Source: http://www.falseclaimsactlawblog.com/2012/01/
Timestamp: 2019-04-25 06:00:39+00:00

Document:
In my experience, health care executives often believe that a U.S. Attorney wields unlimited power when investigating a health care provider for False Claims Act violations and, in some instances, the government counsel conducting such investigations have certainly fostered that impression as well. Last year, I came across an article in Modern Healthcare.com where a hospital executive acknowledged that his hospital had reluctantly settled a qui tam investigation which was then under seal because the Assistant United States Attorney conducting the investigation threatened to widen the civil investigation far beyond the allegation at issue if the hospital did not settle. Though it did not unearth any evidence of fraudulent billing, the hospital settled the investigation in the face of threats that if it did not settle the investigation, the government would "come down and look" at every one day hospital admission. I subsequently spoke with two other counsel who had similar experiences wherein the Assistant United States Attorney threatened to "come down and look around" if their clients did not settle more limited qui tam investigations, both of which were still under seal.
These experiences prompted the question: Can the government do that? Can they threaten to "come down and look around" in order to force settlement in qui tam cases? I answered that question in an article that the ABA's Health Lawyer magazine was kind enough to publish last month: Can They Do That? Government Threats to 'Come Down and Look Around' to Force Settlement in Qui Tam Cases. As I found, a U.S. Attorney has broad, though limited, powers when conducting a civil investigation of qui tam allegations while the matter remains under seal, and even more limited powers once the matter is unsealed. In health care investigations, however, Congress has granted the U.S. Department of Health and Human Services broad powers to investigate the records of Medicare and Medicaid providers. As I point out, though agents may have such broad authority, practical considerations will limit when and where such investigative powers will be used.
How do courts react when faced with a defendant’s allegations that a qui tam relator has misappropriated its attorney-client information, disclosed it to the government and relator’s counsel, and used it to bring a qui tam? Last week, I highlighted the case of U.S. ex rel Frazier v. IASIS Healthcare where the Court sanctioned the relator’s counsel for failing both to notify the defendant, IASIS, of the relator’s possession of IASIS’s attorney client privileged documents and to timely seek the court’s direction as to what should be done with the documents. The sanctions were limited, however, and granted only at the end of the case. The Court required that relator’s counsel pay IASIS the fees and costs it incurred in attempting to get its documents back, though it also disqualified relator’s counsel from representing the relator or any other party adverse to IASIS.
We find another instructive example of a qui tam defendant seeking sanctions against a relator and her counsel for allegedly taking and using defendant’s attorney client documents in the case of U.S. ex rel Elin Baklid-Kunz v. Halifax Hospital Medical Center d/b/a Halifax Health, M.D. Florida Case No. 6-09-cv-1002. In Halifax, the Court gave short shrift to the defendant’s motion for preliminary injunction against the realtor, and it did not demonstrate any alarm at the defendant’s claims of prejudice and irreparable harm.
In that case, the defendant, Halifax, alleged that relator and her counsel had engaged in the “deliberate, unauthorized collection, retention and use of Halifax’s privileged documents” which had caused it “irreparable harm.” As a result of the alleged breach of its privilege by the disclosure of 31 allegedly privileged documents, Halifax sought a preliminary injunction wherein it asked the Court, among other things, to dismiss the relator’s claims with prejudice, disqualify the relator’s counsel, and exclude any evidence derived from relator’s counsel’s use of the allegedly privileged documents. Copies of Halifax’s Motion for Preliminary Injunction and Memorandum in Support are linked here.
In its Opposition, the relator disputed Halifax’s claim that its documents were privileged, and claimed further that even if the documents were privileged at some point, Halifax had waived its privilege.
In a two and half page Order, the Court found that “at least some the documents may have been subject to attorney-client privilege or the work-product doctrine.” The Court, however, found that the Halifax “made no showing whatsoever that they face a substantial threat of irreparable injury if the case is not dismissed with prejudice or opposing counsel are not disqualified and so forth.” Again, the Court faulted Halifax for failing to show how the realtor utilized the purportedly privileged documents “in the preparation of the instant case against them” or whether any of the “damaging information” was set forth in the complaint.” In the end, the Court found that even if Halifax “ had demonstrated that some actual harm had occurred, a “showing of past harm would not satisfy the requirement of a substantial threat of irreparable injury” in the future necessary to obtain a preliminary injunction.
