On December 21, the US Department of Justice (DOJ) obtained more than $3.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2017. Recoveries since 1986, when Congress substantially amended the civil False Claims Act (FCA), now total more than $56 billion.

Of the $3.7 billion in settlements and judgments, $2.4 billion involved the health care industry, including drug companies, hospitals, pharmacies, laboratories and physicians. This is the eighth consecutive year that the department’s civil health care fraud settlements and judgments have exceeded $2 billion. In addition to health care, the False Claims Act serves as the government’s primary avenue to civilly pursue government funds and property under other government programs and contracts, such as defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance and import tariffs. Continue Reading Justice Department Recovers More Than $3.7 Billion from FCA Cases in Fiscal Year 2017

On September 19 and 27, 2016, the US Department of Justice announced two False Claims Act settlements that required corporate executives to make substantial monetary payments to resolve their liability. In the first, announced on September 19, North American Health Care Inc. (NAHC) and two individuals—its chairman of the board and a senior vice president of reimbursement—agreed to settle potential False Claims Act liability for a total of $30 million. The second settlement involves the former CEO of Tuomey Healthcare, who, a year after the $72.4 million corporate FCA resolution and two years after his departure from Tuomey as CEO, is now settling his own liability for $1 million, has been required to release any indemnification claims he may have had against the company, and has agreed to a four-year period of exclusion from participating in federal health care programs. Coinciding with the Tuomey CEO settlement announcement, Bill Baer, Principal Deputy Associate Attorney General of the US Department of Justice (DOJ), gave a speech in Chicago discussing company cooperation and “individual accountability” in the context of federal civil enforcement. This new guidance, as well as the two settlements, come a little over a year after DOJ Deputy Attorney General, Sally Yates, issued what is now known as the “Yates Memo,” which sets forth guidance to be used by DOJ civil and criminal attorneys “in any investigation of corporate misconduct” in order to “hold to account the individuals responsible for illegal corporate conduct.” Since then, corporate resolutions like these have been watched for telltale signs of whether the Yates Memo is really changing the way federal enforcement does business. Given the timing of the speech and the settlements, and the high level of the officers involved, that change may be here.

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The Individual Accountability for Corporate Wrongdoing Memorandum (the Yates Memo), issued by the US Department of Justice (DOJ) on September 9, 2015, lays out a new, six-part policy relating to the investigation and prosecution of individuals involved in corporate wrongdoing. Perhaps the most significant aspect of the new policy requires that a company must provide the government with “all relevant facts relating to the individuals responsible for the misconduct” in order for the company “to be eligible for any cooperation credit.” Historically, “cooperation credit was a sliding scale of sorts” for companies allowing them to receive “at least some credit for cooperation, even if they failed to fully disclose all facts about individuals.” Under the new policy, “providing complete information about individuals’ involvement in wrongdoing is a threshold hurdle that must be crossed” before the DOJ will consider any cooperation credit. This all-or-nothing requirement begs many unanswered questions about the consequence to the attorney-client and work product privileges as part of both the corporation’s internal investigation process and the government’s cooperation credit analysis. Continue Reading The Yates Memo’s “All Relevant Facts” Requirement Leaves Privilege Protections in Flux

The revised cooperation credit rules issued by the US Department of Justice (DOJ) in September 2015 under the Yates Memo require companies to focus on individuals from the outset of an investigation and to disclose all facts about corporate wrongdoers to the government. This new landscape potentially pits the interests of the company against the interests of the corporate constituent (i.e., an officer, director, employee or shareholder) from the get-go. It is also unclear what impact the Yates Memo has on the DOJ’s existing policy concerning joint defense agreements (JDAs), which has traditionally only mandated that a company be able to provide “some relevant facts” to the government. Do the new Yates cooperation credit rules sound the death knell for JDAs between companies and their constituents? Not quite. But JDAs likely will become less common and more complex.

Company-constituent JDAs have long been a valuable tool in corporate investigations and government enforcement litigation. They foster open channels of communication and allow parties to work on a common joint defense. Under a typical JDA, companies, constituents and their counsel can freely share confidential information without the fear of waiving work product or attorney-client privileges. From the company’s perspective, JDAs can play a vital role in corporate investigations because they more readily allow the company to ascertain what happened from their constituents. From the constituent’s perspective, JDAs allow them to learn about what other constituents have disclosed in the context of an investigation and the company’s perspective on potential liability. The keystone of a JDA is a common interest among its parties. Once a party has reason to believe its interests no longer align with the other parties to the JDA, it must withdraw. Nevertheless, any confidential information the withdrawing party received under the JDA must be kept confidential. Continue Reading Does Yates Sound The Death Knell For Joint Defense Agreements?

The importance of the Upjohn (or corporate Miranda) warning once again has taken center stage in several pending high-profile cases, including the criminal prosecutions of former Penn State University president Graham Spanier and Retrophin, Inc. CEO Martin Shkreli. In both cases, the entities’ ability to disclose information revealed during privileged communications with those defendants (and thereby earn the coveted cooperation credit or general goodwill with the government) was impacted by the quality of the Upjohn warnings given. Beyond these newsworthy examples, the significance of providing an adequate Upjohn warning when conducting employee interviews has been markedly amplified by the new guidelines issued by the US Department of Justice in September 2015 concerning individual accountability for corporate wrongdoing (the Yates Memo).

