USA v. Villaspring Health Care Center, Inc. et al

Filing 31

MEMORANDUM OPINION & ORDER: that US' Motion to Disqualify Dfts' Counsel (Record No. 17 ) is GRANTED, in part. It is further ORDERED that atty Christopher A. Melton and the law firm of Weber & Rose, P.S.C., are disqualified f rom any further representation of the dfts in this action. Further, the disqualified atty and firm shall not confer further with any dft or with any other atty representing any dft in this action. Signed by Judge Danny C. Reeves on 11/7/2011.(AKR)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Frankfort)
UNITED STATES OF AMERICA,
Plaintiff,
V.
VILLASPRING HEALTH CARE
CENTER, INC., et al.,
Defendants.

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Civil Action No. 3: 11-43-DCR

MEMORANDUM OPINION
AND ORDER

*** *** *** ***
This matter is pending for consideration of the United States’ Motion to Disqualify
Defendants’ Counsel. [Record No. 17] The United States asserts that attorney Christopher A.
Melton’s representation of Defendants Villaspring Health Care Center, Inc., Carespring Health
Care Management, LLC, and Barry N. Bortz (collectively, “Villaspring”), constitutes a conflict
of interest in violation of the Kentucky Rules of Professional Conduct because Melton
previously participated in the investigation of Villaspring in his capacity as Assistant Attorney
General of the Commonwealth of Kentucky. As a result, the United States seeks disqualification
of Melton, his firm, and all of his co-counsel in this action. Villaspring counters that no conflict
exists and that disqualification would deprive Villaspring of its chosen counsel. It asserts that
the harm it would suffer as a result of disqualification would exceed the harm to the United
States from the defense team’s continued representation. For the reasons discussed below, the
Court will grant, in part, the United States’ motion to disqualify.

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I.

BACKGROUND

Melton was employed as an Assistant Attorney General in the Medicaid Fraud Control
Unit (“MFCU”) from January 2008 to August 2010. [Record No. 20, p. 2] During his
employment, Melton was assigned as co-counsel, along with Assistant Attorney General Jennifer
Wintergerst, to an investigation involving allegations of criminal abuse and neglect at the
Villaspring Health Care Center. [Id.] The investigation was intended to determine whether
criminal charges should be brought against the “individual care givers at Villa Springs [sic], the
owners of Villa Springs [sic], or the corporate entity or entities themselves.” [Record No. 17-2,
p. 1] At the conclusion of the investigation, Melton “recommended declining prosecution.”
[Record No. 20, p. 3] As a result, in February 2010, the MFCU “placed the case in ‘inactive
status’ and contacted the United States Attorney’s Office for consideration of potential civil
claims under the False Claims Act.” [Id.] During the referral process, Melton met with
representatives of the United States Attorney’s Office and provided that office “with nonprivileged documentary material regarding Villaspring that he had collected in the course of
leading the criminal investigation.” [Record No. 17-1, p. 3]
In August 2010, Melton entered private practice as an associate attorney with Weber &
Rose in Louisville, Kentucky. [Record No. 20, p. 4] In July 2011, “Melton was contacted by
Alan Schabes, one of Villaspring’s counsel, who asked to assist him in representing that
company in a False Claims Act suit brought by the federal government.” [Id.] Before he
accepted, Melton confirmed with the Attorney General’s Office that the investigation against
Villaspring was inactive, consulted with the Ethics Officer at Weber & Rose, and sought and

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received a “Hotline Opinion” from the Kentucky Bar Association stating that the representation
did not constitute a conflict of interest. [Id., p. 5] Melton did not, however, seek or receive the
Kentucky Attorney General’s written consent to the representation. [Record No. 17-1, p. 3]
Since accepting the representation, Melton has taken an active role in Villaspring’s defense.
II.

LEGAL STANDARD

It is axiomatic that a district court has inherent authority to disqualify an attorney as a
sanction for professionally unethical conduct. Umphenour, 2008 WL 2785609, at *2. That
authority, however, is not unfettered. Id. Disqualification is a “drastic measure” that the Court
should hesitate to impose, because it serves to “separate[] a party from the counsel of his choice
with immediate and measurable effect.” Zurich Ins. Co. v. Knotts, 52 S.W.3d 555, 560 (Ky.
2001). “The extreme sanction of disqualification should only be utilized when there is a
reasonable possibility that some specifically identifiable impropriety actually occurred, and
where the public interest in requiring professional conduct by an attorney outweighs the
competing interest of allowing a party to retain counsel of his choice.” SST Castings, Inc. v.
Amana Appliances, Inc., 250 F. Supp. 2d 863, 865 (S.D. Ohio 2002) (internal quotation marks
and citations omitted).
Motions to disqualify are governed by two sources of authority: local rules and federal
common law. Umphenour v. Mathias, No. 07-427-KSF, 2008 WL 2785609, at *2 (E.D. Ky.,
July 16, 2008). Rule 83.3 of the Joint Local Rules for Civil Practice for the United States
District Courts of the Eastern and Western Districts of Kentucky provides that an attorney
practicing before the Court is subject to discipline upon a showing that he or she is guilty of

