The Impact of Parallel Criminal-Civil Investigations on Life Sciences Companies

0

Risk-mitigation strategies in light of Endo Pharmaceuticals

In 2014, the U.S. Justice Department finalized its $192.7 million settlement with Endo Pharmaceuticals of claims related to alleged off-label promotion by announcing that the whistleblower in the False Claims Act civil lawsuit that led to the settlement was awarded $33.6 million.

The matter’s resolution exemplifies the unhappy predicament of a life sciences industry increasingly faced by “parallel” proceedings, which typically involve both criminal and civil components of the U.S. Department of Justice, and attorneys from regulatory agencies such as the Food and Drug Administration and the Department of Health and Human Services. This article briefly proposes some risk-mitigation strategies available to life-sciences companies facing this double-barreled threat.

When “Parallel” Investigations Converge

In July 2005, a whistleblower employed by Endo Pharmaceuticals filed a lawsuit alleging that the company had violated the False Claims Act, a civil statute, through the improper promotion of the drug Lidoderm for a use not approved by the Food and Drug Administration (i.e., “off-label” marketing). Two U.S. Attorney’s Offices (one handling the civil investigation, and the other the spinoff criminal investigation), along with counterparts from the Department of Justice’s main component in Washington, D.C., ultimately assumed responsibility for the matter.

During the ensuing 10 years, the government’s criminal and civil attorneys worked in tandem to investigate the case. For three of those years, the whistleblower documented Endo Pharmaceutical’s off-label promotion by covertly recording more than 200 hours of conversations with her colleagues. Such potent evidence-gathering was only possible through the government’s criminal investigative powers, and ultimately resulted in a global settlement of both the civil and criminal matters, including a civil payment of $171.0 million, criminal fines of $20.8 million, various compliance and remediation measures (such as a Corporate Integrity Agreement governing ongoing corporate practices), and a Deferred Prosecution Agreement as to criminal charges.

As a U.S. District Court observed, without the whistleblower’s recordings, which were only possible because of the parallel criminal proceeding, “the probability of the Government recovering any funds for the [civil]violations would have been slim at best.”1

Increased Government Commitment

As the District Court’s statements highlight, coordination between the Department of Justice’s civil and criminal arms enables each component to benefit from investigative capabilities not otherwise available to them separately, often to the detriment of life sciences companies.

There is a long history of such cooperation, but the Department of Justice has recently deepened its commitment to augmenting its civil undertakings through criminal prosecutions.  For example, in 2015, Assistant Attorney General Leslie Caldwell (head of the Department of Justice’s Criminal Division) stated that “[t]here is a critical need for criminal prosecutions, even if conduct could be pursued civilly or through regulatory action.”2

The Department’s second-highest-ranking official, Deputy Attorney General Sally Quillian Yates, likewise stressed this point last year in her widely-circulated memorandum regarding “Individual Accountability for Corporate Wrongdoing.”3 In her memorandum, she stressed that, “Department Attorneys should be alert for circumstances where concurrent criminal and civil investigations of individual misconduct should be pursued. Coordination in this regard should happen early, even if it is not certain that a civil or criminal disposition will be the end result for the individuals or the company.”4

As the Endo Pharmaceuticals resolution amply illustrates, increased cooperation among civil and criminal government attorneys conducting parallel investigations is obviously bad news because it exponentially boosts the resources and options available to the government in its fraud and abuse investigations.

Managing the Threat

To mitigate the impact of parallel criminal-civil investigations by the government, counsel for life sciences companies should consider the following when representing their companies under similar circumstances.

Inquire into whether the company is facing parallel criminal-civil investigations. As soon as the company becomes aware that it is the subject of a civil investigation, seek immediate clarification as to the participating prosecutors and agencies to attempt to smoke out the pendency of an active criminal investigation. Government lawyers have no obligation to reveal that a criminal proceeding is underway, but cannot affirmatively mislead targets as to whether one does or does not exist.

Be aware that a criminal investigation may lurk behind the use of less threatening non-criminal investigative processes, and that civil investigations may benefit from criminal investigative tools. For example, criminal investigations typically utilize grand jury subpoenas, but the Health Insurance Portability and Accountability Act of 1996 permits the Department of Justice to issue administrative subpoenas (“HIPAA subpoenas”) when investigating alleged health-care offenses. The government may avoid utilizing grand jury subpoenas, which only stem from criminal investigations, and instead utilize HIPAA subpoenas to avoid revealing the existence of a criminal investigation. Similarly, evidence seized by the government during the execution of a search warrant may be used to advance both civil and criminal proceedings. Covert tape recording and electronic snooping by the government or its proxies may also be in order, regardless of whether your state forbids surreptitious “one-party consent” surveillance.

