row of bottles and pills on a chemists counter

By Jennifer J. Thomas

The Louisiana Board of Pharmacy promulgated a Final Rule on September 20, 2016 giving Louisiana licensed pharmacists the authority to perform medication synchronization and refill consolidation services for their patients.   Under the Rule, the pharmacist may adjust the dispensing quantity and refill schedule for multiple medications so that all of the patient’s medications can be dispensed on the same day each month ultimately reducing the number of trips a patient has to make to the pharmacy.

While the pharmacist may adjust the quantity or refill schedule originally ordered by the prescribing physician, the pharmacist cannot dispense more than the total quantity of the original prescription plus refills. For example, if the original prescription was for thirty (30) pills taken over thirty (30) days with three (3) refills, the total quantity of pills would be one hundred and twenty (120) pills. With refill consolidation, the pharmacist can adjust the quantity to initially dispense 15 pills with refills of 45, 30, and 30 to achieve the same total quantity originally prescribed over the same time period.

If the prescription is for a controlled substance where refills have been authorized by the prescriber, the pharmacist can partially fill the prescription, but cannot exceed the quantity noted on the original prescription. If the prescription is for a Schedule II controlled substance and the pharmacist is unable to supply the full quantity called for in the prescription, the pharmacist may partially fill that prescription; however the remaining portion of the prescription should be dispensed within 72 hours. Otherwise, the pharmacist must notify the prescriber and a new prescription must be written.

The intent of medication synchronization and refill consolidation is to help reduce medication waste and improve medication adherence. According to the Louisiana Board of Pharmacy, there is evidence that patients with simple medication schedules are more likely to actually take their medications. By synchronizing medications prescribed by multiple prescribers such that a patient only has to make one visit to the pharmacy each month, there is also an increased likelihood of reducing transportation costs for the patients.

The Louisiana Board of Pharmacy notified all pharmacies and pharmacists of the new medication synchronization rule on September 21, 2016. Therefore, consumers can now work with their local pharmacists to get all of their prescription medications in sync.

Top view of family paper chain on a doctor desk. Medical worktable with keyboard, blue stethoscope, pills and eyeglasses. Family healthcare, medicine and insurance concept.

By Jennifer J. Thomas

The Louisiana Department of Health issued two Emergency Rules in the September 20, 2016 Louisiana Register amending licensing standards governing Pediatric Day Health Care Facilities in an effort to avoid a budget deficit in the medical assistance program. The Emergency Rules revised the PDHC’s Program description and criteria to provide that in order to receive PDHC services, a Medicaid recipient must not only have a medically fragile condition, but also must have a medically complex condition involving one or more physiological or organ systems and requires skilled nursing and therapeutic interventions performed by a registered nurse or licensed practical nurse on an ongoing basis in order to:

  1. preserve and maintain health status;
  2. prevent death;
  3. treat/cure disease;
  4. ameliorate disabilities or other adverse health conditions; and/or
  5. prolong life.

The above list is new and supersedes the former list of medically necessary interventions that could previously be performed by “professionals” at the PDHC centers, but now require performance by a licensed nurse.

The Emergency Rules further require that a physician must order the PDHC services and prepare a plan of care not to exceed 90 days specifying the frequency and duration of services. The Emergency Rules also changed the requirement that a re-evaluation of PDHC services be performed at least every one hundred and twenty (120) to now mandate that the PDHC’s medical director review the plan of care with the PDHC staff and the prescribing physician every ninety (90) days. The evaluation must include a review of the current plan of care and the provider agency’s documented current assessment and progress toward goals. A face-to-face evaluation must also be held every ninety (90) days by the child’s prescribing physician.

Finally, the Emergency Rules clarify that a parent, legal guardian or legally responsible person providing care to a medically complex child in a home or any other extended care or long-term care facility is not considered a PDHC facility and shall not be enrolled in the Medicaid Program as a PDHC services provider.

The Emergency Rules took effect September 1, 2016, and are expected to reduce expenditures in the Medicaid Program by $527,764.00 in state fiscal year 2016-2017.

OLYMPUS DIGITAL CAMERA

By Trippe Hawthorne

One of the activities regulated and licensed by the Louisiana State Licensing Board for Contractors is Mold Remediation.  Any person engaging in or holding herself/himself out as engaging in mold remediation must have a mold remediation license issued by the Louisiana State Licensing Board for Contractors.  Persons violating that prohibition are subject to administrative and criminal sanctions.

One of the requirements for a mold remediation license is completing four hours of instruction in Louisiana’s Unfair Trade Practices and Consumer Protection Law, given by a board-approved provider. Kean Miller is a board approved provider, and one of the ways Kean Miller is helping the region recover from the 2016 flooding is offering this training on an on-demand basis.  If you are interested in Kean Miller’s board approved four hour course on Louisiana’s Unfair Trade Practices and Consumer Protection Law, please contact Steve Boutwell at (225) 389-3736 or steve.boutwell@keanmiller.com

 

 

louisiana

By Linda Akchin and Chris Dicharry

INTRODUCTION

Louisiana law imposes a sales tax on “sales at retail.”  “Sale at retail” is defined in the sales tax law, and the definition provides that the term does not include “sales of materials for further processing into tangible personal property for sale at retail.”    This provision is commonly referred to as the “further processing exclusion.”[1]  The most recent Louisiana Supreme Court’s decision interpreting this “further processing exclusion,” Bridges v. Nelson Indus. Steam Co., 2015-1439 (La. 5/3/16), 190 So.3d 276 (the “NISCO decision”), recently became final.  The decision is significant for all taxpayer-manufacturers.  It provides an excellent explanation of applicable legal principles relating generally to interpretation of the further processing exclusion and a comprehensive explanation of the three-prong jurisprudential test for application of the exclusion.  In response to the NISCO decision, and before it became final, the Legislature passed an Act amending the further processing exclusion.[2]  The purpose of this writing is to (i) provide some general information regarding applicable rules of law to be gleaned from the NISCO decision; and (ii) identify questions arising from the recent legislative amendment to the law.

