UNITED STATES OF AMERICA ex rel. et al v. CALIFORNIA, et al

Filing 49

OPINION fld. Signed by Judge Susan D. Wigenton on 5/31/13. (sr, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA ex rel. et
al.,

Civil Action No. 2:11-cv-1210
(SDW) (MCA)

Plaintiff,
v.

OPINION

BOSTON SCIENTIFIC
NEUROMODULATION CORP.,
May 31, 2013
Defendant.
WIGENTON, District Judge.
Before the Court is defendant Boston Scientific Neuromodulation Corporation’s
(“BSNC” or “Defendant”) motion to dismiss the Amended Complaint filed on behalf of the
United States of America and the Qui Tam States 1 by Wendy Bahnsen (“Bahnsen”) and Carolina
Fuentes (“Fuentes”), (collectively “Relators”) pursuant to Federal Rules of Civil Procedure
12(b)(6), 8(a) and 9(b) (“Motion to Dismiss”). Also before the Court are Defendant’s Motion to
Strike Confidential Information (“Motion to Strike”) and Motion to Disqualify Counsel pursuant
to the New Jersey Rules of Professional Conduct (“RPC”) Rule 3.7(a) (“Motion to Disqualify”).
This Court has jurisdiction over this action pursuant to 31 U.S.C. § 3732(a), 28 U.S.C. §
1331, and 28 U.S.C. § 1345. Venue is proper under 31 U.S.C. § 3732(a) and 28 U.S.C. §§
1391(b) and (c).

1

Qui Tam states include: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana,
Louisiana, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North
Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, Wisconsin, and the District of Columbia (“Qui Tam
States”).

1

These motions are decided without oral argument pursuant to Federal Rule of Civil
Procedure 78.
For the reasons set forth below, this Court will DENY the Motion to Dismiss, the Motion
to Strike, and the Motion to Disqualify Counsel.
FACTUAL AND PROCEDURAL BACKGROUND
Defendant has stated that “[f]or purposes of this motion to dismiss only, the Relators’
factual allegations are accepted as true.” (Def.’s Mot. to Dismiss Br. at 1.) The following are the
facts relevant to the pending motion.
Parties
i. BSNC
BSNC is a wholly-owned subsidiary of Boston Scientific Corporation (“BSC”). It is
based in California and is incorporated under the laws of Delaware. (Am. Compl. ¶ 16.) BSNC
markets and sells a spinal cord stimulation system called Precision Plus SCS System (“the
System”). (Am. Compl. ¶ 16.) This device was approved by the Food and Drug Administration
(“FDA”) in April 2004 for the management of intractable back pain, and consists of both
implanted and external parts. (Am. Compl. ¶¶ 16-17, 90.) The implanted part sends electrical
signals through “leads” placed under the patient’s skin along the spinal cord. (Am. Compl. ¶ 17.)
The external equipment for the system includes a remote (Precision SCS Remote Model SC5210), a charger (Precision SCS Charger 2.0 Model SC-5312), and an adhesive kit (Precision
Adhesive Kit Model SC-6350).

(Am. Compl. ¶¶ 17-20.) The cost for the entire system,

including the external ancillary equipment, is approximately $30,000. (Am. Compl. ¶ 91.)
Claims for these devices were billed to government programs, including Medicare and Medicaid,
in New Jersey and throughout the United States. (Am. Compl. ¶¶ 16, 22.)

