have, however, the courts have balanced the attorney s ethical obligations against the government s interests in preventing and rectifying fraud, and held that while the attorney relator was precluded from obtaining any recovery in the case, the United States nevertheless could proceed with the action. These decisions may deter most attorneys from filing qui tam actions, but in the few instances in which the attorneys file them nevertheless, they provide minimal protection to the defendants. United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Inc. In October of 2013, the Second Circuit Court of Appeals upheld the dismissal of a relator partnership comprised of several former employees of the defendant, including the defendant s former general counsel. 9 Three former employees of defendant Unilab Corporation had combined 9 United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Inc., 734 F.3d 154 (2 nd Cir. 2013). 4

5 together to form a partnership, Fair Laboratory Practices Associates, for the sole purpose of filing a qui tam action against Unilab and its purchaser, Quest Diagnostics Incorporated. 10 One of the three individuals, Mark Bibi, had worked for Unilab as its General Counsel from 1993 through During that time he was Unilab s only in-house lawyer and was responsible for all of Unilab s legal and compliance affairs. 11 According to allegations made by the relator partnership, Bibi during his tenure as General Counsel had raised legal concerns regarding Unilab s providing deep discounts to non-federal health care payors to induce referrals of Medicare and Medicaid business. His employer allegedly responded by rejecting his concerns and replacing him as General Counsel. 12 Bibi had been approached by one of the other former employees/members of the partnership about joining him as an individual relator to file the qui tam action. 13 Bibi recognized the potential ethical implications of becoming a relator in an action against his former employer and client and consulted the ABA Model Rules and the New York Rules, which applied to him as a member of the New York bar. 14 Based on his review, he concluded that exceptions in the New York Rules permitted him to participate in the action as a relator. He did not seek an opinion from the New York state bar, nor does he appear to have sought an independent legal opinion from counsel beyond the attorneys who represented the partnership in filing the qui tam. 15 He joined the partnership and assisted in preparing and filing the qui tam action. After the second amended complaint was unsealed (but before the United States made its intervention decision), the district court allowed the defendants to take discovery regarding whether Bibi and FLPA had improperly used or disclosed Unilab s confidences in the qui tam. The defendants then filed a motion to dismiss the complaint on the grounds that it violated New York s ethics rules. 16 The defendants argued that Bibi had violated both N.Y. Code of Professional Responsibility DR (the analog to Model Rule 1.9) and DR (the analog to Model Rule 1.6). FLPA argued in response, first, that Bibi did not represent anyone against Unilab because he was not serving as counsel in the case, and therefore he did not violate DR The court rejected that argument on the grounds that a qui tam relator sues on behalf of the United States, while the United States remains the real party in interest. Thus, the qui tam relator sues in a representative capacity and the Rule applies. 17 Second, FLPA argued that Bibi was permitted to disclose client confidences under the exception contained in DR 4-101, which unlike ABA Model Rule 1.6(b) permits an attorney to reveal the intention of a client to commit a crime and the information necessary to prevent the crime The district court was unpersuaded by this argument as well, finding that Bibi s disclosure in the amended complaint of confidences from the 1990s through 2000 was not necessary for purposes of preventing the commission or continuation of a crime in 2005, when the qui tam was 10 Id. at Id. 12 Id. at Id. 14 Id. 15 Id. 16 Id U..S. Dist. LEXIS at * Id. at *33 (internal quotations omitted). 5