THE SUPREME COURT DECISION

The further processing provision applies to byproducts.

The NISCO decision is the first in which the Supreme Court directly addresses the question of whether the further processing exclusion from tax applies to purchases of materials that are further processed into a byproduct of a manufacturing process.  The Supreme Court held that it does.  Noting that the exclusion applies to “tangible personal property,” and the sales tax regulation interpreting the exclusion provides that whether materials are further processed or simply used in the processing activity will depend entirely upon an analysis of the “end product,” the court reasoned that it found nothing in the law that requires the “end product” be the enterprise’s primary product, explaining:

“The plain language of the statute makes the exclusion applicable to articles of tangible personal property.  There simply is no distinction between primary products and secondary products. . . . At the end of the day, the ash [NISCO’s byproduct] is produced and sold . . . making it an ‘article of tangible personal property for sale at retail.’”[3]

The NISCO decision applies and interprets the long-established three-pronged test for application of the exclusion.

The Court applied the jurisprudentially-established three-pronged test for application of the further processing exclusion as it related to NISCO’s ash byproduct:  The test is:

(1) the raw materials become recognizable and identifiable components of the end products;

(2) the raw materials are beneficial to the end products; and

(3) the raw materials are materials for further processing, and as such, are purchased with the purpose of inclusion in the end products.[4]

In applying the test the Court clarifies and reinforces aspects of the application of the test that all taxpayers would be well-served to keep in mind.   Those clarifications include:

(1)       The further processing provision constitutes an “exclusion” not an “exemption” from tax, and as such, must be liberally construed in favor of the taxpayer;[5]

(2)       When the material purchased is processed into less than all of the end products produced, the analysis involves only consideration of the end product(s) into which the material is further processed, without regard to other end products.[6]

(3)       In order to satisfy the “benefit” prong of the test it is not necessary to conduct tests to determine the qualities of the material purchased or its beneficial impact on the end product.  It is sufficient that elemental components of the material purchased become integral components of the molecular makeup of the end product.  That “integration” is in and of itself of some benefit to the end product.[7]

(4)       The “purpose” prong of the test does not involve a primary purpose test; and the “purpose” test involves a “manufacturing purpose” inquiry, not a “business purpose” or “economic purpose” inquiry.  Only the manufacturing process and the physical and chemical components and the materials involved in the process are germane to the “purpose” test.[8]

(5)       There is no legal basis for an “apportionment” approach to the further processing exclusion, whether based upon the percentage of the material or some assigned value of the components that actually end up in the end product, and any such approach is impractical in application.[9]

The New Law

The 2016 Legislative amendment, effective June 23, 2016, amends the law to provide that “[t]he term ‘sale at retail’ does  not include sale of materials for further processing into articles of tangible personal property for sale at retail when all of the criteria in Subsubitem (I) of this Section are met.[10]  Those criteria consist of a re-statement of the three-pronged test:  (1) the raw materials become a recognizable and identifiable component of the end product; (2) the raw materials are beneficial to the end product; and (3) the raw materials are material for further process, and as such are purchased for the purpose of inclusion into the end product.

The amendment goes further, however, and adds a “Subitem II” to the definition of “sale at retail.”  This addition represents new law and provides, in short, that “[i]f the materials are further processed into a byproduct for sale, such purchases of materials shall not be deemed to be sales for further processing and shall be taxable.”  The term “byproduct” is defined to mean “any incidental product that is sold for a sales price less than the cost of the materials.”

QUESTIONS CREATED BY THE NEW LAW

Did the Legislature intend to overrule the NISCO decision?

The first question that arises is whether the clarifications to the three-prong jurisprudential test that are set forth in the NISCO decision may be applied under the amended law’s verbatim codification of the three-prong jurisprudential test.  It is a well-accepted rule of statutory construction that those who enact statutory provisions are presumed to act deliberately and with full knowledge of existing laws on the same subject, with awareness of court cases and well-established principles of statutory construction, with knowledge of the effect of their acts and a purpose in view; and that when the Legislature changes the wording of a statute, it is presumed to have intended a change in the law. [11]  Thus, legislative language will be interpreted based upon assumption that the Legislature was aware of judicial decisions interpreting those statutes, including among others, the NISCO decision.[12]  Because the amended law adopts the three-prong judicial test verbatim, we believe a strong argument may be made that there is no legislative intent to vary from the Supreme Court’s interpretations of that test, except to the extent the language of the amended law expressly varies from the Supreme Court’s prior interpretations.  The Legislature has never hesitated to expressly state its intent to legislatively overrule a Louisiana Supreme Court decision, when that is indeed its intent.  Here, no express statement of such intent was made, and we do not believe that the Louisiana Supreme Court will infer intent to overrule any aspect of the NISCO decision, except to the extent the language of the amendment is inconsistent with the court’s interpretation in NISCO.

