The Louisiana Department of Health and Hospitals (“DHH”) has settled a class action lawsuit filed on behalf of Medicaid beneficiaries receiving Long Term Personal Care Services (“LT-PCS”). The class action is pending in the U.S. District Court, Middle District of Louisiana. The presiding federal judge has issued preliminary approval of the settlement. A final approval hearing is scheduled for February 17, 2012.

The class action alleged that the reduction of maximum weekly service hours available to Medicaid beneficiaries eligible for LT-PCS services violated the Americans with Disabilities Act and sought declaratory and injunctive relief to prohibit the implementation of the reduction to service hours. The class action alleged that the LT-PCS recipients were at risk of being forced to enter a nursing home as a result of the cuts to service hours, which is exactly what the LT-PCS program was designed to prevent.

The court defined the class of plaintiffs as follows:

“Louisiana residents with disabilities who have been receiving Medicaid-funded services through the LT-PCS program; who desire to reside in the community instead of a nursing facility; who require more than 32 hours of Medicaid-funded personal care services per week in order to avoid entering a nursing facility, and who do not have available (including through family supports, shared living arrangements, or enrollment in the ADHC [Adult Day Health Care] waiver) other means of receiving personal care services.”

While the class action was pending, DHH allowed LT-PCS recipients who were receiving the maximum number of weekly service hours to request expedited access to the Community Choice Waiver Program. The Community Choice Waiver Program provides a variety of services, including personal care services, to assist beneficiaries to avoid institutional placement and to remain in their homes and communities.

As a part of the settlement, DHH has agreed to extend this option to additional class members currently approved for less than the maximum 32 hours per week of services, but who were receiving more than 32 hours per week at the time the reduction in hours became effective. DHH will offer Community Choice Waiver Program slots to class members who apply for the program, if the class members can show that, without the additional services, they would be at serious risk for institutional placement. DHH will also request approval from the federal government for an additional 200 Community Choice waiver slots. Any slots not filled by class members will be added to the pool of slots made available to those who are on the waiting list for waiver services.
 

The start to a new year means a time of change for many employers. This year, however, employers are facing added uncertainty in light of an informal discussion letter issued by the Equal Employment Opportunity Commission. In that letter, the EEOC inserted an additional dimension into the already-challenging pre-employment inquiry and applicant screening process by taking the position that an employer’s high school diploma requirement might violate the Americans With Disabilities Act. In particular, the EEOC explained that an across-the-board diploma requirement might unlawfully “screen[] out” an individual who is unable to graduate because of a learning disability that meets the ADA’s definition of “disability.” Thus, according to the EEOC, an employer may not adopt a high school diploma requirement “unless it can demonstrate that the diploma requirement is job related and consistent with business necessity.” Moreover, even if an employer can make that showing, “the employer may still have to determine whether a particular applicant whose learning disability prevents him from meeting it can perform the essential functions of the job, with or without a reasonable accommodation.”

Although the EEOC’s informal discussion letter does not carry the force of law, employers should be cognizant of the EEOC’s position on this issue when drafting and implementing pre-employment interview questions and other requirements in the applicant screening process. Employers should evaluate their existing inquiries and policies in light of this and other pre-employment guidelines propounded by the EEOC and consult an attorney with any questions or concerns.
 

Louisiana protects corporate directors and officers from liability to shareholders or others when they make decisions in good faith and reasonably believe that their decisions are in the best interest of the organization. This principal, called the “business judgment rule,” gives officers and directors the freedom to take risks and to make decisions without wondering if shareholders or others will attempt to sue them, personally, if a particular decision ultimately results in a loss to the company. The business judgment rule itself is not news; it has been discussed in American case law since at least the 1940s, and is now codified in the statutory law of some states, including Louisiana. The blog-worthy news about the business judgment rule is a December 13, 2011 court decision from a federal court in California in FDIC v. Perry noting that the statutory version of the rule enacted by California’s legislature protects only corporate directors, not officers. You can see the opinion here, and an interesting commentary on the opinion by Kevin LaCroix here.

Unlike California’s law, the Louisiana statute that codifies the business judgment rule, La. R.S. 12:91, provides business-judgment-rule protections to directors and officers of corporations, partnerships, and limited liability companies formed in Louisiana. Louisiana provides strong protection to directors and officers who act in good faith and exercise reasonable diligence in making decisions. Louisiana is already attracting digital-media and other high-tech and entertainment-related business from California with the possibility of attractive tax credits, free workforce training, and other incentives. The fact that Louisiana’s corporate law is more management-friendly than California’s is one more factor for businesses to consider when thinking about expanding or relocating to Louisiana.
 

The Gulf Opportunity Zone Act of 2005 (the “Act”) added several new sections to the Internal Revenue Code that provide certain tax benefits for affected hurricane disaster areas. Section 1400N(a) authorized the issuance of Qualified Private Activity Bonds (“Qualified Bonds”) to finance the construction and rehabilitation of residential and nonresidential property located in the Gulf Opportunity Zone (“GO Zone”). The Act gave private business owners and corporations the opportunity to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct or renovate qualified property in the GO Zone. The deadline for the issuance of GO Zone Bonds was extended through the end of 2011. However, the Act did not address the current refunding of Qualified Bonds after the applicable issuance deadline had passed.  

In a refunding, an issuer sells bonds and uses the proceeds to redeem outstanding debt that typically has higher interest rates. In a current refunding, the issuer uses the refunding bond proceeds to redeem the outstanding debt within 90 days. On December 23, 2011, the Internal Revenue Service released an advance copy of Notice 2012-3, which provides guidance on current refunding of outstanding prior issues of Qualified Bonds, including GO Zone Bonds and Hurricane Ike Bonds.

A current refunding of Qualified Bonds that meets the conditions of Notice 2012-3 may be issued after the applicable deadline and still be treated as Qualified Bonds. The conditions include that the original Qualified Bonds must have been issued before the deadline for the issuance of such bonds. The issue price of the current refunding issue must be no greater than the outstanding stated principal amount of the refunded bonds. And, the current refunding issue must meet all applicable requirements for the issuance of tax-exempt private activity bonds, including that the average bond maturity must be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced.

