Promoting FCA Cooperation Guidance, DOJ Dangles Discretion to Make FCA Allegations Go POOF!
The recent rollout of DOJ's False Claims Act Cooperation Guidance left many practitioners scratching their heads about how it really changed the landscape on cooperation since, as we previously blogged: the policy provides "much discussion of what constitutes cooperation," while saying little "of the benefit of the bargain"—particularly for self-disclosure.
In recent remarks at the Compliance Week Annual Conference, Principal Deputy Associate Attorney General Claire McCusker Murray discussed with the audience of lawyers and compliance professionals how companies can cooperate with the government and the types of credit available for that cooperation. But the incentives Murray described are scant, and we doubt that they will drive more companies to seriously consider self-disclosure under the new Guidance. As we previously explained, even in the absence of the Guidance, "the accepted wisdom among FCA defense practitioners is that a pre-filing settlement (or a pre-intervention qui tam resolution) will yield reduced exposure of anywhere from 1.5 to 2 times 'single damages,' which themselves are open to negotiation."
So what is new? Murray reiterated that under the new Guidance, a company may cooperate by making a voluntary disclosure, cooperating with the government's investigation, and undertaking remedial measures. She then identified a form of cooperation that is not highlighted in the Guidance: a company also can cooperate by assisting the government in calculating damages. Murray illustrated her point with two actual examples. In one FCA settlement last year, in exchange for a company's assistance in disclosing additional violations outside the scope of the government's initial inquiry and assisting the government in calculating damages, "the government agreed to accept some of the reasonable, albeit conservative, damages assumptions proposed by" the company. Murray did not disclose the multiplier used in the settlement. In another settlement earlier this year, the government used a discounted damages multiplier of 1.7 in return for the company's cooperation, which included sharing the results of its extensive internal investigation and assisting the government in developing its damages model.
If Murray intended for these examples to better demonstrate the benefits of self-disclosure, however, they fell short. The approach to damages and 1.7 multiplier she referenced are consistent with those that have long been available in pre-suit resolution negotiations. But Murray also suggested that stronger incentives might be forthcoming in future cases. She explained that the new Guidance allows DOJ to "provide a substantial discount," all the way "down to the government's single damages, plus lost interest, costs of investigation, and, in a qui tam case, the share going to the whistleblower." We assume that if the Department had settled an FCA case for single damages with no multiplier, Murray would have mentioned it. For now, to our knowledge, discounts down to single damages remain hypothetical.
Saving the best for last, Murray also addressed a shortcoming of the new Guidance that we previously flagged—that "the government's taking a 'pass' on FCA liability" was not listed as a potential benefit of cooperation. Murray explained that a company with a robust compliance program may avoid an FCA settlement altogether if the company follows its program, its program identifies potential problems, and the company addresses them in a timely manner. According to Murray, "the Department will take into account the nature and effectiveness of a company's compliance program in evaluating whether the violation of law was committed knowingly and therefore whether the False Claims Act is the appropriate remedy in the first instance."
We at Qui Notes were pleased to see the Department formally acknowledging that this is a possibility. That said, we expect that DOJ will reserve this option for only the rarest of circumstances, and, in reality, it will continue to be difficult to resolve FCA allegations without an FCA settlement (or litigation).
© Arnold & Porter Kaye Scholer LLP 2019 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.