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The Hobby Lobby Aftermath: What Does This Mean For For-Profit Companies?

Posted in Business and Corporate, Labor and Employment Law

By Edward Warner

On Monday June 30, 2014, the Supreme Court ruled that requiring family owned corporations to pay for insurance coverage for contraception under the Affordable Care Act (“ACA”) violated a federal law protecting religious freedom. As noted in my previous entry, the contraception coverage requirement was challenged by corporations whose owners claimed that they run their businesses according to their faith-based beliefs. The parties to the case engaged in heated oral arguments before the Court in late March of this year. The Court’s ruling in favor of Hobby Lobby signifies an important shift in corporate rights. As Justice Ruth Bader Ginsburg asserted in the dissent, this ruling could apply to numerous commercial enterprises and countless laws. Questions abound as companies try to make sense of this sensationalized decision.

What does this ruling mean in plain English?

The court held that the requirement that the companies provide contraception coverage imposed a substantial burden on the companies’ religious liberties. Put simply, the ACA mandate hindered the companies’ religious freedom. This ruling extends the religious rights of corporations, classifying them as “persons” under the Religious Freedom Restoration Act (“RFRA”).

Does the ruling really apply to all corporations?

According to the majority decision, the ruling does not apply to all corporations. The opinion states that the decision only applies to closely held, for profit corporations run on religious principles. Justice Samuel Alito also emphasized that these types of corporations are not necessarily likely to prevail if they object to complying with other laws on religious grounds.

Why is this ruling relevant to corporations other than Hobby Lobby?

This decision of “startling breadth” may have opened the door to challenges from other corporations. Essentially, despite the limited scope of the ruling, nothing would stop similar corporations from arguing that other laws that burden their religious liberty are unconstitutional. These companies may then seek exemptions from the requirements of these laws. Prior to the decision, Hobby Lobby faced annual fines of hundreds of millions of dollars if it failed to comply with the ACA mandate.

What are the legal implications moving forward?

The Court will one day have to decide clearly whether publicly traded companies and other corporate forms are also protected under RFRA. The ACA mandate has been challenged in at least 50 other cases. Hobby Lobby Stores Inc. is a family owned chain of 500 craft stores with 13,000 employees. This large company made substantial, formal commitments to run the stores according to religious principles years prior to signing on to the lawsuit and winning before the high court. The question remains: will other large corporations try to jump on the proverbial Hobby Lobby bandwagon?

If you wish to view the full Supreme Court opinion, you may do so at the link here.


EEOC Issues Updated Enforcement Guidance on Pregnancy Discrimination

Posted in Labor and Employment Law


By Michael D. Lowe

On July 14, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued an updated “Enforcement Guidance on Pregnancy Discrimination and Related Issues” (Notice No. 915.003), along with a question and answer document about the guidance and a fact sheet for small businesses. The Enforcement Guidance, Q&A document, and Fact Sheet are available on the EEOC’s web site.

This is the first comprehensive update of the EEOC’s guidance on the subject of pregnancy discrimination since 1983. The guidance addresses the requirements of the Pregnancy Discrimination Act (“PDA”) and the application of the Americans with Disabilities Act (“ADA”) to individuals who have pregnancy-related disabilities.

The fact that the guidance addresses both the PDA and the ADA is significant. The EEOC has made it clear that employer compliance with the recently amended ADA is a priority. To this point, EEOC Chair Jacqueline A. Berrien has commented that the guidance is intended to “aid employers, job seekers, and workers in complying with the Pregnancy Discrimination Act and Americans with Disabilities Act, and thus advance EEOC’s Strategic Enforcement Plan priority of addressing the emerging issue of the interaction between these two anti-discrimination statutes.” The updated guidance is also a response to the increase in pregnancy discrimination complaints. The latest EEOC data shows a 46 percent increase in pregnancy-related complaints from 1997 to 2011.

The guidance is largely an update of longstanding EEOC policy regarding pregnancy and related conditions. It sets forth the fundamental PDA requirements that an employer may not discriminate against an employee on the basis of pregnancy, childbirth, or related medical conditions; and that women affected by pregnancy, childbirth or related medical conditions must be treated the same as other persons similar in their ability or inability to work. The guidance also explains how the ADA’s expanded definition of “disability” might apply to workers with impairments related to pregnancy.

Several of the key issues discussed in the guidance include:

  • The fact that the PDA covers not only current pregnancy, but discrimination based on past pregnancy and a woman’s potential to become pregnant
  • Lactation as a covered pregnancy-related medical condition
  • The circumstances under which employers may be required to provide light duty for pregnant workers
  • Issues related to leave for pregnancy and for medical conditions related to pregnancy
  • The PDA’s prohibition against requiring pregnant workers who are able to do their jobs to take leave
  • The requirement that parental leave (which is different from medical leave associated with childbearing or recovering from childbirth) be provided to similarly situated men and women on the same terms
  • When employers may be required to provide reasonable accommodations for workers with pregnancy-related impairments under the ADA and the types of accommodations that may be necessary
  • Best practices for employers to avoid unlawful discrimination against pregnant workers.