What constitutes a “byproduct” for purposes of the new law?

In cases where a product is sold for a sales price less than the cost of its materials, questions will likely arise as to whether the product is an “incidental product.”  Because the term “incidental product” is not statutorily defined by the legislature, we must give the words their commonly-accepted meaning.  The word “incidental” means “being likely to ensue as a chance or minor consequence,” or “occurring merely by chance or without intention or calculation.”[13]  Many products sold for a sales price less than the cost of their materials are intentionally manufactured and sold.  They are not manufactured by accident; and they are not the result of chance.  Instead, a conscious decision is made to choose a process design that will in fact create certain byproducts, with the intention to sell all the products of the process – both “primary products” and “byproducts,” with an overall profit motive.  While any particular byproduct may be of minor consequence economically speaking, when viewed in a vacuum, it may not be of economic “minor consequence” to the overall finances of the taxpayer; or it may not be of minor consequence in terms of volumes manufactured and sold, or investment made to develop, manufacture, market and sell the byproduct.  In our opinion, the Legislature’s amendment – a clear intent to vary from the NISCO decision’s holding that the further processing exclusion applies to all end products – merely creates more uncertainty, resulting in many more sales and use tax disputes and consequent litigation.  The taxing authorities will undoubtedly argue that the intent of the amendment was to create a rule to be applied when a byproduct, viewed in a vacuum, is not profitable; but that is not what the Legislature said.  The Legislature adopted a rule to be applied to “incidental products,” without defining that term.  Thus, we believe a proper interpretation requires that a determination must first be made regarding whether the byproduct is an “incidental product;” and only if it is an incidental product, does the second part of the “test” – whether it is sold for a sales price less than the cost of its material – apply.

May the new law be applied retroactively?

Taxpayers may expect the taxing authorities to impose the new law going forward.  Serious questions arise, however, regarding the applicability of the new law to taxes already reported and paid, or incurred, before the new law became effective.

The new law expressly provides that it “shall not be applicable to any existing claim for refund filed or assessment of additional taxes due issued prior to the effective date of this Act for any tax period prior to July 1, 2016, which is not barred by prescription.”  If a taxpayer’s claim or dispute with the taxing authority falls within the language of this provision, the new law should not be applied by the taxing authorities.  It is not clear what is meant by the terminology “claim for refund filed.”  Does it mean the submission of a refund request or claim with the taxing authority, or a suit for refund, or both?  Likewise, it is not clear what is meant by “assessment of additional taxes due issued” – does it include notices of intent to assess (“proposed assessments”), notices of assessment (“final assessments”), petitions for redetermination of assessments, or suits to collect tax, or all four.  We recommend that taxpayers apply the most liberal interpretation of the language unless and until guidance is provided by regulation or judicial decision.

There will undoubtedly be cases in which no claim for refund has been filed or assessment issued before the effective date of the act, but involving tax periods prior to July 1, 2016.  In such cases, we believe a strong argument may be made that retroactive application of the new law to pre-amendment tax periods is unconstitutional.  The Legislature stated in the Act that it “is intended to clarify and be interpretive of the original intent and application of” the further processing exclusion, and that “[t]herefore, the provisions of this Act shall be retroactive and applicable to all refund claims submitted or assessments of additional tax due which are filed on or after the effective date of this Act.”  Despite this statement by the legislature, we believe that the amendment to the law is not merely clarifying and interpretive.  We believe the changes are substantive in nature.  Generally, substantive laws may be applied prospectively only.  And despite express legislative intent to the contrary, it is uniquely the province of the courts to determine if an Act is substantive, or merely clarifying and interpretive.  And, if the law is substantive, it will not be applied retroactively by the courts because to do so impinges upon the authority of the judiciary in violation of the constitutional doctrine of separation of powers and divests taxpayers of substantive rights and causes of action that accrued and vested in the taxpayer before the effective date of the Act, such that imposition of the new law would constitute a denial of due process.[14]

Was the amendment to the law constitutionally enacted?

In the case of an attempt by a taxing authority to apply the new law retroactively to pre-amendment tax periods, or in the case of a purely prospective application of the new law to post-amendment tax periods, a question still exists regarding the constitutionality of the law’s enactment.  The Louisiana Constitution provides that enactments levying a new tax or increasing an existing tax require a two-thirds vote of both houses of the Legislature to become law.[15]  Here, the Act at issue did not have a two-thirds vote of the House of Representatives.  A viable legal argument exists that because the law amends definitions in a manner that makes previously non-taxable transactions taxable, it constitutes either a “new tax” or an “increase in an existing tax,” thus requiring a two-thirds vote of both houses of the Legislature. [16]  Unless and until this issue is resolved in the courts, a taxpayer would be wise to seek legal counsel and consider its options before voluntarily paying tax on materials purchased for further processing into a byproduct.

__________________________________________________________

[1] La. R.S. 47:301(10)(c)(i)(aa), before amendment effective June 23, 2016; see La. Act No. 3 (2nd Extra. Sess. 2016) (“Act 3 of 2016”).

[2] Act 3 of 2016, supra.

[3] NISCO, pp. 8-9, 190 So.3d at 282.

[4] Id. at pp. 7-8, 190 So.3d at 281, quoting International Paper, Inc. v. Bridges, 2007-1151, p. 19 (La. 1/16/08), 972 So.2d 1121, 1134.

[5] Id. at pp. 5-6, 190 So.3d at 280-281.

[6] Id. at pp. 7-9, 190 So.3d at 281-282.

