Reply to Response — United States ex rel. James R. Berkley v. Ocean State, LLC (Dkt. 52, D.R.I.)
Summary
The relator's reply in support of the motion to compel discovery of attorney-client communications about the PPP loans, filed June 7, 2024 as Document 52 in United States ex rel. James R. Berkley v. Ocean State, LLC, C.A. No. 1:20-cv-00538-JJM-PAS, in the U.S. District Court for the District of Rhode Island. The relator argues that the defendants' subjective good faith belief defense, and their reliance on redacted emails, business case memos and board consents prepared with counsel's advice, waive the privilege. It argues that the Janssen Biotech decision relied on in the opposition is distinguishable and supports the relator. It states the relator's contention that Ocean State and New Harbor Capital conspired to falsely claim the SBIC affiliation waiver. The reply is signed /s/ by Eric E. Renner.
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“Reply to Response — United States ex rel. James R. Berkley v. Ocean State, LLC (Dkt. 52, D.R.I.).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/reply-to-response-united-states-ex-rel-james-r-berkley-v-ocean-state-l-3d77f4cbb8/
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Case 1:20-cv-00538-JJM-PAS Document 52 Filed 06/07/24 Page 1 of 10 PageID #:
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
UNITED STATES OF AMERICA ex rel.
JAMES R. BERKLEY
Plaintiff,
vs. C.A. No. 1:20-cv-00538-JJM-PAS
OCEAN STATE, LLC,
NEW HARBOR CAPITAL FUND LP, NEW
HARBOR CAPITAL FUND II LP,
NEW HARBOR CAPITAL MANAGEMENT
LP, BLUEPRINT TEST PREPARATION,
LLC, FYZICAL ACQUISITION
HOLDINGS, LLC
Defendants.
REPLY IN SUPPORT OF RELATOR’S MOTION TO COMPEL DISCOVERY OF
ATTORNEY-CLIENT COMMUNICATIONS CONCERNING THE LEGAL ADVICE
RECEIVED BY DEFENDNTS REGARDING THE PPP LOANS AT ISSUE
Plaintiff/Relator, United States of America ex rel. James R. Berkley, respectfully submits
this reply memorandum in response to defendants, Ocean State, LLC, New Harbor Capital Fund
LP, New Harbor Capital Fund II LP, New Harbor Capital Management LP, Blueprint Test
Preparation, LLC and Fyzical Acquisition Holdings, LLC’s, Opposition to Relator’s Motion to
Compel Discovery of Attorney-Client Communications Concerning the Legal Advice Received
by Defendants Regarding the PPP Loans at Issue (“Opposition”), and responds below to certain
arguments set forth in the Opposition.1
1
To the extent that Relator does not respond to some arguments raised in the Opposition, he does
not intend to waive any arguments and relies on the arguments set forth in his Motion to Compel
Discovery of Attorney-Client Communications Concerning the Legal Advice Received by
Defendants Regarding the PPP Loans at Issue (“Motion”) (ECF 47). Capitalized and abbreviated
terms have the same meaning as set forth in the Motion.
Case 1:20-cv-00538-JJM-PAS Document 52 Filed 06/07/24 Page 2 of 10 PageID #:
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INTRODUCTION
Relator filed the Motion to address the significant prejudice that Defendants have caused
by engaging in two deliberate acts in defending against Relator’s claims that they violated the
False Claims Act: (1) asserting an affirmative defense that they had a subjective good faith belief
that their conduct with respect to the PPP applications and the certifications contained therein were
lawful and accurate; and (2) relying on information and documents that purportedly evidence their
belief that were based on and prepared with the advice of counsel showing (or in the least
suggesting) that their attorneys not only reviewed but also subsequently approved the Defendants’
PPP loans—i.e., redacted emails, so-called “business case” memos, and board of director consents
parroting the business case memos—while blocking Relator from taking full discovery of the legal
advice Defendants received that might disprove their purported belief.
In their Opposition, Defendants rely heavily on United States ex rel. Long v. Janssen
Biotech, Inc., No. CV 16-12182-FDS, 2024 WL 862308 (D. Mass. Feb. 29, 2024). But the
Janssen case actually supports Relator’s position. Unlike in Janssen, it is not Defendants’ mere
disclosure of documents and information in discovery that warrants a waiver of the attorney-client
privilege. Rather, it is Defendants’ good faith belief defense and their use of the documents and
information that warrants a waiver. Janssen, 2024 WL 862308, at *2-3. Defendants have
deliberately placed the supposed good faith belief and documents and testimony built on their
attorneys’ legal advice concerning the PPP loans squarely in issue, and they are now so enmeshed
in the key factual dispute of whether Defendants willfully violated the False Claims Act that it
would be unfair to withhold the material. See Massachusetts Mut. Life Ins. Co. v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 293 F.R.D. 244, 249 (D. Mass. 2013).
