The US Court of Appeals for the Second Circuit recently affirmed the decision of the District Court for the Southern District of New York to disqualify Fair Laboratory Practices Associates (FLPA) from its qui tam suit against Quest Diagnostics (Quest) and Unilab Corporation (Unilab) because the FLPA used confidential information provided by Unilab’s former general counsel, Mark Bibi.

FLPA sued under the False Claims Act (FCA), alleging that from at least 1996 to 2005 Unilab illegally priced its medical testing services by providing sharp discounts to medical care providers to induce them to refer Medicare and Medicaid business. Unilab then billed the incoming federal business at significantly higher rates. The US Department of Health and Human Services Office expressly prohibited this “pull-through” scheme in a 1999 advisory opinion. Less than five months after instructing Unilab’s chief executive officer on the advisory opinion, Bibi was replaced as general counsel. 

Bibi, along with two colleagues from Unilab, formed FLPA in 2005. Although Bibi knew he had confidential information, he concluded exceptions to the ethical rules applied in this FCA case brought against Unilab and Quest. The District Court disagreed that the attorney-client confidentiality rules did not apply and disqualified FLPA as a potential plaintiff. 

The Second Circuit affirmed, noting that the FCA did not preempt state ethical rules, and that Bibi’s disclosures exceeded what was reasonably necessary to prevent a crime as permitted by the ethical rules. The court also upheld the District Court’s decision to dismiss FLPA’s complaint due to Bibi’s ethical violation because allowing the case to proceed would permit FLPA to use unethical disclosures against Quest and Unilab. 

United States v. Fair Laboratory Practices Assoc.s, No. 11-1565-cv (2d Cir. Oct. 25, 2013).