2

ii. Relator Bahnsen
Bahnsen is a resident of California and was employed by BSNC from March 31, 2008
until October 15, 2009. (Am. Compl. ¶ 7.) From March 31, 2008 until January 2009, Bahnsen
worked in the Customer Service Department, and then from January 2009 until her date of
termination, she worked as a Reimbursement and Claims Management Specialist in the Billings
and Collections Department. (Am. Compl. ¶¶ 8-9.) Her job as a Claims Management Specialist
was to submit claims for payment to Medicare, Medicaid, and private insurance companies.
(Am. Compl. ¶ 9.) Bahnsen had previously been employed by other health care providers in
billings and collections positions, and was certified as a medical biller in October 2004 by the
Medical Association of Billers. (Am. Compl. ¶ 10.)
iii. Relator Fuentes
Fuentes is a resident of California and was employed by BSNC from May 2005 to June
2010. (Am. Compl. ¶ 13.) She was employed as an administrative assistant from May 2005
through March 2008, and was then transferred to the Billings and Collections Department in
February 2009, where she worked until June 2010. 2 (Am. Compl. ¶ 13.)
Claims
i. Fraudulent Billing Practices
Relators allege that BSNC submitted fraudulent claims for payment to Medicare and
government programs for the System’s external equipment. (Am. Compl. ¶¶ 23, 25.) The
alleged practices include submitting claims without a physician’s order indicating medical
necessity, changing/fabricating diagnosis codes on claim forms, and falsely certifying
truthfulness on other government forms, including the CMS-1500 claim form. (Am. Compl. ¶
23.) For example, Relators allege that since diagnosis code 724.2 (lumbago-back pain) is
2

The record does not reflect Fuentes’ specific position from March 2008 until February 2009.

3

financially advantageous to BSNC, Defendant would submit claims under this diagnosis code
even when the system was used for an “off-label” purpose. 3 (Am. Compl. ¶¶ 33-35.) Relators
also allege that the fraudulent practices stemmed from a backlog in the Billings and Collections
Department, and that instead of implementing methods to deal with the backlog, BSNC
increased pressure on billers to process claims. (Am. Compl. ¶¶ 27-28.)
Relators allege that these false claims caused government programs to approve and pay
claims that should not have been paid, and that this violated the False Claims Act (“FCA”).

4

(See Am. Compl. ¶¶ 44-54.)
ii. Concealment of Defective Equipment
Relators allege that BSNC trained and instructed its customer service representatives to
avoid documenting device problems, in order to prevent such events from being reported to the
FDA.

(Am. Compl. ¶¶ 58-60, 68, 75.)

Furthermore, Relators allege that BSNC denied

replacement or reimbursement for defective devices and continued to market these devices.
(Am. Compl. ¶¶ 61, 69.)
iii. Kickback Schemes
Relators allege that BSNC circumvented FDA guidelines through its kickback program,
which “promoted the Precision Plus System beyond FDA-approved indications, and the
provision of free services and other inducements to physicians.” (Am. Compl. ¶ 88.) They
allege that Defendant unlawfully promoted and prescribed the system for “off-label” uses, and
would provide physicians with free reimbursement and prior authorization services in order to
3

A purpose is deemed “off-label” when “a medical device is approved for one purpose or indication and [is] used
outside this approved purpose.” (Am. Compl. ¶ 89.)
4
Relators include four tables of information as examples of fraudulent claims submitted to the government. (See
Am. Compl. ¶¶ 37-41.) These tables include “information regarding the product description, the date and total
amount BSNC billed Medicare for the product, the diagnosis code listed on the CMS-1500 form, the diagnosis code
listed on the physician’s order (if an order was ever obtained), and the name of the referring physician.” (Am.
Compl. ¶ 37.)

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induce the prescribing of the System paid for by government programs. (Am. Compl. ¶¶ 92-99,
105-106.)
iv. Unlawful Retaliation
Relators allege that they were unlawfully retaliated against for protected activity such as
internal reporting and investigation of BSNC’s unlawful conduct, and were forced to engage in
this unlawful activity as a condition to maintaining their employment. (Am. Compl. ¶¶ 143144.)

