Counsel Conduct Creates Qui Tam Conundrum

Counsel Conduct Creates Qui Tam Conundrum

By Joshua Gelman, Esq.

A fundamental conflict between an attorney’s ethical responsibilities to the client and responsibilities to the community arises when the attorney comes to discover information that could prevent a crime.  That conflict can be exacerbated by federal interests that encourage “whistleblowers” to disclose unlawful conduct in claims pursuant to the qui tam provisions of the False Claim Act. [1]  The conflict surrounding an attorney’s dueling responsibilities and their effect on others was recently addressed by the Second Circuit in U.S. v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013).

In Quest Diagnostics, the Second Circuit was faced with whether to affirm the district court’s dismissal of a qui tam action brought against a business by a general partnership comprised of the former C.E.O., C.F.O., and former General Counsel of an acquired subsidiary. The defendants moved to dismiss the entire action arguing that the former attorney violated New York Rules of Professional Conduct 1.9(a) and 1.9(c) as a result of his prior representation of one of the defendants and the confidential information obtained. [2] 

The attorney utilized the information obtained during the course of his role as general counsel to support the qui tam claim and argued that such disclosure was necessary to prevent a crime (an alleged “pull-through” scheme to encourage Medicare and Medicade referrals).  The district court ruled that the former General Counsel violated his ethical obligations to his former client and dismissed the qui tam action.  Further, the court disqualified the former counsel, as well as the remaining general partners and the outside counsel from ever pursuing a similar qui tam action.  The court reasoned the broad measures were necessary to protect defendants from use of the confidential information held by former counsel.

In affirming the district court, the Second Circuit reached only the decision that the attorney violated Rule 1.9(c) by participating in the qui tam action and refrained from ruling upon whether Rule 1.9(a) was also violated.  Nonetheless, the Second Circuit made it clear that as a general matter that an attorney’s obligation to preserve a client’s confidence trumps an attorney’s ability, no less the obligation, to report a client’s criminal activity.  Further, the Second Circuit stated that even where an attorney must disclose confidential information to prevent a crime or ongoing fraudulent scheme, such disclosure should not be “greater than reasonably necessary” and as narrow as possible. Quest Diagnostics, 734 F.3d 154, 165.

[1] Qui tam actions under the False Claim Act(31 U.S.C. §§ 37290-3733) allow for a private plaintiff, otherwise known as a relator, to bring to bring suit on behalf of the government to recover harms done to the government.  Since the government is the party that has suffered harm, it may (but need not) intervene and take over the lawsuit and the relator will be entitled to a share of the government’s recovery.

[2] New York Rules of Professional Conduct 1.9(a), the so-called “side-switching” rule, and Rule 1.9(c), prohibiting use of confidential information obtained during a representation of a former client to the disadvantage of that former client, are similar but not identical to those found in the Pennsylvania Rules of Professional Conduct.

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