Tuesday, December 18, 2018

Maybe That Wasn’t Such a Good Idea After All – DOJ takes a “common sense” approach in applying Yates Policy in civil cases

Dear Readers:

In June 2016, I reported how the U.S. Department of Justice (DOJ) planned on implementing its Yates policy of stressing the accountability of corporate executives and employees in False Claims Act (FCA) cases. In FCA investigations of corporate wrongdoing, DOJ’s Yates policy instructed its attorneys to “focus on both the company and individuals who may be responsible for bad conduct” and, charged its attorneys in any investigation of corporate misconduct to proceed “in tandem” with an inquiry into individual misconduct. Indeed, DOJ stated that settlements of FCA claims with corporations will not end DOJ’s “inquiry into whether and which individuals will be pursued.” DOJ went so far as to claim that it was “threshold requirement” for any corporate defendant seeking “credit” for its “cooperation” in settling a FCA case to “disclose all facts related to individuals involved in the wrongdoing.” (emphasis added).

As with many of its initiatives, DOJ’s Yates policy sounded good in theory: pursue every avenue of corporate and individual civil liability. I predicted, however, that as a result of the new focus on individual accountability, “FCA investigations and cases are likely to become more complicated.” In fact, I wondered if “DOJ and U.S. Attorneys will follow through in promoting this policy of individual accountability given that FCA investigations and cases often move quite slowly and this policy will require more time and substantial resources to enforce.” And, I was right.

Two years later, Deputy Attorney General Rod Rosenstein (“Rosenstein”) announced “common sense reforms” in applying the Yates policy stressing individual accountability in civil cases. “Civil cases,” Rosenstein pointed out, “are different” than criminal cases.  The “primary goal of civil affirmative cases,” such as FCA cases, are to “recover money,” and as a result DOJ needs to use its resources “efficiently.” To that end, Rosenstein observed that the “all or nothing approach to [awarding] cooperation” for civil cases was “counterproductive.” “[O]ur attorneys,” Rosenstein explained, “need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other important cases.” In a seldom seen acknowledgement by DOJ of how things should work in the real world, Rosenstein noted that “[o]ur civil litigators simply cannot take the time to pursue civil cases against every individual employee who may be liable for misconduct and we cannot afford to delay corporate resolutions because a bureaucratic rule suggests that companies need to continue investigating until they identify all involved employees and reach an agreement with the government about their roles.”

So what does this mean? In part, the revised Yates policy is intended to restore “some of the discretion that [DOJ] civil attorneys traditionally exercised” though with “supervisory review,” of course. Also, in part, it means that companies no longer need to cooperate to the Nth degree in order to obtain any credit for their cooperation. To be sure, the gold standard for obtaining “maximum credit” remains that a corporate defendant must “identify every individual . . . substantially involved in or responsible for the misconduct.” But, whereas that was the requirement for a corporate defendant to receive any credit under the previous Yates policy, now DOJ counsel may award some credit as long as a “company honestly did meaningfully assist the government’s investigation.” Of course, the other extreme from the gold standard for which no credit will be awarded are companies who seek to “conceal wrongdoing by senior officials” or who fail to “act in good faith.” 

Rosenstein provided an example of how this new policy might be applied in an FCA case. A defendant who made a “voluntary disclosure” to DOJ and provided “valuable assistance” is entitled to “some credit even if the company is unwilling to stipulate about which non-managerial employees are culpable or . . . to identify every individual who might face civil liability in theory, but in reality would not be sued personally.”

Again, in an uncharacteristic admission as to how things really work at U.S. Attorney’s offices, Rosenstein acknowledged that the “civil policy was not strictly enforced in many cases” and that as a result he prefers “realistic internal guidance.”

Finally, DOJ’s new pragmatism endorses considering “an individual’s ability to pay in deciding whether to pursue a civil judgment.” DOJ does not want its “attorneys to spend time pursuing civil litigation that is unlikely to yield any benefit; not while other worthy cases are competing for [its] attention.” Translating this for the defendant, being broke really can be a benefit when the government is trying to determine whether to pursue FCA liability against your individual client.

Rosenstein is to be commended for this change which takes into account -- for once – the “practical implications of [DOJ] policies” and whether a policy actually “inhibit[s]” or promotes DOJ’s goals.  His enthusiasm for such a change of policy, I suspect, comes from serving as a U.S. Attorney in a medium sized district (Maryland) over many years.  DOJ priorities, mandates, and initiatives frequently enjoin U.S. Attorneys to investigate every last detail or person who could possibly be responsible, even on the civil side.  Being 100% faithful to the letter and spirit of such mandates, as I am sure Rosenstein experienced, is frequently an impossible task, if your goal is to keep pace with the pressing number of cases, criminal and civil, that continually come before a U.S. Attorney.  “Common sense” policies that restore discretion to line assistants and that promote realistic goals in FCA cases are long overdue.

A. Brian Albritton
December 18, 2018

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