For example, Bahnsen claims she was trained to routinely use a 724.2 diagnosis code

even when she knew it to be fraudulent and illegal. (Am. Compl. ¶¶ 148-151.) Bahnsen
complained about these practices. (Am. Compl. ¶ 154.) As of mid-July 2009, Relator Bahnsen
raised these issues at weekly Billings and Collections meetings which caused friction within the
Department, and led to Relators being banned from future meetings around September 2009.
(Am. Compl. ¶¶ 154-157.)
Following the internal complaints, BSNC was informed that Bahnsen intended to file a
whistleblower action, and her employment was subsequently terminated. (Am. Compl. ¶ 161.)
Fuentes’ employment was not terminated at that time; however, Fuentes claims she was made
subject to a hostile work environment and was cut-off from computer access until she left BSNC.
(Am. Compl. ¶ 162.)
v. Procedural History
On March 2, 2011, Relators filed a qui tam complaint under seal against BSNC, alleging
violations of the FCA, 31 U.S.C. § 3729 et seq., as well as other state-law counterparts.
(Compl.) After investigating for over a year, on February 24, 2012, the federal government
declined to intervene, but the case was reopened on February 28, 2012. (Dkt. 8-9; Def.’s Mot. to
Dismiss Br. at 3.)

5

Based on the foregoing, the Amended Complaint filed September 10, 2012, contains
claims for FCA violations under 31 U.S.C. § 3729(a)(1), § 3729(a)(2), § 3730(h), and other state
law counterparts. 5 (See generally Am. Compl. ¶¶ 164-357.)
On October 24, 2012, Defendant filed the following three separate motions which are
present before this Court: (1) Motion to Dismiss; (2) Motion to Disqualify Counsel; and (3)
Motion to Strike.
LEGAL STANDARD
Motion to Dismiss
Rule 12(b)(6)
In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
court must “‘accept all factual allegations as true, construe the complaint in the light most
favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint,
the plaintiff may be entitled to relief.’” Phillips v. Cnty of Allegheny, 515 F.3d 224, 231 (3d Cir.
2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). However,
5

The relevant statutes pursuant to which this action was brought, include the qui tam provisions of the Federal Civil
False Claims Act, 31 U.S.C. § 3729 et seq.; the California False Claims Act, Cal. Gov’t Code § 12650 et seq.
(Deering 2000); the Colorado Medicaid False Claims Act, Colo. Rev. Stat. § 25.5-4-304 et seq.(2010); the
Connecticut False Claims Act, Conn. Gen. Stat. § 17b-301a et seq. (2010); the Delaware False Claims and
Reporting Act, Del. Code Ann. tit. 6, § 1201 et seq. (2000); the District of Columbia False Claims Act, D.C. Code §
2-308.13 et seq. (2000); the Florida False Claims Act, Fla. Stat. § 68.081 et seq. (2000); the Georgia False Medicaid
Claims Act, Ga. Code Ann. § 49-4-168 et seq. (2007); the Hawaii False Claims Act, Haw. Rev. Stat. § 661-21 et
seq. (2006); the Illinois False Claims Whistleblower Reward and Protection Act, 740 Ill. Comp. Stat. § 175/1 et seq.
(2000); the Indiana False Claims and Whistleblower Protection Act, Ind. Code § 5-11-5.5 et seq. (2007); the
Louisiana Medical Assistance Programs Integrity Law, La. Rev. Stat. Ann. § 46:439.1 et seq. (2006); the
Massachusetts False Claims Act, Mass. Gen. Laws ch. 12, § 5A et seq. (2007); the Michigan Medicaid False Claims
Act, Mich. Comp. Laws § 400.601 et seq. (2007); the Minnesota False Claims Act, Minn. Stat. § 15C.01 et seq.
(2011); the Montana False Claims Act, Mont. Code Ann. § 17-8-401 et seq. (1999); the Nevada False Claims Act,
Nev. Rev. Stat. § 357.010 et seq. (2007); the New Jersey False Claims Act, N.J. Stat. Ann. § 2A:32C-1 et seq. (West
2007); the New Mexico Medicaid False Claims Act, N.M. Stat. Ann. § 27-14-1 et seq. (2007); the New York False
Claims Act, N.Y. State Fin. Law § 187 et seq. (McKinney 2010); the North Carolina False Claims Act, N.C. Gen.
Stat. § 1-605 et seq. (2010); the Oklahoma Medicaid False Claims Act, Okla. Stat. tit. 63, § 5053 et seq. (2007); the
Rhode Island False Claims Act, R.I. Gen. Laws § 9-1.1-1 et seq. (2008); the Tennessee Medicaid False Claims Act,
Tenn. Code Ann. § 71-5-181 et seq. (2006); the Texas Medicaid Fraud Prevention Act, Tex. Hum. Res. Code Ann. §
36.001 et seq. (West 2006); the Virginia Fraud Against Taxpayers Act, Va. Code Ann. § 8.01-216.1 et seq. (2011);
and the Wisconsin False Claims for Medical Assistance Law, Wis. Stat. § 20.931 et seq. (2007) (“State qui tam
statutes”).