These cases show that courts are cautious of defendants who attempt to use sanctions motions offensively to punish relators and dismiss their qui tam actions. To entertain such punitive sanctions, these cases demonstrate that courts require clear evidence of bad faith by the relator and their counsel and the relator’s use –and not just their possession-- of a defendant’s privileged information.
The U.S. District Court in Arizona recently sanctioned the attorneys for the relator in the qui tam case of United States ex rel Jerre Frazier v. IASIS Healthcare Corporation, Case 2:05-cv-766-RCJ as a result of their failure to promptly seek a ruling from the Court concerning privileged documents of the defendant that they had received from the relator. In an Order entered on January 10, 2012, the Court found that the relator, Frazier, had “copied and removed approximately 1,300 pages of documents, emails and other . . . proprietary materials” from the the defendant, IASIS Healthcare. After years of litigation and the dismissal of the third amended qui tam complaint in June 2011, the Court handed down its ruling in response to the Defendant's Renewed Motion for Sanctions against the relator and his counsel.
The Court denied as moot the Motion for Sanctions against the relator as the parties had settled their claims.
As to the relator's "Qui Tam Counsel," however, the Court found they "were aware that they had potentially privileged documents in the Fall of 2004," before they filed suit, but once Qui Tam Counsel filed suit, they "delayed and did not seek a ruling from the Court on what to do with IASIS’s privileged documents" until it had served the unsealed qui tam complaint. The Court further falted Qui Tam Counsel for appearing to "play dumb as to what privileged documents IASIS was talking about" once IASIS requested its docuuments The Court explained that "[a]lthough Qui Tam Counsel were obligated to acquire Frazier’s consent before returning the documents back to IASIS, Qui Tam Counsel should have told IASIS that or should have waited for Frazier’s consent. Instead, Qui Tam Counsel feigned ignorance with respect to the Sealed Box of privileged documents in their offices." The Court found that Qui Tam Counsel breached an ethical duty to seek a ruling from the Court about the privileged documents and breached their duty to contact IASIS about the documents after the complaint was unsealed."
Though finding that sanctions were appropriate, the Court explained that the "circumstances in this case do not warrant dismissal" nor did the facts establish that Qui Tam Counsel acted in "bad faith" In light of these considerations, the Court imposed the sanction of requiring Qui Tam Counsel to repay the "attorneys’ fees and costs expended by IASIS in its attempt to get its privileged documents back from Qui Tam Counsel." Additionally, the Court disqualified the relator's counsel from further assisting or representing the relator "or any other party adverse to IASIS."
The Court denied Defendant's request that Qui Tam Counsel be sanctioned even more broadly for fees and costs pursuant to 28 U.S.C. § 1927. 28 U.S.C. § 1927 provides that the Court may award attorneys' fees and costs against an attorney who "unreasonably and vexatiously" . . . . . "multiplies the proceedings in any case." The Court rejected Defendant's request on the grounds that Qui Tam Counsel had not acted in bad faith "nor is there any evidence to establish that they knowingly raised a frivolous argument."
Called a “landmark” ruling by Whistleblowers Protection Blog, a recent 7th Circuit case appears to have substantially expanded the rights of whistleblowers to sue their employers. In DeGuelle v. Camilli, et al., (7th Cir. Dec. 15, 2011), the 7th Circuit held that a former employee could bring a Civil RICO action against his former employer and several of its managers who he alleged had engaged in tax fraud on behalf of the employer, S.C. Johnson & Son, Inc., for losses he had suffered as result of their alleged retaliatory conduct against him. To bring a Civil RICO claim pursuant to 18 U.S.C. § 1964(c), the plaintiff must suffer an injury in his “business or property” as a result of the “pattern of racketeering activity.” The former employee, a whistleblower, alleged that he was injured in his business or property by the defendants “retaliatory actions,” in terminating him from his employment, being sued by his employer, and defamed in the media. These retaliatory actions, he claimed, constituted a violation of the Sarbanes Oxley Act which made it a crime to intend to retaliate and “take any action harmful to any person” for “providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense.” 18 U.S.C. § 1513(e)(part of the statute prohibiting retaliation against witness, victim or informant).
