DOJ Issues Civil Investigative Demands Concerning DEI Practices

What is a CID?

The U.S. Attorney General or its designee may issue a CID under 31 U.S.C.§ 3733 if they have reason to believe a person or entity may be in possession of documents or information relevant to an FCA investigation. DOJ can use CIDs to demand production of documents and electronically stored information, responses to written interrogatories, and other evidence. DOJ commonly uses CIDs to investigate potential FCA violations and obtain discovery before litigation starts. Information obtained through CIDs can support DOJ-led litigation or be used to intervene in qui tam actions.    

What Are the Consequences of FCA Violations?

FCA actions can be costly to defend and can have significant business and financial consequences, with damages and penalties quickly escalating.  Violators may be required to pay treble damages, or up to three times the total value of the contract, in addition to per-claim penalties ranging from approximately $14,000 to $28,000 for each time a contractor or service provider bills the government.  Organizations can also face substantial collateral consequences, including potential debarment, reputational damage, and private civil suits, including shareholder class actions.  FCA liability, or potentially even settlement of an FCA case, is reportable when seeking further government contracting or grant opportunities.  In short, having an FCA case filed against a contractor or grantee can be costly and have downstream implications.

Which Organizations Are Receiving CIDs?

Although it remains unclear which or how many organizations are receiving CIDs from DOJ, there are indications DOJ may be sending them broadly across a variety of sectors. Recall that under EO 14173, the U.S. Attorney General was instructed to create a strategic enforcement plan to “end illegal discrimination and preferences, including DEI” in the private sector. EO 14173 required that plan to include, among other things, a requirement for “each agency shall identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” 

What DEI Practices Is DOJ Investigating?

The current scope of DOJ’s investigation into DEI practices under the FCA remains to be seen, but DOJ is likely to take a broad view of what DEI programs violate federal antidiscrimination laws. Just last month, the DOJ issued guidance on the types of DEI programs and policies DOJ believes may be unlawful. The guidance provides a “non-exhaustive list of unlawful practices” that could result in liability or “revocation of grant funding” and identifying a “non-binding” list of “best practices” to minimize risk of” violating federal antidiscrimination law. Some of the DEI practices DOJ identifies as potentially unlawful, include:

• Granting “opportunities, benefits, and advantages” based on protected characteristics (e.g., race and gender), such a “race-based scholarships,” internships, and mentorship programs; preferential hiring or promotion practices; and access to facilities or resources based on race or ethnicity, such as BIPOC only lounges.
• Using proxies that substitute “for explicit consideration of race, sex, or other protected characteristics,” such as recruitment strategies that “target specific geographic areas, institutions, or organizations” due to racial or ethnic composition.
• Providing “programs, activities, or resources” that “separate[] or restrict[] access based on race, sex, or other protected characteristics,” such as training sessions for “underrepresented minorities only.”
• Not maintaining “sex-separated athletic competitions and intimate spaces,” such as allowing men to access women bathrooms.
• Using protected characteristics to select individuals for employment, contracts, or other programs, such as diverse slate policies or awarding contracts to “women-owned businesses.”
• Providing “DEI training programs” that “exclude or penalize individuals based on protected characteristics,” including “DEI training that includes statements stereotyping individuals,” such as “‘all white people are inherently privileged,’ ‘toxic masculinity,’ etc.”

What Should My Organization Do Upon Receipt of a CID?

Organizations should be prepared to respond quickly upon receipt of a CID. Some immediate action items to consider include:

• Carefully read the CID to understand the scope of the request, the time period it covers, and to note any deadlines.
• Determine whether the request is asking only for the production of documents or also includes interrogatories and/or asks for interviews.
• Engage experienced counsel immediately to negotiate with DOJ to set reasonable limits to scope/timeframe and to consider obtaining an extension on the production deadline.
• Consider implementing a “back-end” litigation hold or issuing a document preservation notice to relevant custodians to prevent the destruction of potentially relevant materials.
• Ensure that documents and information are collected under attorney-client privilege.  E-discovery vendors and tools can be useful in helping to sift through large quantities of documents to exclude privileged materials and to identify relevant materials for production.
• Consider the potential source of the CID request. Does this appear to be DOJ initiated, or could it stem from a whistleblower?  Ask DOJ whether there is active or contemplated FCA litigation. Seek as much information as possible from DOJ about the nature of the concerns or allegations.
• Based on the nature of the request and surrounding circumstances, assess whether a presentation to DOJ would be constructive at this juncture or potentially premature.

A CID relating to DEI practices may also raise a range of other legal and strategic considerations. For example, whether documents produced to DOJ may be used for related actions, such as sharing information with the Equal Employment Opportunity Commission (EEOC) to investigate potential employment discrimination claims, or such documents would be discoverable in pending or future discrimination actions; what any production to DOJ could reveal about sensitive or privileged deliberations relating to changes to DEI practices and policies that could raise legal or reputational risks; and whether the DOJ’s investigation might impact current or future federal contracts or grants.  Investigations into past practices may also implicate privileged legal advice potentially central to the government’s inquiry and critical to and to mounting a forceful defense.