Defendants also resort to hyperbole in claiming that adopting Relator’s position “would
mean that every FCA defendant’s only options are to admit scienter or waive attorney client
2
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privilege in all FCA cases.” Opposition, p. 11. That is absurd. As noted in Relator’s initial brief,
Defendants are free to assert that they acted in good faith by merely presenting objective facts
concerning the steps they took to comply with the law without putting at issue their understanding
of the law or compliance with the law. But because Defendants assert their subjective good faith
belief in their compliance with the law—and are relying on documents built on advice of counsel—
they implicate advice they received with respect to the PPP loans from their counsel, even if they
also might seek to establish their good faith legal compliance through other acts. This is not a
novel concept and Relator cited numerous supporting cases in his Motion. See Motion, p. 10-12.
When one looks beyond Defendants’ rhetoric and focuses on their good faith belief defense and
their use of documents and information implicating communications they had with their attorneys
concerning the PPP loans at issue and the prejudicial inferences that arise therefrom, it is clear that
Defendants are improperly using the attorney-client privilege as both a sword and shield to gain
an unfair advantage that could mislead the Court and factfinder into believing that Defendants did
not willfully violate the False Claims Act.
I. Because Defendants are Asserting Their Good Faith Belief and Relying on Legal
Advice Concerning Their Attorneys’ Approvals of PPP Loans at Issue, Fairness
Requires Full Disclosure of this Advice as Well as Other Legal Advice They Received
on the Subject
In defending this action in which Relator must show that Defendants acted knowingly in
violating the False Claims Act, Defendants are advancing a subjective good faith belief defense
and, to support that defense, are relying on documents and testimony showing that their attorneys
not only reviewed and informed the conduct that Relator alleges violated the False Claims Act but,
more significantly, that the attorneys approved of Defendants engaging in this alleged illegal
conduct. Defendants are relying on documents and testimony premised on this legal advice to gain
an advantage in the litigation by creating the appearance that their attorneys determined and
3
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advised them that the PPP loans complied with all of the requisite rules and guidance for PPP
loans. At a minimum, Defendants are relying on documents concerning their supposed
interpretation of and compliance with the law, which implicates the advice they received from
counsel concerning the PPP loans. As part of this stratagem, Defendants are also using the
attorney-client privilege to block Relator from taking discovery of the attorney-client
communications that Defendants’ supposed compliance determinations were based upon,
including examination of the attorneys’ assessments underlying these approvals and the advice
Defendants’ received concerning whether the PPP loans would violate the False Claims Act.
A. Defendants Are Using the Attorney-Client Privilege as Both a Sword and
Shield in an Attempt to Mislead the Court About Their Knowledge of the
Unlawfulness of Their Conduct
Defendants assert an affirmative defense that they had a subjective good faith belief in the
lawfulness of their conduct. In support of that defense, Defendants are using the attorney-client
privilege as both a sword and shield to attempt to manufacture what effectively would be an
irrebuttable inference that could potentially negate Relator’s allegation that Defendants acted
knowingly in violating the False Claims Act. To accomplish this, Defendants have produced
documents, answered interrogatories and allowed management and board members to provide
deposition testimony evidencing four general facts supporting their supposed good faith belief:
1. Defendants consulted with attorneys in relation to the PPP loan applications;
2. Defendants believed that all of their conduct with respect to the PPP loan
application and all of the certifications contained in the PPP loan applications by
Ocean State, Blueprint, and Fyzical were lawful and accurate;
3. Defendants diligently investigated the applicable laws and regulations in order to
ensure the lawfulness of their conduct; and
4. The boards of each company reviewed applicable regulations and supporting
documentation prior to determining whether to approve the PPP loans and reached
the same conclusion that the applications were lawful—including any New Harbor
4
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Defendant employees or agents serving as board members of Ocean State, Fyzical,
or Blueprint.