6

the claims must call “for enough facts to raise a reasonable expectation that discovery will reveal
evidence of the necessary element.” Id. at 234. Similarly, “the tenet that a court must accept as
true all of the allegations contained in a complaint is inapplicable to legal conclusions.
Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
Rule 9(b)
Pursuant to Rule 9(b), “[i]n alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake.” For actions based on the FCA, the heightened
pleading requirements of Federal Rule of Civil Procedure 9(b) apply. See Mason v. Coca-Cola
Co., 774 F. Supp. 2d 699, 702 (D.N.J. 2011).
Motion to Strike
Federal Rule of Civil Procedure 12(f) allows for a court to strike any “redundant,
immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). Generally, motions to
strike are highly disfavored. F.T.C. v. Hope Now Modifications, LLC, No. 09-1204, 2011 WL
883202 at *1 (D.N.J. March 10, 2011) (citing Garlanger v. Verbeke, 223 F. Supp. 2d. 596, 609
(D.N.J. 2002)). Motions to strike are “‘not favored and usually will be denied unless the
allegations have no possible relation to the controversy and may cause prejudice to one of the
parties.’” Tonka Corp. v. Rose Art Industries, Inc., 836 F. Supp. 200, 217 (D.N.J. 1993) (quoting
River Road Devel. Corp. v. Carlson Corp., No. 89-7037, 1990 WL 69085 at *3 (E.D. Pa. May
23,1990)); see also J&A Realty v. City of Asbury Park, 763 F. Supp. 85, 87 (D.N.J. 1991.)
“’[S]triking a pleading should be sparingly used by courts. It is a drastic remedy to be resorted to

7

only when required for the purposes of justice.” Id. (quoting United States v. Consolidation Coal
Co., No. 89-2124, 1991 WL 333694 at *1 (W.D. Pa. July 5,1991)).
Motion to Disqualify Pursuant to RPC 3.7(a)
“‘[M]otions to disqualify are viewed with ‘disfavor’ and disqualification is considered a
‘drastic measure which courts should hesitate to impose except when absolutely necessary.’”
Carlyle Towers Condominium Ass’n, Inc. v. Crossland Sav., FSB, 944 F. Supp. 341, 345 (D.N.J.
1996) (citations omitted).

“Therefore, close judicial scrutiny of the facts of each case is

‘required to prevent unjust results.’” Id. (quoting Gould Inc. v. Mitsui Mining & Smelting Co.,
738 F. Supp. 1121, 1126 (N.D. Ohio 1996)). “‘Although doubts are to be resolved in favor of
disqualification, the party seeking disqualification must carry a ‘heavy burden’ and must meet a
‘high standard of proof’ before a lawyer is disqualified.’” Carlyle Towers Condominium Ass’n,
Inc., 944 F. Supp. at 345 (quoting Alexander v. Primerica Holdings, Inc., 822 F. Supp. 1099,
1114 (D.N.J. 1993)).

Furthermore, “‘a party’s choice of counsel is entitled to substantial

deference.’” Alexander, 822 F. Supp. at 1114 (citations omitted). Permitting a litigant to retain
his or her choice of counsel is a countervailing policy to be considered against disqualification.
U.S. v. Miller, 624 F.2d 1198, 1201 (3d. Cir. 1980).
DISCUSSION
Motion to Dismiss
“To establish a prima facie case under the FCA, [a] relator must prove: ‘(1) the defendant
presented or caused to be presented to an agent of the United States a claim for payment; (2) the
claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.’”
U.S. ex rel. Hefner v. Hackensack University Medical Center, 495 F.3d 103, 109 (3d Cir.2007)
(citing Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 182 (3d Cir.2001)).

