Friday, February 7, 2014
In United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Inc., decided by the Second Circuit on October 25 2013, we see another qui tam suit, where former employees allege the company's participation in a scheme to defraud Medicare and Medicaid, this time by allegedly underpricing certain services in order to stimulate referrals of clients who qualified for higher rates under Medicare or Medicaid coverage. That allegation triggered the federal Anti-Kickback Statute that applies to federal health care programs.
If anyone is interested in -- or skeptical about -- making a whistleblower claim part of a "business plan," just read this decision. The plaintiff, Fair Laboratory Practices Associates, was formed as a partnership by three former employees, who combined their knowledge in an attempt to confront what they believed were fraudulent sales practices. The federal False Claims Act permits successful whistleblowers to share in any financial recovery for the U.S.
Just one little problem. One of the members of the partnership was a former vice president and general counsel for the defendant corporation, and he was disclosing information received in his role as the only in-house lawyer for the company. Indeed, as reported in the opinion, that is exactly why the other two whistleblowers invited him to join their partnership, because his status as a lawyer "would improve our credibility with the government."
Unfortunately for the plaintiffs' group, it also triggered Rule 1.9 of New York's ethical rules, prohibiting a lawyer from disclosing confidential information of former clients. While the 2d Circuit credited the attorney's contention that he reasonably believed his employer intended to commit a crime, the court concluded the level of disclosure was "greater than reasonably necessary to prevent any alleged ongoing fraudulent scheme." The Court rejected the argument that the policies underlying the False Claims Act trumped the state's ethical rules for legal counsel.
More importantly, the court concluded that although the other two non-lawyer partners could have filed the qui tam action based on the information they alone possessed as former executives for the company, once their knowledge became entwined with the attorney's unauthorized disclosures, the partnership as a group was disqualified. Case dismissed (although the Court does leave the door open for a new relator as plaintiff, or the U.S. on its own).
Here's more on the case by Joseph Callanan, an associate editor for the American Bar Association's Litigation News.
Here is useful background on the federal Anti-Kickback law, courtesy of the American Health Care Association.