Second Circuit: in-house counsel may not seek to profit as whistleblowers against former employers

By Mark A Nadeau, Laura M Kam and Cole J Schlabach

The US Court of Appeals for the Second Circuit has issued an important ruling restricting in-house counsel from acting as whistleblowers in litigation against their current or former employers.

In United States ex rel Fair Laboratory Practices Associates v Quest Diagnostics Inc et al, the Second Circuit upheld a Southern District of New York ruling dismissing the action and disqualifying the former general counsel of defendant Unilab Corporation, a wholly owned subsidiary of Defendant Quest Diagnostics Inc, as well as his co-relators, the former chairman and chief executive officer and former chief financial officer of Unilab, and their outside counsel, from bringing any subsequent related qui tamaction, on the basis that ’such measures were necessary to prevent the use of [the former general counsel’s] unethical disclosures against defendants’. 

The decision, handed down on 25 October, held that state statutes and rules regulating an attorney’s disclosure of client confidences were not pre-empted by the False Claims Act and that the former general counsel’s decision to ’spill his guts and freely disclose Unilab’s confidential information’ went well beyond anything that was authorised under the crime/fraud exception of the New York Rules of Professional Conduct, making it ’virtually impossible to identify and distinguish each improper disclosure’…

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