8

Violations of the federal FCA implicate fraud, and therefore the claims must satisfy the
heightened pleading requirements of Federal Rule of Civil Procedure 9(b). Foglia v. Renal
Ventures Management, LLC, 830 F. Supp. 2d. 8, 13 (D.N.J. 2011.) “The Third Circuit has held
that Fed. R. Civ. P. 9(b) requires plaintiffs to plead the circumstances of the alleged fraud with
particularity to ensure that defendants are placed on notice of the precise misconduct with which
they are charged, and to safeguard defendants against spurious charges of fraud.” Id. (internal
citation and quotation marks omitted); U.S. ex rel. LacCorte v. SmithKline Beecham Clinical
Laboratories, Inc., 149 F.3d 227, 234 (3d Cir. 1998.)
In the instant matter, Defendant makes numerous arguments regarding the allegations
presented, which are discussed below. However, many of these arguments go to the merits of
the claims, rather than the pleading requirements.
False Billing, Kickbacks, and False Certifications
First, Defendant argues that Relators’ allegations of false billing fail as a matter of law, as
its actions were entirely permissible under the relevant Medicare and Medicaid billing
guidelines. (Def.’s Mot. to Dismiss 6-10.) Defendant asserts that its billing practices are
“merely consistent with a theory of liability, rather than leading one to believe there is plausible
liability, [and] do not satisfy the pleading requirement of Rule 8(a).” (Id. 9-10.) Defendant
contends that under these guidelines, separate physicians’ orders are not required in order to
prove medical necessity for the accessories to the prosthetic device.

(Id. 8.)

Essentially,

Defendant argues that if an initial physician’s order evidences the need for the System, the
replacement of the external accessories, including the remote, charger, and adhesive kit, do not
require a further order. (Id. 9.)

9

Next, Defendant argues that “it is appropriate in certain instances for a supplier to
provide diagnosis codes,” and that in their opposition papers, Relators mischaracterize their
Amended Complaint.

(Def.’s Mot. to Dismiss 10; Def.’s Mot. to Dismiss Reply 4-5.)

According to Defendant, the guidelines provide that when a physician “provide[s] only a
narrative description of the diagnosis, rather than the specific diagnosis code,” suppliers can
utilize various avenues to determine the appropriate diagnosis code. (Def.’s Mot. to Dismiss 11.)
Defendant, citing United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d
295 (3d Cir. 2011), also argues that the diagnosis code is immaterial to the approval of a claim
or the amount paid on a claim. (Def.’s Mot. to Dismiss 11.) In United States ex rel. Wilkins v.
United Health Group, Inc., the Third Circuit notes that the FCA defines the term “material” as
“’having a natural tendency to influence, or be capable of influencing, the payment or receipt of
money or property.’” 659 F.3d at 303 (citing 31 U.S.C. § 3729(b)(4)).
However, the Amended Complaint includes references to the lack of orders and/or
diagnosis codes for specific items, as well as training Relators to for example “to forget
contacting doctors to obtain Orders and diagnosis codes, and instead just routinely use code
724.2.” (Am. Compl. ¶¶ 28, 29, 148, 151.) Overall, this Court finds that these claims are
sufficiently pled.
Additionally, Defendant denies claims regarding the payment of kickbacks and false
certifications of compliance as alleged by the Relators. The Anti–Kickback Statute prohibits
knowingly and willfully [offering or paying] any remuneration
(including any kickback, bribe, or rebate) directly or indirectly,
overtly or covertly, in cash or in kind (A) in return for referring an
individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made
in whole or in part under a Federal health care program, or (B) in
return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing, or ordering any good, facility,
10

