DOJ Answers Key Questions About False Claims Act Reform Efforts

On Monday, Deputy Associate Attorney General Stephen Cox delivered a speech that reviewed several of DOJ’s False Claims Act enforcement policies and confirmed our recent predictions about DOJ’s direction. Among other things, the speech provided key insight into the circumstances in which sub-regulatory agency guidance can lead to FCA liability after the Brand Memo, which DOJ issued last January and incorporated into the Justice Manual last month. The speech also signaled DOJ’s commitment to clarifying the rewards for cooperation.

Sub-Regulatory Guidance

Under the Brand Memo, DOJ “may not use noncompliance with guidance documents as a basis for proving violations of applicable law in [FCA] cases.” But it was not clear how DOJ would apply this policy to FCA cases involving contracts that require compliance with guidance documents. As we explained here and here, noncompliance with guidance documents in such a case could be construed as noncompliance with a contractual obligation. And most government contracts, including those with government healthcare programs, require the contractor to abide by all agency guidance, as explained here.

Given the history and purpose of the Brand Memo and DOJ enforcement after its issuance, we explained that DOJ would probably distinguish express incorporation from general incorporation. Where a contract expressly incorporates a specific guidance document, DOJ would treat noncompliance as noncompliance with a contractual obligation and therefore a potentially permissible basis for FCA liability. But where a contract attempted to incorporate agency guidance generally through a catch-all provision, DOJ would not allow the contract to operate as an exception that swallowed the Brand Memo’s rule.

The Justice Manual’s recent incorporation of the Brand Memo touched on this issue. Under § 1.20-204 of the Justice Manual, “when a government contract or provider agreement requires compliance with some agency guidance document, it is the contract—not the agency guidance itself—that makes the agency guidance pertinent and, in these cases, violations of that guidance undertaken with the requisite mental state may expose individuals to liability.” (Emphasis added). This language clarified that contractually incorporated guidance could be a basis for FCA liability. But it remained unclear what “some agency guidance document” meant in this context: Did it refer to any guidance document incorporated by contract, or did it refer only to guidance documents that were expressly incorporated?

The Deputy Associate Attorney General’s speech on Monday clarified this point by drawing a distinction similar to the one we had anticipated. He explained that noncompliance with “a particular guidance document” could provide grounds for FCA liability “if it is expressly incorporated into a contract or a certification. For example, if a party and the government agree in a contract that compliance with some specified guidance document is required, the guidance document will be contractually binding on the party and noncompliance will be relevant under principles of contract law.” (Emphasis added).

Cooperation Credit

The speech also emphasized steps that DOJ has taken to encourage cooperation in FCA investigations. Last November, DOJ announced that it would make cooperation credit available on a sliding scale. “Maximum credit” would be available to companies that identified all individuals substantially involved in or responsible for wrongdoing. And “some credit” would be available to reward good-faith efforts to identify wrongdoing by senior officials. As we observed at the time, this announcement did not provide a way to calculate the rewards of cooperation.

In Monday's speech, the Deputy Associate Attorney General offered a similar perspective, noting that DOJ has provided clarity on the rewards of cooperation in the criminal context but retains significant discretion in the civil context. And he signaled that DOJ will provide greater clarity: “Stay tuned on this front.”

We will continue to monitor those developments.