Liability under the False Claims Act can mean treble damages, statutory penalties, and even exclusion from federal health care programs. Given the stakes, companies may wish to cooperate with the Department of Justice in hopes of reaching favorable settlements. But the link between cooperation and favorable settlement terms has not always been clear.
To that end and consistent with hints dropped over the past several months, on May 7, 2019, the Department of Justice issued "Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Cases." Justice Manual 4-4.112. Section 4-4.112 identifies "factors that will be considered and credit that will be provided" by the Department for cooperation.
What constitutes cooperation?
According to the Guidelines, companies can receive cooperation credit for the following:
- Voluntary disclosure. Voluntary disclosure occurs (1) when companies make "proactive, timely, and voluntary self-disclosure" to the Department; or (2) if during the course of an investigation, companies uncover and voluntarily disclose additional misconduct "going beyond the scope of the known concern."
- Cooperation during an investigation. The Guidelines are careful to note that cooperation during an investigation can vary depending on the facts and circumstances of the case. In general, it occurs when companies (1) identify or produce facts, witnesses, and documents beyond what must be disclosed by law (i.e. due to a subpoena, investigative demand, or other compulsory process); (2) preserve and collect documents beyond what is required by their existing business practices or legal requirements; (3) accept responsibility/ admit liability; and (4) assist in the determination of losses caused by the misconduct.
- Remedial measures. Sample remedial measures the Department may consider include whether companies have (1) identified the root cause of the problem; (2) implemented or improved an effective compliance program designed to prevent a repeat of the misconduct; (3) appropriately disciplined or replaced individuals who were at fault; and (4) adopted measures to identify future risks.
What kind of credit can a company earn for cooperation?
According to the Guidelines, the Department will likely offer credit in the form of reducing penalties or the damages multiple sought. But the maximum credit a defendant may earn "may not exceed an amount that would result in the government receiving less than full compensation for the losses caused by the defendant’s misconduct (including the government’s damages, lost interest, cost of investigation and relator share)."
The Department may also consider "additional avenues" for crediting cooperation, including: (1) notifying the relevant agency about the defendant’s cooperation so the agency may consider it when evaluating its administrative enforcement options; (2) publicly acknowledging the defendant’s cooperation; and (3) assisting the defendant in resolving qui tam litigation with a relator or relators.
The Guidelines are careful to note that cooperation credit does not require disclosure of attorney-client privilege or work product information.
Over the past few years, the Department has unveiled a series of policies and policy revisions in an effort to enhance and formalize incentives for companies to self-disclose misconduct and cooperate in Department investigations. In December, for example, the Department announced changes to the Yates Memo policy designed to create greater flexibility in resolving investigations and reaching agreements on appropriate cooperation credit. (For more on this, see our alert). In criminal matters, credit is offered in the form of reduced fines, sentencing-guideline discounts, deferred- or non-prosecution agreements, and even declinations. Practitioners, observers, and even Department personnel have noted that similar guidance and credit mechanisms have not been formalized for corporate cooperation in civil cases, especially False Claims Act cases.
These new Guidelines are an effort to do just that. During a May 9, 2019 speech, Deputy Assistant Attorney General Matthew S. Miner stated that one goal of these guidelines was to create a “degree of symmetry” to the approach to voluntary self-disclosure in the civil and criminal health care fraud arenas. By being as “clear as reasonably possible about our approach,” Miner stated the Department hopes “to influence the rational decision-makers when they face self-disclosure dilemmas.” (For the complete speech, visit this page.)
But whether these Guidelines represent a genuinely new approach remains to be seen. For example, the statement that credit will usually take the form of a discount to the damages multiplier is entirely unsurprising and consistent with typical Department practice.
One question raised here, however, is whether the statement that the maximum cooperation credit "may not exceed an amount that would result in the government receiving less than full compensation . . ." means that the Department will no longer enter settlements for anything less than the government’s "single" damages (plus interest), relator’s share, and the costs of the investigation, or whether the statement simply conveys how the Department will account for the "credit" portion of the settlement equation. If the former is true, it would represent a significant departure from current practices and might deter voluntary disclosure in all but the most egregious cases where treble damages seem likely.
At bottom, what constitutes cooperation is obviously fact specific and entirely within the discretion of the government which, in turn, may continue to result in disparate outcomes between jurisdictions.
As before, voluntary disclosure to the Department will continue to carry significant risks and companies faced with such a decision should carefully weigh the risks and benefits with the aid of experienced counsel.