“Cooperation Credit” in False Claims Act Settlements

On May 6, 2019, the US Department of Justice (“Department”) released “Guidance” describing certain steps that parties may take to earn “cooperation credit” in False Claims Act settlements. Cooperation credit refers to the government’s willingness to reduce damage multiples or “penalties” in actual FCA settlements. The Guidance will have direct bearing on internal investigations, voluntary settlements, cooperation in investigations and remedial steps to address false claims concerns. The Guidance provides a blueprint for internal conversation and discussion with counsel during an FCA investigation.

The Guidance is both old and new news. It is old news in the sense that many of the enumerated steps encouraged by the Guidance are actions that parties would already expect to take or at least consider in addressing false claims exposure. In this sense, the Guidance will have a familiar look and feel. It is new news in that it adds transparency while specifically referencing that cooperation credit can be available in False Claims Act settlements. The Guidance is incorporated into the Justice Manual at Section 4-4,112.

The Department still retains discretion, both qualitative and quantitative, in applying the Guidance. Cooperation credit cannot result in a reduction of a party’s payment obligation below the amount of the government’s actual losses caused by the triggering false claims activity.

The Guidance is organized around three categories of cooperating activity.

1. Voluntary Disclosure.

The Guidance states that “[e]ntities or individuals that make proactive, timely, and voluntary self-disclosure to the Department about misconduct will receive credit during the resolution of an FCA case.” This may occur if a party discovers and voluntarily reports as a self-disclosure. It may even arise during an active Department investigation if, in the course of internal investigation, the party discovers “additional misconduct going beyond the scope of the known concerns, and [voluntarily self-discloses] such additional misconduct to the Department.” It is not available, however, if the disclosure is one required by law – for example, providing information compelled by a subpoena.

2. Other Forms of Cooperation.

Here the Guidance contains a lengthy, non-exclusive, enumeration of examples which is worth repeating. A party may earn cooperation credit for:

1. Identifying individuals substantially involved in, or responsible for, the misconduct. This is an outgrowth of the Yates memo several years ago directing the Department to seek remedies against individual wrongdoers in corporate FCA settlements;
2. Disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government’s investigation that is not in the possession of the entity or individual or not otherwise known to the government;
3. Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements;
4. Identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures;
5. Making available for meetings, interviews, examinations, or depositions an entity’s officers and employees who possess relevant information;
6. Disclosing facts relevant to the government’s investigation gathered during the entity’s independent investigation (not to include information subject to attorney-client privilege or work product protection), including attribution of facts to specific sources, rather than a general narrative of facts, and providing timely updates on the organization’s internal investigation into the government’s concerns, including rolling disclosures of relevant information;
7. Providing facts relevant to potential misconduct by third-party entities and third-party individuals;
8. Providing information in native format, and facilitating review and evaluation of that information if it requires special or proprietary technologies so that the information can be evaluated;
9. Admitting liability or accepting responsibility for the wrongdoing or relevant conduct; and
10. Assisting in the determination or recovery of the losses caused by the organization’s misconduct.

For both voluntary disclosures and other forms of cooperation, the Department will consider the timeliness and voluntariness of the assistance, the truthfulness and completeness of the information, the nature and extent of the assistance, and the significance and usefulness of the cooperation. In other words, the cooperation credit available in these categories is highly discretionary based on actual facts and circumstances in an individual case.

 
3. Remedial Measures.

Parties are already well familiar with this category. Remedial measures are actions taken by a party in response to discovery of an FCA violation. Enumerated in the Guidance are the following:

1. Demonstrating a thorough analysis of the cause of the underlying conduct and, where appropriate, remediation to address the root cause;
2. Implementing or improving an effective compliance program designed to ensure the misconduct, or similar problem, does not occur again;
3. Appropriately disciplining or replacing those identified by the entity as responsible for the misconduct either through direct participation or failure in oversight, as well as those with supervisory authority over the area where the misconduct occurred; and
4. Any additional steps demonstrating recognition of the seriousness of the entity’s misconduct, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of such misconduct, including measures to identify future risks.

The Guidance highlights the Department’s continuing theme of identifying individuals, including senior management and board members, who are responsible for misconduct, and parties need to bear this in mind when initiating internal investigations of reported misconduct. The cooperation credit is to the person or entity who submits claims and is at risk under the FCA for repayment and penalties. The Department continues to reserve the right to separately pursue individuals who substantially participated in the wrongdoing.

“The Department will not award any credit to an entity or individual that conceals involvement in the misconduct by members of senior management or the board of directors, or to an entity or individual that otherwise demonstrates a lack of good faith to the government during the course of its investigation.”

In additional to potentially reducing the damage multiple or other penalties, the Department holds out the possibility that in return for disclosure, cooperation and remediation the Department “may” consider “additional avenues that would permit an entity or individual to claim credit for having cooperated in FCA cases.” These could include:

1. Notifying other relevant agencies of the party’s cooperation, so that the other agencies may consider whether some form of credit is due. For example, the Department might notify the OIG in a case under OIG jurisdiction of a party’s level of cooperation.
2. “Publically acknowledging” the party’s cooperation.
3. Assisting the entity or individual to resolve pending qui tam litigation with private relators.

On balance, the Guidance is helpful in enumerating the government’s expectations of what constitutes disclosure, cooperation and remediation. It provides a roadmap for discussion internally and with counsel when a party is actively investigating or being investigated for potential false claims misconduct. It is not revolutionary, in that many of the suggested steps are already considered, if not adopted, in handling FCA cases.

Alex M. (Kelly) Clarke