service, or item for which payment may be made in whole or in
part under a Federal health care program.
42 U.S.C. § 1320a-7b(b)(2). Relators have provided specific allegations that are sufficient for
their claims regarding kickbacks to proceed at this stage. (Am. Compl. ¶¶ 98-100.) Further,
compliance with the Anti-Kickback Statute is material to the Government’s decision to pay
under Medicare and Medicaid. See United States ex. rel, Kosenke v. Carlisle HMA, Inc., 544
F.3d 88, 94 (3d Cir. 2009).
Retaliation
Defendant also argues that the Relators have not sufficiently alleged that they engaged in
protected activities. (See Def.’s Mot. to Dismiss at 32-35; Def.’s Mot. to Dismiss Reply Br. 14.)
To establish a claim for retaliation under 3730(h), a relator must show that “(1) he
engaged in protected conduct, (i.e., acts done in furtherance of an action under § 3730)”; and “(2)
that he was discriminated against because of his protected conduct.” U.S. ex rel. Hefner v.
Hackensack University Medical Ctr., 495 F.3d 103, 110-11 (3d Cir. 2007) (internal citations
omitted). For a plaintiff to demonstrate that he was discriminated against as a result of his
conduct in furtherance of a FCA suit, a plaintiff must demonstrate that “(1) his employer had
knowledge he was engaged in protected conduct; and (2) that his employer’s retaliation was
motivated, at least in part, by the employee’s engaging in protected conduct.” Id. (internal
citation and quotation marks omitted).

Further, as to “what activities constitute protected

conduct, the case law indicates that protected [conduct] requires a nexus with the in furtherance
of prong of [a False Claims Act] action . . . This inquiry involves determining whether
[plaintiff’s] actions sufficiently furthered an action filed or to be filed under the [False Claims
Act] and, thus, equate to protected [conduct].” Hutchins, 253 F.3d at 187 (internal citations and

11

quotation marks omitted).

“Protected conduct” includes “investigation for, initiating of,

testimony for, or assistance in” a FCA suit. 31 U.S.C. § 3730(h).
Further, the Third Circuit has noted that
Determining what activities constitute “protected conduct” is a fact
specific inquiry. But the case law indicates that “the protected
conduct element . . . does not require the plaintiff to have
developed a winning qui tam action . . . It only requires that the
plaintiff engage[ ] in acts . . . in furtherance of an action under [the
False Claims Act].” . . . Under the appropriate set of facts, these
activities can include internal reporting and investigation of an
employer’s false or fraudulent claims . . . (“[It] would [not] . . . be
in the interest of law-abiding employers for the [False Claims Act]
to force employees to report their concerns outside the corporation
in order to gain whistleblower protection. Such a requirement
would bypass internal controls and hotlines, damage corporate
efforts at self-policing, and make it difficult for corporations and
boards of directors to discover and correct on their own false
claims made by rogue employees or managers.”)
Hutchins, 253 F.3d at 187 (quoting U.S. ex rel. Yesudian v. Howard University, 153 F.3d 731,
739-40 (D.C. 1998)).
In the instant matter, contrary to Defendant’s arguments, Relators have alleged specific
facts to support their claims that Defendant did not bill in compliance with Medicare guidelines,
and that could demonstrate that they engaged in protected activities. As previously noted, at this
stage, this Court must “‘accept all factual allegations as true, construe the complaint in the light
most favorable to the plaintiff. . . .” Phillips v. Cnty of Allegheny, 515 F.3d 224, 231 (3d Cir.
2008) (internal citations omitted).
Relators have pled with adequate particularity their claims, including those regarding
improper billing, adverse event reporting, off-label allegations, and kickback payments, as well
as retaliation. The Amended Complaint, when viewed in the light most favorable to the plaintiff,

