LawFlash

DOJ Affirms Commitment to Enforcing FCA, Clarifies Equitable Enforcement Policies

January 29, 2019

Addressing attendees at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement, Deputy Associate Attorney General Stephen Cox emphasized the Department of Justice’s continued commitment to vigorous False Claims Act enforcement, while clarifying recent policies aimed at ensuring equitable treatment of defendants and conservation of government resources.

In emphasizing that False Claims Act (FCA) enforcement remains “a top priority for the Department,” Deputy Associate Attorney General Stephen Cox observed that during fiscal year 2018, the US Department of Justice (Department) was successful in recovering $2.8 billion, $2.5 billion of which was recovered in the healthcare industry—the ninth consecutive year in which the Department recovered more than $2 billion in FCA actions involving the healthcare industry. Mr. Cox also emphasized that the Department’s enforcement interests go beyond recouping taxpayer money and include protecting members of the US Armed Forces and government law enforcement agencies, patients, and the integrity of the government contracting process.

Mr. Cox also clarified and reaffirmed recent Department enforcement policies, including the Granston and Brand memoranda.

The Granston Memo

Regarding the Granston Memo, which sets forth guidelines for Department attorneys to consider when determining whether to dismiss qui tam cases,[1] Mr. Cox explained that although the success of FCA enforcement is attributable in large part to qui tam relators, “relators may not always have the same interests as the United States.” Therefore, the Department “take[s] very seriously [its] responsibility to monitor False Claims Act cases when [it] decline[s] to intervene,” and “[t]he Granston Memo is about [the Department’s] . . . gatekeeping role.” Specifically, Mr. Cox stated that the Granston Memo was motivated, in part, by the fact “that when qui tam cases are nonmeritorious, abusive, or contrary to the interests of justice, they impose unnecessary costs on the Department, on the judiciary, and on the defendants.” Moreover, allowing relators to pursue “bad cases” in declined FCA actions risks the generation of “bad case law” that “inhibit[s] [the Department’s] ability to enforce the [FCA] in good and meritorious cases.”

Mr. Cox also clarified that the “Granston Memo is not really a change in the Department’s historical position,” but rather represents the Department’s emphasis on exercising its dismissal authority under the FCA consistently in appropriate cases. This emphasis resulted in the Department’s moving to dismiss around two dozen cases in 2017 alone. Going forward, Mr. Cox confirmed that the Department would continue to exercise its dismissal authority under the FCA judiciously and “consistently to preserve [the Department’s] resources for cases that are in the United States’ interest.”

Mr. Cox’s remarks provide further insight into the Department’s consideration of the types of cases it will consider for dismissal and the arguments that defense counsel can make, which will likely resonate the most. His remarks suggest a way to appeal to the Department’s interest in protecting itself from unfavorable court decisions made in nonintervened FCA cases involving questionable or meritless claims, but it is clear that the Department intends to be selective and strategic in making the decision to seek to dismiss those cases. How that discretion will be exercised will be closely watched by practitioners in the years ahead.

The Brand Memo

Discussing the Brand Memo,[2] which directs Department attorneys not to “convert other agencies’ sub-regulatory guidance into rules that have the force or effect of law,” Mr. Cox explained that “agency guidance should educate, not regulate,” and “noncompliance with a nonbinding guidance document cannot be used to establish a violation of law.” Such nonbinding guidance may be relevant to issues of a defendant’s knowledge of a particular requirement “or the agency’s views on the materiality of that requirement.” Guidance similarly “may be relevant to professional standards that are incorporated into statutes.” However, under the principles set forth in the Brand Memo, despite the probative value that guidance documents might have on certain elements of FCA cases, “[a]gency guidance cannot be dispositive of what a statute or regulation means—it is not a thumb on the scale—and it cannot create binding requirements.” On the other hand, guidance documents still may become binding “under the principles of contract law” if the guidance “is expressly incorporated into a contract or a certification.”

Mr. Cox confirmed the Department’s continued commitment to the principles underlying the Brand Memo, stating that those “policies keep government restrained and promote the rule of law, fair notice, and due process.” The examples Mr. Cox provided in the course of this speech, along with the fact that a number of other federal agencies he noted are adopting similar approaches to agency guidance, provides new ammunition to defense counsel with clients who are dealing with challenging agency pronouncements and internal documents that demonstrate the client’s awareness of the government’s views on the meaning of regulatory requirements applicable to the client’s activities.

‘Piling On’

Mr. Cox also confirmed the Department’s continued efforts aimed at discouraging multiple agencies from pursuing “a single entity for the same or substantially similar conduct”—termed “piling on”—pursuant to a policy announced by Deputy Attorney General Rod J. Rosenstein in remarks delivered on May 9, 2018.[3] Mr. Cox explained that “piling on” by multiple agencies results in the imposition of “unwarranted and disproportionate penalties” for the conduct at issue. Pursuant to this policy, not only is the Department “promoting coordination within the Department and with other agencies” to ensure appropriate apportionment of penalties and fines, it also will not “invoke the threat of criminal prosecution just to persuade a company to pay a larger settlement” in FCA and other civil cases. In enforcing its policy against “piling on,” the Department seeks to ensure that its FCA enforcement efforts are “equitable and proportionate to the defendants’ conduct,” and that any fines, penalties, or damages imposed are not “unnecessarily duplicative of each other.”

