Last month, a federal district court in Georgia ordered Columbus Regional Healthcare System to turn over communications protected by the attorney-client privilege in a decision that could have a chilling effect on requests for legal advice, if misunderstood. In U.S. ex rel. Barker v. Columbus Regional Healthcare System, Inc., No. 4:12-cv-108 (CDL), 2014 WL 4287744 (M.D. Ga. Aug. 29, 2014), the court ruled that defendant Columbus Regional impliedly waived the attorney-client privilege with respect to past communications with counsel about the legality of its conduct under the False Claims Act (FCA), Stark Law, and Anti-Kickback Statute, merely by pleading good faith in its answer to the complaint.
Overview of the Attorney-Client Privilege
The attorney-client privilege is the oldest privilege recognized by common law to protect confidential communications. As the US Supreme Court explained in the landmark 1981 decision Upjohn Co. v. United States, “[i]ts purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer’s being fully informed by the client.” 449 U.S. 383, 389 (1981). To that end, the attorney-client privilege generally protects from disclosure confidential communications between clients and counsel requesting or providing legal advice.
But the privilege is not absolute. Not only are there narrow exceptions, but a party can also waive the privilege, sometimes impliedly. For instance, in asserting an advice-of-counsel defense, a defendant essentially contends it believed in good faith that its actions were lawful, because it relied on legal advice, and therefore it lacked the culpable mental state to be liable. In this situation, courts typically hold that the party impliedly waived the privilege by putting its mental state and legal advice at issue in the litigation and, out of fairness, must produce otherwise-privileged communications to the opposing party. A party cannot plead it unknowingly violated the law while at the same time hiding behind the privilege and refusing to turn over communications with counsel that suggest it actually acted knowingly. As the adage goes, the attorney-client privilege is a shield—not a sword.
The Court’s Recent Decision in Barker
In Barker, the relator alleged that Columbus Regional violated the FCA by knowingly submitting claims for reimbursement from Federal Healthcare Programs after falsely certifying compliance with the Stark Law and Anti-Kickback Statute. The relator alleged Columbus Regional violated the Stark Law and Anti-Kickback Statute in connection with certain physician-compensation agreements and a transaction where Columbus Regional acquired the Tidwell Cancer Treatment Center. In its answer to the complaint, Columbus Regional pleaded its “actions ... were undertaken in good faith, and constitute lawful ... conduct.” During pre-trial discovery, Columbus Regional asserted the attorney-client privilege and withheld communications with counsel about the legality of the agreements and transaction at issue. The relator then filed a motion to compel the privileged communications, arguing that Columbus Regional’s “good faith compliance” defense put communications with counsel at issue, even if Columbus Regional did not “formally” assert the advice-of-counsel defense. Columbus Regional disagreed, arguing it merely denied the allegations that it knowingly and intentionally submitted false claims, and that the court should narrowly construe privilege waivers in cases involving the healthcare industry because of the complex regulatory environment and heightened need for legal advice.
The court sided with the relator. Citing Eleventh Circuit precedent in Cox v. Administrator U.S. Steel & Carnegie, 17 F.3d 1386, 1418-20 (11th Cir. 1994), the court ruled that Columbus Regional waived privilege with respect to the legality of the physician-compensation agreements and transaction because it “clearly intends to assert affirmatively that it had a good faith belief that it complied with the Anti-Kickback Statute, the Stark Law, and the False Claims Act. Thus, Columbus Regional injected its belief as to the lawfulness of its conduct into the case and waived its attorney-client privilege as to communications relating to the legality of the transactions that form the basis of Plaintiff’s claims.” The court suggested Columbus Regional would not have waived privilege if it had merely denied the relator’s allegations. But Columbus Regional “intends to do more than merely deny the essential elements of Plaintiff’s claim,” the court reasoned. Columbus Regional “intends to explain fully why its conduct was not knowingly and intentionally unlawful.”
Lessons from Barker
Although decisions like Barker can have a chilling effect on the attorney-client privilege if misunderstood, healthcare industry participants should not read Barker as discouraging full and frank communications with counsel. In the complex and highly regulated healthcare industry, legal advice helps clients avoid liability in the first place.
But Barker serves as an important reminder to defense attorneys to carefully and deliberately draft pleadings to avoid inadvertently putting privileged communications at issue in the litigation. Defense attorneys sometimes plead all possible defenses without meaningful reflection — the “kitchen sink” approach — to avoid waiving defenses the defendant might use later in the litigation. Barker reminds counsel to avoid the pitfall of pleading language the court might construe as putting at issue defendant’s past beliefs about the lawfulness of its conduct, unless the defendant plans to waive privilege and assert the advice-of-counsel defense. The defendant might otherwise face serious waiver issues down the road.