On September 4, 2020, Acting Assistant Attorney General Ethan Davis issued guidance to the U.S. Department of Justice’s Civil Division on evaluating inability-to-pay claims. The memorandum, titled “Assessing an Entity’s Assertion of an Inability to Pay,” sets forth an analytical framework for evaluating an individual or company’s claim that it cannot pay a civil fine or monetary penalty because it lacks sufficient assets. This framework would apply to civil claims under the False Claims Act.
The recent guidance reinforces the Civil Division’s long-standing practice of taking under consideration an entity’s assertion that it is unable to both “pay the government and meet its ordinary and necessary business and/or living expenses.” In making an inability-to-pay argument, entities must complete the Division’s certified Financial Disclosure Form, which identifies assets and liabilities, current and anticipated income and expenses, cash flow, projections, working capital, and other relevant information. Entities must also cooperate in providing access to appropriate personnel and documentation responsive to DOJ’s inquiries, including tax returns and audited financial statements.
On June 1, 2020, the Criminal Division of the U.S. Department of Justice (DOJ) publicized an updated version of its “Evaluation of Corporate Compliance Program” guidance. This is the third version of the document, with the DOJ having issued the guidance in 2017 (which we analyzed here) and revised it in April 2019 (which we analyzed here). This further revision is another reminder of the DOJ’s heightened focus and increasing sophistication regarding evaluating compliance programs during investigations. While the overall structure of the guidance generally remains consistent with the last version, the revisions provide additional insight into the DOJ’s expectations for corporate compliance programs. More specifically, the revisions highlight the importance of an adequately resourced and empowered compliance department, a constantly evolving compliance program based on the company’s current risk profile and relevant compliance issues, and the use of key compliance metrics to test the effectiveness of a compliance program.
A recent decision from the District of Minnesota denied the government’s appeal of a federal magistrate judge’s order requiring that, as part of discovery, the government detail specific false claims and turn over notes and reports of witness interviews. The underlying case is a qui tam alleging that Precisions Lens and its founder provided kickbacks to physicians to induce the use of its eye surgery products.
On May 6, 2019, the U.S. Court of Appeals for the First Circuit overturned its own precedent, holding that the first-to-file rule is not jurisdictional. United States v. Millennium Labs., Inc., No. 17-1106, 2019 WL 1987249, at *1 (1st Cir. May 6, 2019). The First Circuit now joins the D.C. Circuit and the Second Circuit in treating the first-to-file requirement as merely a matter of adequate pleading (see United States ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80, 86 (2d Cir.) (per curiam), cert. denied, 138 S. Ct. 199 (2017); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 120-21 (D.C. Cir. 2015)), widening an existing circuit split on the issue. See, e.g., United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 117 (1st Cir. 2014) (first-to-file rule is jurisdictional).
The U.S. Court of Appeals for the Tenth Circuit weighed in on the “public disclosure bar” under the False Claims Act (“FCA”) that relators must pass for their qui tam suits to proceed. For the first time, the Court provided guidance on when a relator’s allegations can be deemed to “materially add” to public disclosures related to an alleged false claim, such that the original source exception to the public disclosure bar applies. United States ex rel. Reed v. KeyPoint Gov’t Solutions, No. 17-1379, (10th Cir. Apr. 30, 2019).
On May 7, 2019, the Department of Justice (DOJ) announced the release of formal guidance to its False Claims Act (FCA) prosecutors that provides a path for leniency for defendants in FCA investigations. More specifically, the guidance which is formalized in Section 4-4.112 of the DOJ’s Justice Manual, explains the manner in which the DOJ will award credit to defendants who voluntarily self-disclose misconduct that could serve as the basis for FCA liability, take other steps to cooperate with FCA investigations, or implement adequate and effective remedial measures in the FCA context. And significantly, the guidance provides that a defendant can receive a reduction in the damages multiplier and civil penalties under the FCA, which is the typical form of “credit” described in the guidance.
The U.S. Court of Appeals for the Eighth Circuit joined a growing trend among courts in tightening False Claims Act (“FCA”) pleading requirements, affirming the dismissal of a qui tam action brought against a nonprofit hospital because the relators failed to meet the “particularity” standard set forth under Rule 9(b) of the Federal Rules of Civil Procedure. In doing so, the court reminded FCA litigants that Rule 9(b) requires either “representative samples” of false claims plead with adequate specificity, or particular details of a scheme to submit false claims paired with reliable indicia that they were submitted. United States ex rel. Strubbe v. Crawford Cnty. Mem’l Hosp., No 18-1022, 2019 WL 512190 (8th Cir. Feb. 11, 2019). (more…)
When the government moves to dismiss a qui tam action, it must satisfy two procedural requirements: it must first notify the relator that the government has filed a motion to dismiss, and second, it must provide the relator an opportunity for a hearing on the motion. 31 U.S.C. § 3730(c)(2)(A). In the year since the issuance of the Granston Memo, which we have written about, here, here, here, and here, both relators and courts have grappled with the breadth of the government’s discretion to dismiss qui tam actions.
Sidley lawyers Kristin Graham Koehler and Josh Fougere have authored an article as a part of the Washington Legal Foundation’s Counsel’s Advisories series, entitled “Appeals Court Holds That First-To-File Violations Require Dismissal Of False Claims Act Suits.” The article examines the Second Circuit’s recent ruling in United States ex rel. Wood v. Allergan, Inc., 899 F.3d 163 (2d Cir. 2018). The Second Circuit joined a growing majority view in holding that a violation of the False Claims Act’s “first-to-file bar cannot be remedied by amending or supplementing the complaint” but, instead, requires dismissal. In reaching that conclusion, the court of appeals made two important points. First, the Second Circuit rejected the relator’s contention that the earlier-filed suits did not trigger the first-to-file bar because they were deficiently pled and were not as detailed as the current complaint. Second, the Second Circuit held that, if a “related action” is “pending” when the relator initially files the complaint, the relator cannot “cure” the violation through amendment after the earlier action is dismissed. The only remedy is dismissal. This emerging consensus has important consequences for statutes of limitations and for how parallel courts handle multiple qui tam suits making similar allegations.
The article is available for download on the Washington Legal Foundation’s website: https://www.wlf.org/2018/10/18/publishing/appeals-court-holds-that-first-to-file-violations-require-dismissal-of-false-claims-act-suits/.