Since 1987, the Department of Justice has recovered more than $59 billion under the FCA The FCA's potential reach extends to any industry in which the government spends money and clever plaintiffs' attorneys are always generating new theories of liability. The continued sprawl of FCA cases warrants renewed scrutiny of one of the less apparent characteristics of the FCA: the threat of parallel proceedings. Given the FCA's broad potential application, it is important that every entity or person doing business with the government, directly or indirectly, understand the full scope of FCA liability, including the statute's intricacies, such as its mandatory civil penalties and treble damages, its unique (and somewhat perverse) incentive scheme for "private prosecution" by "qui tam relators" to bring suit in the name of the United States, and its contemplation of parallel government enforcement actions, including criminal prosecutions.
Parallel proceedings refer to concurrent or successive investigations or litigations that arise out of a common set of facts, initiated by any combination of criminal, civil, or administrative authorities, as well as private plaintiffs. When it comes to economic and regulatory crimes, for example, criminal, civil, and administrative remedies intersect in an effort to protect differing public interests. When parallel proceedings are successive, the criminal proceeding usually leads the way and, if a civil case is pending, the DOJ will likely seek a stay of the civil proceeding, in order to avoid (among other things) a criminal defendant benefitting from the broader discovery rules of civil litigation. However, deferring civil and administrative actions until the conclusion of a criminal prosecution can be detrimental to the government's ability to secure financial recoveries. Simultaneous parallel proceedings enable government attorneys to pursue civil or administrative remedies at the same time as criminal remedies.
- DOJ Policies Governing Parallel Proceedings
The DOJ has long recognized that "the key to the Department's federal white-collar crime enforcement effort" is the efficient and effective use of the government's resources. The DOJ has traditionally encouraged coordination and communication between the criminal and civil divisions of United States Attorneys' offices. In 2012, Attorney General Holder issued a policy statement "to update and further strengthen the Department's longstanding policy" to ensure that "prosecutors and civil attorneys coordinate together and with agency attorneys in a manner that adequately takes into account the government's criminal, civil, regulatory and administrative remedies." Holder directed that DOJ "policy is that criminal prosecutors and civil trial counsel should timely communicate, coordinate, and cooperate with one another . . . whenever an alleged offense or violation of federal law gives rise to the potential for criminal, civil, regulatory, and/or agency administrative parallel (simultaneous or successive) proceedings." In so doing, Holder formally mandated cooperation between criminal and civil DOJ attorneys and the implementation of policies and procedures that "should stress early, effective, and regular communication between criminal, civil, and agency attorneys to the fullest extent appropriate to the case and permissible by law." Since then, the DOJ has continued to reaffirm the value of parallel proceedings and refine its guidance to AUSAs nationwide.
Regarding the FCA in particular, in 2014, the Assistant Attorney General for the DOJ's criminal division, Leslie Caldwell, announced that the civil division's qui tam complaints would be shared with prosecutors as soon as they were filed, so that the criminal division could quickly determine whether to initiate related criminal investigations.> Caldwell further encouraged qui tam plaintiffs contemplating filing complaints alleging potentially criminal conduct "to consider reaching out to criminal authorities, just as you now do with our civil counterparts in the department and the U.S. Attorney's Offices." A year later, the Yates Memo encouraged DOJ attorneys to hold individuals accountable in cases of corporate misconduct both criminally, as well as civilly – expressly referencing the FCA.
- Parallel Proceedings Under the FCA
Both the government and private citizens, may bring a civil action under the FCA (31 U.S.C. § 3730).A private party brings the action in the name of the government and is referred to as a relator or qui tam plaintiff. Relators may receive up to 30 percent of any recovery, depending in part on whether the government decides to intervene. The government's decision to intervene in a qui tam action is a significant one in determining the probable outcome of the case. The DOJ's settlements and judgments in cases where the DOJ intervened total more than $40 billion, compared to less than $2.5 billion in non-intervened cases. When it decides to intervene, the government steps in to assume the primary responsibility for prosecuting the case from the relator.