The guidance is the product of a February 2012 public meeting where the EEOC solicited stories about issues related to pregnancy discrimination and discrimination against individuals with caregiving responsibilities. The materials from that meeting, including testimony and transcripts, are available here.

The new guidance, like all EEOC guidelines, is not controlling law. It will ultimately be up to the Courts to interpret and enforce the PDA and ADA. However, the guidance serves as a good indication of how the EEOC will address the issue of pregnancy discrimination. Employers should review their policies regarding pregnancy, including any light-duty policies, to confirm compliance with both the PDA and the ADA.


Lagniappe: Tips When Buying Louisiana Tax Credits

Posted in Business and Corporate, Film and Entertainment, Louisiana In General, State and Local Taxation

Fleur de lis plaque

By Meg Alsfeld Kaul

Buying Louisiana tax credits is a relatively easy way to reduce your state income tax (and sometimes franchise tax) liability. The following is a sampling of issues you and your legal or tax professional should discuss when making the decision to purchase tax credits.

The tax credits must be earned in compliance with applicable statutory and regulatory requirements.

In certain cases, this may mean the credits are “certified” by a state department, and in other cases your professional may have to review applicable documentation to determine if the credits have been legally earned by the seller.

There is also a new tax credit registry administered by the Louisiana Department of Revenue and with this registry comes new paperwork and regulations. Be sure that your professional is up to date with the latest requirements for obtaining credits and then properly applying them against your tax liability. For example, if you are purchasing motion picture tax credits that were certified by Louisiana Economic Development on or after January 1, 2014, you will need to complete a Form R-6140 with your seller in order to transfer the credits, and you will need to wait until you receive a Form R-6135 from the Louisiana Department of Revenue before you can apply these tax credits against your tax liability.

Reputation matters.

Use only reputable brokers or sellers when purchasing tax credits. There have been instances of fraud by individuals selling fake credits or credits that they did not own. Therefore, make sure that you use a reputable broker, and get the advice of an attorney in order to help protect your investment.

Ensure you get “clean” title.

Tax credits are described as “general intangibles” subject to the Louisiana UCC rules and can be pledged by the person earning the credits as collateral for their indebtedness. A professional can perform a UCC check to determine if the tax credits are subject to such liens and can assist with removing them. A reputable broker, however, should have performed this step upon its own purchase of the credits, but if you are purchasing the credits directly from the credit earner, such as a production company, you will want to have a professional ensure that any liens or security interests are removed prior to your purchase.

Put it in writing.

Put the details of your agreement with the seller in writing. This includes but is not limited to the price, the amount of tax credits being purchased, the tax year of the tax credits being purchased, and the social security or federal identification numbers of both parties. The seller should also warrant that it neither claimed on its own behalf nor conveyed to any other transferee the tax credits being transferred and sold to you.

Notify the State.

Most statutes require state notification of the credit transfer within 10-30 days of the transaction, depending on the type of tax credit being transferred. So be sure to review the statutes and rules governing the particular type of credit being purchased to ensure your compliance with the law. Copies of the transfer documentation, state tax credit certification letter, and any forms issued or required by the Louisiana Department of Revenue, if applicable, should be sent to the state as well. Some credits, like the motion picture tax credits, also require a separate processing fee for each tax year of tax credits transferred.

Consider transferability limits.

Some tax credits have a limit on the number of times they can be transferred, and some cannot be transferred at all. For example, while motion picture tax credits are not limited, live performance tax credits may only be transferred once to one transferee. Always check the law and verify with your professional to ensure that you are within the transfer limits.

Not all tax credits are the same.

There are many forms of tax credits—motion picture, digital media, solar and historic, just to name a few. Each type of tax credit has its own set of rules and regulations. So be mindful that your transfer must adhere to the particular rules surrounding that type of tax credit in order for the transfer to be valid.

Act 281: Louisiana’s Overhaul of the Civil Code Articles on Security, Pledge and Recordation

Posted in Business and Corporate, Louisiana In General, Real Estate


By Allison Lewis Reeves

On the recommendation of the Louisiana Law Institute, the Louisiana Legislature passed Act 281 (the “Act”). The Act concerns amendments to the Louisiana Civil Code relative to security, pledge and recordation. Civil Code art. 3133 et seq. concerning pledge have been deleted in their entirety and replaced with general articles on the liability of an obligor for his obligations and the relationship of creditors vis-à-vis the obligor and other creditors. The articles concerning pledge have moved to Civil Code art. 3141 et seq. although the substance of the pledge articles has also changed.

