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United States ex rel. Luke v. Healthsouth Corp.

United States District Court, D. Nevada

November 10, 2017

UNITED STATES OF AMERICA ex rel. JOSHUA LUKE, Plaintiff,
v.
HEALTHSOUTH CORPORATION, et al., Defendants.

          ORDER (1) OVERRULING OBJECTIONS AND (2) DENYING MOTIONTOSTAY (ECF NOS. 87, 88)

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         Magistrate Judge Ferenbach granted the defendants' motion to disqualify the law firm Troutman Sanders LLP from representing relator Joshua Luke in this action. ECF No. 86. Luke objects. Luke also requests I stay the disqualification order until the issue is resolved on appeal. I overrule the objections and deny the motion to stay. The Troutman firm is disqualified from representing Luke in this action.

         I. BACKGROUND

         Luke filed this qui tam action in July 2013. ECF No. 1. The case was sealed while the United States considered whether it was going to intervene. In May 2017, the United States opted not to intervene. ECF No. 34. The complaint was served on the defendants in June 2017. ECF No. 42 at 2.

         Luke was represented in this action by attorneys from the Troutman firm. The Troutman lawyers appeared pro hac vice, except attorney Kevin Kieffer, who is a Nevada licensed attorney. ECF Nos. 38-40; 87 at 2 n.2.

         In August 2017, the defendants moved to disqualify the Troutman firm from representing Luke because in early 2017, defendant Healthsouth Corporation hired two Troutman attorneys, Peter Robinson and Robb Willis, to provide lobbying services for Healthsouth in Georgia. ECF No. 66-2 at 3. As part of that arrangement, Healthsouth provided confidential information to Robinson and Willis. Id. According to Healthsouth Executive Vice President John Patrick Darby, Healthsouth would not have entered into the lobbying agreement had it known that Troutman had already filed suit against Healthsouth on Luke's behalf in Nevada. Id.

         The lobbying agreement is between Healthsouth and Troutman Sanders Strategies, a limited liability company wholly owned by the Troutman law firm. ECF No. 66-3 at 3. The agreement identifies those who will lobby on Healthsouth's behalf, including attorneys Robinson and Willis. Id. at 3. The agreement states that Strategies may receive support from attorneys at the Troutman law firm with Healthsouth's approval and, if that occurs, Healthsouth would have to enter into a separate agreement for services with the Troutman firm. Id. The agreement states that Strategies would not be providing legal services to Healthsouth and “[a]ccordingly, [Healthsouth] will not have an attorney-client relationship with [Strategies] and its employees with regards to the services that [Strategies] will provide related to the agreement.” Id. at 4. The agreement has a “conflict of interest” section which states that Strategies will not lobby positions that would be in conflict with Strategies' obligations under the agreement. Id. It also states Strategies “is not providing legal services as part of this agreement.” Id. However, it does not state that the Troutman law firm may represent someone suing Healthsouth.

         Although the agreement was with Strategies, Strategies' invoice directed that payment be remitted to the Troutman law firm. ECF No. 66-4. Additionally, Robinson and Willis used their Troutman law firm email addresses and phone numbers to communicate with Healthsouth about their lobbying services. ECF No. 66-2 at 3.

         Magistrate Judge Ferenbach held a hearing and granted the motion to disqualify Troutman from representing Luke in this case. ECF Nos. 86, 92. Judge Ferenbach applied the Nevada Rules of Professional Conduct and concluded that under Nevada law, a lawyer providing a law-related service such as lobbying is still subject to Nevada's Rules regarding client conflicts. ECF No. 92 at 24. Judge Ferenbach thus ruled there was a concurrent conflict because Robinson and Willis both represented Healthsouth and were associated in the same firm with the attorneys representing Luke in this lawsuit against Healthsouth, and Healthsouth did not give informed consent to this conflict. Id. at 25-26.

         II. OBJECTIONS (ECF No. 87)

         Luke objects to Judge Ferenbach's disqualification decision. In his initial objection, Luke argues that Judge Ferenbach erred by applying the Nevada Rules of Professional Conduct to the two lawyers who provided lobbying services in Georgia. ECF No. 87. Instead, Luke argues, the court should have applied a choice-of-law analysis and selected Georgia as the state with the most significant relationship with the Georgia lobbyists' conduct and therefore Georgia's Rules of Professional Conduct should have applied. Luke contends that under Georgia law, a lawyer providing lobbying services is not subject to the Rules of Professional Conduct so long as the lobbying client knows legal services are not being provided and no attorney-client relationship is being created. See Georgia Bar Rule 4-102 & cmt. 9 (RPC 5.7). Luke asserts the lobbying agreement made clear to Healthsouth that no legal services were being provided and no attorney-client relationship was formed. Healthsouth responds that the Nevada Rules of Professional Conduct apply because the parties agreed that was the law that applied, the Local Rules of this District require it, and applicable authority supports that decision.

         Luke moved for leave to file a reply, which I granted. In his reply, Luke argues he has not waived the argument about the applicability of Georgia law because that argument was presented at the hearing in front of Judge Ferenbach. Luke also argues that even if the Nevada Rules control, Rule 1.0A(b) of those Rules directs the court to look to substantive law outside the Rules to determine if an attorney-client relationship exists. Luke contends the substantive law that should apply to make that determination is Georgia law because that is the law governing the relationship between Healthsouth and Strategies.

         Healthsouth responds that Luke waived the argument about Rule 1.0A(b) because he did not raise it before the Magistrate Judge or in the objections. Healthsouth also argues on the merits that Judge Ferenbach properly applied the Nevada Rules when deciding whether the Troutman attorneys are disqualified in this case. Healthsouth contends Robinson and Willis would be precluded from representing Healthsouth in this case, and thus the Troutman attorneys appearing in this case with whom Robinson and Willis are associated are likewise disqualified.

         Healthsouth contends that once Troutman ran a conflicts check, it should have either declined the lobbying engagement or attempted to obtain Healthsouth's informed consent. Having done neither, Healthsouth ...


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