On September 9, 2015, the U.S. Department of Justice (DOJ) released a memorandum to prosecutors nationwide regarding “Individual Accountability for Corporate Wrongdoing,” authored by Deputy Attorney General Sally Q. Yates.  Dubbed the “Yates Memorandum,” this missive consolidates both long-standing DOJ policy and newly minted guidance for prosecutors and civil enforcement attorneys that could significantly alter the course of both criminal and civil investigations under the False Claims Act (FCA) particularly for health care entities.  The day after releasing the memo, Yates spoke at NYU School of Law, where she noted that DOJ’s mission is “not to recover the largest amount of money from the greatest number of corporations,” but rather, “to seek accountability from those who break our laws and victimize our citizens.”

At its core, the Yates Memorandum calls for a substantially increased focus on individual accountability for corporate wrongdoing and amendment of prior Department policies that have become standard operating procedures in both criminal and civil investigations.  While this is nothing new for FCA defendants, the renewed focus on individuals – and the corresponding guidance in the Yates Memorandum – will have an immediate and lasting impact on internal investigations, pre-intervention negotiations, litigation and any extra-judicial resolution of the case.

Leaving aside the policy statements that deal solely with internal DOJ operations, the Yates Memorandum outlines three key areas of focus that will be relevant for FCA defendants facing exposure from an investigation or qui tam litigation:

Increased Focus on Individuals

As part of this increased focus, corporations will be incentivized to tailor internal investigations to include a hard look at individuals.  First, the DOJ will limit or decline to provide “cooperation credit” unless the corporation “completely disclose[s] to the Department all relevant facts about individual misconduct.”  While the application of cooperation credit in criminal cases is more commonplace, the Yates Memorandum makes clear that this principle will apply equally in the civil context.  Citing the FCA, the Department’s position on “full cooperation” under 31 U.S.C. 3729(a)(2) will be “at minimum, all relevant facts about responsible individuals must be provided.”  The Yates Memorandum also directs prosecutors and civil attorneys to proactively investigate individuals “at every step of the process – before, during, and after any corporate cooperation.”  By focusing on individuals from the inception of the investigation, the DOJ hopes to “increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.”

The implications of these directives will impact all stages of the corporate response to an FCA investigation.  While the DOJ recognizes that investigations must be “tailored to the scope of the wrongdoing,” corporations should anticipate a need to expand internal investigations to gather facts and potentially assess the roles played by individuals in the overarching corporate wrongdoing at issue.  As the corporation seeks to resolve the corporate liability, the Yates Memorandum suggests that defense attorneys will be under increased pressure to focus attention on individual employees and former employees creating pressure to share information with the government regarding individuals in order to receive favorable treatment in the negotiated resolution.  While it is uncertain how the DOJ will value such cooperation, it is possible to envision a scenario where a favorable settlement for the corporation will only be reached if the Department perceives that the corporation was forthcoming about all individuals involved in the wrongdoing (as opposed to the “sacrificial lamb” that may have been put forth in the past).

Limited Release of Individuals When Resolving Corporate Case

In perhaps the most significant departure from the current regime for resolving FCA cases, the Yates Memorandum dictates that “[a]bsent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.”  Such a directive discouraging prosecutors from providing a commonly expected settlement term in a civil FCA matter – i.e., the release from liability of the corporation’s officers, directors and current/former employees – could significantly complicate the settlement decision-making process of senior management.  In the absence of the traditional global civil and administrative release, not only could DOJ consider pursuing individuals under the FCA, but the Office of Inspector General (OIG) would also be free to consider pursuing individuals for civil monetary penalties.  OIG may have a different – and lower – dollar threshold for deciding to pursue those cases than DOJ.

Another aspect of the Yates Memorandum guidance is the directive that corporate cases will not be resolved without a “clear plan” to resolve related cases against individuals.  This guidance appears to be aimed at ensuring that prosecutors are diligent in their investigation of individuals in order to keep those efforts on track with the corporate resolution.

Relevance of Individual Ability to Pay

Finally, the Yates Memorandum calls on attorneys in civil enforcement efforts to look beyond an individual’s ability to pay as the basis for pursuit of claims against the individual.  In prior years, resource constraints at the DOJ have influenced the qui tam intervention decision‑making process.  Under the new guidance, civil attorneys are urged to consider the seriousness of the individual’s misconduct, whether it is actionable, whether the admissible evidence is likely to obtain and sustain a judgment, and whether pursuit of the action “reflects an important federal interest.”  Civil attorneys are advised to follow the model of their criminal prosecutor colleagues by considering the individual’s misconduct, past history and the circumstances related to the misconduct when determining whether to expend limited federal resources to pursue individual cases.  The Yates Memorandum notes that while cases against individuals may not result in substantial monetary recovery in the short-term, pursuit of these cases will result in “significant long-term deterrence.”  Whether the DOJ implements this directive remains to be seen.

In summary, senior management, including boards of directors, in-house corporate counsel and chief compliance officers, should take notice of the Yates Memorandum and prepare for the ways this enhanced focus on litigating claims against individuals could impact the company’s action plans for responding to, defending and ultimately resolving FCA qui tam litigation.