Civil Code art. 3136 defines security as “an accessory right established by legislation or contract over property, or an obligation undertaken by a person other than the principal obligor to secure performance of an obligation.” The article is new, but the concept is not. It broadens the scope of security beyond simply an obligation created by contract. The new Civil Code art. 3133 et seq. are consistent with previous articles from the 1984 Civil Code Revision. The latest revision seeks to align the civil code articles on security rights with the Louisiana Uniform Commercial Code in Title 10.

Importantly, new Civil Code art. 3346 provides that a pledge of the lessor’s rights in the lease of an immovable and its rents is recorded in the mortgage records of the parish in which the immovable is located. Note that new Civil Code art. 3169 provides that the pledge of the lessor’s rights in the lease of an immovable is not effective as to third parties until the contract is recorded. This represents a change in the law, which formerly required recordation in the conveyance records. For transitional rules applicable to the continued effectiveness of assignments of leases and rents filed in the conveyance records in accordance with former R.S. 9:4401 prior to January 1, 2015, as well as rules that apply to the reinscription, release, transfer, amendment, or other modification of those assignments, see R.S. 9:4403.

For a complete text of the Bill, click here.


Employers: Are You Prepared For the New Full-Time Employee Reporting Requirements Under the Affordable Care Act?

Posted in Business and Corporate, Health Law, Labor and Employment Law


By Brian R. Carnie

Starting January 1, 2015, all employers subject to the Affordable Care Act must track, on a month-to-month basis, each full-time employee (generally any employee who averages 30+ hours of service per week per month) and the employee’s share of the lowest cost monthly premium for self-only coverage (if any) by calendar month, among other information. These employers will also have to track the total number of full-time employees for each calendar month. This information will be reported to the IRS annually on a new form (IRS Form 1095-C, which has yet to be released), and employers will be required to file separate 1095-Cs for every person who was a full-time employee in any given month the preceding year (even if that person has since died or is no longer employed).

Anyone whose information is reported has to be furnished with a copy of their individual 1095-C by January 31st of each year starting in 2016 for the 2015 reporting year (the same due date for W-2s). The IRS will use the information reported on the 1095-Cs to determine whether a penalty may be assessed against the employer, and whether an employee is eligible for premium tax credits if the employee tries to purchase coverage on the public insurance exchange.

These reporting requirements affect every “large” employer subject to the ACA, even if the transition relief rules do not require your company to begin offering affordable group health coverage until later in 2015 or 2016 in order to avoid the employer penalties. For example, if you are an employer who has between 50-99 full-time employees/full-time equivalents and you are not subject to the employer penalties until the first day of your plan year in 2016, you still must track and report this data for calendar year 2015.

The scope and detail of the Form 1095-Cs will make reporting a significant burden for most companies. It will require employers to integrate and reconcile data from their payroll vendors, third party administrators and human resource personnel. There are alternative, streamlined reporting methods for full-time employees who receive a “qualifying offer” of coverage for all 12 months of the year. A “qualifying offer” is an offer of coverage to the employee, the employee’s spouse and dependents that meets the ACA’s minimum value standard and the employee’s annual premium cost for self-only coverage does not exceed 9.5% of the federal single poverty level (for 2014, a premium of $1,109 or less). For 2015 only, there are also reduced reporting obligations if your company provided qualifying offers to 95% or more of your full-time employees.

The only employers who need not worry about identifying and reporting full-time employees for each calendar month are those companies that offer at least 98% of all employees (including part-time and temporary employees) the option to purchase group health coverage.

The penalty for failure to file returns for your full-time employees will be $100 per missing or incorrect return, subject to certain monetary caps. All applicable large employers should make certain that they have systems in place to track this data beginning next January so you are not facing a mad scramble to gather everything needed to complete the new forms in January 2016.


Preservation Obligations: How Much Data Must a Party Hold During Active Litigation?

Posted in Business Litigation, E-Discovery, General Litigation


By Jason R. Cashio

The United States District Court, Northern District of California, offered some additional guidance regarding what a party must do, and by when, in terms of its preservation obligation. Commenting that Judge Scheindlin “woke up the legal world from its electronic discovery slumber in the Zubulake series,” and that most parties have gotten the basic message concerning when the duty to preserve begins, the court explained that exactly what a party must do to preserve and by when is less understood.

The issue before the court was whether the destruction of evidence on a former employee’s computer was sanctionable conduct. A matter of days before the plaintiff filed the lawsuit in AMC Technology, LLC, v. Cisco Systems, Inc., 2013 WL 3733390 (N.D. Cal.2013), a project manager for the defendant retired. Approximately one month later, the defendant wiped the project manager’s computer pursuant to its records retention policy. When the defendant could not produce the data from the project manager’s computer during the course of discovery, plaintiff filed a motion for sanctions.