[7] Id. at pp. 9-10, 190 So.3d at 282-283.

[8] Id. at pp. 4, 10-13, 190 So.3d at 279, 283-285/

[9] Id. at pp. 13-15, 190 So.3d at 285-286.

[10] Act 3 of 2016, supra (emphasis added)

[11] Borel v. Young, 2007-0419, pp. 8-9 (La. 11/2/07), 989 So.2d 42, 48 (emphasis added).

[12] State v. Campbell, 2003-3035, pp. 8-9 (La. 7/6/04), 877 So.2d 112, 118.

[13] Merriam-Webster’s Collegiate Dictionary (11th ed. 2012) (emphasis added).

[14] See e.g. Mallard Bay Drilling, Inc. v. Kennedy, 2004-1089 (La. 6/29/05), 914 So.2d 533); Unwired Telecom Corp. v. Parish of Calcasieu, 2003-0732 (La. 1/19/05), 903 So.2d 392; and Bourgeois v. A.P. Green Indus., Inc., 2000-1528 (La. 4/3/01), 783 So.2d 1251; La. Const. Art. II, §§1-2; La. Const. art. I, §2; U.S. Const. Amend. XIV, §1.

[15] La. Const. Art. VII, §2.

[16] See e.g. Dow Hydrocarbons & Resources v. Kennedy, 1996-2471 (La. 5/20/97), 694 So.2d 215.

 

 

cms

By the Kean Miller Medicare Compliance Team

Historically, the Benefits Coordination and Recovery Center (“BCRC”) arm of the Centers for Medicare & Medicaid Services (“CMS”) collected Medicare’s conditional payments.  While the BCRC continues to address Medicare’s reimbursement rights with Medicare beneficiaries, in late 2015 the CMS’s Commercial Repayment Center (“CRC”) took over responsibility for seeking reimbursement directly from Applicable Plans.  Applicable Plans include liability insurers, self-insured entities, no-fault insurers, and workers’ compensation entities.  If you receive correspondence from the CRC, you must act quickly.

The CRC issues three types of correspondence:

  1. Conditional Payment Letter (“CPL”)
    • A CPL is issued if a beneficiary reports a pending case where an Applicable Plan may have primary payment responsibility, before the Applicable Plan submits a Section 111 report.  There is no time frame for a response, but the Applicable Plan is encouraged to respond expeditiously in certain situations.
  2. Conditional Payment Notice (“CPN”)
    • A CPN is issued when the Applicable Plan notifies CMS that it has primary payment responsibility (or submits a Section 111 report) and Medicare has made conditional payments.  An Applicable Plan has 30 days from the date on the CPN to challenge the claims in the CPN.  If not disputed within 30 days, a demand letter will be issued requiring payment, and interest will be assessed.
  3. Demand Letter
    • Demand letters seek payment within 60 days.  Applicable Plans have 120 days from receipt of a demand to file an appeal.  Receipt is presumed to be five (5) calendar days from the date of the demand letter absent evidence to the contrary.

To date, the CRC has focused the majority of its collection efforts on Group Health Plans.  However, CMS’s annual year-end fiscal report indicates that in 2016, the CRC workload will expand to include the recovery of certain Non-Group Health Plan conditional payments where an Applicable Plan had or has primary payment responsibility.

Additional information on the CRC and the recovery and appeals process is provided on the CMS website:

 

Industrial Bolt & Rusted Metal

By Michael J. O’Brien

Multimillion dollar offshore drilling rigs and subsea drilling equipment can be rendered worthless if their most basic components, the nuts and bolts that hold them together, fail. Since 2013, investigators with the Bureau of Safety and Environmental Enforcement (“BSEE”) have been investigating why bolts used in subsea oil equipment have suddenly, and without warning, failed. These bolt failures have caused shut-downs and increased safety concerns for possible catastrophic well events. At least one subsea equipment provider has issued a global recall for faulty bolts on its blowout preventers (“BOP”). Flaws have also been found in BOP’s manufactured by other companies.

These bolts failure are now on BSEE’s radar. Indeed, BSEE has issued Safety Alert 318 warning of “the recurring problem of connector and bolt failures in various components used in risers and subsea BOP’s used in offshore operations.” BSEE’s regulators are currently working with drilling companies, manufacturers, and the American Petroleum Institute (“API”) to create new standards for minimum hardness and coating of subsea equipment bolts, as well as guidelines for assembly and installation of the bolts. The API has proposed replacing “critical bolts” that do not meet the proposed hardness standard by 2017. It is estimated that this issue could affect more than 2,400 platforms and oil rigs in the Gulf of Mexico.

The reason for the bolt failures has yet to be determined. It is likely that the alloys used in heavy steel bolts are not hard enough to survive in the waters of the Gulf of Mexico. Alternatively, excessive tightening or “over-torqueing” could be causing the failures.

New BSEE regulations require greater reporting of breakdowns and failures, including bolt failures. Thus, offshore drillers and support companies would be wise to heed BSEE’s Safety Alert and inspect the bolts in their equipment for failures. Preventative maintenance and replacement of bolts that are not up to specifications can prevent catastrophic and costly failures in the future as well as significant regulatory penalties.