The District Court had dismissed the former employee’s Civil RICO complaint on the grounds that the alleged retaliation against him an unrelated separate scheme from the tax fraud scheme which purportedly gave rise to the Civil RICO. The District Court appeared to be following other courts who found that retaliation could not give rise to Civil RICO. See, e.g., Hoatson v. N.Y. Archdiocese, No. 05 Civ. 10467, 2007 WL 431098, at *6 (S.D.N.Y. Feb. 8, 2007) (“Retaliatory firing is clearly not a listed predicate act or ‘racketeering activity.’ ”), aff’d, 280 F. App’x 88 (2d Cir. 2008); Herrick v. South Bay Labor Council, No. C-04-02673, 2004 WL 2645980, at *3 (N.D. Cal. Nov. 19, 2004) (whistleblower terminated in retaliation for reporting her concerns could not bring RICO claim because her injuries stemmed from wrongful discharge, not alleged racketeering activity).
As reported by the The Wall Street Journal and other news sources last week, documents released by the Florida Attorney General's Office provide an insider's glimpse into the Florida state qui tam action against Bank of New York Mellon Corporation (Mellon Bank). That suit, State of Florida ex rel FX Analytics v. Bank of New York Mellon Corporation, was initially filed by a foreign currency trader and whistleblower at the bank, Mr. Grant Wilson, in 2009 and the Florida Attorney General intervened in 2011. In this qui tam case, the Florida Attorney General alleged that Mellon Bank conducted foreign currency trades on behalf of the Florida Retirement System Trust Fund, and in so doing, fraudulently "added hidden spreads . . . to these foreign exchange trades rather than pricing the trades at the exchange rates at which it actually executed the transactions, causing the [Trust Fund] to pay far more than it should have for buys and receive much less than it should have for sells."
The Florida Attorney General released "hundreds of pages of confidential documents" that Mr. Wilson had obtained while working at Mellon Bank. According to the Wall Street Journal, the documents reportedly show "how the bank allegedly scrambled to contain the fallout from a fast-growing government investigation," and included "company materials, emails and observations." As described in a Huffington Post article, the documents reflected the important role played by the relator's counsel. For example, Wilson's lawyers provided "a question-and-answer tutorial so the Florida Attorney General's office knows the right questions to ask BNY Mellon employees;" and in another memo, the lawyers discredit Mellon's claims that "difficulty in production" delayed its document productions because, according to Wilson, documents are "centrally stored" and can be "easily obtained." In another released memo, Wilson's "legal team provided detailed biographies of fellow traders and employees at BNY Mellon to help determine whether they might be helpful in the whistleblower legal effort."
Beyond the insight into the qui tam against Mellon Bank, these articles prompt several observations: First, the Florida Attorney General's release of these documents show that there is far less confidentiality surrounding relators and the documents they provide in state qui tams than in federal qui tams. This difference is especially stark when dealing with states like Florida, which have public records laws that permit the public broad access to government records. The case is ongoing, with the State having intervened only months ago, and yet hundreds of pages of internal confidential documents, both from Mellon and the relator's lawyers have been released. It is not clear that Wilson, his lawyers, or Mellon wanted these documents released.
Second, the experience of Mr. Wilson as a whistleblower shows just how lucrative the role of a relator can be. The Wall Street Journal reports that Wilson, a foreign trader with Mellon for more than a decade, "walked away from deferred bonuses totaling roughly $5 million." Clearly, he anticipates making much more than that from the qui tam.
Third, from these articles, you can see the important role that whistleblower counsel can play in ensuring a successful qui tam suit and in pressing for a vigorous prosecution against the defendant. In Wilson's case, counsel apparently went so far as to "provide intimate snapshots of [Wilson's] colleagues, including details about their families, personal problems and financial standing."
Finally, where was the bank's compliance officer? Wilson reportedly worked for two years as an informant, allegedly detailing the bank's scheme to overcharge its clients for whom it made foreign exchange trades. He was, documents appear to show, not the only one who knew about these suspect practices. If that is true, how could such conduct be kept from the bank's compliance officers?

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