Last week, the District Court of the Eastern District of Pennsylvania ruled that defendants in a False Claims Act case may bring a cause of action against the Relator for breach of a confidentiality agreement. Though such causes of action have been disfavored by other courts, this ruling paves a path for government contractors and healthcare providers to strengthen the potential enforcement of confidentiality agreements.

The Decision

In United States ex rel. Walsh et al. v. Amerisource Bergen Corp. et al., the Relator amassed documents from his employer prior to filing his FCA complaint including potentially privileged material. The Relator then disclosed these documents to his attorney and, upon the unsealing of the complaint, the documents were publicly available. Amerisource  filed a counterclaim against the Relator seeking to collect damages for the disclosure of confidential documents by alleging that such disclosure breached the confidentiality agreement that Relator had entered into with Amerisource during his employment.

Relator argued that the claim should be dismissed because: (1) the documents were not confidential; (2) Amerisource had failed to demonstrate any harm from the disclosures; and (3) the claim was barred per public policy favoring such disclosures for the purpose of supporting FCA claims. The Court rejected all three arguments and distinguished this case from other decisions in which courts had rejected such claims.

Applying Pennsylvania law, the Court determined that the documents were indeed confidential and that Amerisource had properly alleged damages arising from the breach of the confidentiality agreement. But in rejecting the Relator’s public policy argument, the Court persuasively distinguished the type of counterclaim pursued by Amerisource from other, unsuccessful attempts in false claims act cases.

The key distinguishing factor of Amerisource ‘s claim against the Relator was that Amerisource seeks recovery not for the disclosure of alleged fraud or for any potential recovery by the Relator in the FCA claim: “Rather, the damages sought by Amerisource are alleged to be the result of Relator’s breach of a validly executed confidentiality agreement.” (Walsh at 12). This  distinction made Amerisource’s claim independent from the alleged FCA case in that the potential exists for Amerisource to be cleared of all liability in the FCA claim, and yet the Relator found liable for his separate breach of an enforceable agreement. Therefore, the Court denied Relator’s 12(b)(6) motion to dismiss and allowed the claims to proceed.

The Impact

This is a federal district case that has little precedential value outside of the Eastern District of Pennsylvania. However, the Court’s thoughtful analysis and detailed distinguishing of contrary caselaw in other federal courts provides ample reason for government contractors and healthcare providers to consult with counsel and ensure that they have strong confidentiality provisions in place with their employees. Though the ultimate success of a counterclaim for breach of such an agreement is uncertain, it provides a tool for the defense of an FCA claim that is otherwise unavailable.

Should you have any questions regarding false claims act defense, the implementation of appropriate confidentiality agreements, or this article, please contact:

• David B. Honig at dhonig@hallrender.com or (317) 429-1447;
• Drew B. Howk at ahowk@hallrender.com or (317) 429-3607; or
•  Your regular Hall Render attorney.