Two days before the end of the 2009 Legislative Session, the Louisiana Legislature adopted the Louisiana Geologic Sequestration of Carbon Dioxide Act. Introduced as HB661, the final amended bill passed both the House and Senate unanimously. There are three major facets to the law: establishment of a comprehensive regulatory program for the control of injection, storage, and use of carbon dioxide under the auspices of the Office of Conservation within the Department of Natural Resources; establishment of liability limits for operators with transfer of liability for storage operations to the Geologic Storage Trust Fund (run by the state) after a specified time; and authority for expropriation of pipeline servitudes, storage facilities and other associated facilities necessary for carbon sequestration operations upon a determination of public convenience and necessity.

The legislation transfers liability for long term storage (with a few exceptions) to the State ten years after the completion of injection, thus providing more certainty to encourage storage of carbon dioxide that will in turn assist in combating global warming. The ten year period can be altered by rule. To fund this potential liability, the law creates a Geologic Storage Trust Fund that will be funded by fees to be paid by the injection well operator. Until liability transfers to the state, the operator of the injection well, and only the operator, will be liable for compliance with injection and storage requirements. The fiscal note for the bill indicates that LDNR intends to use four full time persons to implement the program – an attorney, a geologist, and engineer, and an administrative assistant. Until the Geologic Storage Trust Fund is funded, operating funds will come from the Oil and Gas Trust Fund.

The law provides that the injected carbon dioxide will “at all times be deemed the property of the party that owns such carbon dioxide, whether at the time of injection, or pursuant to a change of ownership by agreement while the carbon dioxide is located in the storage facility…and in no event shall such carbon dioxide be subject to the right of the owner of the surface of the lands or of any mineral interest therein….” This occurs until ten years after the cessation of injection operations, unless a different time period is specified in the rules. At such time, the Commissioner will issue a certificate of completion of injection operations, upon a showing by the storage operator that the reservoir is reasonably expected to retain mechanical integrity and the carbon dioxide will reasonably remain emplaced. Upon issuance of the certificate, both liability for, and ownership of, the remaining project, including the stored carbon dioxide, transfers to the state. The liability release does not apply if the owner, operator, or generator intentionally and knowingly concealed or intentionally and knowingly misrepresented material facts related to the mechanical integrity of the storage facility or the chemical composition of any injected carbon dioxide.

The law allows property to be expropriated by private entities for the underground storage of carbon dioxide, “including but not limited to surface and subsurface rights, mineral rights, and other property interests necessary or useful for the purpose of constructing, operating, or modifying a carbon dioxide facility.” However, before any expropriation, the Conservation Commissioner must issue a certificate of public convenience and necessity after a public hearing in the parish where storage operations are located. As a condition precedent, the Commissioner, must have determined that the reservoir sought to be used is suitable and feasible for such use and meets all regulatory requirements. The eminent domain authority is to be exercised pursuant to the procedures found in existing law regarding expropriation, La. R.S. 19:2,

No sequestration operation can adversely affect any reservoir which is producing or is capable of producing oil, gas, condensate, or other commercial minerals in paying quantities, unless all owners in such reservoir have agreed thereto or, if all owners do not agree, then at least three-fourths of the owners must agree and the Commissioner must find that the minerals capable of production in paying quantities have been produced or the reservoir has a greater value as a reservoir for carbon dioxide storage than for the production of the remaining volumes of original oil, gas, condensate, or other commercial minerals.

The legislation has been sent to the Governor for final signature. If signed, it will become effective on August 15, 2009.
 

In Atlantic Sounding Co., Inc., et al. v. Townsend, the United States Supreme Court held that punitive damages are available to a seaman if his employer/vessel owner has willfully failed to fulfill its maintenance and cure obligation. This decision effectively overrules recent United States Court of Appeals jurisprudence, such as Guevara v. Maritime Overseas Corp, 59 F.3d. 1496, 1995 AMC 2409 (5th Cir. 1995) and Glynn v. Roy Al Boat Management Corp., 57 F.3d 1495, 1995 AMC 2022 (9th Cir. 1995), which interpreted the prior Supreme Court case of Miles v. Apex Marine Corp., 498 U.S. 19, 1991 AMC 1 (1990) to bar claims for punitive damages against vessel owners for the willful failure to pay maintenance and cure.

