Week 9 - The Rule 1.8s (finish); Government Lawyers – Conflicts; Lawyer for the Corporation; Client with Decision-Making Limitations

Class Notes

Lawyers aren’t bound by noncompete agreements: Why? Client’s choice of counsel

1.8

• Literary Rights: Prior to the conclusion, shall not make agreement giving the lawyer literary or media rights (ex: movie/book rights)

• Financial Assistance: can’t provide financial assistance to client in connection with litigation unless:

  • Lawyer may advance court costs and expenses of liitgation, repayment of which may be contingent on the outcome of the matter

  • indigent client may pay court costs and expenses on behalf of client

  • indigent client pro bono, may provide modest gifts to client

  • Rationale: don’t subsidize litgation because is foments lawsuits,

• 3d party payer: Lawyer shall not compensation

• Aggregate Settlements: two or more clients shall not participite in aggregate setttlement undless each client gives informed consent signed by the client. Lawyer’s disclsoure shall include

• Limiting Liability and Settling Malpractice Claims

  • Lawyer shall not make agreement prospectively limiting lawyer’s laiblity to client

  • UK supports, get the limitgation of liability

  • US makret trumps rule is where permitted, client just wont’t agree

  • Laywer shall not settlle a claim or potetntial claim

• Accquiring Proprietary INterest in Litigation

  • Lawyer shall not acquire a proprietary interest in teh cause of action or subject matter of litigation except that the lawyer may

• Client Lawyer Sexual relations: Shall not have secual relations unless relatinoship existed before represtrnation

• Imputation of Prohibitions: all conflict impute (exception of sexual relations)

1.11

• Current Gov’t lawyer subject to rules 1.7 and 1.9

  • shall not: participate in matter where personally in substantially unless the agency gives it informed consent

  • Exception to law clerk

• Former Gov’t Lawyer

  • Subject to 1.9c

  • Shall not represent client in matter which lawyer participated personally and substantially unless agency gives its informed consent confirmed in writing

  • Much more liberal screen DQ’d lawyers, don’t need permission from gov’t agency

• Confidential information

  • Knows confidential gov’t information person acquired may not represent whose interest are adverse that could be used to material disadvantage

  • Can be screened in a timely manner

  • Only “actual knowledge” not imputed knowledge

  • No requirement of waiver

1.12

• Lawyer shall not represent in matter participated personally and substantially as judge or other adjudicative officer or law clerk, or as arbitrator, mediator, or third-party neutral, unless all parties give informed consent

• clerk can negotiate for employment after notifying the judge

Lawyer for the Corporation

• re Sarbanes-Oxley: Know what policy says

1.13

• Does not represent any constituent

• Even if constituent 1.6 still applies

• JOint represntation is permitted

• Human beings, lawyer shall explain idenity of client, lawyer should advise any constituent who is adverse that conflict of interest, cannot represent, person may wish to obtain independent representation

United States v. Quest

• Balanced Federal Interest and False claims act and reconginzed lawyers will allow to disclose to the extent resaonably necessary to prevent client from comitting crime, problem was GC spilled his guts, exccessive disclosure, not the act of disclosure

• Violation of the rule does not mean disqualification

• GC never reported concern to board of directors, violation of 1.13

1.14 (Client with Diminished Capcity)

• What are decision-making litations? If person has substantial difficult receiving and understanding info, evaluation, or making or communicating deicions

• Client with DML? Still mainatain a normal client-lawyer relationship as fara as reasonably possbile

• Client with DML at risk of substantial physical financial, action required but client cannot act?

  • Lawyer may take resaonbly necessary protective action: Consulting with hose able to protect client or seeking guardian

  • ABA Ethop: Lawyer should not pursue appointment of guardian if other less drastic solutions available

    • Lawyer acting under 1.14b may reveal 1.6 infor to exten reasonbly necessar

United States v. Quest Diagnostics Background

The Core Conflict and Questions The case pits a lawyer's duty to keep client secrets against the government's interest in encouraging whistleblowers to report illegal conduct. The court asks whether the former in-house lawyer broke the ethics rules and, if he did, whether the punishment was too harsh.

