SupremeCourt

As a final follow up on our previous posts (here and here) monitoring Meche v. Doucet’s progression through the court system, we report that on October 5, 2015, the United States Supreme Court denied writs. As previously reported, in Meche, 777 F.3d 237 (5th Cir. Jan. 22, 2015), the Fifth Circuit expanded the scope of the McCorpen defense ever so slightly when it ruled that successor companies are entitled to rely on the pre-employment examinations performed by their predecessors. And, as a result, the successors can avail themselves of the McCorpen defense in cases where the worker is found to have lied or failed to disclose a pre-existing injury in his pre-employment application process. Meche’s writ to the Supreme Court went far beyond the scope of slight expansion afforded by the Fifth Circuit’s decision though. Instead, Meche sought a disavowal of the McCorpen defense entirely. Refusing to the hear the case, the Supreme Court’s silence is telling: the McCorpen defense remains a viable and valuable tool in the defense of claims by Jones Act seamen against their employers – and the successors of their employers.

When a maritime casualty or accident occurs, it must be determined whether the occurrence meets the criteria for notifying the Coast Guard. Note that a “marine casualty or accident” is purposefully defined broadly in governmental regulations to capture a wide variety of occurrences. Indeed, the statutes and regulations pertinent to marine casualties and accidents provide the U.S. Coast Guard the authority and jurisdiction to investigate a wide range of occurrences that include both commercial and recreational vessel activities. Recognizing the complexity of the current marine casualty reporting laws and regulations, as well as inconsistent enforcement of these laws and regulations, the U.S. Coast Guard believed that additional guidance to clarify the reporting laws and regulations would benefit both the marine industry and the Coast Guard field commanders. Thus, the United States Coast Guard recently issued Navigation and Vessel Inspection Circular (“NVIC”) No. 01-15 and its Enclosure to provide guidance and clarification of the identification and reporting of marine casualties. Full text of the NVIC No. 01-15 can be found on the Coast Guard’s website here.

The information collected during a marine casualty investigation is used by a wide audience for many purposes including enforcement of laws, the enhancement of safety alerts and recommendations, the development of additional standards, and the support of safety studies. Thus, the Coast Guard maintains that it is critical that casualty information be properly captured and documented.  NVIC No. 01-15 and its Enclosure are designed to provide additional guidance to standardize the collection and reporting of marine casualty data by highlighting the existing regulations, policies and procedures in a chart form with the text of the various regulations presented next to interpretations of the individual regulations.

The Enclosure to NVIC No. 01-15 provides a great deal of information and interpretation of the applicable regulations in a quick reference chart. While it is impossible to outline every scenario that can occur in the offshore industry, the information and examples provided in the Enclosure, can serve as a common “framework of understanding” of the rules for the maritime industry and the Coast Guard. Any business or corporation currently working in the maritime industry should review NVIC 01-15 and its Enclosure and be familiar with its contents. It would also be beneficial to maintain a copy on any vessels so that there would be no confusion as to what must be reported to the Coast Guard in the event of a marine casualty or accident.

On December 4, 2015, the United States Supreme Court granted a Petition for a Writ of Certiorari in Universal Health Services, Inc. v. United States and Commonwealth of Massachusetts ex rel. Julio Escobar and Carmen Correa.  The Petition was filed by Universal Health Services, Inc. (“UHS”) challenging the United States Court of Appeals for the First Circuit’s (“First Circuit”) reversal of the District Court’s dismissal of the United States’ complaint alleging false or fraudulent claims for government reimbursement under the False Claims Act (“FCA”), 31 U.S.C. § 3729.  The First Circuit held that noncompliance with conditions of payment was sufficient to establish falsity of a claim for reimbursement.  This “implied certification” theory is based on the premise that a contractor did not comply with a condition of payment imposed by statute, regulation, or contract.  The “implied” comes into play when the contractor certifies compliance upon submission of a claim for payment from the government.  The question for consideration by the Supreme Court is:  can a claim be “false” under the FCA if the contractor failed to comply with a statute, regulation, or contractual provision that does not expressly state that it is a condition of payment?

If the Supreme Court affirms the First Circuit’s decision permitting the implied certification theory to be applied to the FCA, a government contractor could commit “fraud” on the government if it seeks payment while failing to comply with a state regulation governing participation in the Medicaid program.  Contractors will need to be vigilant in their compliance with all state requirements for participation before submitting a claim for payment by a government program.  Failure to comply with the conditions of participation, under the implied certification theory, could result in treble damages and penalties for false claims under the FCA, not just state administrative sanctions.

