A federal magistrate judge's recent decision in United States ex rel. Baklid-Kunz v. Halifax Hospital Medical Center,1 a Civil False Claims Act (“FCA”) case pending in the United States District Court for the Middle District of Florida, calls into question the protection of in-house counsel emails under the attorney-client privilege. As the court generally recognized, the "advent of email has added to the difficulty of determining the purpose and intent of communications that involve corporate legal counsel." The court ultimately ordered Halifax Hospital to produce communications of its in-house counsel in an ongoing FCA suit against the hospital.
Employees of Halifax Hospital initiated the action, alleging that the hospital unlawfully compensated physicians in violation of the Stark Law and the Anti-Kickback Statute. The United States intervened and requested that the hospital produce documents concerning its statutory and regulatory compliance, including communications with the compliance, finance, and legal departments. The judge held that communications contained "business advice" instead of "legal advice" and thereby fell outside the purview of protected attorney-client communications.
In evaluating whether the attorney-client privilege covered the subject communications, the court applied a different standard for communications with in-house counsel than it would typically apply to communications between a client and outside counsel. While "[c]ommunication between corporate client and outside litigation counsel are cloaked with a presumption of privilege," the presumption does not arise with in-house counsels' communications. The court noted that "[m]odern corporate counsel have become involved in all facets of the enterprises for which they work[, and] [a]s a consequence, in-house legal counsel participates in and renders decisions about business, technical scientific, public relations, and advertising issues, as well as purely legal issues." Recognizing that in-house counsel often wears multiple hats and are involved in non-legal issues, the court concluded that the attorney-client privilege would not apply unless the subject communication was clearly and solely for the purpose of seeking or receiving legal advice, regardless of how the company categorized or used the information.
The Halifax holding and analysis harmonizes with the European Court of Justice's decision in Akzo Nobel Chemicals Ltd. and Akcros Chemical Ltd. v. Commission of the European Communities,2 which similarly refused to apply attorney-client privilege to in-house counsel emails in 2010. The ECJ held that in-house counsel are "employees" instead of "independent lawyer[s]" because they are engaged in business advice and activities. Both cases raise genuine issues for in house counsel.
The court in Halifax ordered production of the following documents from the hospital:
Referral Log: The compliance department's record of compliance issues was not privileged because it merely recited facts and was not created for the purpose of receiving or rendering advice on legal issues, despite the fact that the hospital created the log to help anticipate legal issues and assess litigation risk.
Communications Between In-House Counsel and Compliance: A number of communications between in-house counsel and various compliance personnel were not privileged because they sought "compliance" assessments or the email was not addressed "to" or "from" legal counsel. Further, several emails merely "kept an attorney in the loop" or copied an attorney on a compliance issue. No privilege was found if individuals outside of the legal department were copied for informational purposes.
Audits and Reviews by Non-Legal Departments (Case Management, Compliance, and Finance): Several documents related to audits and reviews conducted by departments outside of the legal department were not privileged because they did not seek or render legal advice, despite the fact that in-house counsel were copied for informational purposes. Once again, these emails were not addressed "to" or "from" attorneys. Accordingly, the court found that they were not sent for the purpose of legal advice.
Communications Between In-House Counsel and Finance Department: Emails between the finance department and in-house counsel were not privileged and were subject to production under the crime-fraud exception where such communications sought the attorneys' approval of payments to physicians.
The court also underscored that it would not view "strings of emails" as one communication, but instead required the hospital to demonstrate why each email in the string was privileged. The court explained, "each email string listed in Halifax's privilege log must be disassembled and each email listed separately in an amended privilege log."
This decision is instructive for legal and compliance departments of all companies, in addition to healthcare providers and those at risk of FCA suits. First, it reminds companies that copying in-house counsel in an email may not render the communication immune from later production. Second, the decision underscores how copying individuals who are not attorneys in email communications may completely destroy attorney-client privilege. Third, it illustrates that communications between in-house counsel and compliance may not be protected if the communication simply recites facts or does not seek or render purely legal advice. This aspect of the decision might raise problems for many companies since most compliance issues are inherently intertwined with matters that legal counsel must address and render purely legal advice upon. Finally, for those companies that are particularly susceptible to FCA suits, this decision highlights that it is imperative for in-house counsel to quickly consult outside counsel to avoid possible appearances of impropriety in the eyes of a prosecutor who is later likely to suspect that in-house counsel participated in a violation or facilitated an obstruction of justice. Therefore, overall, this decision calls all companies to consider a careful review of their policies concerning communications with in-house counsel and compliance departments.
For Further Information
If you have any questions about this Alert, please contact Marvin G. Pickholz, Mary C. Pennisi, any member of the Trial Practice Group or the attorney in the firm with whom you are regularly in contact.
Case No. 6:09-cv-1002, Dkt. # 188, (M.D. Fla. Nov. 6, 2012).
Akzo Nobel Chem. v. Comm'n, Case C-550/07 (2010), available at http://curia.europa.eu/jurisp.