The court found that the project manager’s involvement with the matter in dispute was merely tangential. Although the company knew of the lawsuit before destroying the computer, the court found the company could not have known that the project manager’s data would be relevant because he was not a key player. The court then reiterated sound advice, explaining that “requiring a litigant to preserve all documents, regardless of their relevance, would cripple parties who are often involved in litigation or are under the threat of litigation.”


Definitely Indefinite? Supreme Court Issues Decision in Nautilus v. Biosig Instruments

Posted in Intellectual Property


By Devin Ricci

One of the lesser-known requirements for a patent is that it must claim a “definite” invention. The issue of definiteness lies primarily with the patent draftsperson, often a patent attorney or agent that is hired to expand the scope of an invention as broadly as possible without crossing the line into indefiniteness. Nevertheless, as patent litigation continues to develop, alleged infringers are growing ever wiser that claims can be invalidated for stretching too far, rendering them indefinite. On June 2, 2014, the Supreme Court issued its decision in Nautilus, Inc. v. Biosig Instruments, Inc., relaxing the standard for a court to find a patent claim invalid as indefinite.

By statute, the definiteness requirement mandates that each patent must “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as [the] invention.” [1]  Courts have struggled throughout the years to balance the inherent limitations of written language with the need to limit the monopolistic rights granted through a patent for a clear invention. In so doing, Courts have mandated that the notion of definiteness is to be evaluated in light of the specification (the written description of the invention) and prosecution history from the perspective of a person skilled in the relative art at the time the patent was filed.

For over a decade, the Federal Circuit has erred on the side of validity for claim definiteness, questioning whether patent claims were “amenable to construction” or “insolubly ambiguous.” Under these guidelines the Federal Circuit would hold that “if reasonable efforts at claim construction result in a definition that does not provide sufficient particularity and clarity to inform skilled artisans of the bounds of the claim, the claim is insolubly ambiguous and invalid for indefiniteness.” [2]  The United States Patent and Trademark Office interpreted this standard to mean that “the validity of a claim will be preserved if some meaning can be gleaned from the language.” [3]

That standard is no more. In Nautilus, the Supreme Court held that the concepts of “insolubly ambigu[ity]” and “amenab[ility] to construction” are not apt standards for definiteness. The Court sought to mandate clarity of patent claims, while recognizing that absolute precision is unobtainable. Under this reasoning, the Court returned to traditional notions, holding that a patent is invalid for indefiniteness if its claims, read in light of the patent’s specification and prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

It can be noted that the Nautilus decision does not create any breakthroughs in patent invalidation. In reality, the Supreme Court rendered no new standard as it returned to a more barebones, traditional approach to the definiteness standard. Rather, the decision lessens the burden for patent and patent claim invalidation for lack of definiteness and acts as a subtle hint to the Federal Circuit and lower courts that a definiteness challenge shouldn’t necessarily err on the side of validity. Thus, the decision opens the gate for further validity challenges based on indefinite claims.

[1] 35 U.S.C. 112, Paragraph 2
[2] Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1371; see, also. ExxonResearch & Eng'g Co. v. United States, 265 F.3d 1371, 1375 (Fed. Cir. 2001) (“Only when a claim remains insolubly ambiguous without a discernible meaning after all reasonable attempts at construction must a court declare it indefinite.”)
[3] See, MPEP 2173.02


Judicial Troll Hunting

Posted in Intellectual Property


By Jessica Engler and Devin Ricci

On May 21, 2014, Senate Judiciary Committee Chairman Patrick Leahy pulled the plug on the latest bill aimed at fighting patent trolls. The term “patent troll” is an aptly coined name for non-practicing entities, companies formed to hold and collect royalties on patent rights without manufacturing, using, or otherwise selling the patented products or processes. The news of the judiciary committee’s removal of patent reform from the agenda has left many wondering about the future of patent reform. While some are predicting that patent reform will not be addressed until the next term, another branch of government has recently begun issuing rulings that affect the American patent law sector, potentially making patent infringement litigation costlier to trolls.

On April 29, 2014, the United States Supreme Court issued opinions in both Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark v. Allcare Health Management System, Inc. In both Octane Fitness and Highmark, the Supreme Court was presented with the nearly identical issue of when attorney’s fees can be awarded to the winning party of a patent infringement suit. These two opinions are the first decisions in a line of several patent cases currently on the Supreme Court’s intellectual property-heavy docket.