A relator commences an FCA suit by filing the complaint under seal and providing the government with a copy of the complaint and substantially all material evidence and information the relator possesses. The government then conducts an independent investigation to determine whether to intervene in the FCA suit, or allow the relator to continue litigating the case on the government's behalf. While the statute provides 60 days from receipt of the complaint for the government to decide whether to intervene, courts routinely extend the time period for good cause shown, and the defendant company is not served or formally advised of the litigation while it remains under seal. The FCA empowers the DOJ to issue civil investigative demands (CIDs) to conduct depositions, issue interrogatories, and make document requests – all before the defendant is served with formal notice of the suit or the unsealing of the qui tam complaint (31 U.S.C. § 3733).
As a fraud statute, the FCA shares elements common to criminal statutes, and purported violations of the FCA implicate potential violations of the criminal laws with the main difference being criminal intent. For example, 18 U.S.C. § 287 criminalizes making false, fictitious, or fraudulent claims upon the United States or conspiring to do so. As a result, it is not uncommon for the DOJ to initiate criminal proceedings based off of the same factual allegations underlying qui tam complaints, or for civil FCA actions to arise based off of underlying criminal investigations conducted by the DOJ.
- Key Considerations
Develop a comprehensive strategy. Once a company learns it is the subject of a civil or criminal government investigation, it must develop a comprehensive strategy governing its response. The strategy should, at a minimum, develop procedures governing the preservation of documents, the identification of conflicts of interests in the representation of the company and any implicated individuals, the commencement of internal investigative processes, and the establishment of communications with investigators.
The strategy should also consider the impact on employees. The potential threat of criminal prosecution might affect the cooperativeness of a company's employees, who fearing personal exposure might refuse to be interviewed or testify in an administrative or civil setting. Not only can this hamper a company's ability to respond to allegations of misconduct, but in some instances can result in an adverse inference being drawn in any pending civil lawsuit. And, where employees refuse to cooperate, the company may have to consider taking adverse employment action.
Of course not every government inquiry will expose a company to a multi-faceted investigation with the threat of criminal prosecution. Some cases start small and end small. However, a risk-based assessment of the potential exposure is usually necessary to avoid being caught off guard and possibly failing to mitigate a problem or prevent it from worsening.
Assume parallel investigations and be mindful of covert investigative techniques. DOJ policies require the criminal division to review civil fraud allegations developed independently by the civil division or as a result of qui tam suits to evaluate the potential for a related criminal investigations. Further, civil fraud allegations are reviewed by the relevant federal agencies to evaluate potential administrative sanctions. As a result, every FCA inquiry should be presumed to implicate potential civil, criminal, and administrative exposure for the company and individuals.
With the possibility for criminal exposure and investigation, putative defendants must remain mindful of the potential for criminal investigative techniques such as the use of undercover surveillance and wiretaps, search warrants, and grand jury subpoenas. In practice, this coordination often results in a debrief of the relator by both civil and criminal AUSAs before the sealing period is lifted. While there are certain limitations on who among the government actors may receive and review grand jury related materials, there are not such limits on responses to CIDs and administrative Inspector General subpoenas. So, companies should be aware that any CID or administrative subpoena response may be shared with a criminal AUSA and counsel should inquire as to whether one has been assigned. Sometimes the government will use CIDs or administrative subpoenas in the first instance in order to facilitate that sharing, despite knowing that the case might wind up in a criminal indictment by the grand jury.
Global settlements are almost always a must. Any resolution of one part of parallel proceedings may impact the resolution of other parts. For example, resolution of the criminal investigation may impact the parallel civil FCA case. A defendant that pleads guilty or is convicted in the criminal case may be subject to civil FCA damages and penalties, or administrative sanctions for the same conduct. The resolution of parallel FCA proceedings requires the coordination of and continued attention to the criminal, civil, and administrative remedies. When a company faces parallel FCA proceedings, it is therefore critical that any resolution be global in nature – settling (when at all possible) all criminal, civil, and administrative components. Global resolution avoids protracted, costly litigation for all parties, and relieves the defendant's exposure to harsher penalties, while advancing the government's interests in deterring similar conduct and recovering financially. Notably, DOJ attorneys cannot negotiate away criminal liability in return for increased financial fines or penalties. Global resolutions must, therefore, be simultaneously negotiated with the individual criminal, civil, and administrative attorneys.