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October 13, 2014

13 October 2014

Federal District Court Holds That FCA Defendant Waived Attorney-Client Privilege By Pleading Good-Faith Compliance With the Act

Posted by Jonathan F. Cohn and Brian P. Morrissey

A federal district court in Georgia has ordered a defendant in a False Claims Act case to produce attorney-client privileged communications to the qui tam relator. See United States ex rel. Barker v. Columbus Regional Healthcare System, Inc., No. 4:12-cv-108 (CDL), 2014 WL 4287744 (M.D. Ga. Aug. 29, 2014). The court ruled that the defendant, Columbus Regional Healthcare System, impliedly waived the privilege by pleading in its answer that it did not knowingly violate the FCA and indicating that it would offer evidence at trial that it believed its conduct was lawful.

The relator alleged that Columbus Regional violated the FCA, the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, and the Stark Law, 42 U.S.C. § 1395nn, when it purchased a cancer treatment center for more than fair market value and, separately, when it entered into remuneration agreements with another cancer treatment center that were not commercially reasonable. The relator alleged that all of these transactions were unlawfully designed to induce the treatment centers to refer patients to Columbus Regional.

In response, Columbus Regional argued that “it believed its conduct was lawful,” and that it planned to “offer evidence at trial” establishing that good faith belief. Columbus Regional, 2014 WL 4287744, *2.

Relying on the Eleventh Circuit’s decision in Cox v. Administrator U.S. Steel & Carnegie, et al., 17 F.3d 1386 (11th Cir. 1994), the district court held that Columbus Regional’s defense waived privilege over communications between Columbus Regional and its attorneys regarding the transactions, Columbus Regional, 2014 WL 4287744, *2. The court reasoned that “when a defendant affirmatively asserts a good faith belief that its conduct was lawful, it injects the issue of its knowledge of the law into the case and thereby waives the attorney-client privilege.” Id. The court reached this conclusion despite acknowledging that Columbus Regional had not asserted an “advice-of-counsel” defense—i.e., Columbus Regional did not argue that legally-privileged advice was the basis for its good-faith belief that its transactions were lawful. Id.

Notably, the district court suggested that Columbus Regional could have preserved the privilege if it had merely “denied” the allegations of wrongful intent “‘without affirmatively asserting that it believed its [conduct] was legal.'” Id. *4. But, since Columbus Regional “intend[ed] to explain fully why its conduct was not knowingly and intentionally unlawful,” the court determined that the privilege had been waived. Id.

It remains to be seen whether other courts will find the district court’s ruling persuasive. In the meantime, however, FCA defendants should be aware that specifically pleading a belief that challenged conduct was lawful may trigger a dispute over whether such a defense waives privilege. Defendants seeking to protect themselves from such an attack should note that, even under the Columbus Regional rationale, defendants who merely deny wrongful intent—without “affirmatively” asserting a good-faith belief that their conduct was lawful—do not waive the privilege.

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