Court Sanctions Attorneys for Relator in Frazier v. IASIS Healthcare For Failing to Promptly Seek Ruling on Privileged Documents Obtained from Relator

The U.S. District Court in Arizona recently sanctioned the attorneys for the relator in the qui tam case of United States ex rel Jerre Frazier v. IASIS Healthcare Corporation, Case 2:05-cv-766-RCJ as a result of their failure to promptly seek a ruling from the Court concerning privileged documents of the defendant that they had received from the relator.  In an Order entered on January 10, 2012, the Court found that the relator, Frazier, had “copied and removed approximately 1,300 pages of documents, emails and other . . . proprietary materials” from the the defendant, IASIS Healthcare. After years of litigation and the dismissal of the third amended qui tam complaint in June 2011, the Court handed down its ruling in response to the Defendant's Renewed Motion for Sanctions against the relator and his counsel.

The Court denied as moot the Motion for Sanctions against the relator as the parties had settled their claims.

As to the relator's "Qui Tam Counsel," however, the Court found they "were aware that they had potentially privileged documents in the Fall of 2004," before they filed suit, but once Qui Tam Counsel filed suit, they "delayed and did not seek a ruling from the Court on what to do with IASIS’s privileged documents" until it had served the unsealed qui tam complaint. The Court further falted Qui Tam Counsel for appearing to "play dumb as to what privileged documents IASIS was talking about" once IASIS requested its docuuments  The Court explained that "[a]lthough Qui Tam Counsel were obligated to acquire Frazier’s consent before returning the documents back to IASIS, Qui Tam Counsel should have told IASIS that or should have waited for Frazier’s consent. Instead, Qui Tam Counsel feigned ignorance with respect to the Sealed Box of privileged documents in their offices." The Court found that Qui Tam Counsel breached an ethical duty to seek a ruling from the Court about the privileged documents and breached their duty to contact IASIS about the documents after the complaint was unsealed."

Though finding that sanctions were appropriate, the Court explained that the "circumstances in this case do not warrant dismissal" nor did the facts establish that Qui Tam Counsel acted in "bad faith"  In light of these considerations, the Court imposed the sanction of requiring Qui Tam Counsel to repay the "attorneys’ fees and costs expended by IASIS in its attempt to get its privileged documents back from Qui Tam Counsel."  Additionally, the Court disqualified the relator's counsel from further assisting or representing the relator "or any other party adverse to IASIS."

The Court denied Defendant's request that Qui Tam Counsel be sanctioned even more broadly for fees and costs pursuant to 28 U.S.C. § 1927.   28 U.S.C. § 1927 provides that the Court may award attorneys' fees and costs against an attorney who "unreasonably and vexatiously" . . . . . "multiplies the proceedings in any case."  The Court rejected  Defendant's request on the grounds that Qui Tam Counsel had not acted in bad faith "nor is there any evidence to establish that they knowingly raised a frivolous argument."