Cooperation Credit

In closing, Mr. Cox addressed the Department’s revised policy regarding cooperation credit announced by Deputy Attorney General Rosenstein in remarks delivered November 29, 2018.[4] Under this policy, cooperation credit “no longer is an ‘all or nothing’ approach,” as it was under the policies set forth in a Department memorandum issued by then Deputy Attorney General Sally Yates in September 2015 that required companies to identify “all relevant facts about individual misconduct” and “all individuals involved in or responsible for the misconduct at issue” in order to receive any cooperation credit.[5] Rather, so long as companies “meaningfully assist the government’s investigation,” they are eligible for some cooperation credit “even if the company does not qualify for maximum credit” by identifying “every individual person who was substantially involved in or responsible for the misconduct.”

The Department’s policy changes in this regard represent the Department’s continued commitment to “rewarding companies that invest in strong compliance programs and who cooperate with [the Department’s] investigations into wrongdoing.” Reiterating principles set forth in remarks made by then Acting Associate Attorney General Jesse Panuccio in June 2018,[6] Mr. Cox explained that companies “can receive a more favorable resolution for cooperating with [the Department’s FCA] investigations” through voluntary disclosures or from “sharing information gleaned from an internal investigation and making witnesses available” to be interviewed. Additionally, Mr. Cox explained that the existence of an “effective and robust compliance program” informs determinations as to whether defendants knowingly violate the law and whether an FCA case has merit.

These are no doubt encouraging remarks designed to persuade defense counsel to advise clients to be active cooperators in FCA investigations, but Mr. Cox did not provide any specifics regarding the extent to which various levels of cooperation will translate into more favorable settlements in these cases. In likely recognition of this fact, Mr. Cox advised the audience to “[s]tay tuned on this front,” noting that the Department has considerable discretion to resolve FCA cases in ways that provide “a material discount based on cooperation while still making the government whole.” Much more clarity on this point is necessary to obtain the proactive cooperation and disclosure the Department seeks to achieve from corporations facing the potential for draconian penalties associated with FCA violations. The discount for cooperation in FCA cases has varied widely and is almost never quantifiable or specifically measured, as has been the case in criminal cases where the Department identifies a specific percentage discount below the minimum fine specified in the US Sentencing Guidelines for cooperation. FCA cases carry a lower burden of proof and provide the Department with very substantial discretion in deciding whether to pursue litigation and the basis on which litigation will be resolved. Providing more certainty in how self-disclosure and active cooperation will translate into more favorable results will help the Department to achieve its stated goals of fair and equitable enforcement and the efficient utilization of its limited resources.

Takeaways

While affirming the Department’s commitment to continued rigorous FCA enforcements, Mr. Cox’s January 28, 2019, remarks also confirmed the Department’s efforts at ensuring equitable FCA enforcement that punishes bad actors appropriately, limits the proliferation of qui tam suits of questionable merit, and rewards companies that invest in robust compliance programs and meaningfully cooperate with government investigations.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Tinos Diamantatos

Dallas
Danny S. Ashby
Sheila A. Armstrong
Steve Korotash

Houston
Gregory N. Etzel
B. Scott McBride
John W. Petrelli

Miami
Alison Tanchyk

New York
Kelly A. Moore
David I. Miller
Martha B. Stolley

Philadelphia
Nathan J. Andrisani
Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Matthew J.D. Hogan
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Kenneth A. Polite, Jr.
Margaret Erin Rodgers Schmidt
Shevon L. Scarafile
Brian W. Shaffer
Eric W. Sitarchuk

Washington, DC
Brad Fagg
Kathleen McDermott
Scott A. Memmott
Howard J. Young


[1] Eric W. Sitarchuck et al., DOJ Memorandum Supports Government Dismissal of Qui Tam False Claims Act Cases, Morgan Lewis LawFlash (Jan. 25, 2018).

[2] Rachel Brand, Associate Attorney General, Memorandum re: Limiting the Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases (Jan. 25, 2018); Gregory N. Etzel & James D. Nelson, DOJ Limits Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases, Morgan Lewis LawFlash (Jan. 26, 2018).

[3] Alison Tanchyk et al., DOJ Announces New ‘No Piling-On’ Policy, But Maintains Compliance Expectations, Morgan Lewis LawFlash (May 10, 2018).

[4] Zane David Memeger et al., DOJ Increases Focus on Individual Accountability in Corporate Wrongdoing, Morgan Lewis LawFlash (Nov. 30, 2018).

[5] Sally Quillian Yates, Deputy Attorney General, Memorandum re: Individual Accountability for Corporate Wrongdoing, at 3 (Sept. 9, 2015); see also Nathan J. Hochman & Eric W. Sitarchuck, US Department of Justice Targets Corporate Individuals, Morgan Lewis LawFlash (Sept. 14, 2015).

[6] Eric W. Sitarchuk et al., Acting Associate AG Panuccio Emphasizes DOJ’S Recently-Announced Policy Initiatives, Morgan Lewis LawFlash (June 15, 2018).