The Supreme Court based its decision on three legal principles: (1) punitive damages have long been available in common law; (2) the common law tradition of punitive damages extends to maritime claims; and (3) there is no evidence that claims for maintenance and cure are excluded from this general admiralty rule. The Court noted that Congress has not enacted legislation departing from the above common law principles. More importantly, the Jones Act, which provides a vehicle for an injured employee to sue his employer/vessel owner, did not eliminate punitive damages. Thus, the Court held that a seaman may advance a claim for punitive damages against his employer/vessel owner.

It is important to note that the Supreme Court did not decide whether Townsend was entitled to a punitive damage award; instead, the Court determined that he had the right to bring a punitive damage claim. Townsend must ultimately prove that Atlantic Soundings’ failure to pay maintenance and cure was willful and wanton to recover punitive damages.

It is likely that a seaman advancing a claim for punitive damages will be held to the same burden of proof that is necessary for an award of attorney’s fees in a maintenance and cure action. Attorney’s fees incurred by a plaintiff in prosecuting a claim for maintenance and cure may be awarded for the failure of an employer to properly investigate and pay maintenance and cure claims. Vaughan v. Atkinson, 369 U.S. 527, 1962 AMC 1131 (1962). Yet, an award of attorney’s fees for the failure to pay maintenance and cure is only appropriate under the most egregious circumstances. A vessel owner who acted reasonably in refusing to pay maintenance and cure is liable only for the amount of maintenance and cure he failed to pay.

However, if an employer/vessel owner lacks a reasonable defense to the payment of maintenance and cure and has exhibited callousness and indifference to the seaman’s plight, he is liable for attorney’s fees. As such, the award of attorney’s fees is proper only if the employer has been found to have acted in a fashion that is callous and recalcitrant, arbitrary and capricious or willful, callous and persistent in refusing to pay maintenance and cure. Morales v. Garijack, Inc., 829 F.2d 1355, 1358 (5th Cir. 1987). This is a high burden and can only be decided on a case by case basis.
 

Since that time, a number of lawsuits related to Chinese drywall have been filed in various State and Federal Courts. 

In an effort to organize the numerous lawsuits that have been filed in Federal Courts, the Judicial Panel on Multidistrict Litigation recently issued a Transfer Order that class action suits filed around the country against Chinese drywall manufacturers would be docketed in the Eastern District of Louisiana.

The United States Judicial Panel on Multidistrict Litigation is an entity of the United States Federal Court System.  It was created by Congress in 1968 under 28 U.S.C. §1407.  The Panel has the responsibility of determining whether civil actions pending in two or more federal judicial districts should be transferred to a single federal district court for pretrial proceedings.  When asked to consider a transfer, the Panel will:

1. determine whether civil actions pending in different Federal district courts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings; and

2. Select the judge or judges and court assigned to conduct such proceedings.

[United States Judicial Panel on Multidistrict Litigation]

The rationale behind combining the lawsuits in this way for pretrial proceedings is to avoid discovery duplication, to prevent inconsistent pretrial rulings; and to conserve the resources of the parties, their counsel, and the judiciary.  Generally, the court will set standing orders or pretrial orders informing the lawyers involved of the ground rules, deadlines and procedures the court expects the litigants to follow.  After discovery and completion of pretrial matters, the case will be remanded back to the transferor court for trial.

