In-house counsel may not seek to profit as whistleblowers against former employers
The United States Court of Appeals for the Second Circuit has issued an important ruling restricting in-house counsel from acting as whistleblowers in litigation against their current or former employers.
In United States ex. rel. Fair Laboratory Practices Associates v. Quest Diagnostics Inc., et al., the Second Circuit upheld a Southern District of New York ruling dismissing the action and disqualifying the former General Counsel of Defendant Unilab Corporation, a wholly-owned subsidiary of Defendant Quest Diagnostics Inc., as well as his co-relators, the former Chairman and Chief Executive Officer and former Chief Financial Officer of Unilab, and their outside counsel, from bringing any subsequent related qui tam action, on the basis that “such measures were necessary to prevent the use of [the former general counsel’s] unethical disclosures against defendants.”
The decision, handed down on October 25, held that state statutes and rules regulating an attorney’s disclosure of client confidences were not pre-empted by the False Claims Act and that the former general counsel’s decision to “spill his guts and freely disclose Unilab’s confidential information” went well beyond anything that was authorized under the crime/fraud exception of the New York Rules of Professional Conduct, making it “virtually impossible to identify and distinguish each improper disclosure.”
The decision comes at a time of increased concern that lawyers serving as in-house counsel or compliance officers may “switch sides” and act as whistleblowers against their employers. Plaintiff’s counsel have also expanded the theories under which they seek recovery on behalf of whistleblowers. Among these are the Dodd-Frank Act and the retaliatory discharge provisions of the Sarbanes-Oxley Act. As the “relator’s share” awarded to whistleblowers continues to grow and be increasingly well publicized, and the statutes both encouraging reporting and providing for recovery to those who report grow, almost any company must navigate a difficult landscape in which to buy insurance and factor employee liability. This ruling should provide some comfort to public companies and entities receiving government funds who fear that in-house counsel and compliance officers hired to identify and remediate risk may instead exploit it for personal monetary gain.
➢ DLA Piper