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.