The More Things Change, the More They Stay the Same for Defense Industry FCA Enforcement

Earlier this week, we revealed that FY2018 was an off-year (at least for the government) for FCA enforcement overall. During the course of the next few weeks, we will be digging deeper into the numbers with a series of posts discussing enforcement trends in specific industries. Today, we focus on the defense industry.

Defense contractors are the one group that did not significantly benefit from DOJ's down year, with recoveries holding relatively steady. In FY2018, DOJ brought in just over $138 million from 18 individual recoveries. Although that is a slight drop from the $149 million recovered last year, it is up from the $122 million recovered in FY2016, and is just slightly above a three-year average of $136 million.

In many respects, FY2018 looks a lot like FY2016—both in terms of who is paying and how frequently. While FY2017 saw the number of recoveries from defense contractors drop to eight, FY2018 saw 18 individual recoveries from the defense industry, nearly equaling the 20 individual recoveries in FY2016. The weapons, munitions, and armor subsector has reclaimed its spot at the top of the industry—paying out more than $71.8 million—one year after falling out of the top three. Japanese fiber manufacturer Toyobo Co.'s $66 million settlement of two lawsuits alleging that it sold defective fiber used in bulletproof vests is largely responsible for that subsector's climb back to the top. Coming in second in FY2018 with total recoveries of $24.4 million is the shipbuilding and maritime subsector, which had not previously cracked the top three.

The logistics subsector, last year's "winner" with $95 million in recoveries, brings up the rear in FY2018, with a measly $260,000 in recoveries. We are not surprised to see a significant drop in that sector, given that its place at the top in FY2017 was due almost entirely to one large settlement. We are, however, surprised to see that recoveries from logistics support contractors failed even to crack $1 million in FY2018, after clocking in at $34 million in FY2016.

Notably, relators played a smaller role in defense industry FCA enforcement in FY2018 than in years past. The amount recovered through intervened qui tam suits was down 12 percent in FY2018, relative to the total amount recovered from the industry. The more notable drop is in the number of individual recoveries from intervened qui tam suits. Only 44 percent of the individual defense industry recoveries in FY2018 came from actions initially brought by relators, compared to 80 percent of the recoveries in FY2017.

The bottom line for defense contractors is that while there were some shifts in FCA recoveries in FY2018, the data suggests that DOJ has not significantly changed its enforcement priorities for the defense industry. Stay tuned over the next few weeks as we at Qui Notes explore why other industries cannot say the same.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.