DOJ Settlements: Don't Believe the Hype?
The U.S. Department of Justice touted its enforcement record earlier this month, announcing that it collected a whopping $8 billion in civil and criminal settlements in fiscal year 2013. But is the DOJ telling the the whole story about whether these settlements are wins or losses for the agency?
One former DOJ lawyer we spoke with, Michael Loucks of Skadden, Arps, Slate, Meagher & Flom, doesn't think so. He argues that the agency portrays pretty much every deal it makes with a defendant as a triumph over corporate wrongdoing, regardless of whether it resolves a civil or criminal case (here and here, for example), and regardless of whether there was an admission of liability.
"Often there is no discernible difference in how these very different results are communicated to the public by the Department," Loucks wrote in an e-mail.
Loucks, who previously served as acting U.S. Attorney in Massachusetts and headed that office's health care fraud unit, is primarily concerned with the way DOJ discusses False Claims Act cases. These quasi-criminal cases are very costly to defend against. And the potential exposure is huge, because the statute allows for treble damages. FCA settlements accounted for $3.8 billion of the DOJ's $8 billion settlement tally last year.
For these reasons, Loucks argues, companies sometimes settle even if they think the prosecutors' claims are dubious. In its press releases, the DOJ uses similar rhetoric to describe companies that staunchly maintain their innocence and those that admit liability, raising a "real question of fairness," Loucks said. (The DOJ press office didn't respond to requests for comment.)
Here's Loucks' proposal: Whenever the agency announces a FCA settlement, it ought to disclose how much money it planned to seek if the case went to trial. "For the public to know whether a case is a win, loss or fair compromise for the government, the public first needs to know the alleged damages suffered," he said.
Needless to say, not everyone agrees with Loucks' diagnosis. "We all agree that the government's press releases should be accurate," said Robert Nelson, the chair of the FCA practice group at the plaintiffs firm Lieff Cabraser Heimann & Bernstein, in an e-mail. "But I think it is too much to ask that the government advise the public that a particular settlement was for a small dollar amount because the case was particularly weak or problematic. It seems to me that the defendant can do that and in fact always does."
Nelson also took issue with Loucks' underlying argument that companies will settle FCA cases even if the government's case is weak. "It has not been my experience that large companies settle FCA cases where there is no there there," he said.