The case currently under review by the Supreme Court involves Arbour Counseling Services (“Arbour”), a mental health clinic owned and operated by the Defendant/Petitioner UHS.  Arbour is enrolled as a provider with the MassHealth, the Massachusetts state Medicaid program.  Arbour bills MassHealth for services provided to Medicaid beneficiaries.  Following the death of an Arbour patient, the Massachusetts’ Department of Public Health concluded that Arbour had violated fourteen Massachusetts state regulations including requirements for staff supervision and licensure.  Escobar and Correa, the Relators and parents of the deceased Arbour patient, thereafter alleged fourteen counts against UHS under the Federal and Massachusetts’ False Claims Acts.

The Federal FCA provides:

[A]ny person who…knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval…is liable to the United States Government for a civil penalty or not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990…, plus 3 times the amount of damages which the Government sustains because of the act of that person.”  31 U.S.C. § 3729(a)(1).

UHS argues that the FCA claims should be dismissed because UHS never expressly certified compliance with the Massachusetts regulations when submitting its claim for reimbursement.  UHS’ argument is based on the “express certification theory” that requires the underlying statute, regulations, or contract to expressly state that the government payor conditions payment on compliance with the statute, regulation or contract.

The U.S. District Court for the District Court of Massachusetts dismissed the Relators complaint in its entirety by distinguishing between “conditions of payment” imposed by Medicaid as preconditions to reimbursement versus “conditions of participation” in the Medicaid program and finding that only conditions of payment could establish a false claim.  The District Court determined that the regulations Arbour allegedly violated were “conditions of participation” as there was no text in the regulations that they were intended as “conditions of payment.”  The First Circuit reversed the District Court’s decision finding that the Relators had adequately pled that Arbour’s claims for reimbursement were false within the meaning of the FCA because the claims misrepresented compliance with a condition of payment.  The First Circuit determined that each time UHS submitted a claim, it “implicitly communicated that it had conformed to the relevant program requirements, such that it was entitled to payment.”  U.S. v. Universal Health Services, Inc., 780 F.3d 504, 514 fn. 14 (1st Cir. 2015).

In its Petition to the Supreme Court, UHS argues that the application of the implied certification theory usurped the State agency’s “role in evaluating and adjudicating violations of its regulations.”  UHS Petition, p. 17. UHS’ argument follows the reasoning in a separate case, United States v. Sanford-Brown, Ltd., 788 F.3d 696, 712 (7th Cir. June 8, 2015), where the U.S. Seventh Circuit Court of Appeals held that the FCA is not the proper mechanism to enforce compliance with statutes, regulations and contractual provisions applicable to a contractor by virtue of that contractor’s agreement to participate in an agency program, and that compliance with an agency’s requirements is best left to the agency to adjudicate.  Thus, the Seventh Circuit rejected the application of the “implied certification” theory to the FCA while other circuits have allowed FCA claims to survive dismissal when based on violations of statutes, regulations and contractual provisions even if it is not expressly stated that payment is conditioned on compliance with the statute regulation or contractual provision.  See e.g. U.S. v. Science Applications International Corporation, 626 F.3d 1257 (D.C. Cir. 2010).  Meanwhile, other jurisdictions such as the U.S. Fifth Circuit Court of Appeals have not yet “definitively ruled on the cognizability of implied false certification claims.”  U.S. ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202, 207 (5th Cir. 2013).  The Supreme Court’s ruling in the UHS case could resolve the inconsistent applications of the implied certification theory among the Appellate Courts.  The UHS case has not been scheduled for oral argument before the Supreme Court at this time; however, it is speculated that the case may be argued sometime in March 2016.

On December 1, 2015, amendments to the Federal Rules of Civil Procedure took effect in an effort to rein in the scope of federal discovery. Several changes were made to Federal Rule 26 with the goal of reducing the substantial expense and unfairness of overbroad discovery.

Former Rule 26(b)(1) provided that:

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense— including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).

 The new Rule 26(b)(1) provides as follows:

 Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Under the former Rule 26(b)(1), parties were allowed to obtain discovery “regarding any nonprivileged matter that is relevant to any party’s claim or defense.” The new rule adds a new statement that discovery must also be “proportional to the needs of the case,” a change that the Advisory Committee on Rules of Civil Procedure described as a “significant improvement” designed to achieve the goal of the Rule 1 – the “just, speedy, and inexpensive determination of every action.” However, the Committee noted that this change is not intended to shift the burden of proving proportionality to the party seeking discovery or to provide a basis for refusing to provide discovery.

