A federal district court affirmed this guidance in a careful analysis of the attorney-client privilege and its application to protect separate legal entities within a larger corporate structure. Affirming that member entities are not treated as “one client,” the Court in U.S. ex rel Behnke v. CVS Caremark Corp., et al. denied a whistleblower’s motion to compel a privileged legal memo and allowed CVS Caremark to protect many of its attorney-client communications. It did so despite a related entity having disclosed the memo as part of related discovery in the matter.
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The FCA action involving CVS is ongoing and in it, the whistleblower—a former employee of Aetna—moved to compel CVS’s production of attorney-client privileged documents based on Aetna’s partial waiver of the privilege in the same lawsuit. Aetna, one of CVS’s clients, had years earlier conducted an internal investigation in which its attorneys analyzed statements made by CVS about its commercial pricing and Medicare rates—the issues at the core of the ongoing FCA action. Caremark had reported to Aetna that it did not explicitly agree to accept lower commercial drug pricing and accept higher Medicare pricing with the expectation that the Medicare rates would offset the favorable commercial deals. Aetna, who is not a party to the lawsuit, intervened in the FCA action and waived the privilege on certain memos produced as part of that investigation. The memos released by Aetna summarized that its attorneys could not find credible evidence that CVS’s drug pricing practices violated Medicare regulations.
Then, during litigation, Aetna and CVS became part of the same corporate family. The whistleblower jumped at the opportunity to argue that Aetna’s partial waiver of the attorney-client privilege should extend to CVS as well, arguing that if CVS intended to rely on the exculpatory legal statements in Aetna’s memo, it should be forced to produce its privileged documents around those statements.
The Court disagreed. The advice-of-counsel defense can be a useful tool for entities to defeat the requisite knowledge requirement under the FCA. But, it comes with risks. When a health care entity relies on the defense, the waiver of the privilege can extend beyond the narrow documents containing the advice and to a broader range of privileged documents. But here, the whistleblower’s attempt to leverage Aetna’s disclosure against a related entity fell short.
The Court noted that CVS has not yet rested its defense strictly on the advice of counsel and until CVS relies on the exculpatory statements made in Aetna’s memo, forcing CVS to produce privileged communications about those statements would be premature.
Likewise, just because Aetna and CVS merged during the litigation, CVS would not be subject to Aetna’s partial waiver of the attorney-client privilege. It is a longstanding principle that separate members of corporate entities are not treated as one client under the privilege. In its motion to compel discovery, the whistleblower failed to demonstrate that caselaw supported such a novel extension, and the Court refused to break new ground.
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