When I published “The Facade of FCPA Enforcement” in 2010 (see here) the trend of FCPA-inspired tag-a-long private civil suits was in its early stages. Thus, the section of my article – why the facade of FCPA enforcement matters – did not include discussion of such suits.
Now that the trend is clear, add FCPA-inspired private civil suits to the list of reasons why the facade of FCPA enforcement matters.
The game is very predictable. In the days and weeks following an FCPA enforcement action, or even a company disclosing or otherwise being the subject of FCPA scrutiny, the suits and/or “investigations” by plaintiffs firm will start to mount
In this prior post, I asked whether FCPA-inspired civil suits have a purpose or a parasitic. I stated that when a company’s FCPA violations are found to be condoned or encouraged by the board or executive officers, such plaintiff causes of action would seem to be warranted. But these situations are rare in FCPA enforcement actions. This prior post detailed June 2011 Congressional testimony on behalf of the U.S. Chamber Institute for Legal Reform that touched upon FCPA-civil litigation and I generally agree with the criticisms made of this “piggyback-litigation phenomenon.”
Several prior posts (here and here) profile how such derivative claims seldom, if ever, get past the motion to dismiss stage. Yet, several companies make the business judgment to settle such claims for what amounts to nuisance value for the company, but which represents a handsome pay day for plaintiff’s counsel for doing and accomplishing next to nothing.
Two recent Foreicgn Corrupt Practices Act related civil settlements prove this point.
In July, Halliburton announced here that a Texas state court issued an order preliminarily approving the proposed settlement of a derivative claim concerning a variety of misconduct, including Bonny Island, Nigeria conduct giving rise to the previous FCPA enforcement action against Halliburton and its related entities.
Pursuant to the proposed settlement, within 90 days of a final settlement date, Halliburton’s board agreed to implement various corporate governance and internal control revisions. The items most related to FCPA compliance should not be hard to accomplish because pursuant to the 2009 FCPA DOJ/SEC settlement, Halliburton already was under an existing obligation, including through engagement of a compliance monitor, to implement a host of FCPA related compliance enhancements.
Yet pursuant to the proposed settlement agreement, for its innovative work (that is my term), Plaintiffs’ counsel in the derivative action will seek approval of its fees and expenses not to exceed $7 million and Halliburton will not oppose such fees and will pay them through its insurance carriers.
Likewise, Johnson & Johnson recently announced (here) a proposed settlement of a derivative claim concerning a variety of misconduct, including the conduct giving rise to its 2011 FCPA enforcement action. As detailed in this prior post, pursuant to the settlement via a DPA, the company is already subject to enhanced compliance obligations related to the FCPA. The prior post noted that such enhanced compliance obligations were unusual and surprising given the DOJ’s conclusion that J&J already generally had “effective” policies and procedures. In the words of the DOJ “J&J had a pre-existing compliance and ethics program that was effective and the majority of problematic operations globally resulted from insufficient implementation of the J&J compliance and ethics program in acquired companies.”
Yet, along comes the Plaintiffs’ firms with a derivative action and pursuant to the settlement, J&J has agreed to reimburse Plaintiffs’ counsel in an amount not exceeding $10 million and to pay approximately $450,000 in its expenses.
Like many things in this new era of FCPA enforcement, FCPA-civil related suits have, in many cases, spiraled out of control. Yet with many, including now Plaintiffs firms, with a vested financial interest in seeing the status quo prevail, it is doubtful any meaningful change is on the horizon.
Yet the question can be asked, do FCPA civil-related suits accomplish anything? Do such suits serve a purpose or are they parasitic? Is this another reason why the “facade” of FCPA enforcement matters.