While the Transfer Order for the Chinese drywall cases listed only ten cases, it is likely that the many other cases filed will be considered tag – along cases.  A case may only be characterized as a "tag-along action" if it involves "common questions of fact with actions previously transferred" under 28 U.S.C. § 1407.  See, Rule 1.1 of the General Rules for Judicial Panel on Multidistrict Litigation for the definition.  Upon learning of the pendency of a potential “tag-along action,” as defined in Rule 1.1, an order may be entered by the Clerk of the Panel transferring that action on the basis of the prior hearings and for the previously expressed reasons of the Panel.  The Panel then issues a Conditional Transfer Order transferring to the court tag-along actions that the Panel determined has “questions of fact common to the actions previously transferred”.  The order does not become effective until it is filed with the transferee district court.  The transmittal of the order to the transferee district court shall be stayed fifteen days from the entry thereof and if any party files a notice of opposition with the clerk of the Panel with in this fifteen day period, a stay will be continued until further order of the Panel. [See Rule 7.4 of the General Rules for Judicial Panel on Multidistrict Litigation]
 

The Louisiana Legislature has adopted House Concurrent Resolution No. 185, authored by Representative Tim Burns.  The resolution urges and requests that the Department of Health and Hospitals and the Deptartment of Insurance, in consultation with the Louisiana State Licensing Board for Contractors, investigate the health risks associated with living in homes that contain drywall imported from China, study the potential homeowners insurance coverage issues, including triggers, endorsements, and exclusions to policies that are related to drywall imported from China, and determine whether such material should be identified as a substandard, unsafe building material.  The resolution goes on to request a report of the findings and recommendations of this study to the legislature prior to the convening of the 2010 regular session.

A copy of the enrolled version of the resolution can be seen here: Download file

According to a 2006 report of the Department of Interior, the Outer Continental Shelf (“OCS”) of the United States has the potential to generate 900,000 megawatts of power, which is roughly equal to the total installed electrical capacity in the United States. Of course, this potential resource cannot be realized without installation of significant infrastructure to harness the power of the winds that blow on the OCS.

In establishing the framework for leasing of renewable energy projects on the OCS, the MMS seemingly drew from its experience under the OCS oil and gas leasing program. OCS leases for renewable energy projects may be awarded by the MMS on either a competitive or noncompetitive basis. For competitive solicitations, MMS will publish a proposed sale notice and, later, a final sales notice in the federal register. To award renewable energy leases on a competitive basis, MMS will identify one of four auction formats in the final sale notice: sealed bidding, ascending bidding, two-stage bidding (combination of ascending and sealed bidding), and multiple-factor bidding. If sealed bidding is used, the bidder must tender with its bid a deposit equal to 20% of the total bid amount, unless some other amount is specified in the final sale notice.

Interested parties are permitted to submit unsolicited requests for a commercial lease or a limited lease on the OCS for renewable energy projects, except for areas that are subject to a scheduled lease sale. In response to any unsolicited request for a lease, the MMS will issue a public notice to determine if there is any competitive interest in the area sought to be leased, absent which the MMS may proceed on a non-competitive basis.

Commercial leases issued for renewable energy projects will have a 25 year operations term. These leases require a site assessment plan (“SAP”) and a construction and operations plan (“COP”) to be submitted within a certain period of time after the award of the lease. The SAP describes the assessment phase in which a lessee may install a meteorological or marine data collection facility to assess renewable energy resources. The COP describes the power generation phase of a project, as well as general plans for decommissioning facilities after termination of the lease. The COP may request a project easement for the purpose of installing transmission and distribution cables and such project easement will be granted to the lessee without the requirement of a competitive auction.

In addition to any up front payments associated with a lease award, lessees shall pay annual rent equal to $3.00 per acre for the leased area and $5.00 per acre of project easement area. During the operations phase, the lessee shall pay an annual operating fee based on energy generated from the leased site, annual average wholesale power prices in the state in which the project’s transmission cables make landfall and an operating fee rate of .02, unless a different rate is specified by MMS.

Before MMS will award a commercial lease, the lessee must guaranty compliance with all terms and conditions in the lease by providing a $100,000 lease specific bond. Supplemental bonds may be required before the MMS will approve a SAP or COP. Finally, before a lessee installs facilities that are approved in a COP, a decommissioning bond must be provided.
 

