A major new decision from the U.S. Court of Appeals for the Fourth Circuit has important implications for the availability of the “reliance of counsel” defense, particularly in situations involving the application of complex statutes and regulations.
In U.S. ex rel. Drakeford v. Tuomey, the Fourth Circuit affirmed the District Court’s prior judgment of over $237 million in damages and penalties against a South Carolina nonprofit, tax-exempt health care system. The judgment was based upon a jury finding that the Tuomey Healthcare System had submitted over 21,000 false claims to Medicare pursuant to part-time physician employment contracts, which the jury determined had been submitted in violation of both the federal False Claims Act (FCA) and the federal Stark anti-self referral law.
While the Court of Appeals ruled on a number of issues presented by Tuomey on appeal, noteworthy was its rejection of Tuomey’s advice of counsel defense. In particular, the Court of Appeals found that, in failing to provide outside counsel all relevant factual information (including not only the facts of the arrangement but also the views of other counsel), Tuomey had not met the basic legal requirements necessary to sustain an advice of counsel defense. The Court went further to suggest that Tuomey’s advice of counsel defense was additionally undermined by the appearance of “opinion shopping.” This ruling has implications beyond health care, to other industry sectors in which clients frequently seek multiple legal opinions to help them address technical legal issues.