Under the Yates Memo, a company can only be eligible for cooperation credit if it discloses all relevant facts about individuals involved in corporate misconduct. In other words, the government now expects companies to affirmatively serve up their bad actors, and to do so with a full factual disclosure. As a practical matter, this will often entail revealing what a culpable corporate constituent (i.e., an officer, director, employee or shareholder) says during an investigatory interview. But a company can only do this if it retains the right to control the attorney-client privilege, which is the basic function of the Upjohn warning. Consequently, in a post-Yates world, a company’s ability to preserve its cooperation credit eligibility not only demands a mindful adherence to the customary Upjohn warning procedure when conducting corporate interviews, but also an enhanced version of the Upjohn warning, which could include:

  • Developing a formal script for the Upjohn warning;
  • Providing the witness with a written summary of the critical points of the warning;
  • Requiring a written acknowledgement; and
  • Specifying that the company may unilaterally disclose to the government the content of the interview.

Continue Reading The Need for Enhanced Upjohn Warnings after Yates

The Yates Memo has many landscape-changing implications for corporate investigations, including the need for enhanced Upjohn warnings and the potential suppression of joint-defense agreements between corporations and their constituents (officers, directors, employees, shareholders). This new terrain exists because in order to receive cooperation credit from the government, companies must investigate and disclose all facts about corporate wrongdoers. With the spotlight shining on corporate actors from the outset, there will be an inevitable increase in individuals seeking to have independent counsel represent them early in the investigatory process. Defense costs will surely escalate under the new Yates directive. This has several important implications for D&O liability insurance coverage. A robust D&O insurance program is often critical to attracting top talent at the executive level. Concerns about personal liability can be an unnecessary distraction from the day-to-day tasks of running an organization. These concerns are likely to be amplified by the Yates Memo. As of September 2015, the US Department of Justice will only consider a company eligible for cooperation credit if it discloses all relevant facts about individuals involved in corporate misconduct. This is an “all or nothing” policy. If the company wants cooperation credit, it must tell the government everything it knows about culpable constituents. This policy emerged from the government’s perceived failure to prosecute high-level executives responsible for the financial crisis.

The Yates Memo’s greater focus on corporate individuals should cause companies to rethink their D&O liability insurance coverage on several levels:

  1. Is the Coverage Broad Enough? The standard definitions of “claim,” “loss” and “defense costs” may not cover legal expenses related to government investigations where a formal charge or notice of charge has not been issued. Obtaining “pre-claim inquiry” coverage fills this potential gap.
  2. Are there Sufficient Policy Limits/Layers of Coverage? Typically, D&O coverage is a “burning limits” policy, which means that defense costs paid by a D&O policy reduce the amount of coverage available under the policy’s limit. With more potential mouths to feed, policy limits will erode faster, thereby necessitating more coverage.
  3. Should Side A/DIC Coverage be Obtained? “Side A” insurance covers directors and officers for expenses incurred for nonindemnified and non-indemnifiable claims. One type of Side A coverage is a “Difference in Conditions” (DIC) policy. This type of coverage usually applies to officers and directors exclusively, contains fewer exclusions, cannot be rescinded and is not depleted by costs expended by the company as a co-insured. Many Yates-related scenarios may be non-indemnified and/or non-indemnifiable. Side A/DIC coverage may be used to fill this coverage gap.
  4. Is the Exclusion Trigger Clear? D&O policies regularly exclude intentional dishonesty, fraud, criminal conduct and other intentional violations of law. Government investigations are likely to involve allegations of excluded conduct. Pegging the exclusion trigger to a final, non-appealable court adjudication of guilt or a formal admission of guilt maximizes the protection for directors and officers by guaranteeing that they have coverage to mount a competent defense for the entire duration of the investigation.

Two recent, unrelated federal court decisions may have significant implications for how a corporation, its board and its employees apply the timehonored ‘‘advice of counsel’’ defense in response to civil litigation challenges. In one decision, a court of appeals rejected a corporation’s attempt to rely on the defense, primarily because of problems the court identified in the process by which counsel were engaged and informed. In another decision, a district court rejected an employee’s ability to rely on the defense when his employer refused to waive the attorney-client privilege within which the advice was cloaked. The implications of these decisions should be brought by the general counsel to the attention of the audit and compliance committees, if not the full board.

Read the full article from Bloomberg BNA Corporate Law & Accountability Report™.

Several new, highly publicized fraud enforcement initiatives of the U.S. Department of Justice are likely to impact the roles of the general counsel and chief compliance officer. In most organizations, there are elements of overlap in how these officers relate to the compliance program structure and the conduct of internal investigations. In the context of these new initiatives, however, absolute clarity on executive-level leadership is necessary in order to ensure an effective and coordinated organizational response. The governing board, with its obligations for legal compliance oversight, will in most instances conclude that the general counsel is best qualified to lead that response.

Read the full article in Corporate Counsel.

Health care leaders should closely note the new guidelines on corporate conduct released on September 9, 2015 by the Department of Justice (DOJ). These Guidelines reflect a substantially increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation in the context of governmental investigations. It is not a “rifle shot” enforcement initiative focused solely on Wall Street or the broader financial sector. Rather, it is intended to apply across industry sectors (including, health care).[2] The Guidelines can reasonably be expected to impact an organization’s approach to legal compliance, internal investigations, D&O insurance and indemnification protection, and interaction with management on matters of regulatory concern. They should, therefore, be taken seriously by senior leadership of health care companies.

Read the full article from AHLA Weekly.

Health care general counsel should advise their clients on the implications of the new guidelines on corporate conduct recently released by the Department of Justice (DOJ). These guidelines demonstrate a substantially increased government focus on individual accountability for corporate misconduct, and on corporate eligibility for cooperation credit in the context of government investigations.

Read the full article from Bloomberg BNA Health Law Reporter™.