Cash or Credit?: The Latest FCA Self-Disclosure Settlement Barely Mentions the Self-Disclosure
Earlier this month, the U.S. Attorney’s Office for the District of Massachusetts announced a US$9.4 million FCA settlement with GE Aerospace over the sale of aircraft engine parts in violation of various inspection requirements. Perhaps most interesting is what DOJ’s press release did not say, but the settlement agreement did: that the company received cooperation credit pursuant to the Justice Manual’s 2019 FCA cooperation and self-disclosure policy — making this the fourth known settlement to memorialize DOJ’s formal invocation of that policy.
After Deputy Attorney General Lisa Monaco issued her September 2022 memorandum revamping DOJ corporate criminal enforcement and cooperation policies, DOJ rolled out a series of criminal self-disclosure policies — providing ample fodder for law firm advisories, blog posts, and conference presentations. Much has been said about how these policies incentivize self-reporting by reducing criminal penalties imposed on companies that proactively disclose malfeasance to DOJ. But less fanfare has accompanied the parallel civil fraud policy for FCA self-disclosures and cooperation credit, formally rolled out in May 2019 and codified in Section 4-4.112 of DOJ’s Justice Manual (“Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters”). One reason is likely that the policy, on its face, provided plenty of detail about how to cooperate but little clarity about new incentives for doing so. Still, with billions of dollars at stake in FCA cases each year, self-disclosure and cooperation credits necessarily play an important role in the FCA defense bar’s advice and counsel.
Earlier this year, DOJ began to publicly memorialize cooperation credit in its FCA settlement agreements and related press releases. While the examples are still few and far between, they help clarify what the 2019 self-disclosure policy means in practice. Our review of DOJ press releases shows that from June through September 2023, Main Justice and at least one U.S. Attorney’s Office announced three settlements where the press releases (and settlement agreements themselves, when publicized) described what the companies disclosed and how they cooperated with DOJ’s investigations. Based on the ratio of the listed settlement payment to the designated “restitution” amount, two of the settlements — one involving alleged healthcare kickbacks and another involving allegedly deficient cybersecurity standards — were calculated using a 1.5 “single damages” multiplier (as compared with the treble damages available after an FCA trial). The third settlement concerned COVID-19 testing and calculated the settlement payment using a 1.75 multiplier, with the company admitting liability.
By contrast, this latest GE Aerospace settlement is notable for its minimal detail — from DOJ, at least — about the company’s cooperation. First, DOJ’s press release does not mention the company’s cooperation at all, despite including statements by four different investigating agencies. Second, the settlement agreement (which is linked from the press release) states only that GE Aerospace was credited under DOJ’s FCA “guidelines for taking disclosure, cooperation, and remediation into account.” But unlike the other publicized self-disclosure settlements, this one offers no description of how or what the company did to earn that credit. Instead, separate press coverage reports GE Aerospace’s own statement that “[u]pon learning of these issues more than five years ago, [the company] alerted the Department of Defense and cooperated with the government’s investigation,” and then “implemented significant corrective actions to ensure this does not occur again.” Consistent with the payment in the COVID-19 settlement noted above, GE Aerospace’s settlement payment-to-restitution ratio indicates a 1.75 single-damages multiplier. The settlement agreement also states that GE Aerospace “admits, acknowledges, and accepts responsibility” for one of its plants’ inspections-related failures. Such factual admissions are par for the course in Massachusetts, where the U.S. Attorney’s Office is known for its aggressive approach to FCA enforcement and now typically requires settling companies to make admissions as a condition of resolving FCA matters without litigation.
It is not immediately clear why this latest settlement does not detail the company’s cooperation, and why DOJ’s press release failed to mention it at all. Was that simply an oversight? Could the parties not agree on how to memorialize the cooperation? Had the government already opened an investigation before it received the company’s disclosure? Is it because of a U.S. Attorney’s Office-specific decision not to publicize how self-disclosures and other cooperation are evaluated? Whatever the reason, the sparse public record gives little insight into how this particular office is applying the Justice Manual’s FCA self-disclosure policy, and whether it is doing so consistently with other DOJ offices, beyond the damages multiplier.
Still, one thing is immediately clear: the 1.5 to 1.75 multipliers used across these four recent settlements are not that different from what we would have expected to see before 2019’s self-disclosure policy. We previously blogged that even before DOJ issued this guidance, “the accepted wisdom among FCA defense practitioners [had been] 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.” As more FCA self-disclosure settlements are publicized, we will be watching — and comparing — the emerging data points with interest.
*Noor Takidin contributed to this Blog post. Ms. Takidin is a graduate of the Loyola University School of Law and is employed at Arnold & Porter's Los Angeles office. She is not admitted to the practice of law.
© 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.