For information concerning BSEE’s Safety Alert No. 318, please see www.BSEE.gov/bolts.

crew boat

By R. Chauvin Kean

On August 10, 2016, the Eastern District of Louisiana reaffirmed that a maritime lien may attach to a vessel at the moment the necessaries are provided, but that the lien may not yet be enforceable until payment is due (i.e., the debt had matured). Thus, in the typical case, the amount of security necessary to release an arrested vessel is calculated only using the value of the matured maritime lien. However, in Odyssea Marine, Inc. v. Siem Spearfish M/V, the court held that given the specific circumstances of the case the security to be posted by the vessel owner to release the arrested vessel may encompass all maritime liens asserted by plaintiff Delta Subsea, LLC (“Delta”) including those that were not enforceable. 2016 WL 4259083 (Aug. 10, 2016) (J., Barbier).

As previously discussed in earlier blog articles, maritime liens arise as a matter of law for those who provide “necessaries” to a vessel such as: repairs; supplies; towage; and the use of a dry dock or marine railway. 46 U.S.C. § 31301(4). The Fifth Circuit has held “that a maritime lien for vessel repairs attached [to the vessel] the moment the vessel left the repair yard with the bill unpaid….” See Pan American Bank of Miami v. Oil Screw Denise, 613 F. 2d 599, 602 (5th Cir. 1980). The Fifth Circuit subsequently refined its previous holding by stating that “the point at which a maritime lien attaches and the point at which it becomes enforceable are not necessarily the same.” See Bank One, Louisiana v. MR. DEAN, 293 F. 3d 830, 834 (5th Cir. 2002). Typically, in order for the lien to be enforceable, the debt must mature per the terms of the agreement between the shipowner and the shipyard. This general rationale is central to the purpose of necessary liens such that they are designed to create security for a claim while still permitting a vessel to continue on her way to earn freight or hire to cover the unpaid debts not presently due.

In Odyssea, Delta arrested the SPEARFISH on account of five allegedly unpaid invoices for ROV support services. Siem, the owner of the SIEM SPEARFISH (“SPEARFISH”), petitioned the court to set an appropriate amount of security so that the SPEARFISH could be released from the U.S. Marshal’s custody. Delta sought to require Siem to post security in the total amount of all outstanding invoices. Siem argued that at the time of arrest, only one invoice was due; therefore the amount of security should be set at the matured debt value, only. Though a maritime lien is not typically enforceable until the debt has matured, the court acknowledged that certain exceptions exist. The Odyssea court held that the owner of the vessel must post security for the aggregate value of all outstanding invoices even though not all presently due.

The court’s reasoning was based on a variety of factors. Most importantly, the court determined that at least one invoice was due at the time of arrest, thus the arrest was proper. Further, in the past four months, the SPEARFISH had been arrested by five different plaintiffs, and Delta was expressly told by Siem that it intended to move the vessel out of the district to prevent Delta from arresting the SPEARFISH. Lastly, the remaining invoices were due within weeks of the date of arrest.

In dicta, the court went one step further by stating that because“arrest is the first step to judicial sale of the vessel, which would wash the vessel [clean] of all maritime liens, it appears sensible to permit a lien holder to enforce a lien that has attached but not fully ripened once other parties have placed the vessel under arrest.” The court went on to justify its ruling by declaring that no Fifth Circuit case governed the present suit, therefore the court determined that this ruling was in line with the Eleventh Circuit’s similar holding in Dresdner Bank Ag v. M/V OLYMPIA VOYAGE, 465 F.3d 1267 (11th Cir. 2006).

From Odyssea, providers of necessaries should take note that they may seek security for all of their maritime liens not yet ripened, but one of the liens must be enforceable at the moment of arrest. Further, vessel owners should take note that terms of credit allow a vessel to proceed on her way to earn freight or hire in order to satisfy any attached liens not presently due. Thus, vessel owners should negotiate reasonable and attainable terms of credit to insure the vessel can continue to generate revenue even with encumbrances attached.

Commercial shrimp fishing boat

By Michael J. O’Brien

In the recent case of In re Marquette Transp., No. 13-5114, 2016 WL 1695109 (E.D. La. 4/26/16), Judge Sarah Vance offered the latest comment on how a “seafarer” is defined by the landmark U.S. Supreme Court case of Yamaha Motor Corp. U.S.A. v. Calhoun, 516 U.S. 199 (1996).

In re Marquette arose out of a 2013 vessel collision in the territorial waters of Texas between a towing vessel owned and operated by Marquette and a vessel owned by John Tran, a self-employed commercial fisherman. As a result of the collision, Tran was killed; his fishing vessel was destroyed. Litigation began when Marquette filed a Limitation action under 46 U.S.C § 30501, et seq. Thereafter, the family of John Tran filed a claim against Marquette under the General Maritime Law and the survival and wrongful death laws of Texas.

After extensive litigation, in April 2016, the Tran claimants filed a Memorandum of Law addressing the issue of whether they could supplement remedies available under the General Maritime Law with State Law remedies provided by Texas’s wrongful death and survival statutes. They argued that because the decedent was neither a Jones Act seaman nor a maritime employee covered by the Longshore and Harbor Workers Compensation Act (“LHWCA”), Tran was a “nonseafarer,” such that his survivors could pursue state law remedies as allowed by Yamaha. Marquette opposed contending that because Tran earned his living as a fisherman, he was a “person engaged in maritime trade.” According to Marquette, Tran was a “seafarer” as defined by Yamaha; thus, his survivors were precluded from recovering non-pecuniary damages under Texas law.

Note that it was undisputed that Tran was neither a Jones Act seaman nor an employee covered by the LHWCA. At issue was whether the Tran claimants could supplement remedies available under General Maritime Law with state law remedies, including the remedies provided by Texas’s Wrongful Death and Survival Statute.

