Monday, November 25, 2013
The False Claims Act recently collided with New York's Rules on Professional Conduct before the Second Circuit, and the FCA came away the worse for wear. At issue in United States ex rel Fair Laboratory Practices Associates v. Quest was a district court's dismissal of a qui tam suit brought by a entity created for that purpose. The basis of the dismissal was that one of FLPA's principals had been General Counsel of the defendant. And not only did the district court dismiss the case but it also barred the plaintiff, its individual members, and the law firm representing it from bringing a subsequent qui tam action.
It's not news that attorneys are often unable to assert whistleblower rights that would be available to other employees because of the rules of professional conduct. But Quest is one of the relatively few cases where a federal right is pitched against state ethical rules. And the FCA is an unusual statute: while it also includes classic whistleblower protections, the suit in question was brought pursuant to the statute's qui tam provisions that authorize relators to file complaints in the name of the United States and to retain a portion of any recovery.
The Department of Justice has the right to intervene in a qui tam action, and the Second Circuit's affirmance of the district court's orders stressed that Justice was not precluded from prosecuting the case (although it declined that opportunity) nor were other potential plaintiffs precluded (although maybe some of the FCA's own provisions might bar them).
The Quest reasoning upholding both the dismissal and the disqualfications was pretty straightforward: the FCA did not preempt state ethics codes and former GC Bibi violated the NY rule against disclosing confidential information. While the relevant rule permits disclosure "to the extent that the lawyer reasonable believes is necessary . . . to prevent the client from committing a crime," the disclosures in question did not qualify. It was true that Bibi was resonable in believing that Quest had the intent to commit a crime, but he could not reasonably believe his discloures were necessary to prevent that crime.
That was because there were alternative means of preventing the crime in question, essentially the information available from other individual members (or perhaps from Bibi himself) that wasn't "protected client confidences."
The court's decision on this point relieved it of having to decide whether the mere filing of the qui tam suit violated New York's "side switching rule," which bars attorneys representing one side in a matter (Quest) from then representing the other (the US since a qui tam suit is in theory brought on behalf of the government). Such a holding would have been far broader than the decision actually rendered since, in theory at least, the Quest qui tam suit could have gone forward had Bibi been more circumspect in what he revealed.
Affirmance of the disqualification ruling was essentially fruit of the poisonous tree reasoning.
The Quest opinion repeatedly invokes the notion of balancing. Thus, it recognizes that it must balance federal and state interests in deciding the degree to which confidential information may be disclosed (although it also suggests that the NY Rule itself balances those interests by permitting disclosure necessary to prevent a crime), and it purportedly balanced the competing concerns of permitting vindication of legal rights against disqualification of plaintiff, its principals, and their attorneys.
But in the end, all this judicial balancing seems to mostly require attorney relators to do a lot of balancing themselves -- walking a tightrope between saying too much or too little. Qui tam claims have been held to pretty high pleading standards in the wake of Twiqbal, and it is easy to see how a plaintiff might feel the need to provide more rather than less information to support its allegations. While the Quest decision can be justified in terms of the text of the NY Rule, perhaps "necessary" to prevent a crime is too high a standard when a federal statute is at stake. A more appropriate standard would focus on the reasonableness of the disclosure in actually preventing the crime in question. At any rate, this is far from the first time that the courts have placed potential relators in very difficult positions.