Qui tam plaintiffs — those who sue “on behalf of” the government for supposed fraud against the government —have been described as “bounty hunters.” But how far can a lawyer go in seeking a bounty against a former client? A new decision gives additional guidance.

On November 13, 2015, in a decision consistent with emerging case law that prevents attorneys from acting as whistleblowers when doing so would violate the rules of professional conduct and require the attorney to disclose confidential information, Justice Joan A. Madden of the New York Supreme Court, New York County, dismissed a qui tam complaint filed by the defendant’s in-house counsel.State ex rel. Danon v. Vanguard Grp., Inc., N.Y. Sup. Ct. N.Y. Cnty., No. 100711/13, 11/13/15.

Justice Madden first noted that no absolute bar prevents an attorney from acting as a relator in a qui tam action against a former or current client. But the attorney must not cast aside the rules of professional conduct by disclosing more than is “reasonably necessary” to prevent an ongoing or future crime. Because the relator did disclose more than necessary, his case was dismissed.

Relator David Danon commenced a qui tam action, while still employed as in-house counsel at Vanguard Group Inc. He alleged that defendants submitted false claims, and thereby avoided paying taxes owed to federal and state taxing authorities. Danon admitted that the action was based on information obtained through his employment as in-house counsel.

Vanguard argued the action should be dismissed because Danon violated several New York Rules of Professional Conduct by disclosing confidential information in the complaint. Danon claimed that the “crime-fraud” exception authorized the disclosures. That crime-fraud exception provides that “[a] lawyer may reveal or use confidential information to the extent that the lawyer reasonably believes necessary . . . to prevent the client from committing a crime.”

The Court held that the exception was inapplicable because “the extent of the disclosure . . . was broader than reasonably necessary to stop the alleged tax violation.” Danon’s complaint provided details for alleged violations dating back to 2004, although the claims were predicated on alleged violations that occurred from 2011 to 2013. The Court stated that the exception “is ‘strictly construed’” and “‘is applied only when a client is planning to commit a crime in the future or is continuing an ongoing criminal scheme.’” “Accordingly, disclosure [under the rule] is limited to information necessary to prevent the continuation, or commission, of a crime.” The Court relied on a decision in United States v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013), which held that a former in-house counsel’s disclosure of a company’s confidences dating to 1996 was broader than necessary to prevent ongoing crime in 2005. The Court further noted that it also was significant that Danon had “alternate means of preventing” Vanguard’s alleged crimes, just like the relator in Quest.

Because Danon revealed more confidential information than necessary and made no attempt to justify the overbroad inclusion, the complaint was dismissed. Moreover, not only Danon, but his counsel, were disqualified from taking part in any subsequent related qui tam action. The Court held that “Danon’s counsel has been put in a position to obtain confidential information and would be in a position to use this information to give any subsequent client an unfair and unethical advantage.”