The Patent Act permits district courts to award attorney’s fees to prevailing parties in “exceptional circumstances;” however, the Patent Act does not provide a definition or examples of what would constitute those “exceptional circumstances.” 35 U.S.C. § 285. Though early decisions had taken a holistic, equitable approach to awards of attorney’s fees, in the 2005 case Brooks Furniture Manufacturing, Inc. v. Dutailier Int’l, Inc., the Federal Circuit Court adopted a rigid and mechanical formulation for determining if such fees would be awarded. 393 F.3d 1378 (2005). Under Brooks Furniture, a prevailing party could recovery attorney’s fees only when: (1) the opposing party engaged in misconduct during the litigation or in securing the patent; or (2) when the claim of infringement is objectively baseless and brought in bad faith. The Federal Circuit Court has subsequently stated that a claim is “objectively baseless” only when the claim is “so unreasonable that no reasonable litigant could believe it would succeed,” and that litigation is brought in bad faith only when the plaintiff “actually know[s]” the claim is objectively baseless. iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1378 (2011). Last, the Brooks Furniture decision stated that the evidence of this bad faith must be “clear and convincing,” the most burdensome legal standard of proof.

By requiring this rigid, nearly-impossible standard for the award of attorney’s fees, the Brooks Furniture decision insulated patent trolls from the costly repercussions of their highly litigious behavior. The typical modus operandi of a patent troll commences with a demand letter sent to an alleged infringer demanding payment of a licensing fee for the allegedly impermissible use of the patent trolls’ patented technology. In an overwhelming number of cases the patent trolls’ claims of infringement are extremely weak and may even be invalidated if brought to trial. However, the high cost of patent litigation often renders it more economical to pay the licensing fee or settle, further promulgating the patent trolls’ ability to collect funds on extremely weak claims. As stated by Apple, Inc. in an amicus curiae brief to the Supreme Court, the opening line of many negotiations with patent trolls is some form of “What we are asking for is less than it will cost you to litigate this case to judgment.”

The Supreme Court, in its Octane Fitness and Highmark decisions, recognized that the Brooks Furniture framework is unnecessarily rigid, and that it impermissibly encumbers the district courts’ discretion. In Octane Fitness, the Court held that the term “exceptional” should be given its ordinary meaning; thus, an “exceptional” case is “one that stands out from the others with respect to the substantive strength of the party’s litigating position or the unreasonable manner in which the case was litigated.” This definition permits the district court to look to the totality of the circumstances in determining whether the case is one that would be described as “exceptional.” In so doing, the Court rejected the requirement that patent litigants establish their entitlement to fees by “clear and convincing evidence” and instead adopted a more relaxed standard. Further, in Highmark, the Supreme Court noted that because attorney’s fees were within the district court’s discretion, the Federal Circuit Court can only review that award for an “abuse of discretion.”

These opinions will likely have several positive effects against the more nefarious behaviors of patent trolls. Under this relaxed standard for attorney’s fees, the district courts will now have a greater ability to impose costs upon parties whom they believe have brought unreasonable claims. With that flexibility reinstated, an increase in attorney’s fees awards for patent litigation may be anticipated. Further, the Highmark decision has greatly hindered the Federal Circuit Court’s role in the determination to award attorney’s fees. Because the Federal Circuit Court can only review the decisions to determine whether they are an abuse of the district court’s discretion, the Federal Circuit Court can no longer reverse awards of attorney’s fees on the basis that the case does not include “exceptional” circumstances. Therefore, if a party is granted attorney’s fees by the district court, there may be less danger that the award will be reversed on appeal.

The impact of these decisions is already starting to take shape. Wasting no time, the Supreme Court put these opinions into action with its recent decision in Kobe Properties v. Checkpoint Systems. The district court in Kobe Properties issued a $6.6 million award of attorney’s fees against the patent owner. Using the now defunct standard, the Federal Circuit Court reversed the district court’s award because it found that the patent owner’s lawsuit was not “objectively baseless.” Under the decisions of Octane Fitness and Highmark, the award has now been reinstated and the case remanded back to the Federal Circuit Court for reconsideration in light of these decisions. However, the Federal Circuit Court’s hands may now be tied as it will have to consider the award under the “abuse of discretion” model, and not on the merits.


CMS Proposes Prior Authorization Requirements for Certain DMEPOS Items

Posted in Health Law


By Deborah J. Juneau

CMS issued a proposed rule on May 28, 2014 designed to reduce the rate of medically unnecessary DMEPOS items supplied to beneficiaries. According to CMS, reports issued by GAO and HHS OIG, including Comprehensive Error Rate Testing (CERT) reports, show that DMEPOS claims had a 66% improper payment rate, accounting for approximately 20% of the overall Medicare FFS improper payment rate, although Medicare FFS DMEPOS expenditures represents only 3% of all Medicare FFS expenditures.

