Federal Judge Orders Disclosure of Emails with In-House Counsel in FCA Case

12/05/2012

In light of a recent federal court order, companies – especially those at risk of False Claims Act suits – should revisit their protocol for handling communications with in-house counsel.

In United States ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, a federal magistrate judge ordered Halifax Hospital to produce communications involving in-house lawyers in an ongoing FCA suit against the hospital.1 The court determined that the communications contained “business advice,” rather than “legal advice,” or fell within the crime-fraud exception to the attorney-client privilege.

The FCA suit was brought by an employee, alleging that Halifax had illegally paid compensation to physicians in violation of the Stark Law2 and the Anti-Kickback Statute.3 The United States intervened in the case and sought production of documents related to Halifax’s statutory and regulatory compliance, including communications with the in-house compliance and legal departments.

Application of the Attorney-Client Privilege

The court ordered Halifax to produce many of the documents because they were not privileged. Although communications with outside counsel “are cloaked with a presumption of privilege,” communications with in-house counsel do not enjoy the same presumption. In-house counsel are often involved in business, technical, and public relations issues, rather than purely legal issues. As a result, the court examined whether the purpose and intent of each communication was to facilitate legal or business advice. Based on that review, the court held that the following were not privileged:

Referral log. The compliance department’s record of compliance issues was not privileged because it simply recorded facts and did not seek legal advice.

Audits by case management, compliance, and finance departments. Many of the company’s audit documents were not privileged because they did not primarily seek legal advice. Even emails that copied in-house lawyers were not privileged where the lawyer was copied only to be kept “in the loop.”

Communications between finance and in-house counsel. Emails between the finance department and in-house lawyers were not privileged under the crime-fraud exception where the emails sought the lawyers’ approval regarding payments to physicians.

Impact of Halifax

This decision is a reminder that companies should carefully consider their practices for communicating with in-house counsel. The fact that an in-house lawyer is copied on an email – even if the email concerns a legal issue – may not automatically protect the communication from production. Likewise, communications between in-house lawyers and compliance departments may not be protected if the communications merely recite facts or do not seek legal advice.

For more information on the False Claims Act, please contact any of the Haynes and Boone attorneys below: ____________________
1 United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., Case No. 6:09-cv-1002-orl-31TBS (M.D. Fla. Nov. 6, 2012).
2 42 U.S.C. § 1395nn.
3 42 U.S.C. § 1320a-7b.

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