District Court Holds That Qui Tam Relator Is Entitled To ‘Self-Help’ Discovery: Relator Can Retain Company Documents Even After Termination

Posted by Kristin Graham Koehler and Brian P. Morrissey

Last week, a federal district court addressed a question that often arises in False Claims Act litigation: Can a qui tam relator who files suit against his employer be compelled to return company documents that he possesses in violation of company policy or a confidentiality agreement? In Shmushkovich v. Home Bound Healthcare, Inc., No. 12-C-2924 (N.D. Ill. June 23, 2015), the district court held that the relator was not required to return such documents, so long as they were relevant to his claims.

Benjamin Rine and Vadim Shmushkovich brought a qui tam suit against their employer, Home Bound Healthcare, Inc. (“Home Bound”), alleging that Home Bound submitted false claims to Medicare, in violation of the federal FCA and the Illinois FCA. After the complaint was unsealed, Home Bound placed Rine on administrative leave, and asked him to return all company files he had previously stored on his personal computer for job-related use.

In response, Rine copied the files onto two hard drives and deleted them from his computer. He sent the first hard drive to Home Bound, but he kept the second hard drive and delivered it to his attorney, who kept it in a sealed envelope. Home Bound later terminated Rine, citing his misappropriation of these company files, among other reasons, as the cause. Id. at 2.

Soon afterwards, Home Bound moved the district court to compel Rine to return the second hard drive. Home Bound argued that Rine was not authorized to keep the documents after he was placed on administrative leave, and that Rine should be required to seek them through “formal discovery,” if he wished to use them in the litigation. Id. at 2.

For his part, Rine argued that he was entitled to retain the files because (1) he had furnished Home Bound with identical copies, and (2) he was concerned that Home Bound might “delete or destroy” the files if he relinquished all copies. Id. at 2.

Courts are divided on whether relators should be permitted to retain company documents in this scenario. As the district court recognized, several courts have allowed qui tam relators to keep company documents, despite contrary terms in their employee confidentiality agreements. These holdings are premised on the view that the public policy favoring whistleblower action trumps enforcement of the contract because whistleblowers must be allowed to posses documents from their employers in order to properly substantiate their allegations of fraud. See, e.g., United States ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004); United States ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1039 (C.D. Cal. 2012).

Other courts have taken a different view. For example, the Fourth Circuit has held that employee confidentiality agreements remain enforceable in this setting, despite the policy concerns. Zahodnick v. Int’l Bus. Machines Corp., 135 F.3d 911, 915 (4th Cir. 1997) (affirming district court order requiring qui tam relator to return company documents that he possessed in violation of non-disclosure agreement).

The district court followed the first approach, and did not require Rine to retain the hard drive. The court reasoned that it would be an inefficient “formality” to compel Rine to return documents to Home Bound, since he would “inevitably receive” them again in discovery. Home Bound Healthcare, No. 12-C-2924 at 7. Moreover, the court reasoned that the need to have Rine return the documents was less compelling because Rine had provided copies to Home Bound, allowing Home Bound to “know[] what documents he ha[d].” Id. at 8.

However, the district court emphasized that Rine could only keep documents “reasonably related” to his claims, and the court ordered Rine to destroy any documents that were irrelevant. Id. Further, the court instructed Rine to furnish Home Bound with a “list of the documents he retain[ed],” thereby providing Home Bound the opportunity to contest their relevance and Rine’s “unauthorized retention” of them. Id.

This decision provides a useful illustration of how courts may approach two aspects of this frequently-occurring issue in FCA litigation. First, a number of courts may share this district court’s view that requiring a relator to return company documents he is likely to seek in discovery is inefficient. Thus, employers seeking to enforce confidentiality agreements may be well-advised to avoid relying exclusively on the “formalities” of discovery to support their position. Second, in the event a court does not to require a relator to return company documents, a procedure such as the one adopted by this district court is important to protect the employer’s rights. It is reasonable to require the relator to provide the employer with an accounting of the documents he has retained, enabling the employer to contest their relevance to the litigation and to dispute the relator’s continued possession of them.