Whether non-pecuniary damages are available in cases involving non-seamen killed or injured in state territorial waters was famously taken up by the U. S. Supreme Court in the aforementioned case of Yamaha. In that case, the parents of a child killed in a jet ski accident in state territorial waters asserted state law remedies. Drawing a distinction between “seafarers” and “nonseafarers,” the U.S. Supreme Court held that the General Maritime Wrongful Death Action does not preempt state remedies in cases involving the death of a non-seafarer in state territorial waters. Holding that Congress had not prescribed remedies for the wrongful deaths of nonseafarers in territorial waters, the Yamaha Court found no basis for displacing state remedies in cases of this nature.

Since Yamaha, courts have divided on the meaning of the critical term “non-seafarer.” The division between the two leading interpretations of “nonseafarer” is based on language found in the Yamaha opinion. In a footnote, the Yamaha Court explained that “by non-seafarers, we mean persons who are neither seaman covered by the Jones Act…nor longshore workers covered by the Longshore and Harbor Workers Compensation Act.” However, also in the Yamaha opinion, the Court described the scope of its holding noting that state remedies are not displaced in cases where the claimant “was not a seaman, longshore worker, or person otherwise engaged in maritime trade.” Seizing upon the “person otherwise engaged in maritime trade” language, several courts have concluded that a “person otherwise engaged in maritime trade” is a “seafarer” precluded from pursuing non-pecuniary damages under state law even though that person is neither a Jones Act seaman nor longshoreman covered by the LHWCA.

Marquette argued that Tran, a self-employed commercial fisherman, was “otherwise engaged in maritime trade at the time of the collision.” Based on this interpretation, Tran would be deemed a “seafarer” under Yamaha and the Tran claimants would be barred from supplementing their federal maritime law remedies with non-pecuniary damages provided by Texas law. Other Courts have explicitly rejected Marquette’s approach and simply defined a nonseafarer as one who is neither a seaman nor covered by the LHWCA.

In a well-reasoned opinion, Judge Vance found the Tran claimants’ arguments more persuasive and more consistent with Yamaha as a whole. She reasoned that it was clear that Jones Act seamen and Longshore workers covered by the LHWCA are “seafarers,” while individuals who are not covered by these maritime statutes are “nonseafarers.” In reaching the result, Judge Vance found that in defining the term “nonseafarer” in the aforementioned footnote, the Supreme Court expressly tied “seafarer” status to coverage under federal maritime statutes, such as the Jones Act and the LHWCA. Judge Vance further advised that it was reasonable to conclude that Yamaha’s reference to “persons engaged in maritime trade”, mainly refers to those maritime employees who are not longshore workers, but are, nonetheless, covered by the LHWCA. Section 902(3) of the LHWCA defines “employee” as “any person engaged in maritime employment, including any longshoreman or other person engaged in longshoring operations, and any harbor worker including a ship repairman, ship builder, and ship breaker…” 33 U.S.C. § 902(3).

Based on this reasoning, Judge Vance joined those courts that have held, for purposes of Yamaha, a nonseafarer is someone who is neither a seaman covered by the Jones Act nor a longshore or harbor worker covered by the LHWCA. Accordingly, the decedent Tran was a nonseafarer and Yamaha did not preclude application of Texas statutes preventing recovery of non-pecuniary damages. While this case involved Texas law, Judge Vance’s ruling should not be narrowly read to apply only to Texas-based incidents as her ruling would be the same in Louisiana as well.

Amanda Wynn looks over historical court documetns that were rescued from the flooded basement of the Milwaukee County Historical Society Friday morning. Whynn, a curator at the Old World Third St. facility, staff and volunteers layed out wet records and artifacts that had been stored in the facilities basement. JOHN KLEIN/JKLEIN@JOURNALSENTINEL.COM

By Ben K. Jumonville

For several businesses in the Baton Rouge area, one of the many implications of the recent flooding is the loss of business records that are subject to retention requirements under various state and federal laws. In light of the destruction of many such records in the flood, a question arises as to the applicability of these retention requirements and the steps a business should take to maintain compliance with the law.

Under federal laws, businesses generally remain subject to their record-keeping obligations, but the IRS and the Department of Labor have provided some guidance in the past on how businesses who have lost records in a natural disaster can comply with the law.

With respect to records required to substantiate business losses and other tax deductions, the Internal Revenue Code addresses the loss of records due to circumstances beyond the taxpayer’s control. Specifically, Treasury Regulation § 1.274-5T provides that “[w]here the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use.”

When claiming this exception, the taxpayer must be diligent about the reconstruction of records. Corroborating records or testimony regarding the specific expenses incurred is required, and a deduction will be denied if a business makes no attempt to recreate its destroyed records. Similarly, if the reconstruction is uncorroborated or perceived as unreliable, the deduction can be denied for lack of substantiation.

According to the Disaster Resource Guide published by the IRS, a business seeking to create a “reasonable reconstruction” of its lost business records should obtain copies of invoices from its suppliers, copies of bank statements, and copies of the last year’s federal, state and local tax returns, including payroll tax returns and business licenses, as these will reflect gross sales for a given time period.

