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N.Y. R. Prof. Conduct 1.9(c) (22 NYCRR 1200.0) provides that a lawyer who has formerly represented a client in a matter shall not thereafter: (1) use confidential information of the former client protected by N.Y. R. Prof. Conduct 1.6 (22 NYCRR 1200.0) to the disadvantage of the former client, except as these Rules would permit or require with respect to a current client or when the information has become generally known; or (2) reveal confidential information of the former client protected by Rule 1.6 except as these Rules would permit or require with respect to a current client. Rule 1.6(b)(2), in turn, authorizes a lawyer to reveal or use confidential information to the extent that the lawyer reasonably believes necessary to prevent the client from committing a crime.
The then-CEO of Unilab Corporation (“Unilab”), Andrew Baker, initiated the present qui tam action and invited other Unilab executives, Richard Michaelson and Mark Bibi (Unilab’s former general counsel), to join him as individual relators. In particular, Baker believed that Bibi’s status as a lawyer would improve their credibility with the government. Recognizing the potential ethical implications of a former general counsel bringing a qui tam lawsuit against his former company and client, Bibi consulted the N.Y. Rules and the American Bar Association's Model Rules of Professional Conduct to determine whether he could participate. Bibi concluded that certain exceptions to the attorney-client confidentiality rules permitted his participation, and “did not feel it was necessary” to verify his understanding with the New York state bar. Subsequently, Fair Laboratory Practices Associates ("FLPA" or "plaintiff") was formed for the purpose of acting as a relator in one or more qui tam actions against defendants Quest Diagnostics Incorporated ("Quest") and Unilab for alleged violations of the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b ("AKS"). Pursuant to the FLPA partnership agreement, Bibi would stand to collect 29% of any qui tam recovery, while Baker and Michaelson would receive 57% and 14%, respectively. In June 2005, FLPA filed the present qui tam action in the Southern District of New York. The District Court permitted the defendants to take discovery regarding whether Bibi and FLPA had improperly used or disclosed Unilab's confidences in this lawsuit. Following the completion of the discovery, defendants filed a motion to dismiss the complaint, arguing that Bibi's participation in the qui tam action violated N.Y. Rule 1.9(a) and N.Y. Rule 1.9(c). The District Court granted defendants’ motion to dismiss, holding that Bibi’s’ participation in the present action violated Rule 1.9(a) – the “side-switching rule” – and Rule 1.9(c)’s prohibition on disclosing client confidences beyond what was “necessary” within the meaning of Rule 1.6(b), to prevent the commission of a crime. In light of these conclusions, the District Court held that the appropriate remedy was to dismiss the Complaint as to all defendants, and to disqualify FLPA, each of the individual relators, and FLPA's counsel from bringing the suit or any subsequent suit based on the same facts. On appeal, FLPA argued that the District Court erred in holding that Bibi violated his ethical duties under the N.Y. Rules and in granting an overly broad remedy in favor of the defendants.
The Court held that the District Court did not err in holding that Bibi violated his ethical duties under the N.Y. Rules. The Court averred that N.Y. Rule 1.6(b)(2), which permitted a lawyer to reveal or use confidential information to the extent that the lawyer reasonably believed necessary to prevent the client from committing a crime, did not justify Bibi's disclosures in the present case. According to the Court, Bibi reasonably could have believed that defendants intended to commit a crime; however, his disclosure of Unilab’s confidential information went well beyond what was “necessary” within the meaning of N.Y. Rule 1.6(b)(2) to prevent Unilab from committing a crime inasmuch as there was ample non-confidential information on which to bring an FCA action. Therefore, Bibi's conduct in the present qui tam action violated his ethical obligations under N.Y. Rule 1.9(c). Anent the second issue, the Court held that the District Court did not err or abuse its discretion in dismissing the complaint and disqualifying FLPA, all of its general partners, and its outside counsel from bringing any subsequent related qui tam action, on the basis that such measures were necessary to prevent the use of Bibi's unethical disclosures against defendants.