Navigating Murky Waters: ABA White Collar Panel Explores the Complexities of the False Claims Act
Continuing our coverage of the ABA’s White Collar Crime Conference, Arnold & Porter’s very own Christian Sheehan led a spirited discussion on the False Claims Act (FCA) this afternoon. Joining firm and in-house counsel on the panel was Andy Mao, Deputy Director of DOJ’s Civil Fraud Section. The panel had a lot to talk about, with two new FCA cases on the Supreme Court’s merits docket this year and DOJ’s ever-growing focus on corporate cooperation at the forefront of much of this year’s conference:
Why is the FCA ripe for circuit splits? Just a few years ago, during oral argument in Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18-315, Justice Alito famously trashed the FCA as a “terribly drafted statute,” remarking that, if he could “grade whoever drafted it,” they would not be awarded top marks. This afternoon’s panel surmised that its ambiguities likely have led the Supreme Court to wade in to resolve circuit splits on various aspects of the FCA in a number of cases. This includes two cases in this term alone. Mao commented that he anecdotally had seen in recent years a slight uptick in relators continuing to pursue cases after DOJ declinations, and he observed that these high-profile cases before the Supreme Court have arisen from such declined cases. Others on the panel took Mao’s observation one step further, suggesting that relators are prone to taking aggressive stances, seeking to exploit the FCA’s ambiguous drafting. Mao responded that DOJ takes seriously the development of bad FCA case law, monitoring declined cases and determining whether and how to intervene, if necessary, to course-correct declined cases.
What impact can we expect when SCOTUS rules on two FCA cases this term? A good portion of the panel discussion was spent on the potential outcomes and impacts of the Supreme Court’s upcoming rulings in both United States ex rel. Polansky v. Executive Health Resources, Inc., No. 21-1053 and United States ex rel. Proctor v. Safeway, Inc., No. 21-111 (consolidated with United States ex rel. Schutte v. SuperValu Inc., No. 21-1326).
In Polansky, the Court is expected to rule on the scope of the government’s authority to dismiss relator-initiated cases under 31 U.S.C. § 3730(c)(2)(A). The panel noted that, whatever standard is adopted, that standard is likely to remain significantly deferential to the government. But perhaps more importantly, the standard adopted likely won’t matter all that much because, to the defense bar’s chagrin, DOJ exercises its (c)(2)(A) dismissal authority sparingly. Mao observed that, since 1986, DOJ has filed motions to dismiss in only 120 cases—compared to more than 600-700 qui tam cases filed each year. He said that DOJ relies on the factors outlined in the Justice Manual in evaluating whether to move to dismiss, like whether the relator’s legal position or view of the facts is fundamentally contrary to the government’s view and whether the government would be unduly burdened by the case proceeding to discovery.
The government’s evaluation of cases remained at the forefront of the panel’s discussion of Proctor and Schutte, in which the Court will rule on whether and when a defendant’s subjective belief about the lawfulness of its conduct is relevant to the FCA’s knowledge element. Mao pointed to the DOJ’s amicus brief, filed in the case just days ago, for the DOJ’s official position. He added that DOJ often declines to intervene in cases where defendants ask the government or agency for guidance about an ambiguous provision or act under a good faith interpretation of an ambiguous provision that later is clarified and determined to be erroneous, because those cases are “bad FCA cases.” Mao’s comment brought the discussion of this term’s cases full-circle, with others on the panel asking the rhetorical question of why DOJ would not exercise its (c)(2)(A) dismissal if a case was a “bad FCA case.” Perhaps we’ll get an answer to that in another conference on another day.
What role does DOJ’s growing emphasis on corporate cooperation play in FCA cases? DOJ’s Justice Manual contains Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters. As loyal followers of Enforcement Edge may know, much attention has been paid to DOJ’s emphasis on corporate cooperation in recent months, including AAG Kenneth Polite’s recent announcement of new revisions to the Criminal Division’s Corporate Enforcement Policy. The panel discussed how DOJ’s corporate cooperation principles are applied in FCA cases.
Mao kicked off the discussion by noting that, though the department does not track such statistics, DOJ thinks that its cooperation guidelines are working but that they are “trying to do better.” He encouraged would-be FCA defendants to come forward early and cooperate fully in order to receive cooperation credit that may lower the FCA’s usual treble damages multiplier in an eventual settlement. But his encouragement was met with some skepticism, with the defense bar noting that the kind of extensive disclosure and cooperation DOJ envisions poses considerable risks for companies with little reward if it’s just a matter of reducing, rather than eliminating, the potential damages multiplier. “You could just go to confession and not have to pay any money at all,” one panelist retorted.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.