Court Allows Former Employee to Retain Company Documents Relevant to Potential FCA Claim

By on July 7, 2015
Posted In Uncategorized

Companies may think their documents are safe from disclosure based on confidentiality agreements with employees, but a recent decision in the Northern District of Illinois highlights the risk that courts will permit a relator to keep company documents after a False Claims Act (FCA) suit is filed — even potentially privileged documents — and not enforce contractual restrictions that relators have violated. Upon unsealing of the FCA complaint in U.S. ex rel. Shmushkovich v. Home Bound Healthcare, Inc., the defendant placed the relator on administrative leave and requested the return of its property. Despite the defendant’s request, the Northern District of Illinois allowed the relator to retain the defendant’s documents relevant to his FCA claims, even though he had not obtained them in discovery.

Noting its broad discovery discretion, the wide range of activity protected by the FCA and the public policy favoring facilitation of FCA claims, the court did not order the return of the documents, though it required the relator to provide the defendant with a list of the documents he retained and to destroy any documents not relevant to his claims. Furthermore, the court did not order return of potentially privileged documents, though the court held that the relator’s possession was not by itself a waiver of privilege. The court stated that if relator’s counsel reviewed any documents later deemed improperly held, it would hold a hearing to determine whether the defendant was injured by relator’s counsel’s access to privileged documents.

In support of its decision, the court noted that a number of courts have recognized a public policy exception to enforcement of nondisclosure agreements where the information is used in a FCA investigation. The court defended this protection of self-help discovery by noting that courts only permit retention where the documents reasonably relate to the formation of an FCA case, and that ordering return of documents is inefficient, as documents will “inevitably be recovered” in discovery.

The decision highlights the importance of companies keeping a tight rein on access to attorney-client privileged documents and highly sensitive business documents, even where strong non-disclosure agreements seem to afford protection. Because, according to this court, a relator can retain company documents relevant to FCA claims, this shifts control over relevance and privilege decisions from the defendant to the relator. Necessarily, the views of a company and a relator will differ on these issues. Thus, companies should take steps to limit the number of employees who have access to privileged and highly sensitive documents – which is also a good strategy to demonstrate the company’s intent to keep the materials confidential in the first place, in the event there is subsequent litigation over privilege and business sensitivity issues.