U.S. Court of Appeals Dismisses Qui Tam Suit Because of Whistleblower Lawyer’s Breach of Client Confidentiality

The U.S. Court of Appeals for the Second Circuit has dismissed a qui tam lawsuit against Quest Diagnostics, Inc. and Unilab Corporation. The whistleblower litigation was initiated by three former employees of Unilab, including its former general counsel, Mark Bibi. In Fair Lab. Practices Assocs. v. Quest Diagnostics, Inc., 2013 BL 295703, 2d Cir., No. 11-5565-cv, 10/25/13, the court held that disclosures made by the former general counsel whistleblower in the qui tam suit violated the attorney-client privilege. The court went on to state that there was enough non-confidential information available to support the False Claims Act case, so the breach of his former client’s confidentiality was unnecessary to assert the case.

According to court records, between 1993 and 2000, Bibi was general counsel for Unilab Corp., a company that provided medical tests. In February 2003, Unilab was acquired by Quest. As corporate counsel, the whistleblower provided legal advice to the company concerning contracts with managed health care organizations and compliance with health care regulations and anti-fraud laws.

After leaving Unilab, the whistleblower and two other former Unilab executives, Andrew Baker and Richard Michaelson, formed Fair Laboratory Practice Associates in 2005 for the purpose of asserting the qui tam case against Unilab and its new owner Quest.

Baker was Unilab’s Chairman and Chief Executive Officer from 1993 to 1996. Michaelson served as Unilab’s Chief Financial Officer or Director between 1993 and 1999. In addition to his role as general counsel, Bibi served at various times as Unilab’s Vice President, Executive Vice President, and Secretary.

The whistleblowers’ complaint asserted that Unilab and Quest violated the False Claims Act and Anti-Kickback Statute in connection with diagnostic testing services. Specifically, the whistleblowers alleged that Unilab and Quest provided testing to patients of managed care organizations and independent practice association at commercially unreasonable prices in order to induce the organizations to refer their Medicaid and Medicare patients to Unilab and Quest. Allegedly, Unilab and Quest then billed Medicare and Medicaid at substantially higher rates than those charged to other patients.

In the district court proceedings, the lower court dismissed the False Claims Act action and disqualified the relators finding that Bibi’s role in the qui tam litigation was adverse to his former client, Unilab, and his disclosure of confidential client information was improper. The U.S. Court of Appeals for the Second Circuit affirmed the lower court’s decision.

The appellate court stated that the False Claims Act does not authorize relators to violate state statutes, including those that regulate an attorney’s disclosure of client confidences. In deciding the appeal, the court construed the whistleblower’s conduct under Rule 1.9(c) of the New York Rules of Professional Conduct which prohibits a lawyer from revealing or using a former client’s confidential information unless permitted by an exception. The exception that the whistleblower argued permitted his disclosure, Rule 1.6(b)(2), states that a lawyer is authorized to reveal or use confidential information to the extent the lawyer believes is reasonably necessary to prevent the client from committing a crime.

In its opinion, the appellate court held that the confidential information the whistleblower revealed in the qui tam litigation was greater than was reasonably necessary to prevent any ongoing False Claims Act violations. In addition, the court found that the other two whistleblowers, Baker and Michaelson, could have brought the qui tam suit based on their own independent knowledge, without Bibi’s involvement.

The full opinion may be read here.