Archive for April, 2017

Advice-of-Counsel Defense Vitiates Attorney-Client Privilege, Work Product Protection

Friday, April 21st, 2017

In United States ex rel. Lutz v. Berkeley Heartlab, Inc., et al., 2017 WL 51691 (D.S.C. Apr. 5, 2017), the United States District Court for the District of South Carolina confirmed that the advice-of-counsel defense cannot be used as a sword and shield.  In this action arising under the False Claims Act, the United States alleges that laboratories (HDL and Singulex) and their marketing agents (BlueWave and its principles) violated and conspired to violate the FCA in multiple ways, including (1) offering physicians kickbacks in the form of sham processing and handling fees to order expensive tests for federal healthcare beneficiaries from the labs, and (2) waiving co-pays for federal healthcare beneficiaries.

In their amended answer to the government’s complaint, the BlueWave defendants asserted as an affirmative defense their good-faith reliance on the advice of counsel. The government sought discovery related to the legal advice and opinions rendered by the attorneys in question.  The BlueWave defendants declined to produce the requested documents, citing attorney-client privilege and work product protection, and the government moved to compel.

Earlier this month, the Court ruled in the government’s favor.  It held that the BlueWave defendants had waived the attorney-client privilege as to the entire subject matter of the advice of counsel received by asserting it as an affirmative defense in its answer.

For the same reason, it held that the BlueWave defendants had held the work product protection.  Moreover, the Court extended the waiver to attorney work product that was never communicated to the BlueWave defendants. In applying the waiver broadly to “uncommunicated work product,” as well as work product disclosed to the BlueWave defendants, the Court cited the government’s need to obtain discovery into the research conducted and considered by counsel, as well as whether any aspects of the advice was selectively ignored.

As such, the BlueWave defendants will have to produce all documents in their possession, custody, and control – including all relevant documents in the possession of their former attorneys – regarding their advice-of-counsel defense.

Fourth Circuit Allows Writs of Attachment against Defendants’ Property in False Claims Act Case

Monday, April 3rd, 2017

The United States Court of Appeals for the Fourth Circuit recently published a decision involving the government’s ability to execute writs of attachment against real and personal property as well as writs of garnishment against banks accounts. (See BlueWave Healthcare v. United States of America.)

In the underlying fraud case, Relators Lutz and Webster filed a qui tam action against a number of defendants including Robert Bradford Johnson, Floyd Calhoun Dent, and BlueWave HealthCare Consultants.  In April 2015, the United States government intervened in the case.  The relators and the government alleged that the defendants violated the Anti-Kickback Statute (42 U.S.C. 1320a-7b) and the False Claims Act (31 U.S.C. 3729 et seq.).

In 2016, the United States filed an application for prejudgment remedies under the Federal Debt Collection Procedure Act (FDCPA) before the trial court.  Specifically, the government pursued writs of attachment against personal and real property and writs of garnishment against bank accounts totaling approximately $16.7 million dollars.  This property is owned by a number of BlueWave entities, Dent and Johnson personally, and related nonparties.  The government argued that, because Defendants violated the Anti-Kickback Statute and the False Claims Act, Defendants owed the United States and the relators at least $298 million.  The government also alleged that prejudgment seizure was necessary because the defendants were actively concealing and disposing of assets.

In February 2016, the district court granted all but one of the government’s requested writs.  Defendants each filed motions to quash the writs.   In May 2016, the District Court found that the government had satisfied all of the FDCPA’s statutory requirements and denied the motions.  The defendants filed a notice of appeal to the 4th Circuit Court of Appeals.

Appellants (the defendants in the underlying case) challenged the District Court’s denial of their motions to quash.   The appellants asserted that the order was reviewable as either a collateral order or an injunction.  The Court of Appeals rejected both arguments.  First, the Court looked to the three conditions required to apply the collateral order: “The order must (1) conclusively determine the disputed question, (2) resolve an important issue separate from the merits of the action and (3) be effectively unreviewable on appeal from a final judgment.” The Court focused on the second condition that requires that the order must resolve an important issue separate from the merits of the action.  The Court found that the order was so intertwined with the merits of the qui tam action, that the collateral order doctrine could not be applied.

Next, the Court turned to the argument that the order could be reviewed as an injunction.  The Court ruled that the order denying the motion to quash could not be reviewed as such because it did not meet the basic requirements of an injunction.  The Court concluded that the denial was an unreviewable interlocutory order and dismissed for lack of jurisdiction.

The ruling allows the government to keep the writs of attachment active and preserve the defendants’ funds until a final judgment is reached in the qui tam case.