Additionally, as long as the original Qualified Bonds satisfied the designation requirement, no further designation or official state or local governmental action is required for a current refunding of such bonds.

Notice 2012-3 will appear in Internal Revenue Bulletin 2012-3, dated January 17, 2012.

The Department of Health and Human Services, Office of Inspector General ("OIG"), recently issued an advisory opinion in which the OIG concluded that an arrangement between a primary care physician and an allergy testing and immunotherapy laboratory company ("Company") could potentially generate prohibitive remuneration under the Federal Anti-Kickback Statute possibly resulting in administrative sanctions. Under the arrangement, the Company and the physician would enter into an exclusive contract for the Company to provide allergy testing and immunotherapy laboratory services and related items within the physician’s medical offices. The Company would provide all necessary laboratory personnel, equipment, supplies, training, and billing and collection services to the physicians. The Company would also assist the physicians with marketing allergy services by providing patient education materials and reviewing patient files to identify candidates for laboratory services. In return, the physicians would provide space within their offices to operate the laboratory, administrative staff to schedule patients, general medical office supplies and furniture, general liability and malpractice insurance, as well as physician supervision and interpretation of laboratory results. The physician would bill for the laboratory items and services under the physician's provider identification number and pay the Company a fee equal to 60% of the physician's gross collections from allergy testing and immunotherapy items and services.

The OIG analyzed the arrangement with regard to the Federal Anti-Kickback Statute. The Anti-Kickback Statute is violated when a person knowingly and willingly offers, pays, solicits, or receives any remuneration to induce or reward referrals for items and services reimbursable by a federal healthcare program such as Medicare and Medicaid. A violation of the Anti-Kickback Statute is a felony punishable by a maximum fine of $25,000, imprisonment of up to five (5) years, or both. Further, any person convicted of violating the Anti-Kickback Statute is automatically excluded from all federal healthcare programs. There are, however, some "safe harbors" or exceptions for various payment and business practices identified by the government that would not be prosecuted.

The OIG found that the proposed arrangement would not qualify for a safe harbor protection under the Anti-Kickback Statute because: 1) the services would be provided on an as-needed basis, and 2) to meet a safe harbor, the aggregate compensation to be paid under the contract must be set forth in advance and not take into account the volume or value of any business generated between the parties. Because the physician pays the Company a percentage of the gross "collections" of the allergy tests and immunotherapy items and services, the charges would not be set in advance and would be based, in part, on volume. The OIG found that percentage compensation arrangements are "inherently problematic" under the Anti-Kickback Statute because they relate to the volume and value of business generated between the parties, rather than the fair market value of the services provided. The OIG was also concerned that review of patient files to identify candidates for allergy testing services is a marketing activity that could encourage physicians to order medically unnecessary tests, possibly risking patient harm. Additionally, the fee structure could also create over utilization.

The Company asserted that the arrangement would comply with the "in-office ancillary services exception to the physician's self referral law," the Stark Law. However, the OIG stated that even if the arrangement were to comply with the Stark Law, the compliance would not affect the OIG's analysis under the Anti-Kickback Statute as the statutes are independent legal authorities and "each transaction or arrangement must be separately evaluated under both statutes." The OIG concluded that the proposed arrangement could potentially generate remuneration under the Anti-Kickback Statute and the OIG could potentially impose administrative sanctions.
 

Click here to download  a copy of the digest.  For a hard copy, please email client_services@keanmiller.com

* The digest is a compilation of certain class action decisions and it should not be construed as a complete reflection of the holdings of the cases.

The Internal Revenue Service (the “Service”) released a Private Letter Ruling (“PLR”) earlier this year addressing private business use of a mixed-use output facility and whether tax-exempt bonds could be used to finance improvements to the facility.  The Issuer, which is a political subdivision of a state, owns electric generation, transmission and distribution facilities that are managed by a non-governmental electric cooperative (“NGEC”) pursuant to several contractual arrangements.  Under a power sales contract, the Issuer has the right to schedule or take the portion of power generated by the facility equal to the percentage of the facility’s net rated capacity reserved by Issuer for that year.  If the Issuer does not schedule or take all the output from its reserved portion of the facility’s net rated capacity, it must offer the unused output to the NGEC before offering to third parties.   The governing body of the Issuer establishes and approves the rates for power produced from Issuer’s reserved net rated capacity of the facility and sold to the Issuer’s customers. Under an operating agreement with the NGEC, the Issuer reimburses the NGEC for its share of the actual and direct expenditures incurred by the NGEC in the operation and maintenance of the facility.  The Issuer’s share of expenses is determined by its reserved percentage of the facility’s net rated capacity.

The Issuer expects  to finance capital improvements to the facility, the costs for which will be allocated between the  Issuer and the NGEC on the basis of their respective reservations and allocations of the net rated capacity of the facility.  The Issuer intends to issue tax-exempt governmental bonds to finance its portion of the improvement costs.  The Issuer represents that, while the bonds are outstanding, it will (a) maintain its reserved net rated capacity and (b) take a sufficient amount of the total energy generated at the facility so that no more than 10% of the facility’s improvements that are to be financed with the bonds will used for private business use.

The Service first considered whether the facility constitutes public utility property under Section 168(i)(10) of the Code.  “Public utility property” means property used predominantly in the trade or business of the furnishing or sale of electrical energy (among other things) if the rates for such furnishing or sale have been established or approved by a state or political subdivision thereof.  Because the facility consists of property used predominantly in the trade or business of furnishing or sale of electricity and the Issuer establishes and approves rates for electricity provided by the Issuer from its reserved share of the net rated capacity of the facility, then, to the extent of such share, the facility constitutes public utility property. 

Under the Advance Notice of Proposed Rulemaking, 2002-2 C.B. 685 (the “Advance Notice”), tax-exempt  bonds may be issued to finance costs attributable to the government use portion of a mixed-use output facility, plus any costs attributable to permitted de minimis private business use.  The government use portion is determined based on the percentage of the available output of the facility that is not used for a private business use.  The available output is determined by multiplying the number of units produced or to be produced by the facility in one year by the number of years in the measurement period of that facility for that bond issue.    The number of units produced or to be produced in one year is determined by reference to nameplate capacity or its equivalent, which is not reduced for reserves, maintenance or other unutilized capacity.  See Treas. Reg. Sec. 1.141-6 and 7.