The final revised FMLA regulations issued by the DOL on November 17, 2008 became effective January 16, 2009. The regulations address the FMLA military family leave entitlements and also include other, significant changes to prior regulations. Some of the changes involving employer notices are described in 29 C.F.R. §825.300 and include:

Eligibility Notice -
29 C.F.R. § 825.300(b). An employer must notify an employee who requests FMLA leave within five business days whether the employee is eligible and, if not eligible, the notice to the employee must provide at least one reason for the ineligibility. Notice may be oral or in writing. For subsequent requests by the same employee during the applicable 12-month period, the employer need not provide another eligibility notice unless the employee’s eligibility status has changed. A prototype written notice form is provided at Appendix D of the regulations.

Rights and Responsibilities Notice -
29 C.F.R. § 825.300(b). Also, “each time” an eligibility notice is provided to an employee, a Rights and Responsibilities Notice must be provided. This notice is incorporated into the prototype Notice of Eligibility and Rights and Responsibilities at Appendix D of the regulations. If certification forms will be required by an employer to substantiate the need for leave, the notice may attach the required forms.

Designation Notice -
29 C.F.R. § 825.300(d). When an employer has enough information to determine whether the leave is being taken for an FMLA-qualifying, the employer must provide written notice to the employee within five business days as to whether the leave will be designated and counted as FMLA leave. The notice must state whether a fitness for duty certificate will be required at the end of the leave. Though the regulations provide that generally, only one designation notice must be given to an employee for each qualifying reason within a twelve-month period, the regulations also provide that if the information changes (such as when leave is exhausted), the employer must issue a written notice of the change within five business days of the employee’s request for leave subsequent to the change. The employer must notify the employee of the amount of leave counted against the employee’s leave entitlement. If the amount of leave is unknown at that time (because, for example, the leave will be unforeseeable intermittent leave), then an employer must provide notice of the amount of leave counted against the employee upon the employee’s request, but no more than one in a 30-day period and only if leave was taken in that period. A prototype designation notice form is provided by the DOL at Appendix E.

Failure to comply with the posting or notice requirements may subject an employer to civil money penalties or other civil liability. A complete copy of the regulations and prototype forms are available at the DOL website.
 

Facebook is taking certain steps to prevent infringement of intellectual property through “name-squatting.” In connection with this, Facebook is allowing Federally registered trademark holders to prevent the registration of usernames that would infringe their intellectual property rights.

There is a link to the form on Facebook’s Web site if you want to complete the form yourself. You will need the trademark registration number and the exact wording of the trademark as registered.

For more information, or to protect your trademark, please contact Pamela Baxter at pamela.baxter@keanmiller.com (225.389.3761) or Russel Primeaux at russel.primeaux@keanmiller.com (225.382.3454).

June marks the beginning of Hurricane Season and should serve as a reminder to review your personal and business property insurance coverage. The effect of recent Hurricanes on the Gulf Coast generally and Louisiana specifically have been significant with respect to both damages and the insurance covering those damages.

The losses caused by the 2008 Hurricanes in South Louisiana will make property insurance renewals more difficult and expensive. Coverage provided by many property carriers is expected to be narrowed and subjected to higher named storm deductibles.

Beginning the renewal process on property coverage at least 120 days in advance of the renewal date is advised to ensure a fair opportunity to negotiate acceptable terms and to avoid unpleasant surprises such as excessive rate increases and non-renewals.

When purchasing property insurance an insured should also remember that Business Interruption Insurance is usually included in property insurance coverage. Business Interruption Insurance comes in many forms and must be specifically purchased in most cases as an additional coverage under a property policy. Understanding the different type of business interruption coverage is important and may be the difference between a company surviving or not surviving a catastrophic loss.

A comprehensive legal review of your insurance programs including your property insurance is recommended on a regular basis.   

The EPA has proposed a rule that would require mandatory reporting of greenhouse gas (GHG) emissions from large sources in the United States.  The proposed rule was signed by the EPA Administrator on March 10, 2009 and published in the Federal Register on April 10, 2009 (74 Fed. Reg. 16,448).  As proposed, the rule will require reporting of stationary source GHG emissions for the 2010 calendar year by March 31, 2011.  According to the EPA, the proposed rule is intended to “collect accurate and comprehensive emissions data to inform future policy decisions.”

