Successor Liability for FCA Violations

Generally in an acquisition the acquiring company assumes the predecessor’s liabilities. The Department of Justice and the SEC devoted several pages to this subject in their joint 2012 publication, A Resource Guide to the U.S. Foreign Corrupt Practices Act. That document warns that “[s]uccessor liability applies to all kinds of civil and criminal liabilities…”

In particular, the variety of ways the False Claims Act is being interpreted and applied must be considered. The False Claims Act applies to a company or individual that makes a false claim to the government. Any company considering an acquisition should first consider whether the target company has any pre-acquisition FCA compliance risk for which the acquiring company could be held liable.

In making that assessment, here are some questions to consider asking about the target company: Does it now or has it ever done business with the federal government? Does it receive federal funding, or is it applying for any? Does it have any payment obligations to the federal government? For example, does it pay royalties to the government? Is the company involved in any joint ventures or partnerships that involve work with the federal government or federal funding? Has the company ever been investigated for potential violations of the False Claims Act case, and/or has it been the defendant in a False Claims Act case?

If the answer is “yes,” to any of these questions, the acquiring company should conduct additional due diligence to assess the risk.