12

as necessary for a motion to dismiss pursuant to 12(b)(6), is sufficient to set forth claims upon
which relief may be granted. Defendant’s Motion to Dismiss will be denied.
Motion to Disqualify
Under Local Civil Rule 103.1, the Rules of Professional Conduct are applicable to
attorneys admitted to this Court. See generally Hunt Const. Group, Inc. v. Hun School of
Princeton, No. 08–3550, 2010 WL 1752198 (D.N.J. 2010). RPC 3.7 provides that:
(a) A lawyer shall not act as advocate at a trial in which the lawyer
is likely to be a necessary witness unless: (1) The testimony relates
to an uncontested issue; (2) The testimony relates to the nature and
value of legal services rendered in the case; or (3) Disqualification
of the lawyer would work substantial hardship on the client, (b) A
lawyer may act as advocate in a trial in which another lawyer in
the lawyer’s firm is likely to be called as a witness unless
precluded from doing so by RPC 1.7 or RPC 1.9.
RPC 3.7. Further, RPC 3.7(a) does not require certainty that an attorney will testify; however,
there must be a likelihood that the attorney will be a necessary witness. Biermann v. Bourquin,
No. L-2880-09, 2012 WL 4008956 at *2 (N.J. Super A.D. Sept. 13, 2012) (citing J.G. Ries &
Sons, Inc. v. Spectraserv Inc., 384 N.J. Super 216, 230 (App. Div. 2006)). “Once counsel
recognizes that opposing counsel is ‘likely to be a necessary witness,’ a motion to disqualify
opposing counsel should be filed.” Freeman v. Vicchiarelli, 827 F. Supp. 300, 302 (D.N.J.
1993).

The burden rests on the party seeking to disqualify to put forth enough evidence

establishing the likelihood that the attorney will be a necessary witness at trial. Oswell v.
Morgan Stanley Dean Writer & Co., Inc., No. 06-5814, 2007 WL 2446529 at *3 (D.N.J. Aug.
22, 2007).
RPC 3.7(a) only prohibits an attorney who may be a necessary witness from acting as an
advocate at trial, but does not prevent representation during the pre-trial stage. Tangible Value,
LLC v. Town Sports Intern. Holdings, Inc., No. 10-1453, 2012 WL 4660865 (D.N.J. Oct. 1,
13

2012) (emphasis added); see also Main Events Production, LLC v. Lacy, 220 F. Supp. 2d. 353,
355-56 (D.N.J. 2002). An attorney is not disqualified immediately even if he will likely become
a necessary witness at trial. Id.
An attorney is considered a necessary witness when he can provide evidence that is not
available through any other means.

Biermann, 2012 WL 4008956 at *2 (internal citation

omitted). “[F]or purposes of RPC 3.7, a witness is ‘truly necessary’ if there are no documents or
other witnesses that can be used to introduce the relevant evidence.” Oswell, 2007 WL 2446529
at *4 (internal citation omitted). Furthermore, an attorney is not considered necessary when his
knowledge of the relevant facts came from conversations with his clients and it is well within
their personal knowledge. Spinella Companies v. Metra Industries, Inc., No. 05-5075, 2006 WL
1722626 at *4 (D.N.J. June 22, 2006).
In the instant matter, Defendant contends that Relators’ attorney, Nicholas Harbist
(“Harbist”), must be disqualified as Relator’s counsel. Defendant argues that Harbist had access
to BSNC’s confidential and proprietary patient claims information, since he helped Relators
include it in their Amended Complaint. Defendant claims that it intends to sue Relators in
breach of contract for retaining this confidential information after their employment ceased, and
since Harbist is the only other individual who viewed this information, he will be a necessary
witness. (Def.’s Mot. to Disqualify 2.)
At this juncture in the case, this Court finds no basis for disqualifying Relators’ counsel.
Defendant relies on Freeman v. Vicchiarelli, 827 F. Supp. 300, 302 (D.N.J. 1993), in support of
its argument that RPC 3.7 applies during the pre-trial stage; however this proposition has been
clarified in Main Events Production, LLC v. Lacy, 220 F. Supp. 2d. 353 (“Lacy”). In Lacy, the
Court explained that the decision in Freeman was predicated on New Jersey cases and opinions