See ECF 47-1 at No. 12 and ECF 49-3 (sealed) at No. 18. In support of those assertions,
Defendants rely on various emails and other documents that were informed by and prepared based
on advice received from Defendants’ counsel. See ECF 49-3 (sealed) at No. 18. For example, in
support of the second assertion, Defendants produced the documents Bates numbered
PPPLITDEFS_00011195; PPPLITDEFS_00089390; PPPLITDEFS_00080744;
PPPLITDEFS_00084414; and PPPLITDEFS_00090942. Each of these documents includes
redacted legal advice concerning the PPP loans at issue. See Exhibit 1 hereto (filed separately
under seal). In support of the third assertion, Defendants produced PPPLITDEFS_00089323,
which also includes redacted legal advice concerning a key issue in this case, namely “the gray
area of [Private Equity] owned companies applying for PPP.” Id. And in support of the fourth
assertion, Defendants produced PPPLITDEFS_00093122; PPPLITDEFS_00080448; and
PPPLITDEFS_00092191, each of which again include redacted legal advice. Id.
Moreover, the documents supporting the fourth contention show that the boards of each
company reviewed the so-called “business case” memos drafted after the fact with the advice of
counsel to “paper the file” with Defendants’ supposed need and eligibility analysis, rationale and
decision to apply for the PPP loans in connection with the board of director consents approving
the PPP loans. That is, these documents show that the Defendants’ boards directly relied on the
legal advice received from Defendants’ counsel in reaching the determination to approve the PPP
loans. That legal advice pertains to critical issues involved in this case. For example, Fyzical
claims that it qualified for a waiver of the affiliation rules because it had an SBA franchise
identifier code and was a “business operating as a franchise.” See ECF 49-3 at No. 10. Fyzical’s
PPP business case memo shows that Fyzical solicited and received legal advice from its counsel
5
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at Reed Smith about the SBA’s guidance regarding the eligibility of franchise operations for PPP
loan proceeds. See Exhibit 2 to Relator’s Motion (filed under seal) at PPPLITDEFS_00079543-
PPPLITDEFS_00079544. Similarly, Ocean State claims that it qualified for a waiver of the
affiliation rules because it received SBIC funding. See ECF 47-1 at p, 25. Ocean State’s business
case memo shows (or at least suggests) that Ocean State solicited and received legal advice from
Reed Smith about Ocean State’s application covering both the MSO and the practice entities. This
is important because Ocean State was the MSO (Management Services Organization) that merely
provided administrative and management services to the various legally distinct practicing entities
that the employees claimed in Ocean State’s PPP actually worked for. Relator contends that each
of the practicing entities should have filed a PPP application—not Ocean State as the MSO—and
that Ocean State only did so because it was the entity with an SBIC loan. Relator contends that
Ocean State and New Harbor Capital conspired to falsely claim the SBIC affiliation waiver.
Finally, Blueprint claims that its PPP loan was “necessary” and that it qualified for a waiver of the
affiliation rules because it received SBIC funding. See ECF 47-1 at p, 25. Again Blueprint’s
business case memo shows that Blueprint solicited and received legal advice on one or both of
these subjects. See Opposition, p. 4.
B. Fundamental Fairness Requires Discovery into Attorney Advice Because
Defendants Are Relying on the Defense of Subjective Good Faith Belief of
Legal Compliance
Defendants’ assertion of a subjective good faith affirmative defense is not merely the
mirror image of Relator’s obligation to establish scienter. Relator did not file the Motion for an
implied waiver because Defendants are asserting a defense that they acted in good faith by
reviewing the PPP loans with counsel. Relator’s Motion clearly distinguishes between an “acted
in good faith” defense and the much different “good faith belief” defense asserted by Defendants,
6
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with the Motion focusing on the latter. See ECF 47-1 at p, 10-12 (distinguishing between the good
faith belief defense and acted in good faith defense). Because Defendants assert their subjective
good faith with respect to matters of legal compliance, a determination of such subjective good
faith necessarily depends on the advice given to Defendants by their counsel, even if Defendants
do not seek to establish their good faith based on such advice (which they do as discussed above).
Such advice may or may not have been acted upon and colors Defendants’ assertion of a subjective
good faith belief. As Relator pointed out in his Motion, where, as here, subjective good faith is
asserted with respect to Defendants’ understanding and compliance with the law, the party’s
knowledge about the law is vital, and the advice of counsel is highly relevant to the legal
significance of the client's conduct. See Motion, p. 10-12. Because Defendants assert their
subjective good faith in their compliance with the law, it implicates advice they received with
respect to the PPP loans from their counsel, even if they wish to establish their good faith legal
compliance through other acts.