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unprofessional conduct, as defined by the Kentucky Rules of Professional Conduct. L.R.
83.3(a)(2), (c). Thus, the “attorneys of record in this action are subject to the Kentucky Rules
of Professional Conduct and the judicial decisions interpreting those rules.” Umphenour, 2008
WL 2785609, at *2. Additionally, “with the wide-spread acceptance of the American Bar
Association’s Model Rules of Professional Conduct, we now look to the codified Rules of
Professional Conduct for guidance” in deciding questions of attorney disqualification. Nat’l
Union Fire Ins. Co. of Pittsburgh, Penn. v. Alticor, Inc., 466 F.3d 456, 457 (6th Cir. 2006).
Rule 1.11 of the Kentucky Rules of Professional Conduct guides the Court’s review of
the conduct challenged by the United States. This rule governs conflicts of interest for “former
and current government officers and employees.” It provides:
(a)

Except as law may otherwise expressly permit, a lawyer who has formerly
served as a public officer or employee of the government:
(1)
(2)

(b)

is subject to Rule 1.9(c); and
shall not otherwise represent a client in connection with a matter
in which the lawyer participated personally and substantially as a
public officer or employee, unless the appropriate government
agency gives its informed consent, confirmed in writing, to the
representation.

When a lawyer is disqualified from representation under paragraph (a), no
lawyer in a firm with which that lawyer is associated may knowingly
undertake or continue representation in such a matter unless:
(1)

the disqualified lawyer is timely screened from any participation
in the matter and is apportioned no part of the fee therefrom; and

(2)

written notice is promptly given to the appropriate private public
body or government agency to enable it to ascertain compliance
with the provisions of this Rule.

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(c)

Except as law may otherwise permit, a lawyer having information that the
lawyer knows is confidential government information about a person
acquired when the lawyer was a public officer or employee, may not
represent a private client whose interests are adverse to that person in a
matter in which the information could be used to the material disadvantage
of that person.

Ky. S. Ct. R. 3.130(1.11) [hereafter, SCR 3.130].
Kentucky Rule of Professional Conduct 1.11 derives from ABA Model Rule of
Professional Conduct 1.11, which serves to avoid the appearance of impropriety on the part of
current and former government employees.1 The comments to Rule 1.11 specifically state that
“where the successive clients are a government agency and another client, public or private, the
risk exists that power or discretion vested in that agency might be used for the special benefit of
the other client.” SCR 3.130(1.11), cmt. 4. The disqualification of an attorney in a case
implicating Rule 1.11, therefore, serves to “forestall the charge that a particular position taken
by a public official was in anticipation of private employment.” Woods, 537 F.2d at 814; see
also Brown v. D.C. Bd. of Zoning Adjustment, 486 A.2d 37, 45 (D.C. 1984) (explaining that a
rule prohibiting “side-switching” addresses the concern that “the lure of private practice may
undermine a government attorney’s responsibilities to the public” and noting that without such
a rule, “a government attorney could structure a case in a way that might leave room for later
private employment”).

1
Villaspring contends that the “major reason” for this rule is to “protect confidential client
information.” [Record No. 20, p. 13] While that is certainly an important purpose, Rule 1.11 serves a larger
goal: to avoid the perception that a “former government lawyer’s representation of a client could call into
question his overall conduct as a government official, as well as the decision he reached in a particular
matter.” Woods v. Covington Cnty. Bank, 537 F.2d 804, 814 (5th Cir. 1976).

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III.