The Court's Holdings in Brief The court found that the lawyer broke the rule against using a former client's secrets against it, because he revealed more than was needed to stop a crime. It also found that throwing out the case and barring the plaintiffs and their lawyers was justified to protect the defendants from unfair harm.

Who Sued Whom Fair Laboratory Practices Associates (FLPA) sued Quest Diagnostics and Unilab on the government's behalf under the False Claims Act, claiming they broke the federal Anti-Kickback Statute. One of FLPA's partners, Mark Bibi, used to be Unilab's General Counsel.

Quest and Unilab Quest is a Delaware company, based in New Jersey, that provides medical testing services to health plans and physician groups across the country. In 2003 Quest bought Unilab, a California lab company, through a cash offer for its shares, and Unilab later became a wholly owned part of Quest.

FLPA and Its Members FLPA was formed in 2005 by three former Unilab executives (Baker, Michaelson, and Bibi) for the purpose of bringing this lawsuit. Baker was the CEO, Michaelson was the CFO, and Bibi was the General Counsel and an executive until 2000, after which he worked as a consultant.

Bibi's Central Role Bibi's job as Unilab's lawyer is the key fact in the appeal, because he was the company's only in-house lawyer from 1993 to 2000. He handled all of Unilab's legal and compliance work, including its contracts with health plans and its lawsuits.

The Alleged "Pull-Through" Scheme FLPA claimed that from 1996 to 2005 Unilab and Quest gave health plans and physician groups unreasonably low prices on private business to win their Medicare and Medicaid referrals. They then allegedly billed the government much higher prices, so the discounts worked as illegal kickbacks.

Early Internal Concerns Between 1993 and 1996, the three executives began to question whether Unilab's pricing was legal, since some prices were below half of Unilab's actual costs. Bibi reportedly warned Baker that the pricing could amount to kickbacks.

Price Increases and a Change in Leadership Unilab responded in 1996 with a new pricing policy that raised prices and threatened to drop customers who would not agree. Customers left, Baker was out as CEO by 1997, and after a 1999 buyout the new CEO, Whalen, reversed the price increases.

The Government's 1999 Advisory Opinion In December 1999, the federal health department's Inspector General issued Advisory Opinion 99-13 on lab pricing practices. It said that pricing private business below actual cost "might" break the kickback law, because the government could assume the discounts were meant to attract Medicare and Medicaid referrals.

Bibi's Warning and the CEO's Response Bibi told Whalen that, in his view, the advisory opinion suggested Unilab's pricing was illegal, and Whalen allegedly told him to work with outside lawyers to "find a way around" it. Bibi got an opinion letter from the law firm Winston & Strawn but never told Unilab's Board about his concerns.

Bibi Pushed Aside FLPA claimed that management "froze out" Bibi because of his concerns and stopped asking him for compliance advice. By March 2000, he had been replaced as General Counsel.

The Sale to Quest and Baker's Motives Quest bought Unilab in 2003 for $26.50 per share, and Baker, who had sold his shares for $5.85, felt "shortchanged". A former colleague told Baker the scheme had continued and made Unilab very profitable, and the colleague wanted to go after Unilab and Quest through a whistleblower suit.

Recruiting Bibi Baker started the lawsuit and invited Michaelson and Bibi to join, believing that having the former company lawyer involved would make them more believable to the government. Bibi checked the New York and ABA ethics rules, decided they allowed him to take part, and did not think he needed to confirm this with the state bar.

Forming FLPA and Filing Suit FLPA was formed on January 1, 2005, and under its partnership agreement Bibi would get 29% of any recovery, Baker 57%, and Michaelson 14%. FLPA filed the lawsuit in federal court in Manhattan on June 7, 2005.