C. Unlike in the Janssen Case, Defendants are (1) Asserting a Good Faith Belief
Defense and (2) Using—Not Merely Disclosing—the Documents and
Testimony, Which Constitutes a Waiver
Echoing the defendant in Janssen, Defendants argue (falsely) that they have no intention
of asserting an advice of counsel defense and do not plan to use any aspect of their communications
with counsel at trial. See, e.g., Opposition, p. 8. This is just another example of Defendants’
gaslighting and speaking out of both sides of their mouth. In their Second Supplemental Responses
to Relator’s Contention Interrogatories, Defendants rely on numerous documents that were based
on and/or prepared with the advice of counsel to support their subjective good faith argument. See
ECF 49-3 (sealed) at No. 18.
7
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The Janssen case supports Relator’s position and is distinguishable in at least three critical
respects. First, the Janssen case was limited to the “narrow question of whether the mere
production of the [defendant’s review committee] documents in discovery constituted an implied
waiver of the attorney-client privilege.” 2024 WL 862308, at *3. Second, in Jenssen, the
defendant affirmatively represented to the court that it was not and had no intention of ever
asserting a defense based on its subjective good faith belief that the subject marketing programs
were legal. 2024 WL 862308, at *2. Here, of course, Defendants assert a defense that they
subjectively believed that their conduct was lawful and accurate and complied with the appliable
PPP rules and guidance. Third, the defendant in Jenssen also represented that it had no intention
of ever (i) relying on privileged legal advice or (ii) asserting or implying that its attorneys
determined the programs were legal in support of a subjective good faith belief defense. Here,
however, despite their claim to the contrary, Defendants are specifically relying on and have stated
their intent to use documents in evidence at trial that show that: (1) Defendants and their boards
approved the PPP loans; and (2) the approvals were based on advice given to Defendants and their
boards from their counsel, which in the very least would have the practical effect of suggesting to
the jury that their lawyers had approved the PPP loans. Likewise, Defendants are relying on
testimony to the same effect: that their attorneys reviewed and approved the PPP loans. Id. That
constitutes an implied waiver, requiring the production of otherwise privileged information. Thus,
unlike in Janssen, it is not Defendants’ mere disclosure of documents and information in discovery
that warrants a waiver of the attorney-client privilege, but rather it is Defendants’ use of the
documents and information that warrants a waiver. Janssen, 2024 WL 862308, at *2–3.
8
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II. In the Alternative, Defendants Should be Precluded from Asserting a Defense That
They Had a Good Faith Belief That the PPP Loans Were Lawful and Accurate
Relator submits that the Court should rule that Defendants have impliedly waived the
attorney-client privilege and must produce the communications they had with their attorney
concerning the PPP loans at issue. Alternatively, the Court should: (1) preclude Defendants from
using in the litigation any documents and communications concerning their analysis of the PPP
loans and PPP loan need and eligibility to support any defense to Relator’s claims; and (2) strike
Defendants’ denials and affirmative defense that they had a good faith belief in the lawfulness of
their conduct.
CONCLUSION
For the foregoing reasons, and for those previously stated in Relator’s Motion, Relator
respectfully requests that the Motion be GRANTED in its entirety and the Court should order that
Defendants have impliedly waived the attorney-client privilege and must produce the
communications they had with their attorney concerning the PPP loans at issue. Alternatively,
the Court should: (1) preclude Defendants from using in the litigation any documents and
communications concerning their analysis of the PPP loans and PPP loan need and eligibility to
support any defense to Relator’s claims; and (2) strike Defendants’ denials and affirmative defense
that they had a good faith belief in the lawfulness of their conduct.
9
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Respectfully submitted,
Plaintiff,
UNITED STATES OF AMERICA ex rel
JAMES R. BERKLEY
By His attorneys,
/s/ Eric E. Renner
Eric E. Renner (#7481)
DUFFY & SWEENEY, LTD
321 South Main Street, Suite 400
Providence, RI 02903
Phone: 401-457-1803
Fax: 401-457-0701
erenner@duffysweeney.com
Date: June 7, 2024
CERTIFICATE OF SERVICE
I hereby certify that on the 7th day of June, 2024, a true copy of the foregoing document
was filed through the ECF system and will be sent electronically to the registered participants as
identified on the Notice of Electronic Filing (NEF) and copies will be mailed to those indicated as
non-registered participants.
/s/ Eric E. Renner
10
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