The Second Circuit Court of Appeals has upheld a dismissal of a qui tam suit against Quest Diagnostics that was filed by three relators, one of which was the defendant's former general counsel. Fair Lab. Practices Assocs. v. Quest Diagnostics Inc., 2d Cir., No. 11-1565-cv, 10/25/13. Joan Rodgers of the ABA/BNA Lawyer's Manual on Professional Conduct recently wrote an article about the Court's opinion: Company’s Former General Counsel Ruined Qui Tam Action by Telling Ex-Client’s Secrets. I commend it to you.
Essentially, the Court affirmed the District Court's dismissal of the qui tam based on a court's "inherent power" to manage its own affairs. Specifically, the Court ruled that the False Claims Act does not preempt state ethical rules governing the practice of law. In that instance, the Court found that the relator and defendant's former counsel had violated New York Rule 1.9(c) which prohibits a lawyer from revealing the confidences of a client or using the confidences or secrets of a client to the disadvantage of a client -- a rule similar to that found in most state bar rules. The Court found that the relator had used and revealed confidential information which he had obtained in his capacity as counsel for the defendant. As a result, the Court affirmed the District Court's remedy of not only dismissing the qui tam suit, but also disqualifying the other relators and their counsel who together with Quest's former counsel had brought the qui tam.
What is in unusual about this case is that a court, based on its "inherent powers," dismissed a case based on a relator's violation of law, i.e., a rule governing the practice of law, as opposed to a violation of the False Claims Act's procedures. The Court presents its decision as just a balancing test of "varying federal interests" in deciding on whether to apply the state bar rule and affirm the matter's dismissal. That too is unusual because defendants in qui tam cases frequently allege that the relator has violated the law in bringing a qui tam claim. Indeed, relators are commonly accused of stealing records, of participating in the fraud on which they base their qui tam, and in some instances, of even perpetrating or being the mastermind of the fraud in which they accuse a corporate defendant of engaging. Such misconduct by the relator, however, normally only serves as a basis to reduce a qui tam award. See 31 USC 3730(d)(3)("if the court finds that the action was brought by a person who planned and initiated the violation . . . upon which the action was brought, then the court may . . . reduce the share of the proceeds of the action which the person would otherwise receive"). Indeed, the False Claims Act only bars a relator from bringing a qui tam or receiving a recovery if the relator is convicted of the criminal conduct relating to the claim brought in the relator's complaint. See 31 USC 3730(d)(3); see also Order Dismissing Relator in USA ex rel Schroeder v. CH2M Hill et al, E.D. WA., No. CV-09-5038-LRS. In short, the Second Circuit does not really explain why this violation of law concerning a lawyer's duty not to disclose client confidences warrants dismissal of a qui tam when compared with other violations of law by relators.
A. Brian Albritton
November 17, 2013