Procedural Posture

Discovery and the Motion to Dismiss After FLPA filed an updated complaint in May 2010, the court let the defendants look into whether Bibi and FLPA had misused Unilab's confidential information. The defendants then asked the court to throw out the case because Bibi's involvement broke two of New York's ethics rules.

The Trial Court's Ruling On March 24, 2011, the trial court agreed, held that the False Claims Act does not override state ethics rules, threw out the case, and barred FLPA, its members, and its lawyers from suing again on the same facts. The court said this did not stop the United States from suing on its own, but the government declined to step in, and judgment was entered on July 12, 2011.

Legal Arguments

The "Side-Switching" Rule The defendants first argued that Bibi broke Rule 1.9(a), which bars a lawyer from working against a former client in the same or a closely related matter without the former client's written consent. They said that by joining the suit, Bibi had in effect switched sides and represented the government against Unilab.

Misuse of Client Secrets The defendants also argued that Bibi improperly used Unilab's confidential information in the lawsuit. Under Rule 1.9(c), a lawyer may reveal such information only as far as needed to prevent a crime.

FLPA's Arguments on Appeal On appeal, FLPA argued that the trial court was wrong to find that Bibi broke the ethics rules. It also argued that the punishment was too broad.

Legal Standard

Federal Law Does Not Override State Ethics Rules Federal courts in New York have long used the state's ethics rules to judge how lawyers behave. Nothing in the False Claims Act shows that Congress meant to override those rules, so a whistleblower may sue but may not break state law to do it.

Balancing Federal Interests The court recognized that protecting client secrets can sometimes clash with the federal goal of encouraging people to report fraud against the government. So courts must apply the ethics rules in a way that weighs the federal interests involved.

The Rules That Apply FLPA admitted that Rule 1.9(c) applies, which bars a lawyer from using or revealing a former client's secrets except where the rules would allow it for a current client. Rule 1.6(b)(2) allows disclosure only as far as the lawyer reasonably believes necessary to stop a client from committing a crime.

The Two Questions to Decide To decide whether Bibi broke Rule 1.9(c), the court had to ask whether Bibi reasonably believed in 2005 that the defendants intended to commit a crime. It also had to ask whether he reasonably believed his disclosures were necessary to stop that crime.

Legal Reasoning

Bibi Reasonably Believed a Crime Was Happening The appeals court agreed that Bibi could reasonably have believed in 2005 that the defendants intended to commit a crime. The defendants did not challenge the trial court's findings on this point, so the court upheld that part of the ruling.

The Federal-Law Argument Fails FLPA argued that the disclosures were necessary because the False Claims Act requires a whistleblower to give the government "substantially all" the evidence he has, and that federal law therefore overrides the ethics rule. The court disagreed, finding that the ethics rule already accounts for the federal interests by allowing disclosure needed to stop an ongoing crime.

FLPA's Other Arguments FLPA also argued that Bibi complied with the Act by holding back details until his deposition, and that the ongoing nature of the scheme justified broad disclosures. The trial court found that the 2005 crime could have been proven with Quest's pricing agreements, so Bibi's disclosures going back to 1996 went too far.

Bibi Revealed More Than Necessary The appeals court agreed that Bibi revealed more than was reasonably necessary, noting that FLPA itself admitted Baker and Michaelson knew enough to bring the case. Bibi could have stayed out or made only limited disclosures, but instead he joined the suit and revealed client secrets, which broke Rule 1.9(c).

No Need to Decide the Side-Switching Issue Because Bibi broke Rule 1.9(c), the court did not need to decide whether he also broke the side-switching rule. That ended the court's analysis of whether an ethics violation occurred.

Was the Remedy Proper? Next, the court considered whether it was proper to throw out the case and bar FLPA, its lawyers, and its members from suing again on the same facts. The court would reverse only if the trial court got the law wrong, clearly misread the evidence, or made a decision outside the range of reasonable choices.