6 filed. Furthermore, the court took issue with the fact that Bibi had recommended specific investigative steps to the United States, including, identifying other former Unilab employees whom he advised as General Counsel and providing information to the relators in another qui tam case pending in California against Unilab in exchange for a financial interest. 19 The district court also noted that it was obligated to consider the federal interests in the case, which were the government s interests in encouraging qui tam actions under the FCA and the government s interest in preserving the attorney-client privilege. 20 It was required to consider whether the DR precluded Bibi s participating in the qui tam, and whether FLPA could proceed in the action without confidential information possessed by Bibi but protected under DR Finding in the affirmative as to the first and in the negative as to the second, the court granted the motion to dismiss as to all defendants. It also disqualified FLPA, each of the individual partners within FLPA, and FLPA s counsel from bringing the suit or any other related suit based on the same facts. 21 The district court noted, however, that its ruling has no effect on the ability of the Government to intervene and proceed against these Defendants on the allegations in FLPA s second amended complaint. 22 On appeal, the Second Circuit upheld the holding and reasoning of the district court. 23 It noted that the qui tam action could have proceeded based on the information provided by the other two former employees/flpa partners, either without Bibi or with limited disclosures as necessary by Bibi. 24 Instead, Bibi chose to participate in the action and disclose protected client confidences... in violation of N.Y. Rule 1.9(c). 25 With respect to the disqualification of the other individuals, FLPA and their counsel, the appeals court noted that disqualification is not a sanction but a remedy that seeks to avoid prejudice to the party whose confidences have been revealed and, in so doing, promote the integrity of our justice system. As such, disqualifying those persons was appropriate. The appeals court also emphasized that the disqualification ruling did not preclude the United States or any independent, unrelated relator from bringing the case, although the United States had declined to intervene after the district court ruled. 26 X Corp. v. Doe The courts decisions in FLPA are consistent with a series of federal opinions from the Eastern District of Virginia that appear to constitute the only other publicly available federal decisions on point. In those cases, an attorney referenced in the cases as John Doe had been employed as in-house counsel at an entity referenced in the decisions as X Corp., where he was responsible for overseeing the company s compliance with government regulations and antitrust laws. 27 When his employment was terminated, Doe retained copies of several thousand pages of documents that he believed supported his allegations of fraud against X Corp. and, shortly 19 United States ex rel. Fair Lab. Practices Assocs. v. Quest Diagnostics Inc., 2011 WL , at *11-13 (S.D. N.Y. Apr. 5, 2011). 20 Id. at * Id. at * Id F.3d 154, Id. 25 Id. 26 Id. at X Corp. v. Doe, 805 F. Supp. 1298, (E.D. Va. 1992). 6

7 thereafter, filed a qui tam action against X Corp. 28 In the course of the investigation, the DOJ sought guidance from the court as to whether it should have possession of all the documents provided to it by Doe, given Doe s former employment. The court ordered the DOJ to surrender those documents and placed them under seal. 29 The court then stayed the case pending resolution of the question of whether Doe could disclose the documents consistent with his duty to preserve his client s confidences and secrets. 30 When considering X Corp. s preliminary and permanent injunction requests seeking to preclude Doe from sharing X Corp. s confidences and documents, the court turned to the Virginia Code of Professional Responsibility, since Doe was working in Virginia immediately before he was terminated. 31 The Virginia Code of Professional Responsibility then in effect provided: (B) Except as provided by DR 4-101(C)( and (D), a lawyer shall not knowingly: (1) Reveal a confidence or secret of his client. (2) Use a confidence or secret of his client to the disadvantage of the client. (3) Use a confidence or secret of his client for the advantage of himself or a third person, unless the client consents after full disclosure. 32 DR4-101(C)(3), in turn, permitted an attorney to reveal information which clearly establishes that his client has, in the course of the representation, perpetuated upon a third party a fraud related to the subject matter of the representation. 33 For information to clearly establish the perpetration of fraud, it must constitute information that a reasonable attorney in the same circumstances would find convincing evidence of the alleged fraudulent activities. 34 The court emphasized the difference between this standard whether the reasonable attorney would find convincing evidence of fraud and the question of whether in fact X Corp. had violated the FCA. 35 The court granted the preliminary injunction with respect to requiring the attorney not to disclose confidences or secrets, on the basis that the harm to X Corp. would be irreparable if the confidences and secrets were disclosed; but it refused to grant an injunction compelling Doe to return the documents, on the grounds that X Corp. would not be harmed by his retaining the document copies. 36 It subsequently granted the entire permanent injunction requested by X Corp., however, because it determined after a review of the documents that Doe had failed to meet his burden to show that the documents and information reflect convincing evidence of fraud. 37 In 28 United States ex rel. Doe v. X Corp., 862 F. Supp. 1502, (E.D. Va. 1994) F. Supp. 1502, at Id F. Supp. 1298, 1308 (E.D. Va. 1992). 32 Id. at 1308, quoting Va. Code of Prof. Resp. DR4-101(B) (internal quotations omitted). 33 Id.(internal quotations omitted). 34 Id. at Id. at Id.at F. Supp. 1086,

