Legal Ethics in Representing Professionals and their P.C.’s

During the course of my medical licensing defense practice I have been confronted with the ethical conflict of being asked to represent both a professional corporation and its doctor shareholders, one of which was committing criminal acts while dispensing the medical services of the corporation. In this corporate/business setting, serious legal questions abound about the nature and extent of individual shareholder’s responsibilities to the corporation when licensing matters are arising. At the same time, the complex Medicare/Medicaid/health insurance fraud issues that trigger federal and state criminal prosecutions trigger licensing ramifications.

The ethical issues that professional clients seeking legal counsel must consider include 1) shareholders’ duties to disclose (to whom) a professionally licensed business partner’s criminal conduct, 2) the P.C.’s attorney’s duty of confidentiality to the corporate client versus individual shareholders, and 3) the individual shareholder/professional’s attorney’s duty of confidentiality to the client versus the corporation and fellow shareholders. Conflicts of interest, attorney-client privilege issues, scope of an attorney’s representation, and who the attorney actually represents are significant questions the need to be answered upon hiring an attorney.

Each member of the P.C. may potentially face federal False Claims Act offenses, mail fraud or health care fraud claims, and could be charged under conspiracy or aiding and abetting theories of liability for the acts of one shareholder/professional if no disclosure is made. As well, criminal forfeiture of excess Medicare and Medicaid payments made to a P.C. because of one fraudulent doctor/shareholder could take place along with fines, interests, and federal insurance program disqualification.

Before counsel is retained, the following questions must be answered:

1) for what purpose is an attorney being hired – by an individual doctor under a whistle blower provision and self-reporting;

2) for what entity is an attorney being hired – by the Board of Directors of a closely held corporation to advise the company on how to address potential criminal conduct of a member/shareholder, or

3) why is an individual doctor hiring the attorney (to address withdrawing from the corporation and abandon any conspiracy).

As well, a shareholder who reports to the federal authorities a criminal act of a partner breaches their fiduciary duty to the corporation but may insulate them self from criminal liability.

The Pennsylvania Rules of Professional Conduct address many aspects of an attorney’s role in advising the P.C. and its shareholders. Any fee agreement must necessarily address Rule 1.2. This rule requires the scope of the representation and allocation of the authority between the attorney and client be clearly spelled out. Rule 1.4 and 1.6 delineate the nature and extent of the confidential communication between the attorney and the client. (The issue of who is the client is always complicated). Rule 4.3 addresses the problem of an attorney for the professional corporation communicating with non-represented professionals who are shareholders to the corporation.

Surrounding all of these issues is the discovery of any potential criminal conduct, confidentiality of such knowledge, and the divided interests of the owners of the professional corporation. Representation of a corporate entity whose shareholder(s) is engaging in a course of pattern of criminal activity that jeopardizes the corporate entity and other shareholders create significant conflicts of interest. Attorney representation of the P.C. and disclosure of knowledge of this criminal conduct secured through confidential attorney client communication or representation and the subsequent disclosure of such to non-clients (the other licensed professionals), represented by counsel or not, creates significant legal ethics and even malpractice liabilities for the lawyer.

Please call me to discuss your predicament.

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