False Claims Defendants Use ‘Attorney Advice’ at Their Own Risk


The “advice of counsel” defense can be a powerful armor for defendants against criminal and civil accusations that require a showing of intent. But that armor has a weak spot, too—its use may result in a defendant’s waiver of attorney-client privilege.

That’s what happened to several defendants facing a $330 million False Claims Act lawsuit involving alleged Medicare kickbacks for blood test referrals who were ordered by a federal district court to give over seven years’ worth of attorney communications to Department of Justice prosecutors.

The U.S. District Court for the District of South Carolina said in an April 5 ruling involving BlueWave Healthcare Consultants that a defendant who asserts an advice of counsel defense waives attorney-client privilege to all communications that occurred during the alleged misconduct (United States ex reI. Lutz v. Berkeley Heartlab, Inc., 2017 BL 111755, D.S.C., No. 9:14-cv-230, 4/5/17).

An intent to defraud, or at least a reckless disregard for the truth of particular health-care claims or certifications made to the government, is one element needed to prove a False Claims Act violation. And an FCA defendant may rebut that element by saying they relied on their lawyer’s advice when filing certain claims, reports or certifications with the government, which can be a strong and truthful defense against accusations of fraud.

But the potential exposure of an FCA defendant’s privileged communications is a stiff price to pay, especially if there are documents or emails showing a defendant’s actions may have been less than upstanding, or flirted with the edge of what’s legal. That penalty is exacerbated by the potential scope of the waiver, which the BlueWave court said extends “to advice received during the entire period the misconduct is alleged to have been ongoing,” right up to trial.

Not only that, the BlueWave court said the waiver included privileged attorney work product (essentially any document or other tangible item) prepared during that time period, even work product that was never communicated to the client.

In a prior case, Columbus, Ga.-based Columbus Regional Healthcare System was found to have waived privilege by asserting an advice of counsel defense during FCA litigation in 2014. The health system ended up settling the case in 2015 for $25 million.

Handing over what you thought was private legal advice to the government agency hoping to pin a fraud charge on you is a bitter pill to swallow, so FCA defendants should weigh the risk of asserting the advice of counsel defense carefully.

To read more on the advice of counsel ruling in the BlueWave litigation, go to the full story here.

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