A Texas appellate court recently affirmed a judgment against a healthcare consulting firm that claimed that its former employee had misappropriated its confidential information to use in a False Claims Act (“FCA”) lawsuit against the consulting firm’s largest client.  The consulting firm, MJS and Associates, LLC (“MJS”), claimed that the employee’s conduct violated confidentiality agreements she had signed and caused MJS to lose business.  The appellate court held that MJS failed to show its alleged harm proximately resulted from the employee’s taking of the confidential documents.  This decision is significant because it suggests that the FCA might protect an employee from liability for breaching a confidentiality agreement when the employee uses the employer’s documents in a qui tam suit against one of the employer’s clients.

The Employee’s FCA Lawsuit Against the Employer’s Client

MJS provides Medicare and Medicaid compliance audits for healthcare companies.  MJS hired Judy Master, a registered nurse, to work on compliance audits of its biggest client, LHC Group, LLC.  In connection with her employment, Master signed multiple agreements containing confidentiality provisions.  The contract between MJS and LHC’s outside legal counsel also contained a confidentiality provision. 

After working less than three months, Master resigned from MJS.  Prior to her resignation, Master copied and took home documents relating to the LHC audits and MJS records. 

Less than a month after her resignation, Master filed a qui tam complaint against LHC in federal court in Louisiana.  Master alleged that LHC violated the FCA by filing false claims for reimbursement from the government under Medicare and other healthcare programs over a ten year period. 

MJS later received a government subpoena requesting documents relating to LHC.  Shortly after MJS responded to the government subpoena, LHC terminated its business relationship with MJS. 

The Department of Justice ultimately settled its claims against LHC for approximately $65 million.  Master received roughly 19% of the settlement—equaling over $12 million. 

The Employer’s Breach of Contract Lawsuit Against the Employee

Once MJS learned of Master’s involvement in the FCA lawsuit against LHC, MJS filed a lawsuit against Master in Texas state court alleging breach of contract, violations of the Texas Trade Secrets Act, and other claims.  MJS alleged that it lost business when the news of the FCA lawsuit became public.

Master moved for summary judgment, arguing that she did not violate the confidentiality agreements by providing the documents she collected to her attorney and the government.  She also argued that, although she “may be liable under Texas contract or tort law[,] . . . her conduct is protected under the False Claims Act and the confidentiality agreement is unenforceable in this limited circumstance as a matter of public policy.”  Master also argued that MJS failed to present evidence to support its claims or show that its alleged damages were caused by Master’s conduct.  The trial court granted Master’s motion for summary judgment in its entirety but did not issue a written opinion.

On appeal, the Court of Appeals for the Twelfth District of Texas affirmed.  The appellate court did not address whether the FCA protected Master from liability to MJS even when MJS was not the target of Master’s FCA suit.  Instead, the court concluded that MJS failed to prove its alleged loss of business proximately resulted from Master’s taking of confidential documents.  The court relied, in part, on an affidavit by LHC’s Chief Compliance Officer, who attested that LHC’s decision to fire MJS was unrelated to the qui tam lawsuit.  The court also held that MJS failed to show that its decline in business was directly connected to the negative publicity regarding Master’s lawsuit.   

Takeaways

Several courts have held confidentiality agreements to be unenforceable when an employee uses confidential information to bring an FCA action against his or her employer.  The Texas trial court’s decision in this case arguably stands for the more novel proposition that an employer may be without a remedy even when an employee uses confidential information to bring an FCA suit against a third party.  The Whistleblower Wire will continue to monitor this potentially significant development.  Additionally, this case emphasizes the difficulty employers may face in showing causation between business losses and an employee’s breach of a confidentiality agreement.