United States of America ex rel. NPT Associates v. Laboratory Corporation of America Holdings et al
Filing
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MEMORANDUM OPINION AND ORDER: Defendants' motion seeking discovery on the limited issue of whether NPT may be disqualified as relators because of knowledge potentially obtained via former counsel, Troutman and Michael, is GRANTED. The Parties are HEREBY ORDERED to submit a joint proposed discovery schedule, which includes this issue and the matters already submitted by the Parties. (Signed by Magistrate Judge Ronald L. Ellis on 11/28/2012) (js)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA ex reI.
NPT ASSOCIATES,
Plaintiffs,
MEMORANDUM
OPINION & ORDER
- against07 Civ. 5696 (ALC) (RLE)
LABORATORY CORPORATION OF AMERICA
HOLDINGS, et aI.,
Defendants.
RONALD L. ELLIS, United States Magistrate Judge:
I. INTRODUCTION
Before the Court is Defendants' request for special, or limited, discovery of PlaintiffRelator NPT Associates ("NPT"), Troutman Sanders LLP ("Troutman"), and the Michael Law
Group ("Michael") to determine whether NPT Associates should be disqualified from serving in
ex relator status on behalf of the United States of America. Defendants base their arguments on
the belief that NPT may have obtained confidential information of Laboratory Corporation of
America Holdings ("Lab Corp") via Troutman, that Plaintiffs may be disqualified based on
binding precedent in a prior similar case, and that NPT's members may have improperly relied
on materials obtained through legal advice provided by counsel to members of the California
Clinical Laboratory Association ("CCLA")-including Quest Diagnostics Incorporated
("Quest") and LabCorp-in 1996. Defs.' Let. to the Court ("Defs.' Let."), May 1,2012. For the
reasons which follow, the request is GRANTED.
II. BACKGROUND
NPT, a Delaware partnership, consists of independent clinical professionals in the
clinical laboratory industry. Sec. Am. Compi. ("SAC") '17. It claims under the qui tam
provisions of the False Claims Act, 31 U.S.C. §§ 3729-33, that LabCorp has violated the Act by
fal~ely certifying:
its comnliance with the Anti-Kickback Statute. 42 U.S.c. QQ 1320A-7b(b).
SAC ~ 1. NPT alleges that LabCorp falsely submitted claims to the United States totaling
millions of dollars via a "pull-through" scheme whereby LabCorp allegedly offered medical
testing services for Medicare and Medicaid to UnitedHealth Group Incorporated
("UnitedHealthcare") at unreasonably low prices "in order to induce UnitedHealthcare to arrange
for or recommend that their in-network physicians send their Medicare-reimbursable tests to"
LabCorp. Id.
'l~
2-3. Defendants allegedly agreed to pay UnitedHealthcare up to $200 million
in order to cover any expenses associated with the arrangement. Id.
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3.
After being served with the Second Amended Complaint, LabCorp informed NPT's
former counsel, Troutman and Michael, of a potential conflict of interest since Troutman
(through a separate office) had served as counsel to LabCorp for seven years and Michael had
been employed by Troutman as an attorney when this suit was filed. Defs.' Let. 2. It was
determined through limited discovery that one office of Troutman was representing LabCorp
while counsel in another Troutman office represented NPT when this suit was filed. LabCorp
filed a motion to disqualifY Troutman and Michael based on an actual or perceived conflict of
interest. Troutman and Michael subsequently withdrew as counsel to NPT in this proceeding,
and NPT retained Quinn Emanuel Urquhart & Sullivan, LLP. Order of Substitution of Counsel
(May 15,2012), ECF No. 61.
LabCorp asserts that it discovered the identities of NPT's current and former members
during discovery, and that four of NPT's original members were also members of Fair
Laboratory Practices Associates ("FLP A"). FLP A, which was represented by Troutman and
Michael at the time, brought a suit similar to this one against Quest in this Court. United States
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ex rei. Fair Lab. Practices Assoc. v. Quest Diagnostics, Inc., ("FLPA v. Quest"), No. 05 Civ.