In addition to reconstructing destroyed records, the Tax Court has indicated that it is necessary to document the extent of the destruction at the facility where the records were stored and the extent of the records that were lost. For instance, where the taxpayer did not provide evidence as to flood water damage at his record-keeping facility, the Tax Court denied the deduction, observing that it was not obligated to accept a taxpayer’s “unverified and self-serving testimony.” Darling v. C.I.R., 89 T.C.M. (CCH) 1334 (Tax 2005).

There is somewhat less guidance with respect to a business’s obligations to maintain records related to employees and employee benefit plans under applicable federal laws such as ERISA or COBRA. Generally speaking, these laws do not anticipate how to apply the record-keeping rules when a natural disaster occurs and records and businesses are destroyed.

Although there is no statutory guidance on the record-keeping requirements under these laws after a natural disaster, the Department of Labor has previously considered this issue in advisory opinions and in rules published in the Code of Federal Regulations. According to the DOL, the loss or destruction of records required to be maintained under ERISA does not discharge the business from its statutory duty to retain such records. 29 CFR Part 2520.

The DOL has also indicated that there is a general duty to reconstruct the records required to be retained under ERISA. That said, whether lost or destroyed records can, or should be, reconstructed and whether the persons responsible for the retention of records are, or should be, personally liable for the cost incurred in connection with the reconstruction of records is “necessarily dependent on the facts and circumstances of each case.” DOL Advisory Opinion 84-19A (April 26, 1984).

For instance, if reconstruction cannot be accomplished without excessive or unreasonable cost, a company would not be under a duty to reconstruct or attempt to reconstruct the lost or destroyed records. Further, if a company has access to other documents from which the lost or destroyed records could reconstructed and such other documents would be available to the company for the remainder of the requisite retention period, reconstruction of the destroyed records would not be required, provided that the company “make such agreements and arrangements necessary” to ensure that such other documents would remain available. DOL Advisory Opinion 84-19A (April 26, 1984).

In sum, if you or your business lost records in the flood which were subject to retention requirements, the best course of action is to undertake reasonable efforts that demonstrate good faith compliance with the law. Such steps include documenting the destruction done to the building in which your records were stored, the types of records that were kept prior to the flood, and the measures taken to remediate the problem. To the extent reasonable, make a good faith effort to reconstruct the lost records. Ultimately, if a business can show that it took the most reasonable and appropriate steps to comply with its record-keeping requirements, it may be able to persuade the IRS or other governmental authority to waive applicable sanctions.

For more helpful information on record reconstruction, the Disaster Resource Guide published by the IRS contains specific steps that individuals and businesses can take to reconstruct their records.

 

A deep sea tension leg oil production platform with a helicopter on the helideck. Tension leg platform.

By Tod J. Everage

Given the significantly better benefits available to an injured worker who qualifies under the Longshoreman and Harbor Workers’ Compensation Act (“LHWCA”) compared to a state workers’ compensation scheme, attorneys for injured workers are constantly trying to fit their client into the LHWCA to maximize their potential recovery. As a result, there is a steady availability of legal opinions emerging from both administrative agencies as well as the judiciary. In nearly every case, the result hinges upon some sort of classification, such as: classifying the employee (maritime worker or not), classifying the employment (maritime work or not), or classifying the location of his/her work or injury (maritime situs or not), among others. Depending on the circumstances, the classification of the injured worker or his employment will determine whether or not he or she is entitled to federal or state benefits. [Editor’s Note: Our LHWCA 101 article can be read here.]

On August 19, 2016, the U.S. Fifth Circuit was presented with a dispute about whether James Baker fell under the LHWCA or the state workers’ compensation scheme. And as mentioned, that decision was based on a dispute of classification. Specifically here, the court was asked whether the Big Foot Tension Leg Platform (“TLP”) should be classified as a vessel. Mr. Baker was injured while working as a marine carpenter, constructing the living quarters that would eventually be placed on Big Foot. If Big Foot was classified as a vessel, then Mr. Baker would qualify as a shipbuilder under the LHWCA and entitled to Longshore benefits.

What constitutes a vessel has been litigated several times over in the past decade or so in the Fifth Circuit and the U.S. Supreme Court. In 2005, the U.S. Supreme Court decided Stewart v. Dutra Construction Company, 543 U.S. 481 (2005). Therein, the Supreme Court ruled that Super Scoop dredge, a floating platform with a clam shell bucket to remove silt from the ocean floor, qualified as a vessel under 1 U.S.C. § 3. To reach that opinion, the Supreme Court noted that Super Scoop “carried machinery, equipment, and a crew over water, its function was to move through Boston Harbor, … digging the ocean bottom as it moved.” Super Scoop was not only capable of being used for transport of equipment and workers, it was being used for that purpose.

More recently, in Lozman v. City of Riviera Beach, 133 S.Ct. 735 (2013) the Supreme Court was asked to determine whether a “floating home” was a vessel under 1 U.S.C. § 3. In concluding that Lozman’s houseboat was not a vessel, the Court noted that the houseboat was not regularly used to transport people or goods over water, had no rudder or other steering mechanism, had an unraked hull, had a rectangular bottom ten inches below the water, had no special capacity to generate or restore electricity, and had small rooms that looked like ordinary nonmaritime living quarters. Lozman’s houseboat also had no means of self-propulsion and could only be moved over water by towing.

