Several weeks ago, my colleague Matt Feinberg highlighted “4 Issues That Defined the False Claims Act (FCA) in 2019” and made predictions about anticipated FCA trends for 2020. At the recent 2020 Advanced Forum on False Claims and Qui Tam Enforcement, Department of Justice (DOJ) Deputy Associate Attorney General Stephen Cox (AG Cox) offered inside access to DOJ’s prospective priorities in enforcing and reforming the FCA for 2020. Below, we review the DOJ’s resolutions, which allow us to better anticipate and understand issues government contractors may face under the FCA moving forward.
- Continue qui tam Enforcement Efforts
In 2019, we saw an upward trend in motions to dismiss filed by DOJ in qui tam actions in which the government failed to intervene. The government’s decision to file a motion to dismiss in a qui tam action is informed by the Granston Memorandum, which was issued in 2018. The Granston Memorandum provides a number of factors for the government to consider when deciding whether to seek strategic dismissal of a qui tam action, including curbing meritless FCA litigation, preserving government resources, and preventing interference with agency policies and programs. Prior to the Granston Memorandum, the DOJ rarely sought dismissal of qui tam cases. In fact, in the thirty years preceding the Granston Memorandum, the DOJ had sought dismissal of only 45 cases; the DOJ has dismissed approximately that same number of cases in the two years since the Granston Memorandum was issued. Citing the government’s role as a “gatekeeper” and its goal of “protect[ing] the integrity of the False Claims Act,” AG Cox expressed DOJ’s intent to “judicious[ly]” and “more consistent[ly]” rein in whistleblower overreach.
Although DOJ generally seeks dismissal of qui tam litigation in a modest number of cases, AG Cox confirmed our expectation that the government will continue to seek dismissal of unjustified qui tam complaints in 2020.
- Reduce “Rulemaking By Guidance”
In addition to statutes and regulations, government contractors can look to agency-issued “guidance documents”—including online bulletins, agency newsletters, “frequently asked questions,” and other communications—to guide their behavior. Unlike regulations, these guidance documents do not undergo the notice and public comment process. As a result, these documents should not carry the force of law. Recognizing this, the DOJ has announced its intent to look principally to violations of statutes and/or regulations as establishing violations of law—including the FCA. AG Cox did note, however, that these guidance documents will remain relevant in determining whether a violation of the FCA has occurred: for instance, where the guidance simply describes a valid legal requirement or where the party and the government expressly agree to comply with a specific guidance.
When reviewing requirements between a contractor and an agency, the parties should primarily turn to statutes and regulations. Guidance documents remain relevant in understanding legal requirements, but the DOJ is less likely to enforce duties independently created by them.
- Commit to the Cooperation Credit
In May 2019, DOJ issued guidance and a formal policy outlining the availability of a “cooperation credit” for individuals and entities facing FCA claims. Under this policy, defendants (or subjects of investigations) can earn credit—that is, a reduction in penalties and damages—by
- voluntarily disclosing misconduct,
- cooperating with an FCA investigation, and
- taking remedial measures to improve corporate compliance programs, among other remedial measures.
Notably, a contractor can take steps to earn the cooperation credit both before and after an FCA claim is brought against it. For instance, even after a claim has been brought, DOJ will take into account voluntary disclosure of other misconduct outside the scope of a current claim. Before a violation occurs, companies should strive to create and implement a “robust” compliance program. AG Cox noted that doing so could demonstrate a lack of scienter, i.e., actual knowledge of or reckless disregard for, a false claim, as to any alleged FCA violation. DOJ’s goal in providing the cooperation credit is to incentivize companies to invest in compliance. A company that diligently discloses, cooperates, and remediates during an FCA investigation may earn a maximum credit down to single damages, plus only lost interest, costs of investigation, and the whistleblower’s share.
Companies that contract with the government should not wait until an FCA claim is brought against them to create a compliance program that detects and prevents potential fraud. Even if an FCA claim has been brought against a company, it is not too late to disclose and cooperate in order to minimize potential monetary damages.
- Focus on Third-Party Litigation Financing
Lately, the federal government has shown an interest in third-party litigation financing, in general. There are at least two proposals that would require the disclosure of third-party financing agreements in civil litigation: the Advisory Committee on Civil Rules’ Multi-District Litigation (“MDL”) Subcomittee is considering a proposal, and Members of the Senate Judiciary Committee have sponsored a bill. Should either be adopted, it would likely encompass and affect FCA claims. DOJ has also expressed awareness of and concern with third-party litigation financing in qui tam litigation. Several of the dismissals under the Granston Memorandum, discussed above, addressed potentially unscrupulous investors funding the complainant (known as a “relator”) or instances where the relator stood to gain financially as a result of the qui tam suit. DOJ is currently considering “what, if any, interests the United States has with respect to third-party litigation financing in qui tam litigation and whether it is worth seeking some disclosure, at least to the department, of such arrangements.”
Expect some form of a disclosure requirement to be generated by the judiciary, legislature, and/or the executive with respect to third-party financing for qui tam suits.
If you have questions concerning the FCA, please contact a member of PilieroMazza’s False Claims Act Team. For more on the FCA, please check out “Ex Rel. Radio: Multi-Part Series on the False Claims Act”. We also invite you to subscribe to the Firm’s email distribution list to receive blogs, client alerts, and webinar invites with recent developments in this area of the law.