The Service noted that the allocation of output based upon reserved net rated capacity under the power sales contract is the equivalent of an allocation based on available output of the facility.  Thus, the government use portion of the facility consists of the Issuer’s portion of the net rated capacity of the facility less the NGEC’s purchases of non-scheduled or taken output and any other private business use.  Therefore, the Issuer may issue bonds in an amount to cover the costs of the government use portion of the facility and its improvements plus any costs attributed to permitted de minimis private business use.

Additionally, since only actual and direct expenses incurred in the operation and maintenance of the Issuer’s share of the facility are payable to the NGEC for its management of such share under the operating agreement, the operating agreement is not treated as a management contract that results in private business use by the NGEC.  See Treas. Reg. Sec. 1.141-3.

CMS released 2011 recovery results for the Recovery Audit Contractor (RAC) Program. The 2011 figures reflect a significant increase over the amounts recovered or returned to providers in 2010. Through four quarters (October, 2010 through September, 2011), RAC contractors recovered a total of $797.4 million in overpayments, with $141.9 million in underpayments returned to providers. The recovery amounts increased with each quarter of the fiscal year, from $82.9 million in the first quarter to $277.1 million in the last quarter.

By comparison, the total overpayments collected in fiscal year 2010 were $75.4 million, with $16.9 million in underpayments returned to providers. The 2011 figures represent a 90.5% increase over the overpayment amounts recovered in 2010. Similarly, the 2011 figures represent an 88.1% increase over the underpayment amounts returned to providers in 2010.

One of the top issues identified by the RAC contractor for Region C, which encompasses Louisiana, was medical documentation to support acute inpatient admissions related to neurological disorders. Another top issue for Region C was billing for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) provided during an in-patient hospital admission, an issue identified by the RAC contractor as billing for bundled services separately.

Beginning January 1, 2012, CMS will launch a new three year Recovery Audit Prepayment Demonstration project. The new demonstration project will allow RAC contractors to conduct pre-payment claims reviews, in addition to post-payment claims reviews, so that errors are detected before claims are paid and monies must be recovered.
 

Ever since the Supreme Court handed down its decision in Bliski v. Kappos, 130 U.S. 3218 (2010), practitioners have grappled with the line between eligible and ineligible patent processes. Two recent cases, one eligible and one not will undoubtedly be cited to describe the divide as it relates to a business process.

In August, the United States Court of Appeals for the Federal Circuit Court decided that a method of verifying the validity of credit card transactions over the Internet was patent ineligible. Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011). The claims were very broad and were capable of implementation through a purely mental process. Further, use of a computer to perform the method, by itself was insufficient to render the process patentable.

In September the Federal Circuit decided that a method, that provided for a triangular business transaction was patent eligible. Under scrutiny was a method of providing copyrighted materials to one party, in exchange for royalties from a third party advertiser. In this transaction, the advertiser paid the royalty to the intellectual property owner, and in return secured an individual to view their advertisement. Ultramercial, LLC v. Hulu, LLC, 2011 WL 4090761 (Fed. Cir. 2011). The viewer received entertainment value of the copyrighted material for the cost of viewing the advertisement. Although the Court concluded that “the mere idea that advertising can be used as a form of currency is abstract,” it noted that the patent “disclosed a practical application of this idea.” Id. at 5. Such is fully consistent with accepting patentability of the Arrhenius equation when narrowly and practically applied to the manufacturer of rubber. Diamond v. Diehr, 450 U.S. 175, 187 (1981).

But why is one patent eligible and the other not? Although the Court disavows level of complexity as a factor, one is left to consider.

The Court rejected the credit verification card method as all the steps could be “performed in the human mind or by a human using a pen and paper.” Practice of the patent would require no more than construction of a list and comparing future transaction to that list; furthermore, no particular algorithms were disclosed. Cybersource at 1372. In contrast, the process to implement the “controlled interaction with a consumer via an Internet website” was “far removed from purely mental steps.” Ultramercial at 6.

Both the eligible and ineligible methods included the use of computers. The Court reiterates that “use of a computer to execute an algorithm that can be performed in the mind” does not make the method patentable, nor does “mere manipulation or reorganization of data.” Cybersource at 1375. In contrast, the triangular business method “required intricate and complex computer programming” and “specific application to the Internet.” Ultramercial at 5

In conclusion, the rumor that patentable business methods are dead is premature at best. The Federal Circuit may allow the patentability of a business method; however, implementation must require more than a purely mental process. Although future decisions will define the degree of required non-mental process, the Federal Circuit has present some hints; computer programming must be more involved than data management and must truly relate to implementation of the method, application of specific algorithms in a narrow fashion is desirable and finally, complex methods requiring complex computer programming are more likely patentable than simple system.
 

In September 2011, the IRS revised Form 8038-G, which is the information return that issuers must file in connection with issuance of tax-exempt governmental obligations. The revised form includes two new questions regarding whether the issuer has effected written procedures to verify compliance with certain rules.

First, on line 43, the IRS asks whether “the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements of the Code and Regulations…” If the issuer takes a deliberate action after the issue date that causes the conditions of the private business tests or the private loan financing test to be met, then such issue is also an issue of private activity bonds. Section 1.141-2(d)(3) of the Regs defines “deliberate action” as any action taken by the issuer that is within its control regardless of whether there is intent to violate such tests. Section 1.141-12 sets forth the conditions for taking remedial actions that prevent an action that otherwise causes an issue to meet these tests from being classified as a “deliberate action.”

Next, on line 44, the IRS asks whether “the issuer has established written procedures to monitor the requirements of Section 148.” Section 148 addresses arbitrage, yield restriction, and rebate requirements.

These new questions do not create new rules or impose new obligations on issuers. However, issuers’ failure to implement written procedures could increase the risk of audit.
 

