Following a recent federal court ruling, parties contemplating an advice of counsel defense must consider carefully the scope of the accompanying attorney-client privilege waiver. In United States ex rel. Lutz v. Berkeley Heartlab, Inc., 9:14-cv-00230, the United States District Court for the District of South Carolina recently ruled that defendants effectively waived attorney-client privilege over all documents and communications related to the subject of the attorney advice for the entire time period of the client’s alleged misconduct, up to the time of trial.
In that case, the government asserted False Claims Act (“FCA”) violations related to allegations that a group of defendants participated in three illegal kickback schemes between 2010 and 2014: (1) providing Medicare and Tricare referrals to two blood testing laboratories in return for kickbacks; (2) offering and facilitating processing and handling fees to physicians in exchange for those doctors referring patients to the specific laboratories; and (3) waiving patient co-pays to induce patients to use the specific laboratories. These schemes are alleged to have cost the government more than $330 million and were the subject of fraud allegations that were settled prior to the instant FCA litigation. In addition to a number of other defenses, defendants asserted that they relied in good faith on the advice of counsel, thus negating any intent to defraud the government, a key element of an FCA violation.
Although the defendants acknowledged that their advice of counsel defense required them to waive attorney-client privilege over the communications containing the relied upon advice, defendants asserted that this waiver was limited to advice they received before they undertook the course of conduct at issue. Accordingly, defendants argued that any later attorney advice, including advice pertaining to government investigations of the alleged misconduct, during which that misconduct was alleged to have been ongoing, should remain privileged. The court, however, held that by asserting the affirmative defense, defendants effectively waived privilege over all communications with any counsel, except trial counsel, relating to the three alleged schemes.
Generally, a party asserting attorney-client privilege must show: (1) an attorney-client relationship; (2) that the particular communication was privileged[1]; and (3) that the privilege was not waived. A party may waive privilege by asserting an advice of counsel defense, which may place otherwise privileged information at issue. Because analyzing an advice of counsel defense requires an evaluation of the client’s reasonable reliance on that advice, such a waiver may extend not only to the advice relied upon, but also to the information provided to counsel in order to receive the advice and any related advice the defendant received from other counsel. In this case, the court explained that such a broad waiver was necessary to prohibit parties from using an advice of counsel defense as both a sword and shield, which could arise if a party was permitted to reveal certain communications with counsel while withholding others.
This decision highlights the need for parties to carefully consider all otherwise privileged communications that may become discoverable if they assert an advice of counsel defense. The court’s opinion also raises the importance of carefully considering and tailoring affirmative defenses early in a case. In arguing against waiver in this case, the defendants claimed that the advice of counsel upon which their defense was predicated related only to business planning that occurred before any of the events that led to the government’s investigation and the instant litigation; however, the court rejected this theory and ruled that defendants had not sufficiently limited the advice of counsel defense when first asserting it in their amended answer and, therefore, could not rely on a later limitation to avoid waiver of privilege. This should be read as a warning to defendants who may be inclined to assert affirmative defenses broadly that later attempts to limit those broad defenses to avoid waiver may be rejected.
For more information about this update, or if you have any questions regarding the False Claims Act, please contact the authors of this alert or any other member of Bryan Cave’s White Collar Defense and Investigations Group.
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