Let's say you're a brand-new partner, just hired from the Justice Department. You've never been a law firm partner before. You want to prove your worth, show that you deserve your big new salary.

And let's say you know something from your work prosecuting health care fraud, something about someone a firm client wants to go into business with. Something bad.

What are you supposed to do? Keep your mouth shut and let this new client, whom you are keen to impress, make a decision that could prove disastrous? Or do you spill the beans?

It's like Sophie's Choice for lawyers.

The scenario is not entirely hypothetical. Based on a complaint filed last week in New Jersey federal court, it seems more or less to have been the dilemma faced by Drinker Biddle & Wreath partner Antonio Pozos.

He allegedly gave firm client the Carrier Clinic Inc. a heads-up that its prospective joint venture partner Jonathan Lasko was linked to an ongoing massive Medicaid fraud case—information that Lasko said is false, inaccurate, and/or misleading, but, um, even if it wasn't, that Pozos should still have kept to himself.

Now the firm and its client are being sued for $17 million in damages.

The story was first reported by my colleagues Catherine Wilson and Charles Toutant. But I've been mulling it over ever since.

It reminds me in some ways of a less drastic version of another DOJ lateral partner, Jeffrey Wertkin. After he joined Akin Gump Strauss Hauer & Feld, Werkin first used non-public information from sealed qui tam complaints to pitch for business, and then attempted to sell a sealed, stolen complaint to a company under investigation.

The allegations against Pozos are fundamentally different. For one thing, no one alleges he stood to personally benefit by revealing confidential information—apparently he just wanted to help a client make a good choice.

But the conduct points to a similar problem. When lawyers leave the government and switch sides, they do so with a head full of valuable secrets.

In part, it's why firms hire them. Not to do anything improper, but to use that inside experience to inform strategy. Except here, the line seems to have been blurred.

Drinker Biddle client Carrier and its partner Hackensack University Medical Center were on the verge of finalizing a joint venture with Lasko and the company he manages, JNL Management, to build a residential substance abuse and detox center.

At the last minute, HUMC and Carrier pulled the plug, and were blunt about the reason why: “They were informed by [Drinker Biddle] that, among other things: Mr. Lasko is a 'person of interest' in connection with the prosecution of Philip Esformes, and the Department of Justice 'is not done with' Mr. Lasko,” according to the complaint filed by Jeffrey Lichtstein of Cohen Tauber Spievak & Wagner.

Esformes, who owns more than 30 Miami-area skilled nursing and assisted living facilities, is awaiting trial on an alleged billion-dollar fraud, described by DOJ in 2016 as “the largest single criminal health care fraud case ever brought against individuals by the Department of Justice.”

Carrier and HUMC said that they also heard Esformes has an interest in their would-be partner JNL, that Lasko is being investigated for possibly referring patients to facilities in which Esformes had or has an interest, and that he's also connected to a “Mr. Delgado,” who is also allegedly involved in the Esformes matter.

If true, all are definitely things that you'd like to know before you enter into a long-term business relationship with someone in the health care field.

The source of the damning information? A “recently hired partner who was formerly with the DOJ,” the parties allegedly told Lasko.

Pozos joined Drinker Biddle around January 16, 2018 from DOJ's Criminal Fraud Division—a month before the deal fell apart. According to the complaint, in subsequent communications, there was “no denial that Pozos was indeed the source of the statements made about Mr. Lasko.”

Pozos did not respond to a request for comment.

The thing is, Carrier and HUMC may already have had an inkling Lasko could have problems. “HUMC and Carrier were already aware that Mr. Lasko had unrelated business dealings with Mr. Esformes,” the complaint states. They even insisted on adding a provision to the lease that “would permit them to acquire ownership of the property in the event Mr. Lasko (or any entity he is affiliated with) were prohibited from participating in federal programs, including Medicare.”

But apparently with the new additional information, they opted not to do the deal with him at all. You can't really blame them.

Still, there's the question of Pozos's disclosure, and it's hard to argue with Lasko's counsel here.

“Even, assuming arguendo, that the statements were true, they should not have been disclosed by Pozos as, at a minimum, Pozos committed a violation of his duty of confidentiality,” Lichtstein wrote. “There may be additional improprieties committed by Pozos, including, without limitation, violations of the Federal Rules of Criminal Procedure, as well as state bar rules and federal regulations, but that is not for this matter.”

 

Shout-Out: MoFo Wins Decade-Long Securities Fight

It took nearly 10 years, but a team from Morrison & Foerster on Wednesday got a securities class action dismissed against former top executives of bankrupt telecom giant Nortel.

It wasn't 10 years of active litigation—the case was stayed due to Canada-based Nortel's bankruptcy proceedings. After the Canadian bankruptcy court lifted the stay, the securities suit in the Southern District of New York came back to life in July.

Former Nortel CEO Mike Zafirovski and CFO Pavi Binning (though not Nortel itself) were sued for allegedly making materially false and misleading statements about the company's business in press releases and earnings calls. They also allegedly failed to timely write down over $2.3 billion of goodwill.

U.S. District Judge Denise Cote dismissed all claims, ruling that the plaintiffs did not adequately show either defendant made a misstatement or omission of material fact, nor did they show the requisite scienter.

“Nortel's history of financial losses and the relatively low value of its non-goodwill assets were unremarkable in the context of the company's troubled history,” Cote wrote. “An expectation that Nortel's new management would be able to rebuild the company's fortunes does not constitute an intent to deceive or defraud investors.”

The MoFo team on the matter included Joel C. Haims, Jamie A. Levitt, James J. Beha II, Steven T. Rappoport, Christina L. Golden, and Lauren M. Gambier.

 

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Good.