September 4, 2014

Barker Decision Extends Attorney-Client Privilege Waiver to False Claims Act Cases

By Gordon Schnell

The attorney-client privilege is perhaps the most critical component of the attorney-client relationship.  As the Supreme Court declared in its landmark Upjohn decision, the privilege exists “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observation of law and administration of justice.”  As most would agree, without the privilege there would be no justice, no rule of law at all.  But as with every rule, there is always an exception — even with the mighty attorney-client privilege.

This was made painfully clear last week by Middle District of Georgia Judge Clay D. Land to the defendants in Barker v. Columbus Regional Healthcare System, Inc. There, he found they had waived the attorney-client privilege by affirmatively asserting as a defense to the action a good faith belief their conduct was lawful.  What makes the decision especially notable is it was made in the context of a False Claims Act case, where intent is a principal element.  It thus presents quite the quandary for defendants going forward in these kinds of cases.  You can argue you did not knowingly defraud the government but in doing so, you might have to disclose what your lawyers had to say about it all.

The plaintiff in this case alleges Columbus Regional entered into a series of transactions with various doctors and a cancer center under which it paid excess compensation for the purpose of receiving improper patient referrals.  The plaintiff moved to compel the defendants to produce communications with their attorneys relating to whether the disputed transactions were legal.  The defendants refused, asserting the attorney-client privilege and arguing they did not waive the privilege because they (i) are not relying on an advice of counsel defense, (ii) are not relying on any attorney communications and (iii) are not affirmatively injecting the lawfulness of their conduct into the litigation.

Relying on the controlling Eleventh Circuit decision, Cox v. Administrator U.S. Steel & Carnegie, Judge Land rejected the defendants’ arguments and granted the plaintiff’s motion to compel:

 The attorney-client privilege was intended as a shield, not a sword.  The employer waives the privilege if it injects into the case an issue that in fairness requires an examination of otherwise protected communications. . . .The fact that [Columbus Regional] affirmatively asserted that it believed its conduct was legal injected the issue of its knowledge of the law into the case and thereby waived the attorney-client privilege.

In ruling this way, Judge Land made it clear he saw the defendants’ legal strategy as involving more than merely denying the essential elements of the plaintiff’s claim.  He viewed it as involving a full explanation of “why their conduct was not knowingly and intentionally unlawful.”  As such, “Columbus Regional waives the attorney-client privilege as to any communications that relate to the legality of the transactions at issue in this action.”

Assuming the decision stands, the ramifications could be profound for how attorneys and their clients interact in the highly regulated healthcare industry.  As the defendants put it, “if these communications are at risk of subsequent disclosure, the benefits associated with candid and open attorney-client communications will be lost.”  Judge Land appeared sensitive to this concern, stating “certain policy considerations may support” the defendants’ call for a “carve out” to the Cox attorney-client waiver for False Claims Act claims arising from alleged healthcare fraud.  But it was not an exception he felt authorized to make.

Of course, allowing such a carve out is not necessarily the best solution either.  It risks upsetting the cardinal rule of barring the use of attorney-client communications as both a sword and shield.  Or, as the Eleventh Circuit framed it in Cox, it could lead to the inequitable result of allowing a company “to present evidence tending to show that it intended to comply with the law, while allowing it to cloak in privilege those documents tending to show it might have known its actions did not conform to the law.”  Leaving us at this point with what may be the only answer for companies struggling with how to deal with this attorney-client dilemma going forward — do not affirmatively raise the good-faith (or lack of intent/knowledge) defense unless you are comfortable your attorney-client communications will back it up.

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