On November 16, 2011, Louisiana Department of Health and Hospitals’ (“DHH”) Secretary Bruce Greenstein announced that the Centers for Medicare and Medicaid Services (“CMS”) had approved an amendment to Louisiana’s Medicaid State Plan to implement the Coordinated Care Networks (“CCN”) also known as “Bayou Health.” The movement by DHH toward CCNs began in February, 2011, when DHH issued a Notice of Intent to provide for the implementation of the CCNs. On June 20, 2011, DHH issued the final rules for the CCNs. DHH has since awarded contracts to five private insurers who will administer the CCNs. The Coordinated Care Network Program Prepaid (“CCN-P”) contracts were awarded to:

1. Louisiana Healthcare Connections, Inc.
2. Amerihealth Mercy of Louisiana, Inc.
3. AmeriGROUP Louisiana, Inc.

The Coordinated Care Network Program Shared Savings (“CCN-S”) contracts were awarded to:

1. UnitedHealthcare of Louisiana, Inc.
2. Community Health Solutions of America, Inc.

Implementation of the CCNs is in three phases, based on Geographic Service Area (“GSA”). The first GSA where the CCN will be implemented is Region 1, which includes the New Orleans area, and Region 9- St. Helena, Livingston, Tangipahoa, Washington, and St. Tammany Parishes. Phase 1 will begin on February 1, 2012. Phase 2 of the CCN implementation includes: Region 2- East and West Feliciana, East and West Baton Rouge, Point Coupee, Iberville, and Ascension Parishes. Phase 2 will go into effect April 1, 2012. Phase 3 will go live on June 1, 2012 and include the remaining parishes in the Southwest, Central and North Louisiana regions.

According to DHH, most of the state's Medicaid and LaCHIP recipients (an estimated 865,000 of the current 1.2 million enrollees in Medicaid) are required to be enrolled in a CCN. The mandatory enrollees will be permitted to choose only one CCN. Choice letters are to be mailed to Medicaid recipients in GSA1 on December 15, 2011. If mandatory enrollees do not select a CCN, an enrollment broker or "choice counselor" will assist the enrollee in finding the CCN that best meets the enrollee’s priorities and preferences. An enrollee will be assigned to the CCN that his/her community care physician has joined. MAXIMUS Health Services Inc. has been awarded the contract to be the CCN enrollment broker. The mandatory recipients cannot be treated by providers who are not enrolled in a CCN unless it is an emergency or the services are not available within the CCN network. Medicaid providers are not obligated to join a CCN and can contract with as many CCNs as they so desire.
 

The U.S. Supreme Court granted a writ of certiorari in Pacific Operators Offshore, LLP v. Valladolid, 131 S.Ct. 1472 (2011) to resolve a split among the U.S. Circuit Courts of Appeal regarding the issue of whether an outer continental shelf worker who is injured on land may be afforded coverage under the Longshore and Harbor Workers Compensation Act (“LHWCA”), as made applicable by the Outer Continental Shelf Lands Act (“OCSLA”).

Coverage under the LHWCA is limited primarily to two broad categories of workers. First, a worker may be covered “directly” under the provisions of the LHWCA. Such direct coverage is primarily limited to longshore and harbor workers, shipbuilders, and shipbreakers. Second, non-seaman oilfield workers who are engaged in the exploration or development of natural resources on the Outer Continental Shelf (“OCS”) may be entitled to LHWCA benefits by virtue of section 1333(b) of OCSLA. 43 U.S.C. § 1331(b). Valladolid deals with this second category of workers.
 

As illustrated by Valladolid, the Ninth Circuit has adopted the approach of the Third Circuit. Valladolid involved the death of Juan Valladolid, a general laborer who was employed by Pacific Operations, a company that operates two drilling platforms located on the outer continental shelf off the coast of California. While Valladolid was primarily stationed on one of these platforms, he was killed on the grounds of Pacific Operations when he was crushed by a forklift. He would not have been injured "but for" oil and gas operations on the OCS.

Citing opinions from the Third Circuit, Valladolid's widow argued that LHWCA benefits were recoverable under OCSLA. The Administrative Law Judge and Benefits Review Board applied the Fifth Circuit's situs requirement and held that benefits were not recoverable because Valladolid's accident did not occur on an OCS platform or on navigable waters over the OCS. The Ninth Circuit reversed. In doing so, the court held, as a matter of statutory construction, that section 1333(b) of OCSLA does not contain language indicative of a situs requirement.

The Supreme Court has granted a writ of certiorari to address the growing conflict between the federal circuit courts of appeal. If the Supreme Court agrees with the Third and Ninth Circuits, employers who conduct operations on the OCS can anticipate an increase in LHWCA claims by their land-based workers.
 

The Internal Revenue Code restricts the amount of private business use that can occur in facilities financed with tax-exempt bond proceeds, but there are a number of exceptions to this general rule. Certain facilities (“exempt facilities”) that are privately used are eligible for tax-exempt bond financing if they benefit the general public or implement specific Congressional policies. In August, the IRS issued final regulations for determining whether a facility is a “solid waste disposal facility” that qualifies for tax-exempt bond financing.

A facility that performs a “preliminary function” also qualifies as a solid waste disposal facility. Such preliminary functions include collecting, sorting, separating, storing, treating, disassembling, or handling solid waste. The final regulations do away with the 50% threshold limit on preliminary functions, but the function still must be preliminary to and directly related to a qualified solid waste disposal process.

There are 3 types of solid waste disposal processes provided for in the final regulations. Absent any express restriction, a solid waste disposal process can include any biological, engineering, industrial, or technical method. The disposal processes provided in the final regulations include: (1) a final disposal process; (2) an energy conversion process; and (3) a recycling process. A final disposal process is just that; it’s the last stop for the material, which is either landfilled, incinerated (without capturing useful energy), or otherwise indefinitely contained. An energy conversion process involves a thermal, chemical, or other process applied to solid waste to create and capture energy. A recycling process involves reconstituting or transforming the solid material, but does not include refurbishing, repairing, or similar activities.

Both energy conversion and recycling processes result in the production of a product that is useful for consumption in agricultural, consumer, commercial, governmental, or industrial operations or activity and which could be sold for such use. The final regulations continue to provide that solid waste disposal process ends at the production of the first marketable product. Whether a “useful product” has been produced involves determining whether a product could be sold, not whether the product actually is sold. Operational constraints that affect the point in production when a useful product can reasonably be extracted or isolated and sold independently may be considered in the analysis. The final regulations provide that the costs of extracting, isolating, storing and transporting the product to a market may be taken into account only if the product is to be used at a different location from where it is produced.

