United States: FCA Relator Sanctioned Nearly $170,000 For Improperly Taking Employer's Privileged Documents

A US District Court Judge for the District of Alaska sanctioned a relator nearly $170,000 for copying hundreds of confidential documents, including privileged documents, that belonged to his former employer for use in his False Claims Act (FCA) case against the company. U.S. ex rel. Ferris v. Afognak Native Corp., No. 3:15-cv-00150-HRH, Dkt. No. 328 (D. Alaska October 18, 2017). Defendant Afognak Native Corp. alleged that the relator, Afognak's former chief compliance officer, improperly obtained the company's confidential and privileged documents outside of the discovery process, retained the documents in violation of his employment contract, and relied upon the documents to support his litigation against the company.

Courts historically have been hesitant to sanction relators for taking their employers' confidential documents to support their FCA claims for public policy reasons. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 773 (N.D. III. 2004); U.S. ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1038-39 (C.D. Cal. 2012); Siebert v. Gene Sec. Network, 2013 U.S. Dist. LEXIS 149145, 2013 WL 5645309, at *24-26 (N.D. Cal. Oct. 16, 2013); U.S. ex rel. Ceas v. Chrysler Grp. LLC, 191 F. Supp. 3d 885, 888 (N.D. Ill. 2016).

In the Ferris case, the court recognized the potential existence of a public policy protecting FCA relator's ability to collect and use an employer's confidential information in fashioning a qui tam action, citing United States ex rel. Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) and the Siebert decision referenced above. However, the judge in Ferris noted that no public policy protected the relator's removal and retention of the privileged documents and found that the relator had intentionally used nine privileged documents in preparing his case. The court further concluded that the relator and his attorneys acted "willfully" when they retained and used the privileged documents in contravention of "established norms of litigation conduct. " Despite such a finding, the court determined that the relator's actual use of the privileged documents was "minimal" and ultimately granted an award of attorneys' fees and costs, rather than dismissing the case.

The court's decision in Ferris underscores that relators who improperly take their former employers' privileged documents to support their FCA claims may be subject to significant sanctions. However, the court's decision leaves open the question of whether, and under what circumstances, a relator may face similar sanctions for taking non-privileged, but confidential, company documents. When faced with the issue of a relator who has purloined his or her employer's confidential documents, defense counsel in FCA actions should focus on certain key elements:

• The nature of the documents at issue (Are they privileged or uniquely confidential?);
• The relevance of the extracted documents to the relator's case (The less central they are to revealing the alleged fraud, the less likely the relator's taking them will be found to have been justified);
• The volume of the confidential documents taken (In Cafasso, the Ninth Circuit rejected any application of a public policy exception protecting the relator because she had copied a vast and indiscriminate cache of her employer's business records.); and, finally,
• The post-filing actions by the relator and his or her legal counsel that may provide an opening to secure sanctions (This was one of the key factual elements supporting the ultimate decision by the judge in Ferris to sanction the relator.).

Although defense counsel in FCA actions face an uphill battle in obtaining sanctions against relators who have appropriated their employers' confidential records, the Ferris decision presents a helpful framework for such a motion to succeed given the right set of circumstances.

This article was co-authored by Ashley Phillips, a Law Clerk in Dentons' Denver office.

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