05393 (RPP)' 2011 WI, 1330542 (S.D.N.Y. Am. 5,2011). In FLfA v. Quest. the court
disqualified FLPA and its general counsel, Mark Bibi, who had served as previous general
counsel to Unilab, a clinical laboratory acquired by Quest before suit had been brought and a
defendant in the action. The court noted that since Bibi was precluded from suing his former
employer indirectly as counsel, Bibi was also barred from doing so as a party. Id. at *8-9. The
court found that Bibi had disclosed confidential information to his business partners, who joined
him as plaintiffs in that suit. Id at * 12. Judge Patterson dismissed the suit for Bibi's ethical
violation and made it applicable to "any subsequent action arising out of the same facts." Id. at
* 11.
Defendants maintain that NPT's original members were also members of FLP A and that
Quest now has the same ownership as LabCorp, and therefore, the FLPA disqualification order
should apply to NPT.
LabCorp now states that after seeking disqualification of Troutman and Michael as
counsel for NPT, they reserved the right to pursue limited discovery on any remaining ethical
issues concerning a possible taint ofNPT because of the sharing of any confidential information
by their former counseL Defs.' Let. 3. Prior to Troutman and Michael withdrawing as counsel,
LabCorp submitted follow-up requests to their supplemental disclosures to determine the extent
of the firm's potential conflict of interest. LabCorp now seeks to continue the assessment that
was left incomplete when NPT voluntarily withdrew as counsel.
LabCorp claims that NPT may be disqualified based on its potential inadvertent, yet
improper, exposure to confidential documents because of lack of ethical screens in place by
Troutman, as well as exposure to potentially privileged communications by the CCLA. LabCorp
argues that Judge Patterson's decision to disqualifY FLPA was based in part on FLPA's
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awareness ofthe CCLA opinion letter which interpreted the Anti-Kickback Statute and appears
to have cautioned agaimt the notential ille2.alitv of "null-throu2.h" schemes. fLf A v. Ouest.
20 II WL 1330542, at *2. LabCorp also suggests that NPT may not be allowed to bring this
action if any of FLPA's general partners are a party here, or if the allegations in the current
action stem from the facts of FLPA v. Quest.
III. DISCUSSION
LabCorp asserts that this case is analogous to FLPA v. Quest because the former general
counsel of one of the defendants was serving as one of the relators in FLPA. While this case is
based on the same theory of liability as FLPA and brought, at least in part, by some of the same
relators as in FLPA, the decision in FLPA was premised on the conclusion that counsel for FLPA
had access to privileged information when serving as counsel to Unilab.
While the Court finds sufficient basis to grant LabCorp discovery on the limited issue of
whether NPT can proceed as a relator in this case on behalf of the United States, LabCorp may
not simply impute the acts ofNPT's prior counsel to the relators. Because Troutman Sanders
and the Michael Law Group were counsel in FLPA, Defendants argue that they should be
allowed discovery on the issue of whether Troutman or Michael shared privileged or confidential
information with NPT. Although prior counsel have withdrawn, Defendants maintain that they
may have conveyed privileged information to NPT before the withdrawal. Prior counsel have
provided sworn affidavits which state that no confidential information acquired from LabCorp
was shared with any other counsel working on matters involving LabCorp, nor with NPT.
Plaintiffs Letter to the Court ("Pl.'s Let.") at 2, May 8, 2012. Moreover, prior counsel asserts
that "none of the lawyers who previously represented NPT ever accessed any LabCorp
information or even spoke with any of the lawyers who had previously represented LabCorp."
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Id. at 3. Defendants argue that attorney affidavits alone are insufficient to rebut the presumption
of confidence sharing within a firm where a motion 10 disaualify is at issue. see ffemostead
Video, Inc. v. Inc. Village a/Valley Stream, 409 FJd 127 (2d Cir. 2005), but that presumption
arises when there is a perceived conflict between counsel, not between counsel and a party.
IV. CONCLUSION
Defendants' motion seeking discovery on the limited issue of whether NPT may be
disqualified as relators because of knowledge potentially obtained via former counsel, Troutman
and Michael, is GRANTED. The Parties are HEREBY ORDERED to submit ajoint proposed
discovery schedule, which includes this issue and the matters already submitted by the Parties.
SO ORDERED this 28th day of November 2012
New York, New York
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The Honorable Ronald L. Ellis
United States Magistrate Judge
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