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 November 15, 2019, Sutter Health (“Sutter”) and Sacramento Cardiovascular Surgeons Medical Group Inc. (“Sacramento”) agreed to pay a total of $46 million to resolve FCA claims based on whistleblower allegations made by a former Sutter compliance officer that Sutter provided kickbacks to Sacramento physicians in exchange for referring patients to Sutter. The settlement also resolved Stark Law allegations relating to above fair market value payments made by certain of Sutter’s hospitals to Sacramento physicians. The underlying FCA complaint was filed in 2014 by a former Sutter compliance officer. The settlement only resolves some of the fraud allegations included in the former compliance officer’s complaint.
In the wake of the Yates memo eighteen months ago, DOJ offered an early signal that its commitment to focus more on individual accountability would have bite: alongside a $125 million settlement with Warner Chilcott, DOJ also indicted the former president of the company’s pharmaceutical division for conspiring to violate the Anti-Kickback Statute (discussed here). Since then, the government suffered a speedy loss at his trial, and DOJ’s focus on individuals has not always been so overt. However, two recent settlements highlight the imprint of the Yates memo, and in particular, a new trend of DOJ holding owners of closely held companies personally liable for FCA settlements.
In United States ex rel. Christiansen v. Everglades College, Inc., Nos. 16-10849/16-11839, — F.3d —, 2017 U.S. App. LEXIS 7842, 2017 WL 1658478 (11th Cir. May 3, 2017), the Eleventh Circuit recently determined that the United States is not required to satisfy the good-cause intervention standard in 31 U.S.C. § 3730(c)(3) when settling a qui tam action brought under the False Claims Act (“FCA”) over a relator’s objections. The Court also articulated the standard for determining when a settlement between the United States and an FCA defendant is “fair, adequate, and reasonable” under 31 U.S.C. § 3730(c)(2)(B). (more…)
The extent to which statistical sampling can be used to establish FCA liability remains a hotly disputed topic among federal courts. In a closely watched case, the Fourth Circuit last week declined to become the first circuit court directly to address the issue. See United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 15-2145 (4th Cir. Feb. 14, 2017).
On September 9, 2016, the Securities and Exchange Commission filed in U.S. District Court for the District of Columbia a civil lawsuit against a government contractor, RPM International, Inc., and its General Counsel, alleging they had failed timely to disclose a loss contingency and record an accrual for a DOJ FCA investigation that the company ultimately settled for $60.9 million.
In a speech on Tuesday, September 27, 2016, Principal Deputy Associate Attorney General Bill Baer said that in the post-Yates world companies must provide early and material assistance to DOJ’s efforts to hold companies and individuals accountable for corporate wrongdoing – including by voluntarily disclosing information before they receive a subpoena – if they hope to receive cooperation credit. In doing so, Baer called out those banks caught up in DOJ’s enforcement focus on mortgage-backed securities. Baer claims those companies did not cooperate early enough and that DOJ thus rejected their requests for substantial cooperation credit, ultimately extracting billions of dollars in settlements. Baer thus made clear the importance of early cooperation: “little or no cooperation credit will be afforded in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” In addition to cooperating early, companies also must provide specific information about any and all employees involved in wrongdoing and information that is unknown to DOJ and materially assists its investigation in order to obtain meaningful cooperation credit. At the same time, Baer described conduct that will not qualify a company for cooperation credit; specifically, simply producing information in response to a subpoena or CID and making a presentation to DOJ that seeks to limit or eliminate liability will not be viewed as cooperation. Indeed, Baer’s speech raises questions as to whether legitimate efforts to defend conduct under investigation may even disqualify a company that otherwise has been cooperative from receiving cooperation credit.
Baer’s speech can be accessed here.
On March 8, 2016, Amarin Pharma, Inc., advised Judge Paul Engelmayer of the United States District Court for the Southern District of New York that the company had reached agreement with the Government on the resolution of the parties’ dispute over Amarin’s entitlement to engage in certain types of communication to physicians regarding the health benefits of the company’s drug, VASCEPA. Judge Engelmayer signed the proposed stipulation and order later that day.
The settlement is noteworthy for the obvious reason that it continues the Government’s string of losses in First Amendment cases involving the Federal Food, Drug, and Cosmetic Act. But it also matters because it entitles Amarin to use a special advisory comment process for off-label materials, and did not condition resolution of the litigation on Amarin’s agreement to vacate the court’s powerful August opinion finding the FDA’s rejection of Amarin’s proposed claims unconstitutional. It is also important, however, because it appears to qualify Amarin’s victory somewhat, by holding the company accountable for the continued accuracy of its claims and permitting the Government to proceed against Amarin based on shifts in the science supporting those claims.
As we reported here, the Fourth Circuit is currently facing a unique case presenting the question of whether the government has an unfettered veto authority over FCA settlements and, if not, whether the district court erred in rejecting the government’s objections to a settlement. See United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 15-2145 (4th Cir.). Notably, the government’s objections were premised on the use of statistical sampling to establish FCA liability, adding to the dispute a critical issue that has been generating significant debate.
Under what circumstances can the government veto a settlement between a relator and the defendant in a case in which the government has not intervened? As previously reported here, that is a question that has divided the Circuits, and one that the Fourth Circuit will soon be deciding. See United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 15-2145 (4th Cir.).
The district court held that the plain language of the FCA gives the government absolute veto authority, adopting the approach of the Fifth and Sixth Circuits, and rejecting a Ninth Circuit ruling that the government has unreviewable veto authority only during the period following the filing of a qui tam suit when the government is deciding whether to intervene. Under the Ninth Circuit rule, once the government declines to intervene, government rejections of settlements are subject to a reasonableness review by the Court.