The Power to Disqualify and Dismiss Judges have long had the power to remove lawyers when needed to keep a case fair, especially when a lawyer could use the other side's privileged information. Throwing out a complaint that relied on privileged information can also be appropriate.

Remedies Must Be Measured Because dismissal and disqualification can block valid lawsuits, courts should use them only as far as needed to keep the trial from being tainted. The court also noted that FLPA sues on the government's behalf, and that there is a strong federal interest in these whistleblower suits.

The Trial Court's Reasoning on Dismissal The trial court recognized that not every ethics violation calls for dismissal, and that the real question was whether the trial could be unfair. It found that because Bibi freely shared confidential information, it would be "virtually impossible" to separate out each improper disclosure, so letting Baker and Michaelson continue would carry the taint into trial.

Dismissal Upheld The appeals court found no error, because Bibi shared the information so freely that letting FLPA or its members continue would unfairly harm the defendants. Federal interests were not seriously harmed, since the government or a different whistleblower could still sue.

Claims Against Quest FLPA argued that it should at least be able to sue Quest, since Bibi never worked for Quest. The court rejected this, because control of Unilab's attorney-client privilege passed to Quest when it bought Unilab, so dropping only Unilab would not fix the problem.

Disqualifying FLPA's Lawyers The court then considered whether the trial court properly removed FLPA's outside lawyers, even though they did not break any ethics rules themselves. It noted that courts have removed innocent lawyers before when confidential information that could hurt a party may have been shared with them.

Disqualification of Counsel Upheld The trial court found that FLPA's lawyers likely received confidential information they could use to give this client or future clients an unfair advantage. Because FLPA itself worked closely with Bibi in the violation, the court found no unfairness in punishing the client for its lawyers' position, and it upheld the removal.

Rule 1.14

Model Rule 1.14 tells lawyers to keep as normal a relationship with the client as possible, allows (but does not require) them to seek a guardian, warns them to be careful about revealing a client's disability, and says they should "ordinarily" take instructions from an appointed guardian.

Much Left to the Lawyer's Judgment Courts have treated lawyers differently in these cases, refusing to discipline one who kept a normal relationship with a client but suspending another who interfered with a guardian's work. Much is left to the lawyer's judgment, including whether to follow the client's "best interests" or to turn to a guardian or the court whenever unsure.

Mickenberg Article on Zealous Advocacy Normally the client sets the goals and the lawyer works to achieve them, but this breaks down when the client has a severe intellectual disability and cannot guide the lawyer. The article describes these difficulties and suggests ways to provide effective representation.

Pressures Against Aggressive Advocacy Lawyers may hold back because they need to stay on good terms with government officials and service agencies they will deal with again. The need for those relationships in future cases can discourage strong advocacy for the client.

Unclear Role of the Lawyer Another problem is the belief that courts have not defined the lawyer's role, even though courts have said the lawyer must be a true advocate and represent the client as zealously as ethics allow. The lawyer may not give up the client's important rights or act against the client's interests.

Working With a Guardian When the client has no representative, or the representative has a conflict, the lawyer must get a guardian ad litem appointed, and the lawyer should make clear to any third party that the disabled person is the client. Disagreements are likely because even caring guardians may confuse their own views with the client's "best interests".

The Lawyer Need Not Simply Defer Even though the guardian is mainly responsible for setting the goals, the lawyer does not have to meekly go along with whatever the guardian suggests. In Vermont, for example, the guardian meets with the client and reviews the records, and the lawyer and guardian usually agree but sometimes disagree over things like where the client should live.

Resolving Disagreements Most disagreements are worked out without going to court, though either side can ask the court to decide. If a guardian is not acting in the client's best interest, the lawyer can ask the court to replace the guardian, ask the court to settle a specific disagreement, or withdraw from the case.