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What to Do When a Whistleblower Is an Attorney, or the Whistleblower Provides Counsel with Potentially Privileged Documents

For a recent Federal Bar Association Qui Tam conference, I put together a slide presentation that addressed, among other things, issues that arise when a whistleblower is an attorney, or when a whistleblower shares potentially privileged documents with their attorney. I learned some things from researching these issues, so I thought I would share what I learned.

In this blog post, I’ll summarize four decisions involving relator’s counsel who unintentionally obtained privileged documents from their clients. Two of the cases also involved whistleblowers who were attorneys, although one was an attorney who had a non-legal compliance position. Here are the fundamental lessons I drew from those cases:

  • Relator’s counsel should think long and hard before taking on an attorney as a whistleblower client, even if the attorney was not necessarily acting as an attorney. An attorney as a client presents both side-switching and privilege issues that may be very difficult to avoid. Also, as one of my co-panelists pointed out at the conference, the government may be unwilling even to interview an attorney relator for fear of breaching the defendant’s attorney-client privilege.
  • Relator’s counsel should explain clearly and repeatedly to any client or potential client (1) what the attorney-client privilege is, and (2) that the client should not provide counsel with any privileged documents.
  • If a whistleblower has a company laptop, relator’s counsel should not just start looking through it. Counsel should consider hiring separate taint counsel or devise some other method designed to prevent viewing of privileged documents.
  • If relator’s counsel obtains privileged documents, do not give them to the government, and do not rely on them in building or litigating the client’s qui tam case.
  • Once the case is out from under seal, relator’s counsel should promptly work with defense counsel and, if necessary, the court to address the privilege issues.

In short, being vigilant and proactive can avoid a lot of stress and drama down the road.

In the first case, In Re Examination of Privilege Claims, No. MC15-15-JPD, 2016 WL 11164791 (W.D. Wash. May 20, 2016), the end result was not too bad, at least for relator’s counsel, because they were able to demonstrate their good faith to the court. The case initially involved two relators, one of whom had been an attorney for the defendant. The court disqualified the attorney relator based on Washington Rule of Professional Responsibility 1.9(a), which prohibits side-switching by attorneys against former clients. See also United States v. Quest Diagnostics Inc., 734 F.3d 154, 165 (2d Cir. 2013) (affirming dismissal of qui tam complaint filed by group that included former in-house counsel because disclosure statement revealed more than what was “reasonably necessary to prevent any alleged ongoing fraudulent scheme”). The court also struck the relators’ first amended complaint, which relied on information from the attorney relator, but let the non-attorney relator proceed with the original complaint, which did not rely on any attorney information.

Shortly after the relator interview, relator’s counsel realized they had a document that might be privileged. Relator’s counsel then worked with the government to address the privilege issue, and ultimately sought guidance from the court. The defendant sought disqualification of relator’s counsel, but the court declined to order that remedy. The court considered four factors: (1) prejudice; (2) counsel’s fault; (3) counsel’s knowledge of the claim of privilege; and (4) possible lesser sanctions.

As to prejudice, the court observed that, “for purposes of disqualification of counsel for access to privileged information, prejudice turns on the significance and materiality of the privileged information to the underlying litigation. Access to inconsequential information does not support disqualification, but review of information material to the underlying litigation weighs in favor of disqualification.” 2016 WL 11164791, at *5 (quotation omitted). The court found a lack of prejudice because the privileged document at issue “is in no way a ‘smoking gun’ containing privileged information that is significant and material to the underlying litigation.” Id. at *8.

As to counsel’s fault, the court found a lack of fault where the document was not obviously privileged, and relator’s counsel worked with the government to address the privilege issues and ultimately brought them before the court. See id. at *8-11.

As to counsel’s knowledge of the claim of privilege, the court observed that, “[i]f an attorney reviews materials clearly designated as privileged information or continues review once the attorney becomes aware there are claims of privileged information, disqualification may be warranted.” Id. at *11 (quotation omitted). Here, the court found that relator’s counsel did not act inappropriately, crediting the assertions of relator’s counsel that they “never used [privileged information] in a pleading seeking relief that was contrary to [defendant]’s interests, such as a summary judgment motion, trial brief, motion in limine, or similar pleading,” and “did not use the documents to identify potential witnesses, nor did [they] ever use the documents in interviews o[r] depositions.” Id. at *12.

Finally, as to possible lesser sanctions, the court noted that the first amended complaint was already stricken and deemed that sufficient sanction. See id. at *13.

The next three cases I’ll describe did not go as well for relator’s counsel.

In United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. CV 08–1885–GHK, 2013 WL 2278122 (C.D. Cal. May 20, 2013), the government had notified relators’ counsel that “certain documents would not be considered in the government’s investigation because the documents appeared to be privileged.” Id. at *2. Then, “[i]nstead of seeking direction from the Court, Relators’ counsel continued to quote in the pleadings (e.g., an amended complaint) portions of privileged documents.” Id. The court found that relators’ counsel “should have sought guidance from the Court even before transferring such documents to the USAO.” Id. Ultimately, the court found that relators’ counsel “failed to comply with their affirmative duty to take ‘reasonable remedial action’ after they received privileged documents, and we conclude that disqualification is appropriate.” Id. The court also noted that “we are not disqualifying counsel merely because they were exposed to privileged materials.” Id. at *3. In other words, the situation might have been salvaged had relators’ counsel been much more proactive after receiving the privileged documents from their client.