ANALYSIS

Rule 1.11 dictates that Melton must be disqualified from further representation in this
case.2 He represents a client in connection with the same matter in which he participated
“personally and substantially” as an Assistant Attorney General, and the government agency has
not given its informed consent to the representation. See SCR 3.130(1.11(a)(2)).
The fact that Melton received an “Ethics Hotline Opinion” advising him that his
representation of Villaspring would not constitute a violation of Rule 1.11 does not immunize
him from disqualification in this matter. First, the opinion is not binding on this Court. [See
Record No. 20-5, p. 2] Second, as the United States points out, the opinion was based, in part,
on incomplete information. [Record No. 25, p. 9] Melton’s letter requesting an opinion
downplayed the relationship between the state investigation and the federal lawsuit. He wrote:
“Following my decision not to prosecute, I was contacted by Andrew Sparks, an Assistant
United States Attorney with the Eastern District.” [Record No. 20-6, p. 1] This language
suggests that the Attorney General’s office played a more passive role in the transfer of the
investigation to the United States than it actually did. In fact, the Attorney General’s office
initiated contact with the U.S. Attorney’s Office to refer the case for a civil action. Similarly,
Melton’s use of the passive voice in his letter downplays his own role in the investigation. For
example, he wrote that “an investigation was conducted by that office,” therefore suggesting that

2
The United States argues that Melton’s representation of the defendants also violates SCR 3.130(1.9),
which governs duties to former clients. However, the application of Rule 1.11 presents a stronger challenge
to Melton’s representation in this case. Because Rule 1.11 is sufficient to require disqualification, this Court
will not enter into an analysis of Rule 1.9.

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his only involvement in the matter was the decision not to pursue criminal neglect charges. [Id.]
This is an understatement of his involvement in the investigation.
Moreover, the letter does not fully explain the extent of the similarities between the two
cases. Melton indicated that the federal suit “alleges billing of services by the facility that were
so substandard that they were basically worthless.” [Id.] However, he did not clarify with any
particularity the fact that the federal suit stemmed directly from the factual circumstances
investigated by the MFCU. The Court does not suggest that Melton was intentionally
misleading, merely that the Ethics Hotline Committee did not have the benefit of the entire
record when it decided that the state investigation was not the same “matter” as the “impending
investigation into possible violations under the False Claims Act.” [Record No. 20-5, p. 1] As
discussed below, whether two “matters” are the same is necessarily a fact-intensive inquiry, and
a two-page letter is inadequate to fully inform even someone with “extensive experience
interpreting the Kentucky Rules of Professional Conduct” as to the propriety of the
representation in this case. [See Record No. 20, p. 8] For these reasons, the Ethics Hotline
opinion does not shield Melton or his firm from disqualification.
A.

Melton and Weber & Rose Are Disqualified Under Rule 1.11(a)(2).

Melton is disqualified, under Rule 1.11(a)(2), from further representation of Villaspring
in this case. As an initial matter, there is no standing requirement in Rule 1.11, so the United
States does not need to be a former client of Melton’s to seek disqualification. Paragraph (a)(2)
of Rule 1.11 applies “regardless of whether a lawyer is adverse to a former client.” SCR
3.130(1.11) cmt. 3. Therefore, the Court need not discuss the parties’ arguments regarding

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standing, as that analysis would only be appropriate if the Court were relying on Rule 1.9 to
disqualify Melton.
Under Rule 1.11(a)(2), a former government attorney “shall not otherwise represent a
client in connection with a matter in which the lawyer participated personally and substantially
as a public officer or employee, unless the appropriate government agency gives its informed
consent, confirmed in writing, to the representation.” SCR 3.130(1.11(a)(2)).
1.

Melton’s Representation of Villaspring Concerns the Same
“Matter” as the Investigation He Conducted for the MFCU.

The Kentucky Attorney General’s criminal investigation of Villaspring and the current
federal civil suit against Villaspring constitute the same matter for the purposes of Rule 1.11.
The term “matter” is defined as “any judicial or other proceeding, application, . . . claim,
controversy, investigation, charge, accusation, arrest or other particular matter involving a
specific party or parties.” SCR 3.130(1.11(e)). Villaspring asserts that “this federal action for
violation of the federal False Claims Act is not the same judicial proceeding, or the same
investigation, as the state criminal investigation for abuse or neglect of an adult in which Mr.
Melton participated.” [Record No. 20, p. 12] However, the comments to Rule 1.11 indicate that
a matter “may continue in another form.” SCR 3.130(1.11) cmt. 10. Thus, the issue is not as
simple as Villaspring maintains, and the fact that one matter was criminal and one is civil is not
determinative. Instead, the Court must analyze the matters’ substance, rather than their forms.
To determine whether two matters are the same, the court should “consider the extent to which
the matters involve the same basic facts, the same or related parties, and the time elapsed.” Id.