8 doing so, the court was careful to note that it expresses no opinion on the merits of any possible qui tam action that may be brought by the government or Doe to enforce the False Claims Act. 38 As a result of this ruling, the government was ordered to return the original and all copies of Doe s statement of material fact. 39 After the government settled the underlying allegations with X Corp., the parties filed cross motions for dismissal. Doe sought dismissal on the grounds that the matter had settled, and requested an award of 25% of the settlement proceeds as well as attorney fees and costs. The government did not contest dismissal but sought to limit the relator s share to 15%. X Corp. opposed Doe s motion and filed its own motion to dismiss, arguing that Doe could not properly be a relator under the FCA based on his status as X Corp. s former attorney and his limited involvement in the action. 40 The court rejected X Corp. s argument that an attorney cannot be a relator under the FCA, finding no language in the statute to preclude an attorney from bringing a qui tam action against his former client. 41 The court also rejected X Corp. s argument that because the government was required to relinquish the written disclosure statement, and Doe subsequently submitted a letter stating that all the material facts also were contained in the Complaint rather than submitting another disclosure letter, Doe had fatally failed to meet the FCA s requirement that he provide the government with a written disclosure of all material facts. The letter cross-referencing the substance of the complaint was adequate under the FCA, the court held. 42 The court held that Doe did fatally fail to meet the FCA s requirement to submit a complaint containing factual allegations, however, because the factual information contained in the complaint clearly falls within the coverage of the injunction. 43 Thus, [b]ecause the complaint contains X Corp. s confidences and secrets, which Doe has been enjoined under state law from disclosing, Doe cannot serve as a relator in this action. 44 United States ex rel. Hartpence v. Kinetic Concepts, Inc. Questions of attorney disclosures of client confidences overlap, of course, with attorneyclient privilege issues. The two cases discussed above focused primarily on the ethical boundaries of sharing privileged information and, on the basis of the attorney s ethical requirements, prohibited the information from being used in a qui tam action. In FLPA, the court also extended the inability to use the confidential material beyond the attorney/relator, to the co-relators and even their counsel. In a recent case considering attorney-client privileged documents that were provided by non-attorney former employees to the government in furtherance of their qui tam action, a federal court in California imposed a similar result with respect to their counsel. Two former executives of Kinetic Concepts, Inc. (KCI) filed separate qui tam actions against KCI and, through counsel, provided the government with documents they had taken with them 38 Id F. Supp. 1502, at Id. at Id. at Id. at Id. 44 Id. at

9 from KCI, including attorney-client privileged documents. 45 In a prior decision, the court ordered the relators to return the privileged documents to KCI and to redact any verbatim content they possessed of those materials. 46 KCI then sought to disqualify relators counsel on the grounds that they improperly used privileged communications in the pleadings. 47 The court noted that attorneys are ethically bound to take some reasonable remedial action when they become aware that they have received privileged communications: they must refrain from examining the materials, notify the sending lawyer and abide the instructions of the lawyer who sent them. 48 If in doubt, they should have sought guidance from the court. 49 Because relators counsel were clearly on notice that the documents were privileged, failed to seek the court s advice, transmitted the documents to the government, and repeatedly used them in the pleadings, they failed to comply with their duty to take reasonable remedial action and therefore disqualification was appropriate. 50 The court made very clear that it was not disqualifying counsel merely for being exposed to the privileged documents, but for their unethical conduct with respect to the documents. 51 Conclusion and Lessons Learned Thus, the few courts to have considered questions relating to the disclosure of client confidences and privileged communications, particularly in the context of counsel as relator, have offered consistent holdings. Attorneys are not prohibited under the FCA from filing qui tam actions against their former clients in connection with the issues on which they advised their clients. Nevertheless, they are bound by the same ethics rules that apply to all other attorneys in their state, and these ethics rules generally prohibit them from disclosing their former client s confidences and secrets. They may choose to violate these ethics rules, of course, but in doing so they open themselves up to the possibility of state bar sanctions (which could include disbarment) as well as the probability that the court in the qui tam matter will not permit them to use such client confidences and secrets in their case. Even their counsel may be disqualified if they used the confidential materials in the pleadings or provided them to the government. Thus, while attorneys may be permitted to file such cases, they almost certainly will be unable to pursue them or recover under them because of the inherent ethics violations. The government, on the other hand, may continue investigating and/or prosecuting such cases. Government counsel cannot use the confidential materials, but once it is aware of the allegations, it can obtain relevant non-privileged documents by subpoena or Civil Investigative Demand. Thus, the defendant can be subject to the very investigation and/or litigation that the unethical attorney initiated, albeit without the attorney/relator s involvement. In such situations, the only solace for the defendant is that its former counsel/relator, who invested time and energy if not money in bringing the case, will be left with nothing and may have significant difficulty finding another job in the future. 45 United States ex rel. Hartpence v. Kinetic Concepts, Inc., CV GHK, 2013 U.S. Dist. LEXIS at *2 (May 20, 2013, C.D. Cal.). 46 Id. at * Id. at *4. 48 Id. at *4, quoting Gomez v. Vernon, 255 F.3d 1118, 1134 (9 th Cir. 2001).. 49 Id. at *5. 50 Id. at * Id. at *9. 9