What if the facility in question is a mixed-use facility that provides both a qualified solid waste disposal function and another non-qualified function? The final regulations continue the current rule that permits partial financing of a facility in which only a portion qualifies as a solid waste disposal facility. The costs allocable to the qualified solid waste disposal function are determined using any reasonable method and based on all facts and circumstances. The final regulations also permit an entire facility to be financed with tax-exempt bonds even where the facility processes solid waste and material that does not qualify as solid waste (a “mixed-input facility”) if at least 65% of the materials processed (as determined by weight or volume) are solid waste. This 65% test must be satisfied each year after the facility is actually operating substantially at design levels, with some exceptions for extraordinary events outside the facility’s control. The final regulations provide a 3 year curative period to address the impact from such events.

The final regulations also provide several examples of various facilities that would qualify for tax-exempt financing as solid waste disposal facilities. Such examples include: A facility that converts used tires into roadbed material is engaged in a recycling process so that facility qualifies as a solid waste disposal facility. A facility that burns solid waste and captures steam as useful energy is engaged in an energy conversion process, and so qualifies as a solid waste disposal facility. But, any facilities used to further process the steam to generate electricity are not engaged in an energy conversion process and would not qualify as solid waste disposal facilities. A transfer station that collects, sorts, and processes solid waste before it is landfilled and the trucks used to haul the waste to the transfer station provide preliminary functions directly related to disposal and so qualify as solid waste disposal facilities if at least 65% of the material brought to the transfer station is solid waste. Refurbishment is not a qualified disposal process, so a facility that restores and repairs old cars does not qualify as a solid waste disposal facility.

The final regulations are applicable to bonds issued after October 18, 2011, but may be applied retroactively. The final regs only need to be applied to refunding bonds where the refunding involves an extension of the remaining weighted average maturity of the refunded bonds.
 

The Subsequent Purchaser Doctrine is a judicially created limitation on the rights of a current landowner to sue for pre-acquisition damages. For over 160 years, Louisiana courts have held that a current landowner has no right of action to sue for damages to his/her property occurring prior to the date of sale in the absence of an express assignment of that right. In environmental contamination disputes, appellate courts were divided on whether the doctrine should apply to cases involving non-apparent or subsurface property damage.

In a recent 4/3 decision, a majority of the Justices of the Louisiana Supreme Court rejected the notion that property damage must be overt, and held that a landowner has no right to sue for non-apparent damages to land inflicted before the act of sale in the absence of an express assignment of, or subrogation to, that right. Eagle Pipe and Supply, Inc. v. Amerada Hess Corporation, 2010-2267 (La. 10/25/2011) –So.3d --. In reaching this decision, the majority acknowledged 160 years of jurisprudence constante regarding the subsequent purchaser rule and found that the rationale should also extend to the situation where damage to the property is not apparent.

In reaching this decision, the Louisiana Supreme Court also rejected various theories advanced by Eagle Pipe, most notably of which was Eagle Pipe’s continuing tort theory. According to the Court, the presence of alleged contamination on Eagle Pipe’s property was not caused by “overt, persistent and ongoing acts,” but was simply a continuing ill effect from the original tortious acts. As such, it was not a continuing tort and could not give rise to a separate tort claim under that theory.

This decision resolves any dispute among the appellate courts and explicitly limits the rights of current landowners to bring suit for environmental harm inflicted prior to the date they acquired the property, regardless of whether the purchaser could have known of the contamination. Such landowners may still seek claims against prior owners and are further permitted to seek environmental remediation, but private actions and damages have been severely abrogated by the Court’s ruling. Moreover, in rejecting the continuing tort theory, the Court refused to allow private claims for environmental harm to exist in perpetuity, providing greater certainty to industry with respect to tort liabilities.

Notably, the Court’s decision created a sharp divide among the justices which continues to persist. Justice Clark, who authored the majority opinion, and Justice Weimer, who authored the dissent have both provided additional written opinions, days after the original opinion was released. As this dispute continues, it is important to recognize a number of similar cases currently pending before the Court, including two arising from oil and gas exploration and production activities performed pursuant to mineral leases. The Court will continue to face such sharp divisions in ruling on these matters and the issue is far from final resolution.
 

On October 15, 2010, the former Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”) issued new regulations, incorporating in its entirety and making mandatory the implementation of the American Petroleum Institute’s Recommended Practice 75 (API RP 75).  The rule requires development of Safety and Environmental Management Systems (SEMS) plans by “a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a state lessee granted a right-of-use and easement.” 30 C.F.R § 250.105. According to BOEMRE, “the purpose of SEMS is to enhance the safety and cleanliness of operations by reducing the frequency and severity of accidents.” This final rule applies to all Outer Continental Shelf oil and gas and sulphur operations and the facilities under BOEMRE jurisdiction including drilling, production, construction, well workover, well completion, well servicing, and DOI pipeline activities.

Responsibility for developing and implementing a SEMS program lies with the lessee (or owner or holder of an operating right), unless it delegates the responsibility to another (likely the operator). Contractors are not responsible for developing the plan; however if compliant, contractor procedures may be incorporated into the lessee’s/operator’s SEMS plan.
 

• SEMS program must be complete and in effect, 40 C.F.R. 250.1900(a); and
• Initial hazard analysis, 40 C.F.R 250.1911(a).

On October 11, 2011, the Bureau of Safety and Environmental Enforcement (“BSEE”) issued guidance concerning the implementation of the rule. While repeating required elements of a SEMS plan, the guidance provides examples of adequate documentation and coordination between the operator and its contractors. As described below, operators must do more than rely on assurances made by the contractor. Under the SEMS program, the operator must:

• agree with and accept the contractor’s safety procedures and make them available during an inspection;
• document that each contractor is knowledgeable and experiences (by auditing / testing);
• perform periodic evaluations of contract employees;
• inform the contractor of any known hazards; and
• verify how contractors are trained.

