InfoBytes Special Alert: DOJ Increasingly Pursuing Both Monetary and Non-Monetary Relief in Civil Enforcement Actions

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[auithor: Andrew W. Schilling]

Last month, in a potentially significant but largely overlooked development, the Department of Justice ("DOJ") signaled that it would "increasingly" pursue "innovative, non-monetary measures" when it settles civil fraud cases.  In remarks to the American Bar Association on June 7, 2012, Stuart F. Delery, Acting Assistant Attorney General, said it was DOJ's "view that there will be cases in the future in which obtaining only a monetary recovery will not adequately redress the wrong."  Responding specifically to the charge that qui tam lawsuits represent merely a "cost of doing business" and that qui tam settlements could be viewed as just another "regulatory burden," Delery said that DOJ's civil fraud settlements will increasingly include "non-monetary remedies and other measures to help prospectively reduce fraud."  By way of example, he cited the Department's recent health care fraud settlement with Abbott Laboratories, in which the $1.5 billion criminal-civil settlement included such terms as a period of probation; an "agreed statement of facts"; a corporate integrity agreement; and a requirement that the company institute additional compliance measures. Although Delery acknowledged in his remarks that seeking non-monetary relief could "prolong" or even "prevent" settlement discussions, he described it as "increasingly" DOJ's view "that we owe it to taxpayers to do our best to implement measures to fully explain the conduct that led to the resolution, and to deter future bad acts."

In fact, the Abbott Laboratories settlement cited by Delery did not break much new ground in this area. That settlement resolved not only civil but criminal charges against the company, and it is not uncommon for corporate criminal resolutions to include recitations of fact and to require that additional compliance measures be implemented. But Delery's emphasis on the importance of pursuing non-monetary relief in civil fraud settlements, including admissions of fact that help "explain the conduct that led to the resolution," is new, and notably echoes remarks made earlier this year by Preet Bharara, the United States Attorney in Manhattan. Speaking in March at the ABA's 26th Annual National Institute on White Collar Crime in Miami, Bharara said that his office did not view civil fraud settlements in monetary terms alone, and would insist also on non-monetary relief that furthers the public interest, including the public interest in deterrence, reforming behavior, and "improv[ing] public understanding of the truth." He emphasized that his office will usually require admissions of misconduct in a civil fraud settlement, and said that his office was fully prepared to litigate if the settlement terms are not satisfactory. 

A review of recently settled civil fraud cases by U.S. Attorney's offices reveals a trend toward requiring admissions in civil fraud settlements, a trend that was apparently well underway even before Delery's remarks in June.  For example, Bharara's office has obtained admissions in civil fraud cases brought against importers, health care providers, mortgage lenders, and other financial institutions. Similarly, in March of this year, Colorado U.S. Attorney John Walsh (who currently serves as Co-Chair of DOJ's newly established Residential Mortgage-Backed Securities Task Force) secured admissions of fraudulent conduct in the settlement of a civil fraud lawsuit alleging the existence of a fraudulent foreclosure rescue scheme.

It has long been commonplace for parties to settle a civil case - including a civil enforcement  action  -  by agreeing to pay money while simultaneously maintaining innocence and denying fault or liability.   Indeed, the SEC has vigorously - and, so far, successfully - defended its longstanding practice of settling with defendants while allowing them, in appropriate cases, to "neither admit nor deny" the allegations in the complaint.   If DOJ increasingly pursues admissions of misconduct and other non-monetary relief in civil fraud settlements, therefore, it will represent not a minor policy shift, but a potential game-changer for defendants.  To cite just a few examples, individuals who admit wrongdoing in a civil settlement could conceivably face exposure to criminal charges, health care providers that admit wrongdoing run the risk of administrative sanction, and public companies that admit misconduct face increased exposure to class action lawsuits. A recent ruling in a class action lawsuit against a major financial institution - in which the court cited an admission made by the company in an earlier civil settlement to support denial of the company's motion to dismiss - proves the point.

Deciding whether to litigate or settle a civil enforcement action is always a difficult exercise.   With DOJ increasingly requiring admissions of fact to settle civil enforcement actions, that exercise will become even more challenging.  The collateral consequences of a settlement that includes an admission of misconduct may be further down the road, but they may also be substantial.  It is therefore short sighted to weigh merely the risks of litigating against the benefits of settling; the risks of settling are also a significant factor in the mix.  If DOJ continues to insist upon admissions of misconduct to settle civil fraud cases, more and more defendants may end up deciding that the cost of litigating -  so often cited as the most compelling reason to settle a case - could in fact be lower than the costs of settling.  
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Andrew SchillingAndrew W. Schilling, a partner at BuckleySandler LLP, leads the New York office's government enforcement practice. Mr. Schilling represents entities and individuals facing government enforcement actions and complex civil litigation, and his practice includes the defense of False Claims Act matters, white-collar criminal matters, and internal investigations. Prior to joining BuckleySandler, Mr. Schilling served as Chief of the Civil Division at the U.S. Attorney's Office for the Southern District of New York.  In that role, he established that office's Civil Frauds Unit, which investigates and prosecutes complex financial fraud cases, including health care fraud and mortgage fraud cases, and directly supervised several nationally significant financial fraud lawsuits against major financial institutions.