Recent Decisions Highlight Ethical Pitfalls Of Former In-House Counsel’s Involvement In FCA Actions Involving Former Employer

Two recent decisions add to the growing body of case law addressing the tension between attorneys’ ethical obligations to current and former clients and the qui tam provisions of the False Claims Act.

First, in New York ex rel. Danon v. Vanguard Group, Inc., available here, a New York trial court dismissed a New York False Claims Act suit against investment management and brokerage firm Vanguard that was brought by Vanguard’s former in-house tax counsel, David Danon.  In his qui tam complaint, Danon – who still was employed by Vanguard when he filed his complaint – alleged that his client fraudulently failed to report and pay federal and state income tax through a price manipulation strategy involving entities under Vanguard’s control.  Vanguard moved to dismiss on grounds that the complaint was based on confidential information and documents obtained through Danon’s employment as in-house counsel.  In granting the motion, the court acknowledged that there is “no absolute bar to an attorney acting as a relator in a qui tam action against a former client.”  However, the court followed decisions of the district court and Second Circuit in United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics, Inc., discussed here, to conclude that Danon violated attorney ethics rules in using Vanguard’s confidential information in his qui tam complaint.  The court rejected Danon’s reliance on the “crime fraud” exception to the rule against disclosing client confidences, holding that Danon had options other than a qui tam action to prevent Vanguard from committing a crime and that his disclosure was far broader than necessary to stop the alleged violations.

The second recent decision considered whether a law firm can represent a relator in an FCA action against a defendant whose former in-house counsel is now an associate of that firm.  In United States ex rel. Bahsen v. Boston Scientific Neuromodulation Corp., available here, a New Jersey district court disqualified law firm Blank Rome from representing the relator after it came to light that Ritu Hasan, defendant Boston Scientific’s former in-house counsel who had worked directly on issues raised in the qui tam complaint, had been hired as a Blank Rome associate.  Blank Rome had failed to include Hasan in a conflicts check, but she later was identified on Boston Scientific privilege logs as being involved in communications regarding the relators and their allegations.  The court rejected the argument that Hasan was not “associated with” the firm because she had been hired for purposes of immediately “seconding” her to a firm client, reasoning that Blank Rome repeatedly had held out Hasan as a firm associate and used her in marketing to obtain additional firm business.  And because Blank Rome failed to timely screen Hasan from the FCA action and failed to provide prompt notice to Boston Scientific that its former attorney was employed by the law firm now suing it, the court concluded that “Boston Scientific has cause to be concerned.”  Accordingly, the court imputed Hasan’s conflict to Blank Rome and disqualified the firm from representation in the case.