In response to these reports, CMS proposes to establish a prior authorization requirement for certain DMEPOS items that meet the three criteria set forth in the proposed rule. CMS proposes to define “unnecessary utilization” as the furnishing of items that do not comply with one or more of Medicare’s coverage, coding, and payment rules, as applicable. To identify those items that would require a prior authorization, CMS has proposed a “Master List” of DMEPOS items that meet the following criteria: 1) the item has been identified in a GAO or HHS OIG report that is national in scope and published in 2007 or later as having a high rate of fraud or unnecessary utilization; 2) the item is listed in the 2011 or later Comprehensive Error Rate Testing (CERT) program’s Annual Medicare FFS Improper Payment Rate Report DME Service Specific Overpayment Rate Appendix; and 3) the item meets a payment threshold amount of an average purchase fee of $1,000 or greater or an average rental fee schedule of $100 or greater. Items included on the Master List would remain on the list for ten years, subject to certain criteria for early removal. The Master List would be self-updated annually, to include any items in future OIG or GAO reports that meet the criteria. CMS proposes to make prior authorization for some of the items a national requirement, if claims data analysis shows that unnecessary utilization of the item is widespread and occurs across multiple geographical areas. On the other hand, if claims data shows the unnecessary utilization is localized to a specific geographic region, the prior authorization requirement may be limited to that geographic region.

The proposed rule includes the initial Master List of items that would require prior authorization. However, the list includes Power Mobility Devices that are already subject to a prior authorization requirement, and that would not change. The proposed initial Master List also includes such as items as respiratory assist and CPAP devices, semi-electric hospital bed with mattress, certain pressure mattresses for the beds, negative therapy wound pressure equipment, lightweight wheel chairs, and certain orthotics equipment.

According to CMS, the proposed prior authorization requirement would not create new clinical documentation requirements. It would simply require the same clinical information earlier in the process. Prior to furnishing the item and prior to submitting a claim for the item, the prior authorization requestor would submit evidence that the item complies with all coverage, coding and payment rules. After receipt of all required documentation, CMS or its contractors would conduct a medical review and notify the requestor whether the request for prior authorization was affirmed or non-affirmed. CMS proposes that it or its contractors would make reasonable efforts to communicate this decision within ten (10) days of receipt of all applicable information. A requestor could submit a request for expedited prior authorization by also submitting documentation to show that the standard time frame for a decision would jeopardize the life or health of the beneficiary. In that case, CMS proposes that it or its contractors would make reasonable efforts to communicate the decision within two (2) days of receipt of all applicable information.

The affirmation of a request for prior authorization is provisional. Claims receiving a provisional affirmation may still be denied based on technical requirements that cannot be evaluated until after the claim has been submitted, such as submission of a duplicate claim. A prior authorization request that is not affirmed is not an initial determination on a claim for payment for items furnished and would not be appealable. A request for prior authorization may be submitted multiple times. CMS and its contractors would use reasonable efforts to communicate the decision on a re-submitted request within twenty (20) days of receiving all applicable information.

CMS proposes to automatically deny payment for a claim for an item on the Required Prior Authorization list that is submitted without a prior authorization decision. A requestor who submits a claim for a non-affirmed prior authorization request, or for which no prior authorization request was submitted, is afforded appeal rights on the denial of the claim.

After promulgation of a final rule governing the prior authorization requirement, CMS or its contractor will presume the supplier knows Medicare would automatically deny the claim for which the supplier failed to request a prior authorization but would presume the beneficiary does not know and cannot reasonably be expected to know that Medicare will deny or did deny payment. In that case, the supplier bears the financial responsibility for the denied claim and is obligated to refund any money paid by the beneficiary. When the beneficiary insists on getting the item without affirmation of the prior authorization decision, while the decision is pending, or where the prior authorization request was non-affirmed, the supplier must issue an Advanced Beneficiary Notice of Noncoverage (ABN) to the beneficiary, and the beneficiary must agree to pay for the item and sign the ABN, in order to shift the financial responsibility for the item to the beneficiary.


EPA Announces Proposed Rule to Amend National Emission Standards for Petroleum Refineries

Posted in Climate Change / GHG, Energy, Environmental Litigation and Regulation, Louisiana In General


By Tokesha Collins and Lee Vail

On May 15, 2014, the Environmental Protection Agency (“EPA”) announced that it intended to publish a proposed rule to amend the national emission standards governing petroleum refineries. [1]  The emission standards impacted by this proposed rulemaking are:

  • National Emission Standards for Hazardous Air Pollutants (“NESHAP”) from Petroleum Refineries (40 CFR part 63, subpart CC) (Refinery MACT 1);
  • National Emission Standards for Hazardous Air Pollutants for Petroleum Refineries: Catalytic Cracking Units, Catalytic Reforming Units, and Sulfur Recovery Units (40 CFR part 63, subpart UUU) (Refinery MACT 2);
  • Standards of Performance for Petroleum Refineries (40 CFR part 60, subpart J) (Refinery NSPS J); and
  • Standards of Performance for Petroleum Refineries for which Construction, Reconstruction, or Modification Commenced After May 14, 2007 (40 CFR part 60, subpart Ja) (Refinery NSPS Ja).