While the SEMS rule was progressing to final promulgation, BOEMRE proposed amendments to the rule to add further requirements for SEMS programs. It is apparent from the proposal that BOEMRE believes employees need additional rights to affect the development of the SEMS plan and to stop and report unsafe acts to the government. Comments are due on the proposal by November 14, 2011. The proposed rules include the following additions to the SEMS program:

• procedures to allow any employee to stop work;
• clearly defined requirements as who has authority to make safety decisions;
• demonstrations that employees are involved in development of the SEMS plan;
• guidelines for employees to report unsafe conditions and request a BSEE inspection; and,
• requirements for third party audits.

On October 14, 2009, the Louisiana Department of Environmental Quality (DEQ) issued General Permit No. LAG260000 for discharges within the territorial seas of Louisiana from oil and gas exploration, development, and production facilities.

In a lawsuit filed in state district court in Baton Rouge, the Louisiana Environmental Action Network challenged this General Permit. In a May 2010 decision, the state district court upheld the permit. However, in a ruling dated June 10, 2011, the Louisiana First Circuit Court of Appeal remanded the permit to DEQ for further proceedings.  In a Notice published in the Potpourri Section of the Louisiana Register on October 20, 2011, DEQ said it would be modifying the General Permit to remove produced water discharges from coverage under the permit.  Facilities wishing to discharge produced water within the territorial seas of Louisiana now must seek authorization to do so under an individual permit.  In addition, facilities discharging produced water currently covered by the General Permit must file the O and G-IND permit application for an individual permit no later than April 1, 2012.  The notice states that “the individual permit will require an evaluation of the effects of produced water discharges on the environment and human health.”  DEQ further said that “the regulated community will be responsible for providing information that will be utilized to determine whether authorization to discharge produced water in the territorial seas will be granted.”

Effective today, October 20, 2011, new permitting and disclosure requirements apply to hydraulic fracturing operations in Louisiana. Known as “fracking” in the oil and gas industry, hydraulic fracturing refers to the process of injecting fluid into tight shale or sandstone formations, which creates fractures in the rock through which oil and gas may travel into the wellbore. When combined with horizontal drilling, fracking allows producers to capture oil and gas reserves that were once thought to be out-of-reach.

Pursuant to the newly-implemented amendment to Subpart I of LAC 43:XIX (Statewide Order 29-B), fracking operators must now apply for and obtain a specific permit for “hydraulic fracture stimulation” from the Louisiana Department of Natural Resources’ Office of Conservation before utilizing pressurized fluids to fracture any formation for the purpose of improving its ability to produce hydrocarbons. After obtaining the requisite permit and conducting its fracking operations, the operator must be prepared to publicly disclose (1) the types and volumes of base fluid used during fracking; (2) a detailed list of all additives used in the fluid and the name of the supplier for each type of additive; and (3) a list and concentration of any chemicals contained in the fracking fluid that are regulated by the Occupational Safety and Health Administration (OSHA) and reported on Materials Safety Data Sheets (MSDS). The lone exception to these disclosure requirements permits an operator to withhold trade secrets, but the regulations still require the operator to disclose pertinent chemical characteristics of even proprietary constituents used in fracking operations.

To comply with these disclosure requirements, the operator must utilize the Office of Conservation’s new WH-1 Form to disclose the information about the base fluids (discussed above), together with detailed information about the identities and volumes of water supplies used during each phase of fracking operations. In lieu of submitting the WH-1 Form directly to the Office of Conservation, the operator may elect to satisfy its chemical reporting obligations by publishing the required information to an online database that makes the information available to the public free of charge. If utilizing the online option, the operator must also furnish a written statement to the Office of Conservation certifying that all required information has been published in an online registry. FracFocus is one online database specifically endorsed by the new regulation, but the disclosure requirements can also be met by publishing the required information to any other “similar registry.” It is anticipated that the option to satisfy Louisiana’s new disclosure requirements by publishing information to FracFocus will be heavily utilized, as many oil and gas companies have already become accustomed to using this registry to comply with other states’ disclosure regulations.
 

In The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities LLC, et al., 685 F.Supp.2d 456 (S.D.N.Y. 2010), Judge Scheindlin—author of the renowned Zubulake decisions—further develops the boundaries of discovery duties in a lengthy opinion. Although the opinion does not require parties to meet a standard of perfection during discovery, the opinion serves as an important guide that offers concrete rules and potentially burdensome standards that attorneys should heed to avoid sanction.

Writing systematically, Scheindlin initially frames the fundamental concepts underlying the nature and scope of a party’s duty to preserve, collect, review, and produce requested records during discovery:

The first [critical issue] is plaintiffs’ level of culpability-that is, was their conduct of discovery acceptable or was it negligent, grossly negligent, or willful. The second is the interplay between the duty to preserve evidence and the spoliation of evidence. The third is which party should bear the burden of proving that evidence has been lost or destroyed and the consequences resulting from that loss. And the fourth is the appropriate remedy for the harm caused by the spoliation. (1)

Further, Scheindlin suggests that failing to collect relevant records from all employees involved in anticipated litigation is mere negligence. Likewise, a failure to take “all appropriate measures to preserve [electronically stored information]” is negligent. (4)  The court also held that the “failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” (5)  Indeed, this failure may be enough to warrant an adverse inference by itself. (6) 

Second, Scheindlin discusses the relationship between the duty to preserve and spoliation. Noting the court’s “inherent power” to protect the “integrity of the judicial process,” the judge warns parties and their attorneys of the possibility of imposing sanctions for breaches of the duty to preserve evidence after litigation has become reasonably foreseeable. (7)  Particularly, Scheindlin suggests that a plaintiff’s duty to preserve is triggered before litigation begins because plaintiffs generally “control the timing of litigation” and therefore reasonably anticipate its commencement. (8) 

Next, Scheindlin’s opinion examines burdens of proof for determining what should be done when relevant documents are no longer available as a result of spoliation. Specifically, who should bear the burden of establishing the relevance of the lost evidence, as well as the prejudice the loss has caused? As Judge Scheindlin explains, the degree of the burden of proof is dependent upon the severity of the sanction:

For less severe sanctions-such as fines and cost-shifting-the inquiry focuses more on the conduct of the spoliating party than on whether documents were lost, and if so, whether those documents were relevant and resulted in prejudice to the innocent party…[F]or more severe sanctions-such as dismissal, preclusion, or the imposition of an adverse inference-the court must consider, in addition to the conduct of the spoliating party, whether any missing evidence was relevant and whether the innocent party has suffered prejudice as a result of the loss of evidence. (9) 

Particularly, Scheindlin suggests that it is insufficient for an innocent party to demonstrate that lost or destroyed evidence would have been merely responsive to a discovery request. Rather, the innocent party must show that the lost evidence would have been useful in proving its claims or defenses and that it is prejudiced without the evidence. Despite this discussion about proving sanctionable misconduct, Scheindlin cautions against litigation becoming a “gotcha game.” (10)

Notably, in her opinion, Scheindlin employs a burden-shifting test:

When the spoliating party’s conduct is sufficiently egregious to justify a court’s imposition of a presumption of relevance and prejudice, or when the spoliating party’s conduct warrants permitting the jury to make such a presumption, the burden then shifts to the spoliating party to rebut that presumption. (11)

Finally, Scheindlin discusses the appropriate remedies for spoliation, implementing the Second Circuit’s three-part test. First, appropriate sanctions should deter the parties from engaging in spoliation. Second, they should shift the risk of an error in judgment to the party who wrongfully created the risk. Third, they should restore the innocent party to the same position it would have enjoyed absent the prejudicial destruction or loss of evidence by the spoliating party. Additionally, the judge recognizes that a court should impose the least harsh sanction that can provide an adequate remedy. Thus, sanctions that terminate the action—like dismissal—are only appropriate when a party has engaged in egregious behavior, like perjury, evidence tampering, or intentional destruction of evidence by burning, shredding, or hard drive wiping. Because the plaintiffs in this case only engaged in negligent behavior, draconian sanctions were not necessary.

Throughout the opinion, Judge Scheindlin additionally offers useful tips and examples regarding specific discovery issues. For instance, the failure to preserve documents in the possession, custody, or control of former employees supports a determination of gross negligence. Furthermore, the opinion provides guidance on the issue of the preservation of backup tapes. Scheindlin dismisses the existence of a duty to preserve backup tapes, unless, of course, the tapes are the only source of relevant information.

Entitled “‘Zubulake’ Revisited: Six Years Later,” the Pension Committee decision will assuredly serve as an often-used guide to assist attorneys in wrestling with the duties and challenges of discovery—especially in the quickly and constantly evolving domain of electronic discovery.
 

************************

(1) Pension Committee, 685 F.Supp.2d at 463.
(2) Id. at 464.
(3) Id. at 465.
(4) Id.
(5)  Id. at 464–465.
(6) But see Surowiec v. Capital Title Agency, Inc., 2011 WL 1671925, at *7 (D.Ariz. 2011)(disagreeing with Pension Committee, holding that “[p]er se rules are too inflexible for this factually complex area of the law where a wide variety of circumstances may lead to spoliation accusations”). See also Rimkus Consulting Group, Inc. v. Cammarata, 688 F.Supp.2d 598, 616–17 (S.D.Tex.2010)(refusing to follow Pension Committee’s approach of presuming relevance and prejudice when the spoliating party is grossly negligent); Steuben Foods, Inc. v. Country Gourmet Foods, LLC, 2011 WL 1549450, at *5 (W.D.N.Y. 2011)(holding that the failure to issue a written litigation hold is not a per se ground to presume or infer loss of relevant documents).
(7) Pension Committee, 685 F.Supp.2d at 466.
(8) Id.
(9) Id. at 467.
(10) Id. at 468.
(11)  Id. at 468–469.

Picture this: former wife sues her ex-husband for cutting and selling timber from a co-owned 120-acre timberland tract. The timberland tract was purchased during the couple’s marriage and was community property. As part of a divorce settlement, the ex-couple remained co-owners of the timberland. Thereafter, the ex-husband had the timber cut and sold – and checks for the timber sold were made payable to the then girlfriend (now wife) of the ex-husband. When the former wife found out, she sued the ex-husband, seeking treble damages (among other things), under Louisiana’s so-called “timber piracy” statute.

As a co-owner, is the ex-husband liable to his former wife under Louisiana’s “timber piracy” statute? This was the issue presented to the Louisiana Supreme Court in the case, Sullivan v. Wallace, 2010-0388 (La. 11/30/10), 51 So.3d 702. The Court concluded that he was not, because the “timber piracy” statute did not apply to suits between co-owners.

Louisiana has had a “timber piracy” statute since 1974. Prior to the recent amendment, the “timber piracy” statute made it unlawful for any person to cut or remove timber from the land of another without the consent of the property’s owner or legal possessor. It provided for civil damages of three times the fair market value of the trees cut or removed (treble damages) for willful or intentional timber theft, plus reasonable attorney fees. Even the “good faith” removal of timber could subject the violator to treble damages, if the violator should have been aware that his actions were without the consent of the owner or legal possessor. A “good faith” violator failing to pay the required damages within 30 days of notification by the owner or legal possessor could also then be assessed reasonable attorney fees.

So what does the recent amendment do to the “timber piracy” statute and why was the law revised? At the heart of the matter is who is included in the phrase “any person.” The amended law basically retains the present law but adds protection for co-owners or co-heirs for the unauthorized removal of timber from co-owned land. That is, a co-owner of timber must obtain the consent from other co-owners prior to the cutting or removal of timber from co-owned land. Failure to do so subjects the offending co-owner to the statute’s provisions regarding treble damages and attorney fees. This is accomplished by the addition of subparagraph A(2) to the statute, which states in pertinent part: “It shall be unlawful for any co-owner or co-heir to cut, fell, destroy, remove, or to divert for sale or use, any trees, or to authorize or direct his agents or employees to cut, fell, destroy, remove, or to divert for sale or use, any trees, growing or lying on co-owned land, without the consent of, or in accordance with the direction of, the other co-owners or co-heirs, or in accordance with specific terms of a legal contract or agreement.”

