Health care organizations should take careful note of a recent decision from a Florida federal district court that sharply limited the defendant hospital’s ability to shield what it considered to be attorney-client privileged documents in a False Claims Act case. The ruling is particularly troubling in that it articulates a different standard for determining whether communications to and from in-house counsel, as opposed to outside counsel, are privileged, and applies the crime fraud exception to permit the discovery of privileged communications between in-house counsel and hospital finance executives.
These discovery rulings were made in a case filed against Halifax Hospital Medical Center by its director of physician services under the qui tam or whistleblower provisions of the False Claims Act. The complaint alleges that Halifax submitted false and fraudulent claims to Medicare and Medicaid because of underlying violations of the federal anti-kickback statute and physician self-referral or Stark law. The government intervened in the case and the qui tam plaintiff challenged the validity of the hospital’s assertions of the attorney-client privilege with respect to compliance and audit materials and communications about payment issues between the hospital’s finance and legal departments.
In resolving the disputes, U.S. Magistrate Judge Thomas B. Smith took a very narrow view of the attorney-client privilege. As a starting point, Judge Smith distinguished communications between corporate clients and outside litigation counsel, which he said are “cloaked with a presumption of privilege,” and communications between corporate clients and in-house counsel, which he said “involve a much different dynamic,” because in-house counsel often participate in communications that either have a business purpose or do not have the provision of legal advice as their primary purpose. Judge Smith recognized other courts have found that communications emailed simultaneously to a lawyer and a non-lawyer within a company are not privileged because in that case the company “cannot claim that the primary purpose of the communication was for legal advice because the communication served both business and legal purposes.” Following this restrictive view, Judge Smith found that the availability of the privilege could even turn on whether the in-house lawyer appeared on the “to” line or the “cc” line of emails.
Among the related rulings, the court found the hospital’s compliance “referral log” was not subject to the privilege and was therefore discoverable. Halifax’s compliance department maintained a referral log recording all reports about compliance issues. The hospital took the position that the referral log was protected by the attorney-client privilege and the attorney work product doctrine because it was prepared for the purpose of obtaining legal advice and in anticipation of potential legal or administrative proceedings concerning the issues identified on the log. The hospital’s compliance director testified that the general counsel had instructed his department to keep the log in order to facilitate discussions with the legal department about litigation risk and potential legal exposure. All pages of the log were stamped “Confidential Attorney-Client Privilege Information.” The compliance department operated under the supervision and oversight of the legal department and the log’s maintenance was overseen by the general counsel. Nevertheless, after reviewing a representative sampling of the log’s entries, the court found that they were not protected because they simply recorded facts (the compliance complaints) and did not reflect communications with counsel for the purpose of obtaining legal advice.
The court also rejected privilege protection for a series of emails relating to audits and reviews conducted by the compliance and finance departments, on grounds including the lack of an attorney appearing in the “to” or “from” lines (as opposed to the “cc” lines) of emails, and findings that the primary purpose of the communications related to compliance rather than legal matters, or that emails were sent to a lawyer just to keep her in the loop rather than for the purpose of obtaining legal advice. Interestingly, regarding email “strings” generally, the court refused to characterize any string in its entirety and analyzed each email in a string individually. Only those individual emails that actually sought or transmitted legal advice were deemed to be privileged.
Among its more disturbing findings, the court rejected privilege protection for two email messages between finance department employees and an in-house lawyer on the ground that the emails were within the “crime-fraud exception” to the attorney-client privilege. Although not ruling on the underlying merits of the case, the court found a prima facie case that the hospital “was engaged in or about to be engaged in fraudulent conduct when it sought [the lawyer’s] advice.” Judge Smith also found sufficient evidence that the lawyer’s assistance was sought and obtained in order for the finance employees to make allegedly fraudulent payments to certain doctors in violation of the Stark law.
Rulings on the attorney-client privilege are inherently fact-specific, and the reasoning of a federal magistrate judge in Orlando may not carry great precedential weight. Nevertheless, this decision is notable because it illustrates that one cannot assume that emails and other communications that touch on legal matters or that are sent to lawyers will automatically be covered by the attorney-client privilege. Great care must be taken to preserve the privilege, and, at a minimum, this case should serve as a wake-up call for anyone who has been lulled into a sense of complacency by less strict judicial interpretations. The Halifax case should serve as an impetus for companies to take a close look at their compliance department practices to maximize the chances that privileged communications will be protected. Given the particularly high stakes for victims of False Claims Act lawsuits, all communications with in-house counsel should be carefully and strategically managed, and the potential benefit of using outside counsel should be considered when appropriate.