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Here, the two matters involve the same basic facts. The state investigation into
allegations of criminal neglect led directly to the current suit, which alleges that Villaspring
violated the federal False Claims Act by “seeking, and receiving, substantial reimbursement from
the Medicare and Kentucky Medicaid programs” for providing care that was “either non-existent
or so inadequate as to be worthless.” [Record No. 1, p. 1] The “worthless” services at issue in
the federal civil case are the same services investigated by the state in the context of criminal
neglect. Indeed, the United States identifies no fewer than eleven items contained in the federal
complaint that were obtained from the State’s investigation. [Record No. 25, pp. 4-5]
Additionally, the two matters involve closely related parties. Villaspring maintains that
the parties to a state criminal action would have been “the Commonwealth of Kentucky and Ms.
Berling, neither of whom are parties to this action.” [Record No. 20, p. 12] However, the
investigation is the “matter” at issue here, not the criminal case that was never pursued. The
Attorney General’s Office investigated “individual care givers at Villa Springs [sic], the owners
of Villa Springs [sic], or the corporate entity or entities themselves,” not just Ms. Berling.
[Record No. 17-2, p. 1] Thus, the state matter involved an investigation of the very parties that
are defendants in the current federal case. Further, the Kentucky Attorney General’s Office and
the United States Attorney’s Office are sufficiently related because they shared information and
conferred about the merits of the instant action. Therefore, the matters involve the same parties
on one side and related parties on the other.
Finally, the time elapsed between the two matters was not enough to make them separate
matters: Melton and Wintergerst “provided their final recommendation regarding potential
criminal charges” in the state investigation in February 2010, and the United States filed suit
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against Villaspring in July 2011. [Id., p. 3] Melton agreed to assist Villaspring’s defense
counsel in this federal case less than one year after he resigned as Assistant Attorney General.
[Record No. 20, p. 4] In summary, because the two matters involve the same basic facts, the
same defendant and related prosecutors, and the time elapsed between the events was not
significant, the two matters are the same for Rule 1.11 purposes. See SCR 3.130(1.11) cmt. 10.
2.

Melton’s Participated Personally and Substantially in the
Matter as a Government Attorney.

Melton personally and substantially participated in the state’s investigation of Villaspring
during his tenure as Assistant Attorney General. He “played an active role in reviewing the
evidence, providing legal advice to investigators, and making recommendations to supervisors.”
[Record No. 17-2, p. 2] The fact that the criminal investigation had been initiated two years
before Melton’s employment with the Kentucky Attorney General’s Office does not change the
fact that he played a leading and active role in the investigation for over a year and a half. [See
Record No. 20, pp. 2-3] Melton reviewed evidence, communicated with Villaspring’s defense
counsel, participated in interviews, and met with the United States Attorney’s Office about the
investigation. [Record No. 17-3, p. 2] This constitutes personal and substantial participation in
the matter.
3.

The Government Agency Did Not Consent to Melton’s
Representation of Villaspring.

Finally, the Office of the Attorney General did not consent to Melton’s representation in
this matter. [Record No. 17-2, pp. 3-4] The extent of Melton’s contact with the Attorney
General’s Office was to confirm that the investigation was still inactive. [Record No. 20, p. 5]

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He did not obtain the agency’s oral consent, much less its “informed consent, confirmed in
writing, to the representation.” See SCR 3.130(1.11(a)(2)).
Melton’s representation of Villaspring, therefore, violates Rule 1.11(a)(2). Due to this
violation, and the appearance of impropriety that it creates, Melton is disqualified from further
representation in this case. Furthermore, because Melton is disqualified from representing
Villaspring, the law firm of Weber & Rose is also disqualified pursuant to Kentucky Rules of
Professional Conduct 1.10 and 1.11(b), as Villaspring concedes. [Record No. 20, p. 15 n.4]
B.

Melton and Weber & Rose Are Disqualified Under Rule 1.11(c).

Kentucky Rule of Professional Conduct 1.11(c) also provides grounds for disqualifying
Melton and his firm. Rule 1.11(c) serves to prevent a former government employee from
representing a private client in a matter in which the former employee has “confidential
government information.” Confidential information is defined as “information that has been
obtained under governmental authority and which, at the time this Rule is applied, the
government is prohibited by law from disclosing to the public or has a legal privilege not to
disclose and which is not otherwise available to the public.” SCR 3.130(1.11(c)). Villaspring
maintains that “Melton learned no confidential information in the course of his involvement in
the investigation that was not already known to Villaspring,” since Villaspring would necessarily
have been the source of any information gained during the investigation.3 [Record No. 20, p. 4]
However, this argument ignores the fact that some of the information was obtained from

3

The Court finds unpersuasive Villaspring’s argument that Melton does not possess confidential
information because he “surrendered all files and notes in his possession to the Office of the Attorney
General, who thereafter placed such files in storage.” [Record No. 20, p. 14] Physical possession of evidence
is not at issue here.