For a concept that seems simple enough on the surface, our Louisiana appellate courts have struggled with co-ownership rights under the “timber piracy” statute. The Louisiana Second Circuit Court of Appeal (based in Monroe) considered the issue in Alexander v. Dunn, 44,272 (La. App. 2d Cir. 6/3/09), 15 So.3d 302, where a defendant owned one-half of the community timberlands property and his deceased wife’s five children owned the other half. When the defendant sold the timber, the co-owning children sued. On appeal, the Second Circuit Court held that the “timber trespass” statute does not apply to co-owners of immovable property. Thus, disputes among co-owners in that appellate circuit were to be handled by the Louisiana Civil Code articles on co-ownership, which do not allow for treble damages. Meanwhile, in the Louisiana Third Circuit Court of Appeal (based in Lake Charles), the appellate court reached a different conclusion in the case, Prewitt v. Rodrigues, 04-1195 (La. App. 3d Cir. 2/2/05), 893 So.2d 927. In Prewitt, the Third Circuit Court affirmed an award of treble damages and attorney’s fees against a brother who had willfully sold timber co-owned with his sister with no intention of providing her with her share. The Third Circuit reasoned that, while the “timber trespass” statute may have been inartfully drafted, its purpose was to impose penalties on those who flagrantly disregard the rights of timber owners, whether strangers or co-owners.

Thus, to resolve the split in the appellate courts, the Louisiana Supreme Court addressed the issue of co-owners in the case, Sullivan v. Wallace, 2010-0388 (La. 11/30/10), 51 So.3d 702, wherein Bruce Sullivan contracted with a third party in the mid-1990s to cut and remove timber from a 120-acre tract of land in Claiborne Parish, co-owned with his former wife, Janice Sullivan. Payments were made to Mr. Sullivan’s girlfriend at the time, Priscilla Wallace. Upon gaining knowledge of the timber harvest, Janice Sullivan filed suit seeking treble damages and attorney fees under the “timber theft” statute. The Louisiana Supreme Court, finding the statute “facially ambiguous with regard to co-owners” of timberland, concluded that the “timber trespass” statute was inapplicable in suits involving co-owners of immovable property.

The Louisiana Supreme Court also noted that if LSA-R.S. 3:4278.1 applied to co-owners, then one co-owner who holds more than 80% of the ownership interest and permits the timber to be cut in accordance with LSA-R.S. 3:4278.2 (the “80% Rule” for a valid sale of timber owned in indivision with co-owners) would become liable to the other co-owners for treble damages under the “timber theft” statute. The Court reasoned that such an inconsistency could not have been what the Louisiana Legislature intended.

To be sure, the Louisiana Legislature responded swiftly and decisively to address both issues during this most recent legislative session. Not only was the “timber piracy” statute amended to specifically include co-owners and co-heirs among the persons protected by its provisions, but language was also included in the amendment stating that the “provisions of this Paragraph shall not apply to the sale of an undivided timber interest pursuant to R.S. 3:4278.2.” Thus, a co-owner owning 80% or more of the timber may still sell the timber and a minority co-owner is only entitled to his share of the fair market value of the timber removed under R.S. 3:4278.2. Accordingly, minority co-owners cannot pursue an action against the 80% or more majority co-owner(s) under the “timber piracy” statute. Likewise, timber buyers obtaining consent from at least 80% of the timber co-owners are equally protected from the penalties contained in the “timber piracy” statute.
The recent amendment to the “timber piracy” statute clarifies the rights of co-owners against “rogue” co-owners. Considering the path taken by the courts and the legislature, one should be mindful of proper estate planning for timberlands.

*  This article originally appeared in the September 2011 edition of Forests & People magazine. 
 

In less than a month, the Louisiana Department of Health and Hospitals will begin enforcement of its new Home and Community-Based Service Providers Minimum Licensing Standards. The new regulations, which were published in the June 2011 Louisiana Register, contain one set of licensing standards that apply to providers of the following community-based services: Adult Day Care, Family Support, Personal Care Attendant (PCA), Respite Case, Substitute Family Care, Supervised Independent Living (SIL) and Supported Employment. While many provisions in the new regulations mirror requirements previously contained in DHH’s Personal Care Attendant Services licensing standards, the following are some of the notable regulatory changes that existing providers must comply with by the October 1, 2011 enforcement date (note that this article does not address all regulatory changes, including the changes to administrator qualification and other core staffing requirements):
 

• Number of Governing Body Members. The new licensing regulations require all providers to have a governing body that is comprised of three or more persons. Previously, no minimum number of members was required. Providers are still required to have documentation identifying all governing body members by name, address, terms of membership, office title and terms of office. Additionally, the governing body must continue to hold at least two formal meetings a year.
   
• Liability Insurance. All providers must have documentation of liability insurance coverage for any vehicle used to transport clients, whether the vehicle is owed by the agency or any of its employees. The personal liability insurance of the provider’s employees cannot be substituted for the required coverage. Previously, the regulations merely provided that the provider ensure that any vehicle used to transport clients carried a sufficient amount of current liability insurance.
   
• Driver Histories and Driving Course Completion. Providers are required to have documentation of successful completion of a safe driving course for each employee who transports clients. The new regulations mandate that each employee shall complete a safe driving course within 90 days of hiring, every three years thereafter, and within 90 days of the provider’s discovery of any moving violation. Additionally, providers are required to run a driving history record at the time of hiring and annually thereafter for each employee. Existing providers should ensure that all current employees complete a safe driving course and that a driver history report has been run on all current employees prior to the October 1, 2011 enforcement deadline.
   
• Unannounced Quarterly Supervisory Visits. Direct care staff supervisors are now required to make an onsite supervisory visit at least once per quarter for each direct care staff member. Additionally, the regulations state that supervisory visits should occur more frequently if dictated by the ISP; as needed to address worker performance; to address a client’s change in status; or to assure services are provided in accordance with the ISP. Providers should note that a quarterly unannounced visit is required for each direct service worker, not for each client served by the agency. Thus, if one client is being serviced by four direct care workers, the agency is required to conduct four unannounced visits to that client’s residence during the quarter. We have spoken with DHH regarding this requirement and have learned that all quarterly visits do not have to be completed by the October 1, 2011 compliance date. However, DHH expects providers to have a procedure in place by October 1 for conducting the unannounced visits and expects that at least one quarterly visit per employee will be accomplished between October 1, 2011 and December 31, 2011.