The EPA’s stated reason for amending the petroleum refinery emission standards was to address the risk remaining after application of the standards promulgated in 1995 and 2002. The EPA proposes to amend the petroleum refinery emission standards to account for developments in practices, processes, and control technologies and also to include new monitoring, recordkeeping and reporting requirements. The EPA further proposes new requirements related to emissions during periods of startup, shutdown and malfunction (“SSM”) to ensure that the emissions standards are consistent with court opinions issued since promulgation of the standards.

The source categories affected by the EPA’s proposed rule include petroleum refineries engaged in converting crude oil into refined products, including liquefied petroleum gas, gasoline, kerosene, aviation fuel, diesel fuel, fuel oils, lubricating oils and feedstocks for the petrochemical industry.

Current regulations recognize the Delayed Coking Units (“DCU”) steam vent as a process vent; however, it is exempt at drum pressures below 15 psi, a pressure well in excess of industry practices. As a result, the EPA determined that direct atmospheric releases from the Delayed Coking Units (“DCU”) decoking operations are currently unregulated emissions and proposed a work practice standard of depressuring to 2 psi prior to opening the vessel. NSPS Subpart Ja currently allows a maximum pressure of 5 psi prior to depressuring. The EPA is requesting comment on whether depressurizing to 2 psig prior to venting to the atmosphere is the appropriate Maximum Achievable Control Technology (“MACT”) limit and whether it is appropriate to include restrictions for decoking operations draining, deheading and coke cutting, in the MACT requirements.

Over the last couple of years, the EPA has devoted significant enforcement resources to correcting alleged regulatory non-compliance of flares often citing federal requirements for equipment operator’s general duty under NSPS and NESHAPs. [2]  The EPA appears to be shifting away from its enforcement reliance on the general duty as the proposed rules acknowledge that existing “regulatory requirements are insufficient to ensure that refinery flares are operating consistently with the 98-percent HAP destruction efficiencies.” As a result, the EPA is proposing significant changes to standards for operations of flares, including that “refinery flares operate pilot flame systems continuously and with automatic re-ignition systems and that refinery flares operate with no visible emissions.” “Owners or operators of flares [must] monitor visible emissions at a minimum of once per day using an observation period of 5 minutes” with additional monitoring in the event of a single one minute visual observation. Further, the EPA is proposing to merge velocity requirements for steam and air assisted flares into a single standard and is proposing “new operational and monitoring requirements related to the combustion zone gas.” This requirement includes equipment that “fine-tune and control the amount of assist steam or air introduced at the flare tip such that combustion efficiency of the flare will be maximized.” “The proposed rule would allow the owner or operator flexibility to select the form of the combustion zone operational limit (i.e., net heating value, lower flammability limit, or total combustibles fraction) with which to comply in order to provide facilities the option of using monitors they may already have in place.” Also of interest, the EPA rejected including a requirement to maintain a maximum steam or air to fuel ratio in the standard as by itself it was inadequate to assure efficient operation.

The EPA is “proposing to revise Refinery MACT 1 for storage tanks to cross-reference the corresponding storage vessel requirements in the Generic MACT (including requirements for guidepole controls and other fittings as well as inspection requirements), and to revise the definition of Group 1 storage vessels to include storage vessels with capacities greater than or equal to 20,000 gallons but less than 40,000 gallons if the maximum true vapor pressure is 1.9 psia or greater and to include storage tanks greater than 40,000 gallons if the maximum true vapor pressure is 0.75 psia or greater.”

Also of significance, the EPA does not propose to change the fluid catalytic cracking unit (“FCCU”) limits found in the MACT standard other than to make them consistent with NSPS Subpart Ja. However, the EPA is proposing to require an FCCU performance test once every 5 years. The EPA also did not propose changes to the leak definitions applicable to the leak detection and repair (“LDAR”) program, changes to standards for gasoline loading racks, cooling towers/heat exchangers, wastewater treatment, reformer regenerations, and sulfur recovery units.

The EPA also recognizes that, in many cases, it is impractical to directly measure emissions from fugitive emission sources at refineries. For this reason, the EPA believes that it is appropriate under the Clean Air Act (“CAA”) section 112(d)(6) to require refiners to monitor, and, if necessary, take corrective action to minimize fugitive emissions, to ensure that facilities appropriately manage emissions of HAP from fugitive sources. The EPA proposes that a HAP concentration be monitored in the ambient air around a refinery that, if exceeded, would trigger corrective action to minimize fugitive emissions. The fenceline concentration action level would be set at a level such that no facility in the category would need to undertake additional corrective measures if the facility’s estimate of emissions from fugitive emissions is consistent with the level of fugitive emissions actually emitted. As part of the fenceline monitoring approach, the EPA seeks to develop a not-to-be exceeded annual fenceline concentration, above which refinery owners or operators would be required to implement corrective action to reduce their fenceline concentration. The EPA is soliciting comment on the application of the following alternative monitoring techniques that it has deemed to be “technically feasible and appropriate for monitoring organic HAP from fugitive emission sources at the fenceline of a petroleum refinery on a long-term basis”: (1) passive diffusive tube monitoring networks; (2) active monitoring station networks; (3) ultraviolet differential optical absorption spectroscopy (“UV-DOAS”) fenceline monitoring; and (4) open-path Fourier transform infrared spectroscopy (“FTIR”). Because there is no current EPA test method for passive diffusive tube monitoring, as part of this action, the EPA is proposing specific monitor citing and sample collection requirements as EPA Method 325A of 40 CFR part 63, Appendix A, and specific methods for analyzing the sorbent tube samples as EPA Method 325B of 40 CFR part 63, Appendix A.

