Court Refuses to Recognize “Compliance Officer Privilege” in Qui Tam Action

The growing number of corporate compliance officers, most with law degrees and housed in the corporate legal department, will increasingly raise the issue whether some evidentiary privilege protects from compelled disclosure corporate communications with the CCO.  A Texas federal court, interpreting a Texas state statute, refused to find a statutory “compliance officer privilege” that protectscomplianceofficer a CCO’s communications.  U.S. v. Austin Radiological Associates, Inc., 2013 WL 113668 (W.D. Tex. Mar. 18, 2013).

In Austin Radiological, a former employee of Austin Radiological Associates (ARA) brought a qui tam action under the False Claims Act alleging ARA retained Medicare overpayments, wrongfully billed Medicare, and wrongful discharge.  She sought discovery from ARA’s compliance officer, but ARA objected asserting a “compliance officer privilege” under Texas Health & Safety Code § 161.032(e).  This statute provides, in part, that

The records, information, and reports received or maintained by a compliance officer retain the protection provided by this section only if the records, information, or reports are received, created, or maintained in the exercise of a proper function of the compliance officer . . .

The question whether this statutory section created an evidentiary privilege depended upon the court’s statutory interpretation.  Upon review, the court determined that this section incorporated another section (Texas Gov’t Code § 552.005) stating that the “protection provided by this section” did not “create new privileges from discovery.”  The court therefore rejected a statutory “compliance officer privilege” and ordered the CCO’s documents produced.

PoP Analysis.  This decision raises several issues for in-house lawyers and corporate compliance officers.  First, the court and parties applied Texas state law even though the presence of a federal claim could have provided an opportunity to argue for a common law compliance privilege.  Second, the case is silent regarding whether the compliance officer was a lawyer working in ARA’s legal department.  If so, then perhaps an argument that the corporate attorney-client privilege protected the compliance officer’s communications would have proved more successful.  While a few cases address a compliance officer’s privilege in the attorney-client privilege context, the cases are fact-specific and rely on a traditional analysis whether the compliance officer was acting in a legal versus a business capacity.  See, e.g., Leazure v. Apria Healthcare, Inc., 2010 WL 3397685 (E.D. Tenn. Aug. 26, 2010); U.S. ex rel. Parikh v. Premera Blue Cross, 2006 WL 3733783 (W.D. Wash. Dec. 15, 2006).

And finally, this case reminds us that statutory confidentiality rules are not the equivalent of evidentiary privileges.  As courts note, “[c]onfidential does not necessarily mean privileged,” In re Grand Jury Subpoena Dated Dec. 17, 1996, 148 F.3d 487, 492 (5th Cir. 1998), and “confidentiality and privilege are two separate, albeit overlapping, legal concepts.”  Gaumond v. Trinity Repertory Co., 909 A.2d 512, 518-19 (R.I. 2006).

Thought-Provoking Article on Protecting Multi-National Corporations’ Attorney-Client Privilege

In-house lawyers for corporations with headquarters, divisions, facilities, or offices in the United States and a European Union country often exchange privileged information.  For example, an in-house lawyer based at a corporation’sWisconsin U.S. facility may provide a legal opinion based on U.S. law to her in-house counterpart in the corporation’s German facility for use in a global legal strategy .  And while many lawyers assume these communications are perfectly privileged, that is not necessarily the case.  Cross-border communications raise many privilege and conflict-of-privilege law questions that should trouble in-house counsel.

In his thoughtful article, The Privilege Stops at the Border Even if a Communication Keeps Going, 80 S.C. J. Int’l L. & Bus. 297 (2012), David S. Jones identifies the conflict-of-law and related issues that arise when U.S. based lawyers exchange ostensibly privileged communications with their E.U. colleagues.  The article provides a timely review of the major E.U. decision in Akzo v. Nobel  Chemicals Ltd. v. European Comm’n,  which held that in-house attorneys have no attorney-client privilege (legal professional privilege) and that no privilege exists for attorneys who are not members of an E.U. member state bar.  Mr. Jones discusses how a U.S. federal or state court should analyze the conflict-of-privilege law issues in determining whether to apply the restrictive E.U. law to U.S.-based communications.

The scope of evidentiary privileges in E.U. countries is a continually emerging issue for multi-national corporations.  Mr. Jones’ article, which is available at this link, provides a thorough overview of the issues and identifies key points that lawyers and judges should consider when addressing these often first-impression issues.  It is well worth the read.  And for those wanting a conflict-of-privilege law analysis between federal and state and between states, check out my chapter, The Application of Conflict of Laws to Evidentiary Privileges, published in DRI’s Evidentiary Privileges for Corporate Counsel.

My thanks to the South Carolina Journal of International Law and Business and Scholar Commons for permission to link Mr. Jones’ article in this post.

Caution! Inadequate Privilege Log Could Result in Waiver 1

 The Federal Rules of Civil Procedure and many corresponding state civil procedure rules require parties withholding privileged documents to prepare a privilege log identifying theSlide1 withheld documents and the asserted privilege.  But many lawyers either ignore these requirements or construct privilege logs that fail their essential purpose.  Many reasons exist for this privilege-log apathy: privilege logs require tedious diligence and cause lawyers to procrastinate in their preparation; lawyers don’t insist on privilege logs from their adversaries for fear their adversaries will respond in kind; and some lawyers decide that legal strategy calls for keeping privilege claims intentionally vague and provide a general privilege log with no specifics.

The days of privilege log apathy are coming to an end.  Courts are increasingly exhibiting more scrutiny of privilege logs and imposing sanctions, including the significant sanction of waiver, for insufficient privilege log descriptions.  The privilege-log rule, however, is intentionally vague and simply requires parties to “describe the nature” of the putatively privileged document in a manner that “will enable other parties to assess the
claim.”  Fed. R. Civ. P. 26(b)(5)(A).  But several courts, through common law decisions or via local rules, now impose strict requirements on the composition of privilege logs.

In my article, Ignoring Privilege Log Obligations May Prove Costly, published by the Inside Counsel magazine and website, I explore the necessity of privilege logs, the various rules and requirements that some courts now impose, and outline the adverse consequences for failing to comply with these requirements.  I end the article with a list of practical tips that should aid lawyers in preventing privilege log mishaps and privilege waiver.  You may access the article at this link.  My thanks to Inside Counsel for publishing the article and allowing access through this post.