Last week, the U.S. District Court for the Eastern District of Pennsylvania issued a decision in Walsh et al. v. Amerisource Bergen Corp. et al denying the Relator’s motion to dismiss a counterclaim that alleged the Relator breached a confidentiality agreement by filing the underlying qui tam case.  Although courts have differed on whether enforcing confidentiality agreements runs counter to the purpose of the False Claims Act, the Walsh court ultimately rejected the Relator’s motion, finding that the Company pled sufficient facts to survive the motion to dismiss.

The Relator, a current Amerisource Bergen employee, allegedly took a large number of confidential, proprietary, and privileged documents – including documents clearly marked as attorney-client privileged – and then used those documents to support his qui tam suit.  In bringing suit, the Relator relied upon documents such as prime vendor agreements and customer contracts, documents containing pricing information, credit transaction and sales analysis data, customer lists and information, audit reports, and documents related to the Company’s standard operating procedures.

The Company took the position that the Relator signed a confidentiality agreement as a condition of his employment and violated that agreement by filing suit.  Rather than contest the fact that he signed a confidentiality agreement, the Relator argued that the information disclosed was not confidential and that the Company had failed to show how it was harmed by his disclosure. The Relator also asserted that even if the information was confidential, there is a strong public policy against counterclaims in qui tam actions.

In denying the Relator’s motion, the court found that the information taken by the Relator was the type of information that the underlying agreement had defined as confidential.  The court also found that the Company’s amended counterclaim sufficiently alleged that the Relator had disclosed the Company’s confidential and proprietary information.

The court also rejected the Relator’s public policy argument.  While the court did acknowledge that other courts are split on whether enforcing confidentiality agreements is contrary to the purpose of the False Claims Act, it did not rule on that basis.  The court instead rested its decision primarily on the fact that the Company’s counterclaim did not amount to a claim for indemnification, which is a well-settled basis for barring counterclaims in qui tam actions.  The counterclaim did not allege that the Relator participated in the alleged fraud or that the Company’s injuries were a result of the Relator’s disclosure, nor was the request for damages based on any potential revenues, earnings, profits, compensation, or benefits the Relator might be awarded as a result of the qui tam case.  Because the Company’s request for damages was based on the harm caused by the Relator’s breach of a validly executed confidentiality agreement, the court found that it would be inappropriate to dismiss the defendant’s amended counterclaim so early in the proceedings.

As discussed in Mintz Levin’s most recent Health Care Qui Tam Updatequi tam defendants are increasingly litigating against Relators, rather than the government, and the overwhelming majority of Relators are current or former employees, which means that the risk of confidential company documents being used as support for a qui tam case is high.  Employers should take precautions, such as implementing confidentiality policies, requiring employees to sign confidentiality agreements (or severance agreements containing confidentiality provisions), and requesting the return of all company property (including documents) upon departing the company.  Even though these measures will not prevent a qui tam case, they may protect the company from the harm that could result from disclosure of proprietary or privileged information and may serve as the grounds for a counterclaim against an employee-turned-relator.