The EPA is proposing to establish an ambient concentration of benzene at the fenceline that would trigger required corrective action. [Benzene is considered a surrogate for organic HAP from wastewater treatment systems at petroleum refineries, as it is present in nearly all refinery process streams.] Further, the EPA is proposing to require the reporting of raw fenceline monitoring data, and not just the highest fenceline concentration (“HFC”), on a semiannual basis. The EPA also proposes that facilities be required to conduct fenceline monitoring on a continuous basis, even if benzene concentrations, as measured at the fenceline, routinely are substantially lower than the concentration action level. To reduce the cost burden on facilities to comply with this rule, the EPA is soliciting comment on approaches for reducing or eliminating fenceline monitoring requirements for facilities that consistently measure fenceline concentrations below the concentration action level, and the measurement level that should be used to provide such relief.

The EPA is also proposing to remove the SSM exemptions for the petroleum refinery emission standards. As a result, affected units would be subject to an emission standard during such events. The EPA believes that the applicability of a standard during such events will ensure that sources have ample incentive to plan for and achieve compliance and thus the SSM plan requirements are no longer necessary. However, the EPA is proposing alternate standards for startup and shutdown periods for a few select emission sources. Generally speaking, the EPA expects that facilities can meet “nearly all” of the emission standards in Refinery MACT 1 and 2 during startup and shutdown. For Refinery MACT 1 and 2, however, the EPA has identified three emission sources for which specific startup and shutdown provisions may be needed. First, due to safety concerns associated with operating an electrostatic precipitator (“ESP”) during startup of the FCCU, the EPA is proposing specific particulate matter (“PM”) standards for startup of FCCU controlled with an ESP under Refinery MACT 2. Second, as many FCCU operate in “complete combustion” mode without a post-combustion device (i.e., for FCCU without a post-combustion device, organic HAP are controlled by the FCCU itself, so there is no separate air pollution control device (“APCD”) that could be operating during startup), the EPA is proposing specific carbon monoxide (“CO”) standards for startup of FCCU without a post-combustion device under Refinery MACT 2. Third, the EPA is proposing specific standards for sulfur recovery units (“SRU”) during periods of shutdown. The SRU essentially acts as the ACPD for the fuel gas system at the facility and would be operating if the refinery is operating, including during startup and shutdown events. However, there are typically multiple SRU trains at a facility, and different trains can be taken off-line as sour gas production decreases to maintain optimal operating characteristics of the operating SRU during startup or shutdown of a set of process units. Thus, the sulfur recovery plant is expected to run continuously and would only shut down its operation during a complete turnaround or shutdown of the facility. In such situations, the 12-hour averaging time provided for the SRU emissions limitation under Refinery MACT 2 may not be adequate time in which to shut down the unit without exceeding the emissions limitation.

In several prior rules, the EPA had included an affirmative defense to civil penalties for violations caused by malfunctions, to ensure adequate compliance while simultaneously recognizing that, despite the most diligent of efforts, emission standards may be violated under circumstances entirely beyond the control of the source. Under the EPA’s regulatory affirmative defense provisions, if a source could demonstrate in a judicial or administrative proceeding that it had met the requirements of the affirmative defense in the regulation, civil penalties would not be assessed. However, the recent court decision NRDC v. EPA, No. 10-1371 (D.C. Cir. April 18, 2014), 2014 U.S. App. LEXIS 7281, vacated affirmative defense provisions in the CAA section 112(d). In NRDC, the D.C. Circuit found that the EPA lacked authority to establish an affirmative defense for private civil suits and held that, under the CAA, the authority to determine civil penalty amounts lies exclusively with the courts, not the EPA. In light of NRDC, the EPA has declined to include a regulatory affirmative defense provision in this rulemaking. If a source is unable to comply with emissions standards as a result of a malfunction, the EPA may use its case-by-case enforcement discretion to provide flexibility, as appropriate.

[1] Consolidated Petroleum Refinery Rulemaking Repository, found at http://www.epa.gov/ttn/atw/petref.html (last visited May 28, 2014).

[2] See EPA Enforcement Targets Flaring Efficiency Violations, Enforcement Alert, Vol. 10, No. 5, August 2012.