Fraud Defense Exposes Attorney Communications to DOJ Prosecutors

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By Eric Topor

Defendants in a False Claims Act lawsuit that asserted an “advice of counsel” defense must hand over all attorney communications related to an alleged Medicare kickback scheme to government prosecutors ( United States ex reI. Lutz v. Berkeley Heartlab, Inc. , 2017 BL 111755, D.S.C., No. 9:14-cv-230, 4/5/17 ).

The U.S. District Court for the District of South Carolina said in an April 5 ruling that a defendant who asserts an advice of counsel defense waives attorney-client privilege to all communications that occurred during the alleged misconduct.

An advice of counsel defense can be used to demonstrate a defendant’s lack of intent to engage in misconduct, which is one element needed to prove an FCA violation. The potential that otherwise privileged documents will have to be disclosed to opposing counsel in FCA litigation is a risk that defendants must weigh against the defense’s ability to mitigate evidence of an intent to defraud the government.

BlueWave Healthcare Consultants and co-founders Floyd Dent and Robert Johnson allegedly received kickbacks from two blood-testing laboratories in exchange for facilitating Medicare and TRICARE referrals from physicians to those labs. The $330 million scheme was subsequently investigated by the Department of Health and Human Services Office of Inspector General. The defendants were ordered to produce to the government all attorney communications and work product involving their former counsel from the OIG investigation.

M. Dawes Cooke Jr. with Barnwell Whaley Patterson & Helms, LLC in Charleston, S.C., represented BlueWave and told Bloomberg BNA April 6 that the company was in the process of complying with the court’s order, but declined to comment further. The Department of Justice, which intervened in the case in October 2015, didn’t respond to Bloomberg BNA’s request for comment.

Full Waiver Granted

The government alleged that Bluewave took kickbacks from blood testing laboratories Health Diagnostic Laboratories (HDL) Inc. and Singulex Inc. in exchange for referrals of federal health-care beneficiaries, offered fees to physicians for referrals and waived copays of TRICARE beneficiaries for tests from HDL and Singulex. HDL filed for bankruptcy in 2015 after paying a $47 million settlement to the DOJ to resolve fraud allegations stemming from the alleged kickback scheme ( 69 HCDR, 4/10/15 ). Singulex paid $1.5 million in a DOJ settlement to resolve the fraud allegations.

Judge Richard M. Gergel said other district courts within its federal circuit jurisdiction have held that asserting an advice of counsel defense waives privilege “to advice received during the entire period the misconduct is alleged to have been ongoing,” right up to trial. Gergel said this meant BlueWave’s privilege was waived for communication with counsel from 2008 through January 2015, after the OIG investigation.

The court said BlueWave also waived protection of attorney work product, which refers to actual documents and other tangible items prepared by attorneys during the same time period. Gergel said the attorney work product privilege waiver extended to both work product communicated to BlueWave and materials that were never even sent to the client.

Barnwell Whaley Patterson and Helms LLC and Joseph P Griffith Jr. in Charleston, S.C., represented BlueWave, Dent and Johnson. The U.S. Attorney’s Office for the District of South Carolina represented the government.

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Peyton Sturges at psturges@bna.com

For More Information

The opinion is at http://src.bna.com/nHv.

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