Will Ninth Circuit Verdict Encourage Counsel To Become Healthcare Relators?
Last week a jury awarded millions of dollars to a former General Counsel who brought a whistleblower retaliation lawsuit against a life sciences company. (Verdict form here.) Does that verdict warn the health care industry to brace for a wave of False Claims Act (FCA) litigation brought by in house counsel who have turned relators? Certainly not.
General Counsel brought the retaliation lawsuit under the Sarbanes-Oxley Act regarding possible violation of the Foreign Corrupt Practices Act that had been presented to the company’s Audit Committee. (Factual background of the litigation here). The company’s internal investigation disclosed no violation, but the General Counsel claimed he was fired in retaliation for raising it. During the retaliation litigation, the district court allowed General Counsel to disclose matters covered by the attorney client privilege. The court concluded that the company’s actions in defending against retaliation claims had waived the attorney-client privilege in several ways and that the whistleblower protections of Sarbanes-Oxley preempted state ethics rules preventing disclosure.
This verdict is not the harbinger of counsel/whistleblower complaints even though the FCA allows “[a] person” to file suit without further limitation as to who may file. (31 U.S.C. §3730 (b)(1))
The primary reason we will not see a wave of counsel relators is that both in house and outside counsel take seriously their ethical responsibility to protect client confidences. While an occasional attorney may try to profit by publically exposing a client’s woes, there is no reason to expect a large number of professionals will abandon the tradition of zealously representing their clients in difficult situations. Furthermore, companies recognize the importance of remedying misconduct when it is discovered. Counsel is unlikely to seek an outside remedy when the client heeds advice that improvements need to be made.
Even when a counsel tries to become a relator in a false claims action, the legal profession is likely to intervene to protect the privilege. In United States v. Quest Diagnostics, Inc., 734 F.3d 154 (2nd Cir. 2013), the Second Circuit upheld the District Court’s decision to dismiss the counsel/relator, co-relators and outside counsel representing them from the lawsuit because counsel unnecessarily revealed client confidences when becoming a relator. Because the decision was based upon counsel’s ethical violation, it is the kind of situation in which state bars are likely to impose sanctions as well.
Moreover, bringing a retaliation lawsuit is not the same as initiating a false claims action against a current or former client. The legal hurdles to introducing privileged information in an FCA action are daunting. Although the General Counsel could invoke Sarbanes-Oxley to permit some use of privileged information, the Second Circuit held that the FCA “does not preempt state ethical rules governing the disclosure of client confidences.” Id. at 168.
The ethical and practical realities surrounding false claims investigations will not be affected significantly by the jury’s finding of retaliation against the General Counsel.