Address the needs of corporate employees who may be individual targets. As noted above, the Department has very recently voiced interest in prosecuting individuals in white-collar criminal and civil matters. Thus, you should be especially sensitive to the possibility that individuals employed by the company, as well as the company itself, are under government scrutiny. If you become aware that individual corporate employees are also targets in a civil or criminal investigation, your first response should be to help them retain counsel. This will facilitate their separate interactions with the government, which may also benefit the company by helping expedite the investigation. You should aim to identify for targeted employees separate counsel who can work with the company in the event that a joint defense agreement is appropriate.

If your company is facing a civil investigation, ensure it takes all the steps that it would normally take under such circumstances. At a minimum, these steps should include:

  • Instituting document retention protocols to preserve corporate information potentially relevant to the investigation in order to avoid accusations of evidence spoliation and the like.
  • Communicating to employees that the company will not permit retaliation against internal whistleblowers. Companies may face penalties for failing to protect bona fide whistleblowers.5 Further, retaliatory conduct undermines a company’s compliance program by discouraging employees from escalating problems in the future.

Ensure that all investigations are resolved globally. If you have identified a government investigation as a parallel proceeding, then include all components of the government’s investigation in settlement negotiations.  This will streamline the negotiation process, and help prevent the government from demanding settlement terms on a piecemeal basis, which may thwart a well-coordinated response by the defense. Similarly, to the extent possible, ensure that all agreements include text that binds other U.S. Attorney’s Offices or Department of Justice components. This will help provide comfort that any resolution of the investigations truly puts to rest the government’s allegations once and for all.

Be wary of the collateral consequences of resolutions on future business with the government. Note that criminal convictions may result in your company’s exclusion from participation in government health-care programs. Thus, if the company cannot avoid some criminal liability, it may be of paramount importance to negotiate a Non-Prosecution Agreement with the government (which does not result in a criminal conviction), rather than a plea agreement or Deferred Prosecution Agreement (both of which entail criminal convictions). Similarly, the government may elect to suspend or debar a government contractor from future business with the government.

Although there are no easy answers for reducing the threat of parallel proceedings, by taking these prudent defensive measures, life sciences companies can minimize the significant threats of coordinated government investigations.

References

  1. United States ex rel. Ryan v. Endo Pharmaceuticals, Nos. 05-3450, 10-2039, 11-7767, 2015 WL 4273290 at *4 (E.D. Pa July 15, 2015) (emphasis added).
  2. Dep’t of Justice, Assistant Attorney General Leslie R. Caldwell Delivers Remarks at the New York University Center on the Administration of Criminal Law’s Seventh Annual Conference on Regulatory Offenses and Criminal Law (Apr. 14, 2015).
  3. Memorandum from the Deputy Attorney General for all United States Attorneys, et al., Individual Accountability for Corporate Wrongdoing (Sep. 9, 2015).
  4. Id.
  5. See, e.g., 31 U.S.C. § 3730(H).

Note: This article was originally written when Travis Exstrom was an attorney at Perkins Coie with Barak Cohen and David Robbins. Its contents and opinions do not reflect the views of Microsoft. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Share.

About Author

Travis Exstrom
Travis Exstrom

Travis Exstrom, an attorney in Microsoft’s Office of Legal Compliance, oversees business conduct compliance investigations, supports regional investigations in Microsoft’s Middle East and Africa region, advises on remediation, and reports on investigations and compliance matters to company management. Travis previously served as a counsel in Perkins Coie’s White Collar & Investigations practice in Seattle.

Barak Cohen
Barak Cohen

Barak Cohen, a partner in Perkins Coie’s White Collar & Investigations practice in Washington, D.C., represents companies and individuals in criminal and government enforcement matters before federal and state law-enforcement authorities and regulatory agencies. Barak previously served as a prosecutor in the U.S. Department of Justice’s Criminal Division.

David Robbins
David Robbins

David Robbins, a partner in Perkins Coie’s litigation practice in Seattle, chairs the firm’s Healthcare Industry Group. He handles complex commercial litigation matters and counsels clients on compliance issues, speaking frequently to members of the healthcare and legal communities about fraud and abuse compliance issues, reimbursement matters and other related issues.

Comments are closed.