Providers Negotiating With Doctors Who Have Restrictive Covenants Beware

• Published date: 24 July 2023
• Subject Matter: Food, Drugs, Healthcare, Life Sciences, Criminal Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Holland & Knight
• Author: Scott O'Connell and Karson Silver

Providers negotiating with doctors and other medical professionals who are bound by enforceable restrictive covenants is tricky business. By virtue of his/her/their position, these physicians may owe fiduciary duties to the current employer that may be breached by these negotiations. Also, the provider negotiating may create liability for tortious interference with contracts or otherwise advantageous business relations. Significantly, many courts have recognized breach of fiduciary duties and tortious interference as the type of wrongful conduct that pierces the attorney-client privilege. Not only may this conduct give rise to liability, but consultations with counsel over ongoing and future wrongful conduct may not be protected by the attorney-client privilege, making the attorney a potential witness against you. This post examines these complex issues.

The Attorney-Client Privilege

The attorney-client privilege is an old and robust doctrine intended to promote candor in attorney-client communications by keeping them confidential. There are exceptions to this confidential treatment. One such exception includes communications between an attorney and client that are in furtherance of a crime or fraud. Knopf v. Sanford, 65 Misc. 3d 463, 471, 106 N.Y.S.3d 777, 784 (N.Y. Sup. Ct. 2019) (the attorney-client privilege does not extend to communications that may have been in furtherance of a fraudulent scheme, an alleged breach of fiduciary duty or an accusation of some other wrongful act). Such communications are not protected by privilege and must be produced.

Some practitioners take false comfort in the mistaken belief that this exception to privilege is applicable to only alleged criminal conduct. Fraud, of course, has criminal and civil causes of action. Increasingly, many courts have taken a broad view of this exception and applied it to types of conduct other than strict crimes or frauds. Specifically, some courts have determined that claims for breach of fiduciary duty and tortious interference with contract are, in appropriate circumstances, sufficient to trigger the exception. Nuss v. Sabad, 976 F. Supp. 2d 231, 237 (N.D.N.Y. 2013) (under New York law, the attorney-client privilege may not be invoked where it involves client communications that may have been in furtherance of a fraudulent scheme, an alleged breach of fiduciary duty, or an accusation of some other wrongful conducts); see also In re New York City Asbestos Litig., 109 A.D.3d 7, 9, 966 N.Y.S.2d 420, 421 (2013) (crime-fraud exception to attorney-client privilege encompasses fraudulent scheme, alleged breach of fiduciary duty or accusation of some other wrongful conduct). The unwitting in-house or outside practitioner can trigger this exception, and vitiate privilege, through seemingly routine day-to-day counseling. Knowing the full reach of this exception is essential in order to protect the privilege and protect communications between attorney and client.

The U.S. Supreme Court has summarized the privilege this way:

We have recognized the attorney-client privilege under federal law, as the "oldest of the privileges for confidential communications known to the common law." Upjohn Co. v. United States, 449 U. S. 383, 389 (1981). Although the underlying rationale for the privilege has changed over time, see 8 J. Wigmore, Evidence ' 2290 (McNaughton rev. 1961), courts long have viewed its central concern as one "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of...