On June 9, 2016, Acting Associate Attorney General Bill Baer delivered a speech regarding the impact of the Yates Memorandum’s focus on individual accountability and corporate cooperation at the American Bar Association’s 11th National Institute on Civil False Claims Act and Qui Tam Enforcement. The focus of the speech was on the interplay between the Yates Memorandum and investigations and litigation under the False Claims Act (FCA), underscoring the fact that the US Department of Justice’s (DOJ’s) focus on individuals is not limited to the criminal context.
Baer led by highlighting the fact that FCA filings “are trending at all-time highs” – with 630 qui tam actions filed last year alone – and that since 2009, FCA recoveries have exceeded $29.5 billion. He then moved on to a discussion of individual accountability under the FCA, and observed:
The “Yates Memo” certainly has generated its fair share of client alerts. I have read a lot of them. The assessments vary from seeing it as a ho-hum reaffirmation of what we always do, to a bold and risky undertaking. And, as the Deputy Attorney General has said, the truth lies somewhat in the middle. The policy was certainly designed to change certain practices. And even though many of the concepts underlying the policy have long been part of the department’s approach to white-collar law enforcement, we thought they needed a renewed emphasis.
Baer reiterated many of the concepts announced in Yates, stating that DOJ attorneys should be examining the role of individuals from the outset of an FCA investigation. “It does not matter whether the investigation is precipitated by a qui tam complaint or a referral from a law enforcement partner, or whether a relator actually names individuals as defendants in the qui tam action. Our inquiry into individual misconduct now proceeds in tandem with the underlying corporate investigation.” He further noted that resolutions against a corporation may occur prior to resolving, or even bringing, claims against individuals. He went on:
But the key point here is that reaching a resolution with the company does not end our inquiry into whether and which individuals should also be pursued. And you should not assume we will be amenable to releasing individuals from False Claims Act liability when we settle with the organization. The presumption is flipped in the other direction. Admittedly, this is a departure from past practice, where a settlement would release not only the corporation, but also its individual directors, officers and agents. But it is a change we view as necessary to pursue company officials involved in the wrongdoing.
Baer recognized the fact that claims against individuals are not always appropriate, but observed that DOJ attorneys must memorialize any decisions not to pursue such claims.
With respect to corporate credit for cooperation, Baer stated that corporations are “expected to disclose all facts” relating to individuals involved in wrongdoing no matter high up the corporate chain those individuals sit, describing this as a “threshold requirement.” He said this does not mean the corporation must characterize any person as “culpable.” However, it is difficult to imagine how the factual disclosure Baer described – of those “involved in the wrongdoing” – would not at least suggest a view of culpability.
Baer rejected the notion that the cooperation threshold is satisfied simply by responding to investigative subpoenas and civil investigation demands for information:
Cooperation is not demonstrated by doing what the law requires, compliance with subpoenas or other lawful demands. Nor is cooperation shown by one-sided presentations and white papers. A corporation should not earn cooperation credit where it just stops contesting what the government has already discovered and, in many cases, disclosed to the defendant; rather, genuine cooperation involves prompt, no slow-walking, and fulsome, no hiding the ball, responses to government requests for information.
While Baer made clear that cooperation does not require “wide ranging and costly internal investigations that are unrelated to our FCA inquiry” and that investigations should be “tailored to the scope of the wrongdoing,” he also suggested that cooperation “could” entail disclosure of facts gathered by the company during the course of its internal investigation into FCA allegations. This raises obvious concerns if the investigation is conducted under privilege, as these investigations typically are. Nonetheless, Baer reiterated that DOJ policy does not require a waiver of privilege. While DOJ draws a distinction between facts learned and legal advice dispensed during investigations, there is unquestionably a tension between DOJ’s “no waiver” policy and its cooperation framework.
Baer pointed out that early disclosure by a corporation is important, even when not all facts have been discovered – preferably, as soon as the corporation learns of the violation and before the government does. He also discussed what a corporation can expect to get for effectively cooperating, stating that there is no “magic formula” but that the Federal Sentencing Guidelines’ concept of downward departures is a fitting, albeit imperfect, analogy. “Nevertheless, we are committed to taking into account the disclosures and other cooperation provided by defendants and to resolve matters for less than the matters would otherwise have settled for based on the applicable law and facts.” These statements make clear that the impact of cooperation will be highly case-specific.
The tenor of Baer’s remarks suggests an expectation that corporate defense counsel will effectively partner with DOJ in FCA investigations. While disclaiming any notion that DOJ expects defense lawyers to serve up a “litigatable case” to DOJ on a platter, he described a vision of defense counsel working “collaboratively” with the government, and said that “[t]he more thorough and effective job defense counsel do investigating the case and presenting the results of that investigation, the more likely it is that we will find this type of presentation useful, and the more benefit your clients will realize in negotiated resolutions.”
These remarks highlight DOJ’s position that the corporate cooperation concepts announced in the Yates Memorandum are fully applicable to civil claims under the FCA (and other types of civil claims). But they raise a number of questions and conundrums for corporations involved in the defense of an FCA investigation or litigation, in addition to several highlighted above. For example, many such cases do not involve fraud in the traditional sense of the word, and are predicated on alleged violations of regulations that may have a negligible – or no – relationship to payment by the government program involved (so-called “implied certification” claims, which the Supreme Court is expected to address this month). Whether such a regulatory violation constitutes fraud under the FCA can be a highly subjective inquiry, putting corporations in a complicated position with respect to the cooperation and disclosure issue. We will continue to watch developments and commentary in this area.