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interviews with former employees of Villaspring. [Record No. 17-3, p. 2] Moreover, Melton
has confidential government information in the form of strategic insights, such as his knowledge
of the strengths and weaknesses of the evidence compiled against Villaspring. See United States
v. Philip Morris, Inc., 312 F. Supp. 2d 27, 43 (D.D.C. 2004) (noting that the attorney’s “insights
into the strengths and weaknesses of the Government’s evidence regarding alleged tobacco fraud
is exactly the kind of information [received during the first representation] . . . that might be
useful to the second [representation]” (internal quotation marks omitted)).

All of this

information was passed on to the United States, which is now using that information to pursue
the current action against Villaspring. [Record No. 20, p. 3 (“Melton met with counsel for the
plaintiff and explained the reasons for his decision not to pursue criminal abuse and neglect
charges.”)] Therefore, the Court concludes that Melton acquired “confidential government
information” in his role as a public attorney. He may not now use that information to benefit his
client, Villaspring, to the “material disadvantage” of the United States. Accordingly, Melton and
his firm are also disqualified under Rule 1.11(c).
C.

Melton’s Co-Counsel Is Not Disqualified.

The United States has also moved that Melton’s co-counsel and their firms be
disqualified. [Record No. 17] In support, the government argues that Melton’s co-counsel has
been tainted by Melton’s conflict of interest. Villaspring counters that disqualification of the
entire defense team would be inappropriate.
Generally, even if an attorney is disqualified for a conflict of interest, his co-counsel will
not be disqualified “absent actual evidence of disclosure of client confidences.” Baker v.
Bridgestone/Firestone, Inc., 893 F. Supp. 1349, 1361 (N.D. Ohio 1995). The burden is on the
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party seeking disqualification to prove that the co-counsel has received confidential information
from the disqualified attorney. Id. at 1364. The party may present either direct or circumstantial
evidence, such as “substantial communications, joint preparation for litigation or the apparent
receipt of confidences.” Id. A “longstanding personal and professional relationship” between
co-counsel will afford greater weight to any such circumstantial evidence. Id. at 1365. Such
circumstantial evidence raises a presumption that co-counsel has been tainted; however, that
presumption can be rebutted with “material, probative evidence that points toward nondisclosure.” Id. at 1364. Finally, even if this analysis reveals that co-counsel has been tainted,
the trial court “should not order disqualification without first balancing less drastic alternatives
with the opposing party’s right to be represented by the counsel of his choosing.” Id. at 1365.
In this case, there is no proof of actual disclosure. Melton has been involved in “joint
preparation for litigation” with his co-counsel, which normally would raise the presumption of
shared confidences. However, in light of the fact that the Court has decided this issue under
Rule 1.11 rather than 1.9, the Court’s concern is less with the potential for disclosure of client
confidences and more with the appearance of impropriety involved in a former government
attorney defending the subject of his earlier investigation. Additionally, there is no longstanding
association between Melton and his co-counsel: this is the first case on which they have
collaborated, and there is no evidence of personal friendship. See id. at 1352, 1365 (finding a
“longstanding personal and professional relationship” between co-counsel whose “shared interest
in flying led to a mutual friendship” before filing the lawsuit from which they were disqualified).
Moreover, the affidavits of Melton’s co-counsel rebut any presumption of disclosure that arises
from the circumstantial evidence of their “joint preparation for litigation.” [Record Nos. 20-2,
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20-3, 20-4] Therefore, without actual evidence of disclosure or at least stronger circumstantial
evidence, the Court is unwilling to take the drastic measure of disqualifying Villaspring’s entire
defense team. Keeping in mind that the “extreme sanction of disqualification should only be
utilized when there is a reasonable possibility that some specifically identifiable impropriety
actually occurred,” SST Castings, Inc., 250 F. Supp. 2d at 865, the Court finds that
disqualification of Melton’s co-counsel would unduly disadvantage Villaspring and is not
necessary in this case at this point in the proceedings.
IV.

CONCLUSION

Melton’s representation of the defendants in this action violates Kentucky Rules of
Professional Conduct 1.11(a)(2), and 1.11(c). Therefore, he and his firm are disqualified from
further representation of the defendants. However, Melton’s co-counsel will not disqualified at
this time based on the information presented. Accordingly, it is hereby
ORDERED that the United States’ Motion to Disqualify Defendants’ Counsel [Record
No. 17] is GRANTED, in part. It is further ORDERED that attorney Christopher A. Melton
and the law firm of Weber & Rose, P.S.C., are disqualified from any further representation of
the defendants in this action. Further, the disqualified attorney and firm shall not confer further
with any defendant or with any other attorney representing any defendant in this action.
This 7th day of November, 2011.

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