Former general counsel whistleblower, partners and law firm disqualified for ethical violation

by Ben Vernia | April 12th, 2011

In a redacted decision on April 5, District Judge Robert Patterson of the Southern District of New York granted the defendants’ motion to dismiss in U.S. ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics, Inc.. The relator was a general partnership consisting of one defendant’s (Unilab) former CEO, general counsel, and CFO, formed after they left the company for the purpose of bringing the qui tam suit against Unilab and its successor parent corporation, Quest Diagnostics. The defendants moved to dismiss on the grounds that the former general counsel violated New York ethical rules by disclosing to his partners, their law firm and the government confidential information he acquired while working as the company’s lawyer.

Judge Patterson agreed, and held that the only remedy was to disqualify all of the relators and their counsel and dismiss their case against all of the defendants. In doing so, the court reasoned that the False Claims Act does not trump state ethics rules. After rejecting the former general counsel’s argument that he was not representing a party adverse to his former client (reasoning that he was, in fact, representing the government’s interests), the court wrote that he could also not do directly as a party what the rules forbid him to do as a lawyer.

Judge Patterson likewise rejected the application of the crime-fraud exception. Although the former general counsel reasonably could have believed that the defendants intended to commit a crime, he wrote, the lawyer’s disclosures exceeded what the rules permitted under the exception, because he disclosed past conduct far earlier when he had been general counsel, and not just information that he learned after he left the company that pertained to his purported concern for future crimes.

As for a remedy, the court wrote that dismissing the former general counsel alone was not enough, because it could not determine the extent to which he had made use of his former client’s confidences in conducting the litigation, and his partners acknowledged that he had disclosed secrets to them. Likewise, the court reasoned that dismissing the partnership’s counsel was necessary because they had been privy to the company’s confidences and had made no effort to screen themselves from that information. Finally, the court ruled that to dismiss only the claims against Unilab “would not fully purge the taint associated with Bibi’s unethical disclosures of Unilab confidences,” so all defendants (which were parent corporations) must be dismissed, too.

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