Hospital Ordered to Produce Privileged Documents Under the Crime-Fraud Exception

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A magistrate judge in the U.S. District Court for the Middle District of Florida recently ordered a hospital defendant in a False Claims Act (FCA) case to turn over two prime documents to the U.S. Department of Justice and the whistleblower that would seem to fall within the traditional confines of the attorney-client privilege. The whistleblower in the case, the director of physician services at Halifax Staffing, Inc., brought the case against her employer, a wholly-owned subsidiary of Halifax Hospital Medical Center (Halifax). The complaint alleges that Halifax entered into several specialty physician employment agreements that provided for compensation that was not commercially reasonable, exceeded fair market value, and/or took into account the volume or value of referrals or other business generated in violation of the federal Stark Law, and in turn, the federal FCA. The federal government has intervened in the case.

Previous Order Regarding Privileged Documents

In November 2012, U.S. Magistrate Judge Thomas Smith ordered Halifax to turn over a slew of documents that Halifax previously had withheld from production on grounds of the attorney-client privilege. The documents consisted of compliance department logs, audit records and e-mail communications involving Halifax's internal legal counsel. With respect to a memorandum authored by Halifax's Associate General Counsel regarding the physician compensation arrangements, however, Magistrate Judge Smith ruled against the whistleblower's argument that the memorandum should be produced because it evidenced "an attorney aiding in the commission of a fraud." Without addressing the elements of the crime-fraud exception to the attorney-client privilege, Magistrate Judge Smith stated that the whistleblower had failed to meet her burden in proving that the exception applied with respect to the memorandum because she had not offered evidence to rebut Halifax's argument that she essentially stole the memorandum.

Renewed Interest in the Memorandum

On May 8, 2013, Magistrate Judge Smith revisited the privilege status of the memorandum after a hearing on the same topic, and ordered the document to be produced. Although the judge did not provide detail in the order, the ruling likely is based upon two important factors. First, the attorney author of the memorandum reportedly stated in her deposition that she sent the memorandum to the Halifax General Counsel and the whistleblower because the whistleblower had requested the legal advice and "was entitled to understand where we were at with our legal opinion of her concern." Thus, the judge's concerns that the whistleblower had not met her burden to prove the crime-fraud exception because she had stolen the memorandum were alleviated. Additionally, Halifax did not object to a Halifax administrator's deposition testimony on the substance of the memorandum under the attorney-client privilege. Thus, Halifax had waived subject matter jurisdiction.

Halifax also was ordered to produce to Magistrate Judge Smith an e-mail from its general counsel and a memorandum from its outside law firm for in camera review of the asserted attorney-client privilege. We will update you regarding future rulings on these documents. Suffice it to say that this case should propel healthcare providers to scrutinize their attorney-client privilege protections. While Magistrate Judge Smith's order leaves much to be desired in the way of an analysis of the crime-fraud exception as it applies to in-house lawyers, providers can and should take steps to ensure that they carefully guard documents containing legal advice.