A federal magistrate judge’s recent decision in United States ex rel. Baklid-Kunz v. Halifax
Hospital Medical Center,1 a Civil False Claims
Act (“FCA”) case pending in the United States District
Court for the Middle District of Florida, calls into question the
protection of in-house counsel emails under the attorney-client
privilege. As the court generally recognized, the “advent of
email has added to the difficulty of determining the purpose and
intent of communications that involve corporate legal
counsel.” The court ultimately ordered Halifax Hospital to
produce communications of its in-house counsel in an ongoing FCA
suit against the hospital.
Employees of Halifax Hospital initiated the action, alleging
that the hospital unlawfully compensated physicians in violation of
the Stark Law and the Anti-Kickback Statute. The United States
intervened and requested that the hospital produce documents
concerning its statutory and regulatory compliance, including
communications with the compliance, finance, and legal departments.
The judge held that communications contained “business
advice” instead of “legal advice” and thereby fell
outside the purview of protected attorney-client
communications.
In evaluating whether the attorney-client privilege covered the
subject communications, the court applied a different standard for
communications with in-house counsel than it would typically apply
to communications between a client and outside counsel. While
“[c]ommunication between corporate client and outside
litigation counsel are cloaked with a presumption of
privilege,” the presumption does not arise with in-house
counsels’ communications. The court noted that “[m]odern
corporate counsel have become involved in all facets of the
enterprises for which they work[, and] [a]s a consequence, in-house
legal counsel participates in and renders decisions about business,
technical scientific, public relations, and advertising issues, as
well as purely legal issues.” Recognizing that in-house
counsel often wears multiple hats and are involved in non-legal
issues, the court concluded that the attorney-client privilege
would not apply unless the subject communication was clearly and
solely for the purpose of seeking or receiving legal advice,
regardless of how the company categorized or used the
information.
The Halifax holding and analysis harmonizes with the
European Court of Justice’s decision in Akzo Nobel
Chemicals Ltd. and Akcros Chemical Ltd. v. Commission of the
European Communities,2 which similarly refused to
apply attorney-client privilege to in-house counsel emails in 2010.
The ECJ held that in-house counsel are “employees”
instead of “independent lawyer[s]” because they are
engaged in business advice and activities. Both cases raise genuine
issues for in house counsel.
The court in Halifax ordered production of the
following documents from the hospital:
- Referral Log: The compliance department’s
record of compliance issues was not privileged because it merely
recited facts and was not created for the purpose of receiving or
rendering advice on legal issues, despite the fact that the
hospital created the log to help anticipate legal issues and assess
litigation risk. - Communications Between In-House Counsel and
Compliance: A number of communications between in-house
counsel and various compliance personnel were not privileged
because they sought “compliance” assessments or the email
was not addressed “to” or “from” legal counsel.
Further, several emails merely “kept an attorney in the
loop” or copied an attorney on a compliance issue. No
privilege was found if individuals outside of the legal department
were copied for informational purposes. - Audits and Reviews by Non-Legal Departments (Case
Management, Compliance, and Finance): Several documents
related to audits and reviews conducted by departments outside of
the legal department were not privileged because they did not seek
or render legal advice, despite the fact that in-house counsel were
copied for informational purposes. Once again, these emails were
not addressed “to” or “from” attorneys.
Accordingly, the court found that they were not sent for the
purpose of legal advice. - Communications Between In-House Counsel and Finance
Department: Emails between the finance department and
in-house counsel were not privileged and were subject to production
under the crime-fraud exception where such communications sought
the attorneys’ approval of payments to physicians.
The court also underscored that it would not view “strings
of emails” as one communication, but instead required the
hospital to demonstrate why each email in the string was
privileged. The court explained, “each email string listed in
Halifax’s privilege log must be disassembled and each email
listed separately in an amended privilege log.”
This decision is instructive for legal and compliance
departments of all companies, in addition to healthcare providers
and those at risk of FCA suits. First, it reminds companies that
copying in-house counsel in an email may not render the
communication immune from later production. Second, the decision
underscores how copying individuals who are not attorneys in email
communications may completely destroy attorney-client privilege.
Third, it illustrates that communications between in-house counsel
and compliance may not be protected if the communication simply
recites facts or does not seek or render purely legal advice. This
aspect of the decision might raise problems for many companies
since most compliance issues are inherently intertwined with
matters that legal counsel must address and render purely legal
advice upon. Finally, for those companies that are particularly
susceptible to FCA suits, this decision highlights that it is
imperative for in-house counsel to quickly consult outside counsel
to avoid possible appearances of impropriety in the eyes of a
prosecutor who is later likely to suspect that in-house counsel
participated in a violation or facilitated an obstruction of
justice. Therefore, overall, this decision calls all companies to
consider a careful review of their policies concerning
communications with in-house counsel and compliance
departments.
If you have any questions about this Alert, please contact
Marvin G. Pickholz, Mary C. Pennisi, any member of the Trial
Practice Group or the attorney in the firm with whom you are
regularly in contact.
Footnotes
1.Case No. 6:09-cv-1002, Dkt. # 188, (M.D. Fla. Nov. 6,
2012).
2.Akzo Nobel Chem. v. Comm’n, Case C-550/07
(2010),available athttp://curia.europa.eu/jurisp.
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