GHG compounds covered by the proposed rule include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and other fluorinated gases, including nitrogen trifluoride and hydrofluorinated ethers. Certain listed direct-emission sources must comply with the reporting requirements and include the following sectors: adipic acid production; aluminum production; ammonia manufacturing, cement production, HCFC-22 production; certain specified HCFC-23 destruction processes; lime manufacturing; nitric acid production; petrochemical production; petroleum refineries; phosphoric acid production; silicon carbide production; soda ash production; titanium dioxide production; electric power systems that exceed certain nameplate capacities; electricity-generating facilities that exceed certain emission levels; electronics manufacturing facilities that exceed certain production levels; landfills that generate methane in amounts equal to or greater than 25,000 metric tons of carbon dioxide equivalent per year certain manure management systems; and certain underground coal mines. The EPA found that nearly all of the above facilities emit more than 25,000 metric tons of carbon dioxide equivalent per year and that only a few facilities emit marginally below this level. Suppliers of coal, petroleum products and natural gas are also covered.

The only agricultural source of GHG emissions covered by the proposed rule is manure management systems that have emissions equal to or greater than 25,000 metric tons of carbon dioxide equivalent per year. Enteric fermentation (emissions of methane from the digestive system of cattle and other ruminant livestock), rice cultivation, field burning of agricultural residues, composting, and agricultural soils will not be subject to the reporting requirements of the rule.

There is no requirement in the proposed rule for mandatory third-party verification for the emissions reports. EPA estimates that compliance with the reporting requirements will cost the private sector $160 million in the first year and $127 million in following years. Public hearings were held in Virginia and California in April 2009. Written comments must be received today (June 9, 2009). The text of the proposed rule and additional information can be found here.  

The judge overseeing Chrysler LLC’s bankruptcy entered an order on June 1, 2009 approving Chrysler’s motion seeking permission to sell substantially all of its assets to a new company.  The procedure by which this sale was accomplished, and by which a similar sale in the GM bankruptcy will likely be accomplished, is known in the bankruptcy and finance worlds as a “363 Sale,” after the relevant provision of the U.S. Bankruptcy Code.

(For those well-versed in 363 Sales, see Stephen Sather’s thoughtful post about practical and ethical concerns with the Chrysler sale here. )

Companies outside of bankruptcy that have strong cash reserves or access to capital should look for opportunities to acquire new product lines, expand their footprint, or strengthen their intellectual property portfolio when reading headlines about troubled firms.  363 Sales are not just for multi-billion dollar bankruptcies; businesses of any size in any type of industry can sell all or part of themselves through a 363 Sale.  There are no restrictions on the type of assets that can be sold through a 363 Sale.  Inventory, equipment, patents, trademarks, customer lists, trade secrets, accounts receivable, and other rights to payment are all possibilities for a 363 Sale.  There are limitations, however, on the sale of a Debtor’s assets in which a third party has an interest.  If a third party has an interest in a particular asset, whether a security interest, lien, etc., then that particular asset may only be sold in a 363 Sale if the third party’s claim is satisfied from the proceeds, or if other criteria are met.  

Generally, the purchaser at a 363 Sale acquires only the Debtor’s rights in the asset.  For example, if the Debtor was a co-owner of an asset, then the purchaser would only obtain the Debtor’s co-ownership interest.  In some instances, however, a 363 Sale can deliver outright ownership of an asset to the purchaser even when the Debtor has only a partial ownership interest in the particular asset.  This is often an appealing solution to resolve a dispute where a joint venture sours and the partners cannot agree on price or terms to move on.  The purchaser can acquire the entire asset—including an entire operating business or just a part of one—outright instead of merely owning the Debtor’s partial ownership interest in the asset.
 

As we continue our shift to a more knowledge-based economy, frequently the greatest assets of a company reside in the creativity of its employees. This is especially true for service companies in which the services can be repeated for multiple customers (example: software). Whether or not a company owns something that has been created by one of its employees will depend to a great extent on the category of intellectual property into which the creation is classified. Generally, the creations or discoveries of employees will fall into the intellectual property categories of copyright, patent, or trade secret.

