Yates Memo Sets Forth Aggressive View of FCA’s Cooperation Clause, But Whether Courts Will Follow Remains To Be Seen
As we previously reported, the DOJ’s recent “Yates Memo” signals a renewed focus by DOJ on individual culpability for corporate wrongdoing. This focus applies to DOJ’s view of what is required to invoke the FCA’s “Cooperation Clause,” 31 U.S.C. § 3729(a)(2), which states that an FCA defendant may be eligible for double damages (rather than treble damages) if: (1) the person committing the violation furnished U.S. officials responsible for investigating the false claims action “with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information,” (2) the person cooperated fully with the government’s investigation, and (3) at the time the person provided information on the violation, no action had commenced with respect to the violation and the person did not have actual knowledge of any investigation into the violation. The Yates Memo states that “the Department’s position on ‘full cooperation’ under the False Claims Act, 31 U.S.C. § 3729(a)(2), will be that, at a minimum, all relevant facts about responsible individuals must be provided.” “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” If a company “declines to learn of such facts” or to disclose all facts about individual wrongdoers, the company is barred completely from eligibility for reduced damages.
However, it is worth noting that whether a defendant is entitled to cooperation credit under the FCA is not solely within the discretion of DOJ. While the Yates Memo sets forth DOJ’s own view of what is required under the Cooperation Clause, in the event of a dispute a court may have the final say, and there is some reason to be optimistic that courts will not reflexively defer to DOJ’s interpretation.
For example, earlier this year, one federal district court granted cooperation credit to a defendant over DOJ’s objection, concluding that “[t]he government takes the disclosure requirement in section 3729(a)(2) too far.” See United States ex rel. Raggio v. Jacintoport Int’l, LLC, No. 10-01908 (BJR), 2015 U.S. Dist. LEXIS 116432, at *12-13 (D.D.C. Mar. 12, 2015). Jacintoport received a phone call asserting that it had overcharged the government in connection with stevedoring services provided to USAID because it applied charges in excess of a rate cap provision in the contract. Ten days after receiving this call, Jacintoport sent a “voluntary disclosure” letter to a USAID procurement executive explaining that Jacintoport had identified that “an adjustment of certain charges could be due” and stating that it would conduct further examination into the issue. Jacintoport cooperated with two subsequent subpoenas issued by the USAID OIG.
In a qui tam FCA suit that followed, Jacintoport filed a motion for partial summary adjudication asserting that it was entitled to reduced damages under the Cooperation Clause. The government opposed the motion, arguing that Jacintoport failed to meet the requirements of the Cooperation Clause because it did not disclose its wrongdoing to the Attorney General; it “said so little of any substance as to be no disclosure at all”; and it did not fully cooperate with the government’s investigation. The government, citing the requirement that a company disclose “all information known to such person about the violation,” claimed that Jacintoport “fell well below that standard” because it did not identify that it had been aware of the overcharges.
The district court soundly rejected the government’s argument and granted Jacintoport’s motion for reduced damages as a result of its cooperation in the case. The court found that “Jacintoport was not required to concede that ‘overcharges’ were made immediately upon discovery of a possible billing discrepancy.” Further, the court held, the Cooperation Clause only requires that an individual place the government on notice of an issue so that the government may investigate, which it held Jacintoport’s disclosures had done.
The case serves as a reminder that while the Yates Memo stakes out an aggressive interpretation for which constitutes “full cooperation” under the FCA, it will ultimately be the courts that will decide what qualifies as full cooperation—and the courts may not take as hardline a view as that reflected by DOJ in the Yates Memo.
A copy of the D.C. Circuit’s opinion can be found here.