In-House Relator? The 2nd Circuit Considers Whether To Put the False Claims Act Between Attorneys and Their Clients.

This post was written by Matthew R. Sheldon and Alexander Y. Thomas.

The Second Circuit Court of Appeals is reviewing a lower court decision disqualifying a former in-house attorney from acting as a False Claims Act qui tam relator against his former employer.

The relator was formerly general counsel to Unilab, a subsidiary of Quest Diagnostics Inc. The qui tam suit alleged that Unilab violated the Federal Health Care Anti-Kickback Act by engaging in a fraudulent scheme to increase medical testing referrals under the Medicare and Medicaid programs. Unilab sought to dismiss the suit, arguing that the relator’s participation in the action was unethical under the New York Rules of Professional Conduct. The District Court agreed, stating that his duties included his obligation not to disclose client confidences that would otherwise be protected by the attorney-client privilege.

In an appeal of the District Court’s ruling to the Second Circuit, the plaintiff has primarily argued that the relator had no duty to keep client confidences as Unilab was engaged in acts of fraud. In response to that argument, Unilab claimed that failure to disqualify counsel would have a chilling effect on a client’s willingness to seek advice of counsel regarding issues that could implicate the False Claims Act.

The case raises significant questions regarding the limits of the attorney-client privilege when the client is potentially engaged in acts of fraud. Typically, communications with counsel that are in furtherance of a crime or fraud are not protected by the attorney-client privilege. But communications regarding a previous crime or act of fraud are protected by the privilege, unless the lawyer believes that disclosure is necessary to prevent a future crime. Whether the privilege applies in this particular case will depend, in part, on the Second Circuit’s interpretation of the scope of the crime-fraud exception to the privilege. If the Second Circuit affirms the District Court’s decision, companies can at least rest easier knowing that their communications with counsel about False Claims Act issues will, in most instances, remain private.