The legal standard used in determining whether a company owns a patentable invention is narrower than the “scope of employment” standard used in copyright law. For patentable inventions, the courts look to whether the employee had a “duty to invent.” We return to the above example of Mr. Jones, the dispatcher. Suppose the creation by the dispatcher was capable of patent protection. Because Mr. Jones was a dispatcher, who did not have a specific duty to invent, it is likely the company would not own any patent that might be issued to cover the invention.

For trade secrets, the law is less clear than the law for copyright and patent. Generally, trade secret law states that a trade secret will exist if the underlying information has value by not being generally known and is the subject of reasonable measures to keep it secret. Trade secrets are normally the property of the company, and not the individual employees. However, as a practical matter trade secrets are harder to control than patents or copyrights. If an employee maintains a list of customer contacts on her personal cell phone, and the employer does not have a specific policy stating that customer contacts are the property of the employer; it will be difficult for the employer to assert that the contact information is a company trade secret when that employee leaves the company.

Companies should use their information technology management practices to bolster the company’s trade secret practices. For example, if the sales person above had been provided a company Blackberry, and if the system ensured that all contact information was stored on company servers; the company would have a stronger basis for arguing that the customer contact information is a trade secret. The company would be in an even stronger position if it had a written policy regarding the company’s trade secret practices. Additionally, trade secret obligations should be included in employment agreements as well.

Employment agreements can also be used to clarify the company’s ownership of copyrights and patents. The company can make clear that the “scope of employment” for copyrights is considered very broad. Also, the company could impose a duty to invent on all employees. Additionally, the employee agreement can clearly state, under a simple contractual basis, that all inventions or works of authorship created by employees are owned by the company.

A company can properly protect and claim ownership over the creations of its employees. Doing so requires a knowledge of the different areas of the law that apply and appropriate company practices. Those practices should take advantage of the applicable law and should fill in the gaps where the law does not adequately address the situation.
 

On April 3, 2009, the National Environmental Development Association (NEDA) filed a petition for rehearing en banc on a controversial decision (Sierra Club v. EPA) by the D.C. Circuit Court of Appeals. In that case, decided December 19, 2008, the court vacated the Startup, Shutdown, Malfunction (SSM) rules contained within the NESHAP General Provisions, 40 C.F.R. Part 63, Subpart A. The exemption has been in place since the EPA adopted the General Provisions to 40 C.F.R. Part 63 in 1994 pursuant to Section 112 of the federal Clean Air Act. Until this decision, sources were exempted from MACT technology-based emission limits if all elements of the SSM exemption were satisfied. Sources were nevertheless required by the general duty clause to minimize emissions to the greatest extent possible. The appeal stems from proposed rulemakings by the EPA in 2002, 2003 and 2006 to revise the SSM requirements.

NEDA also argued that the decision would have ‘draconian consequences’ on the nation’s manufacturing industries if the decision were not reversed. NEDA’s petition states that “because most MACT standards are based on normal operations, sources may not be able to comply with such standards during SSM events.” (Id., p. 12). In addition, compliance with MACT standards during startup and shutdown may not be possible for certain types of pollution control equipment.
 

If the decision is upheld, it may call all existing MACT rules into question. Because all of the MACT rules were premised upon the existence of the SSM exemption, the revocation of the exemption could allow regulated entities to challenge the underlying MACT rules (ironically, under the constructive reopening doctrine) as being too stringent without the consideration of data from SSM periods for development of the MACT floor. MACT standards would then need to be evaluated on a source category by source category basis for SSM events. The case will have significant impacts if the initial decision by the three-judge panel is allowed to stand.
 

In this day and age, everyone communicates by e-mail, on a laptop, desktop, Blackberry or other electronic device. But what about communication between a physician and a patient?  

Is this permissible? Acceptable under existing law and practice? Recommended?

Obviously, any form of communication between a physician and a patient is allowed. So, if you wish to discuss with a patient their history, your impressions, diagnosis, prognosis or other issues relating to evaluation and treatment, you may. However, this form of communication carries with it certain special rules and requirements. Which leads us to our second question.

Acceptable?