In United States ex rel. Frazier v. IASIS Healthcare Corp., No. 2:05–cv–766–RCJ, 2013 WL 130332 (D. Ariz. Jan. 10, 2012), the relator, an attorney, had served as Chief Compliance Officer and Vice President of Ethics and Business Practices of the defendant, IASIS, but the court found that the relator “did not have an attorney-client relationship with IASIS” because he “was a compliance officer for IASIS and was not IASIS’s attorney.” Id. at *3.

The court expressed more concern that the relator had taken documents with him when he left the company, which had a “code of conduct that stated that employees did not ‘disclose confidential business information without proper authorization.’” Id. In the court’s view, this meant that the relator “stole documents from IASIS without permission and then used those documents against IASIS in the present lawsuit.” Id. at *4. This characterization runs counter to the holdings of numerous other courts that non-disclosure agreements do not bind a whistleblower who reports wrongdoing to the government. See, e.g., United States ex rel. Gohil v. Sanofi U.S. Servs. Inc., No. 02-2964, 2016 WL 9185141, at *2 n.3 (E.D. Pa. Sept. 12, 2018) (finding that, “[e]ven if the documents were ‘misappropriated,’ [relator]’s actions would not necessarily warrant exclusion of using the documents . . . [as] [f]ederal courts recognize that there is a strong public policy to allow relators to use corporate documents from the defendant in the prosecution of FCA claims”); United States ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1038 (C.D. Cal. 2012) (“Relators sought to expose a fraud against the government and limited their taking to documents relevant to the alleged fraud. Thus, this taking and publication was not wrongful, even in light of nondisclosure agreements, given the strong public policy in favor of protecting whistleblowers who report fraud against the government.”) (quotation omitted).

The court found that things went downhill from there. The relator had supplied his counsel with “documents which contained legends such as ‘attorney-client privilege’ or had information on the header indicating that they might contain privileged or attorney work-product information.” 2013 WL 130332, at *5. One of relator’s attorneys said that she “did not further review any such documents. She set those documents aside and did not read them. She ‘reviewed only those documents from which [she] was confident, from a quick glance, that there could be no claim of attorney-client privilege’ by IASIS.” Id. During the relator interview with the government, relator’s counsel “recognized that two of the documents that had been disclosed to the government were potentially privileged.” Id. Relator’s counsel subsequently went through relator’s documents again and put the potentially privileged ones in a sealed box.

After the case was unsealed and relator’s counsel served the defendant, defense counsel sent a letter asserting that the defendant had reason to believe relator had taken privileged documents from the defendant. Defense counsel demanded return of those documents. A second set of attorneys for the relator initially responded to this letter without acknowledging possession of privileged documents. Relator’s counsel ultimately returned the documents they had segregated, but did not return three documents relator claimed not to be privileged. Alas, the court later found these documents to be privileged.

After the defendant moved for sanctions against relator and his counsel, the relator settled by agreeing to withdraw his case and never to sue the defendant again.

As to relator’s counsel, the court found that they could not have notified the defendant about the privileged documents while the case was still under seal. See id. at *15. Nonetheless, the court observed, even after the seal was lifted, relator’s counsel did not promptly notify the defendant, and instead “feigned ignorance” when defense counsel first raised the issue. Id. While the court concluded that “[t]he facts presented do not establish extraordinary circumstances of bad faith because Qui Tam Counsel kept the undisputed, privileged documents in a Sealed Box,” the court still sanctioned relator’s counsel with attorney’s fees and costs “expended by IASIS in its attempt to get its privileged documents back from Qui Tam Counsel.” Id.

Finally, in State of Delaware ex rel. Rogers v. The Bancorp Bank, C.A. No. N18C-09-240 PRW, 2023 WL 21331 (Del. Super. Ct. Jan. 3, 2023), the relator disclosed for first time in an interrogatory response that he had given his work laptop to relator’s counsel. Relator’s law firm had loaded the laptop contents onto a document review platform, and one of the firm attorneys had reviewed 59 documents for which defendant claimed privilege. The court observed that, “[a]s an initial matter, a relator’s counsel’s ‘mere exposure’ to privileged information alone might not warrant disqualification. But access and exposure do require ‘reasonable remedial action,’ which could include: (1) building proper ethical walls or utilizing a privilege team; (2) seeking immediate and appropriate court guidance, and (3) prompt notification to opposing counsel once the complaint is unsealed.” Id. at *11. Because none of this had occurred, the court disqualified the attorney who had reviewed the documents, but did not disqualify the entire firm. See id. at *16-17. The court also ordered the firm to pay the special master’s fees. See id. at *18.

Importantly, the courts generally seem to recognize that, while a case is under seal, relator’s counsel cannot initiate a court proceeding involving the defendant to address the relator’s disclosure of potentially privileged information. Still, once relator’s counsel realizes that they have one or more privileged documents, they should not use those documents and they should not give them to the government. If the case ultimately litigates and gets unsealed, relator’s counsel then should promptly address the issue with defense counsel and, when necessary, the court. In those circumstances, a court should not impose any sanction, although the case might be a closer call if the privileged documents included a “smoking gun” (e.g., evidence that company counsel had advised the defendant against doing exactly what they did).

An alternative approach is to hire filter counsel to review all of a relator’s documents first, before relator’s counsel reviews any of them. Hiring filter counsel is obviously expensive. It also may not be practical at the outset of an engagement, when relator’s counsel needs to determine expeditiously whether to take on a whistleblower client. If, however, relator’s counsel has reason to believe that a particular cache of documents – e.g., a company laptop – may contain privileged documents, then the use of filter counsel may help to avoid any privilege missteps.