14

“which relied on older versions of the advocate witness rule found in the Disciplinary Rules of
the Code of Professional Responsibility.” Id. at 356. Under the current version of RPC 3.7, the
Lacy court held that the decision in Freeman “is at odds with the clear language of RPC 3.7,”
prohibiting an attorney from acting as “an advocate at trial.” Id. (emphasis added.) Therefore,
even if Defendant were to be correct that Harbist may become a necessary witness at trial, this
does not preclude him under RPC 3.7 from representing Relators during this pre-trial stage.
Motion to Strike
The Department of Health and Human Services (“HHS”) enforces HIPAA. 6

The

regulations promulgated pursuant to HIPAA (known as the Standards for Privacy of Individually
Identifiable Health Information (the “Privacy Rule”)) directly regulate three types of “covered
entities”: (1) health care providers, which transmit health information electronically; (2) health
plans, such as health insurers and HMOs; and (3) health care clearinghouses. See 45 C.F.R. §§
160.102 and 160.103.
According to the final Privacy Rule, “[HIPAA] only applies to covered entities, not their
workforces, it is beyond the scope of this rule to directly regulate whistleblower actions of
members of a covered entity’s workforce.” 45 Fed. Reg. 82,501, 82,502 (Dec. 28, 2000).
A covered entity may not use or disclose protected health information, except as
permitted or required by the statute. 45 CFR § 164.502. Pursuant to an exception in 45 CFR §
164.502(j)(1),
A covered entity is not considered to have violated the
requirements of this subpart if a member of its workforce or a

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“The HIPAA Privacy Rule establishes national standards to protect individuals’ medical records and other personal
health information and applies to health plans, health care clearinghouses, and those health care providers that
conduct certain health care transactions electronically.” The Privacy Rule, Department of Health and Human
Services, available at http://www.hhs.gov/ocr/privacy/hipaa/administrative/privacyrule/index.html (last visited May
31, 2013).

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business associate discloses protected health information, provided
that:
(i) The workforce member or business associate believes in good
faith that the covered entity has engaged in conduct that is
unlawful or otherwise violates professional or clinical standards, or
that the care, services, or conditions provided by the covered entity
potentially endangers one or more patients, workers, or the public;
and
(ii) The disclosure is to:
(A) A health oversight agency or public health authority authorized
by law to investigate or otherwise oversee the relevant conduct or
conditions of the covered entity or to an appropriate health care
accreditation organization for the purpose of reporting the
allegation of failure to meet professional standards or misconduct
by the covered entity; or
(B) An attorney retained by or on behalf of the workforce member
or business associate for the purpose of determining the legal
options of the workforce member or business associate with regard
to the conduct described in paragraph (j)(1)(i) of this section.
The HHS has stated that “[o]ur purpose in including this provision is to make clear that
we are not erecting a new barrier to whistleblowing, and that covered entities may not use this
rule as a mechanism for sanctioning workforce members or business associates for
whistleblowing activity.” See 45 Fed. Reg. 82,501, 82,636 (Dec. 28, 2000).
It is undisputed that the Relators were employees of BSNC when they obtained the
relevant information. Further, the Relators argue that they were acting in good faith to report
activities of the covered entity they believed to be unlawful. (See Relator’s Opp’n 18-20.)
While patients should not be identifiable, there is no specific requirement to remove the
name of physicians or providers from the records. As reflected by the Guidance Regarding
Methods for De-Identification of Protected Health Information in Accordance with the Health
Insurance Portability and Accountability Act (HIPAA) Privacy Rule, published by the HHS on

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November 26, 2012, generally the focus for de-identification for HIPAA records is the names of
the individuals associated with the health information (patient) and their employers, and relatives
to be suppressed. In the instant matter, the Amended Complaint does not disclose patient
information.

Assertions by BSNC that such information could be determined by cross-

referencing treating physicians, dates of services and locations are not persuasive.
CONCLUSION
For the reasons set forth above, this Court will DENY Defendant’s Motion to Dismiss,
Motion to Strike, and Motion to Disqualify.

s/ Susan D. Wigenton, U.S.D.J.
Orig:
cc:

Clerk
Parties
Magistrate Judge Arleo

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