Any communication by a physician with a patient should be documented. In the olden days, this may have involved a small spiral notebook with entries made from phone calls received at home and later placed in the patient’s office chart. Now, in the era of electronic communication, the initial consideration is how will this “e-mail” be stored or maintained. Will a copy of the e-mail be printed and placed in the patient’s chart? Will electronic folders for each individual patient be created? Will a dedicated hard drive and back-up system be implemented? There are any number of alternatives in this regard. The bottom line is that an e-mail from the physician to a patient which relates, in any material way, to treatment should be available for review by others involved in the patient’s care and preserved as a contemporaneous documentation of the physician’s evaluation/thought process.

Perhaps, more importantly is that under existing law, in legal cases and in the potential for litigation, there is a duty to preserve electronic data. Accordingly, in the event a physician elects to communicate electronically with a patient, to any degree, about treatment, and that treatment becomes the subject of a medical malpractice claim or lawsuit, then there is an underlying duty to preserve such electronic communications that may have relevance to the litigation. Even more problematic is that this duty to preserve electronic data arises at the time a physician has some “notice” of the potential for a malpractice claim to be filed. Under those circumstances, the physician would have a duty to place a “legal hold” on any electronic data that was created in connection with the patient’s care and treatment. For example, if test results were communicated electronically to a patient, then these e-mails documenting the lab results being sent to the patient would need to be preserved. If the electronic communication was sent by other staff members in a physician’s office, then the physician or office administrator, under existing rules, should notify all such involved parties of the responsibility to preserve the electronic data, known as a “legal hold”.

In the extreme, in a situation in which the physician was unable to locate and produce electronic data upon which that physician relied for the appropriateness of the medical treatment at issue, then there could be evidentiary presumptions against the physician for failing to preserve the electronic data. There also are sanctions for mishandling discovery of electronic data which can be significant. These can involve monetary fines, and even adverse inferences in instructions to juries. Additionally, reconstruction or recovery of electronic data can be expensive and time-consuming.

Recommended?

Electronic medical records systems will continue to develop. The future is electronic medical records and the future is now. However, until these systems are developed and become more of a generally accepted manner of medical practice, it is recommended that electronic communication with patients be kept to a minimum or not employed, unless and until the physician or physician group has a complete system in place to store, save, back-up and search all electronic data related to patient communications. At the very least, the physician or practice manager should consult with information technology and support personnel to best manage this potential exposure.
 

A recent court case illustrates the need for having advance tax planning when selling a business. In the case of Muskat v. U.S., No. 08-1513, 103 AFTR 2d _____, the taxpayer was majority shareholder in a corporation. He and the other shareholders sold all of the stock in the corporation to a third party interested in buying the business. The buyer also agreed to pay the taxpayer $1,000,000.00 for a non-compete agreement. The transaction was documented in this manner.

After the fact, the taxpayer realized that the non-compete proceeds would be taxable as ordinary income to him. He attempted to re-characterize the $1,000,000.00 payment as the sale of his personal goodwill and claim capital gains treatment.

The IRS denied his claim for a refund and the court agreed with the IRS. The court found that the taxpayer had a significant burden of proof to overcome the manner in which the transaction was documented. The taxpayer could not overcome his burden of proving that the payment was not for his non-compete agreement given the fact that all of the documentation reflected that was the purpose for the payment.

Perhaps the result would have been different if the taxpayer had considered this issue prior to the sale and agreed with the buyer that the payment was for his personal goodwill. There have been some cases where courts have allowed shareholders to sell their “personal goodwill” as opposed to corporate goodwill when selling a business. Therefore, proper tax planning in negotiating a sale or other transaction is very important.
 

In 1997, the Louisiana Legislature adopted a claims review panel procedure involving “claims” against certified public accountants and firms.  “Claims” as contemplated by the Act are broadly defined as:

(1) "Claim" means any cause of action against a certified public accountant or firm, regardless of the legal basis of the claim, including but not limited to tort, fraud, breach of contract, or any other legal basis, arising out of any engagement to provide professional services, including but not limited to the following:

(a) The providing of attest services as defined in R.S. 37:73(1)(a).
(b) The providing of business or financial advice.
(c) Advice relative to plans or actions to qualify for tax benefits or otherwise reduce the amounts of
tax owed.
(d) Advice relative to the structuring of pension or retirement or insurance plans or other employee
benefits.
(e) The provision, including design, of computer software for accounting or bookkeeping functions.
(f) Any other advice relative to the conduct of any business whether conducted for profit or not.
 