On the heels of Lozman, the Eastern District of Louisiana held in Warrior Energy Services v. ATP TITAN, 2013 W.L. 1739378 (E.D. La. April 22, 2013), that a hybrid semisubmersible/spar did not qualify as a vessel. The ATP TITAN, was a triple column, floating production facility moored in 4,000’ of water. The TITAN was classified as an industrial vessel by the U.S. Coast Guard, and had navigational lights, lifeboats, crew quarters, an onboard generator, and a drinking water plant. It was designed to be moved to new fields to aid in oil and gas production every five to eight years. The district court distinguished the TITAN from other drilling rigs that have been previously classified as vessels by highlighting the fact that the TITAN would remain in its current location for 5-8 years. Further, to move the TITAN would take a year of planning, and approximately 15 – 29 weeks to accomplish, and would cost between $70-80,000,000.00 to move. Referring to the Lozman “reasonable observer test,” the court held that a reasonable observer “would likely find that the ATP TITAN is not practically capable of carrying people or things over water.” The Fifth Circuit later affirmed the Eastern District’s ruling. Citing to Stewart, the court characterized the dispositive question as “whether the watercraft’s use as a means of transportation on water is a practical possibility or merely a theoretical one.” In its analysis, the Fifth Circuit found: (1) the TITAN was moored to the floor of the OCS by twelve chain mooring lines connected to twelve anchor piles, each weighing 170 tons and each embedded over 200’ into the sea floor, and by an oil and gas production infrastructure; (2) the TITAN had not been moved since it was constructed and been installed in its current location in 2010; (3) the TITAN had no means of self-propulsion, apart from repositioning itself within a 200’ range by manipulating its mooring lines; (4) and moving the TITAN would require approximately a year of preparation, at 15 weeks for its execution, and would cost between $70,000,000.00 and $80,000,000.00. The ATP TITAN decision was consistent with prior court rulings finding spars to not be vessels. [Editor’s Note: For more in depth review of Stewart, Lozman and ATP Titan, please review our prior blog posts here and here.]

Big Foot, like other TLP’s, is a type of offshore oil platform used for deepwater drilling. Although Big Foot can float, it is not capable of self-propulsion, has no steering mechanism, does not have a racked bow and has no thrusters for positioning once on location. Once completed, Big Foot was scheduled to be towed to a location approximately 200 miles off the coast of Louisiana and anchored to the sea floor by over sixteen miles of tendons. While under tow, Big Foot will be tended by a crew that is employed to control Big Foot during the voyage. However, once anchored, Big Foot will serve as a work platform for the life of the oilfield, which is estimated to be 20 years. The U.S. Coast Guard classified Big Foot as a “floating Outer Continental Shelf facility” pursuant to 33 CFR § 143.120.

After his injury, Mr. Baker filed for Longshore benefits. At the time, he was working on the living quarters that were to be placed on Big Foot, which he claimed qualified him as a shipbuilder entitling him to Longshore benefits. The determining factor would be whether Big Foot was a vessel. The U.S. Fifth Circuit again reviewed the U.S. Supreme Court’s decision in Stewart and Lozman to compare Big Foot to the vessels analyzed in those cases. Mr. Baker argued that Big Foot was akin to Super Scoop, which was the focus of the Stewart case. The Department of Labor countered with a comparison to the Lozman houseboat. The Fifth Circuit was persuaded by the later. In reaching its opinion, the Fifth Circuit stated “like the floating home in Lozman, Big Foot has no means of self-propulsion, has no steering mechanism or rudder and has an unraked bow. Big Foot can only be moved by being towed through the water, and when towed to its permanent location, Big Foot will not carry items being transported from place to place but only mere appurtenances.” The crew aboard Big Foot only supervised its transportation, and would not be present upon permanent anchoring. Big Foot will not be used to transport equipment and workers over water in the course of its regular use. In fact, Big Foot’s only intended travel over water was its transport to its final location. Given these undisputed facts, and using the Lozman reasonable observer test, the Fifth Circuit stated that “a reasonable observer looking to Big Foot’s physical characteristics and activities, would not consider it to be designed to any practical degree for carrying people or things over water.” Thus, the Fifth Circuit continued to clarify the types of offshore facilities that do not qualify as vessels for the purpose of Longshore coverage.

Alternatively, Mr. Baker also argued that his work on the living quarters had a substantial nexus to the extraction of natural resources on the Outer Continental Shelf, sufficient to trigger OCSLA jurisdiction. This argument stems from the 2012 U.S. Supreme Court case, Pacific Operators Offshore, LLP v. Valladolid, 132 S.Ct. 680 (2012). Therein, the U.S. Supreme Court extended OCSLA jurisdiction to non-OCS situses where the injured employee established a “significant causal link between the injury that he suffered and his employer’s on-OCS operations conducted for the purpose of extracting natural resources from the OCS.” The Fifth Circuit rejected this argument as well. The Fifth Circuit held that “while not an office employee, Baker’s job of constructing living and dining quarters is too attenuated from Big Foot’s future purpose of extracting natural resources from the OCS for the OCSLA to cover his injury.” The court found persuasive the fact that Mr. Baker’s job did not require him to travel to the OCS at all, “making his work geographically distant from the OCS.” The Fifth Circuit further noted that Mr. Baker’s employer had no role in moving, installing, or operating Big Foot once placed on the OCS. As a result, Mr. Baker did not fall under the coverage of the LHWCA as extended by the OCSLA.

As new and uniquely-designed floating offshore structures hit the market, injured workers and their lawyers will continue to try to fit them within the definitions of a vessel for purposes of the Jones Act inclusion and/or Workers Compensation coverage. The emerging case law continues to provide guidance on how such vessels should be classified, and should be carefully considered when faced with a similar dispute.