The request for review by a claimant shall be in writing and must contain a short concise statement of the material facts that give rise to the dispute. The Society is empowered to dismiss the claim if the claimant fails to take the necessary timely steps to secure the appointment of the attorney chairman of the panel and in the event that the parties are unable to agree on an attorney chairman, the law provides for the involvement of the Louisiana Supreme Court in the selection process.

The panel is composed of three CPAs, who have practiced in Louisiana for more than ten years, with the claimant and the respondent each having the right to chose one CPA panelist, and one attorney. There are provisions in the law for the qualifications and duties of the panelists. The attorney member of the panel acts in an advisory capacity and administrative capacities and has no vote.

Although there is an opportunity for certain pre-hearing discovery, the panel may only consider written evidence. The panel has the authority to request and procure “all necessary information” in making its decision. The panel’s sole duty is to express its opinion as to whether or not the evidence supports the conclusion that the defendant or defendants acted or failed to act within the appropriate standard or care or whether there is a material issue of fact, not requiring expert opinion, bearing on liability for consideration by the court.

The role of the panel does not include the factual determination of whether damages were sustained and, if so, the amount of the damages, as those are issues for a subsequent judge or jury to decide. The panel’s opinion is admissible, but not conclusive, in any subsequent court proceeding.

The “Standard of Care” and Other Issues Involved in Claims Against Accounts

As noted, in exercising its’ function, a review panel determines whether the accountant met the “applicable standard of care.” That conduct is generally contrasted to “malpractice”, which is defined as:

“Malpractice. Professional misconduct or unreasonable lack of skill. This term is usually applied to such conduct by doctors, lawyers and accountants. Failure of one rendering professional services to exercise that degree of skill and learning commonly applied under all the circumstances in the community by the average prudent reputable member of the profession with the result of injury, loss or damage to the recipient of those services or to those entitled to rely upon them. It is any professional misconduct, unreasonable lack of skill or fidelity in professional or fiduciary duties, evil practice, or illegal or immoral conduct."

Under this standard, the accountant is not required to exercise perfect judgment in every instance. However, it recognizes that the accountant’s license to practice and contract for employment holds out to the client that the accountant possesses certain minimal skills, knowledge and abilities.

A related state law issue involves who has a right to make a claim against an accountant for alleged malpractice. In the limited number of cases applying Louisiana law, it appears that with regard to malpractice the courts limit such malpractice liability to clients and nonclients whom the attorneys know will rely upon their legal work product.

The time within which to bring a claim against an accountant has also been subject to legislation and judicial discussion. The time periods that govern actions for professional accountant liability are set forth in Louisiana Revised Statute 9:5604, which generally provides that no action for damages against any accountant duly licensed under the laws of this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide professional accounting service shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect. There are exceptions for cases of fraud and proceedings initiated by the State Board of Certified Public Accountants of Louisiana.

Conclusion

Accountants, like physicians and lawyers, owe a duty to perform their services with a degree of skill and competence reasonably expected of persons in their profession in the community. Hence, the Louisiana legislature has enacted a comprehensive regulatory scheme governing both practice requirements as well as the consequences of falling below the standard of care expected. It is suggested that both the State Board of Certified Accountants of Louisiana and the Society of Louisiana Certified Public Accountants have performed commendably in carrying out their responsibilities under the Louisiana Accountancy Law.

This is the third, and final part, of a series of articles discussing the regulation and liability of accountants pursuant to Louisiana law. This part focuses on the standards adopted by the Louisiana Legislature and courts involving claims of substandard performance. A complete version of the article, including relevant references, is available on the LCPA’s website, www.lcpa.org.  The first two portions of the article can also be found on the Louisiana Law Blog here:  Part 1, Part 2.