In addition to the new requirement of proportionality, the new Rule 26(b)(1) includes several factors that govern a court’s consideration of whether discovery is indeed proportional to the needs of the case. Those factors are: (1) the importance of the issues at stake; (2) the amount in controversy; (3) the parties’ relative access to relevant information; (4) the parties’ resources; (5) the importance of the discovery in resolving the issues; and (6) whether the burden or expense of the proposed discovery outweighs its likely benefit. Most of these factors were previously contained in Rule 26(b)(2)(C), but have been moved into 26(b)(1) because they have always been a constraint on the scope of discovery. The Advisory Committee stated that this change was intended as an additional prominent emphasis on the requirement of proportionality and to encourage parties to take the factors into account in pursuing discovery. The third factor – the parties’ relative access to relevant information – is a new addition, and was added in order to recognize that in some cases the discovery burden will necessarily be greater on one party than on another. The Committee rearranged the order of the factors in the new rule, moving the “importance of the issues at stake” ahead of “the amount in controversy” in order to avoid any possible implication that the amount in controversy is the primary concern in determining proportionality.

In a change related to the new emphasis on proportionality, the new rule eliminates the broad statement that relevant information “need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence,” and substitutes the more straightforward language that “Information within this scope of discovery need not be admissible in evidence to be discoverable.” The Committee noted that the central principle of this portion of the rule is simply that information within the allowed scope of discovery is discoverable, even if it is not in a form admissible in evidence – it is “merely a ban on admissibility-based refusals to provide relevant discovery.” However, although the “reasonably calculated” section in the previous rule “has never been intended to define the scope of discovery,” it was interpreted by many parties to mean that the scope of discovery must merely be “reasonably calculated to lead to the discovery of admissible evidence.” As a result, the “reasonably calculated” term has in many cases “swallowed” any other limitations on the scope of discovery. The new rule therefore eliminates the “reasonably calculated” language, and further removes any doubt that discovery must be limited and proportional to the needs of the case.

Finally, the new rule further removes the reference that discoverable matters include “the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter.” The Committee determined that this was simply “excess language,” but included it in the official Committee Notes and emphasized that these subjects would remain discoverable if they satisfied the considerations in the revised rule.

The new version of Rule 26, while not creating a new basis for refusing to respond to discovery, does allow parties to defend against discovery requests that would have been overbroad under the previous rule but may have been allowed by the courts. If the changes are successful, recipients of discovery will be better able to obtain protection from the substantial expense of responding to overbroad discovery requests.

Business Briefing Breakfast
Kean Miller partners Linda Perez Clark and Eric Lockridge will present our final Business Briefing Breakfast of 2015 on Friday, November 20th at Juban’s Restaurant in Baton Rouge.  Linda and Eric will provide tips and techniques for purchasing distressed businesses.   There is no fee to attend, and one hour of CPE credit is available.  RSVP to 225-389-3573 or rsvp@keanmiller.com

Friending someone on Facebook, more importantly – unfriending them, may have unintended consequences in the land down under.  As reported at CNET.com, the Australia Fair Work Commission recently found that “unfriending” a co-worker on Facebook was considered bullying.  In addition to the Facebook unfriending, the unfriended and aggrieved employee also complained of more than a dozen other alleged offensive incidents and actions over the prior three years.  In finding for the aggrieved employee, the Commission found that the offending co-employees actions lacked “emotional maturity” and were “indicative of unreasonable behavior.”

It’s not yet Halloween, but employers may have cause to be afraid.

Last week, Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.) introduced the “Workplace Action for a Growing Economy Act” (“WAGE Act”) to amend the National Labor Relations Act.  According to a fact sheet published about the Act, the WAGE Act aims to “strengthen protections for workers who want to organize and promote change through forming a union or other collective action.”

In addition, the fact sheet explains that, if enacted, the WAGE Act would strengthen protections for workers by:

  • Tripling the back pay that employers must pay to workers who are fired or retaliated against by their employers, regardless of immigration status.
  • Providing workers with a private right of action to bring suit to recover monetary damages and attorneys’ fees in federal district court, just as they can under civil rights laws.
  • Providing for federal court injunctions to immediately return fired workers to their jobs.
  • Ensuring employers will be jointly responsible for violations affecting workers supplied by another employer.

The WAGE Act would also establish civil penalties up to $50,000 for employers who commit unfair labor practices, impose doubled penalties for repeat violations, expose individual officers and directors to penalties for NLRA violations, and effect other changes to the NLRA.

Additional information regarding the WAGE Act can be found here.

For now, employers must watch and wait.

This year’s U.S. Open has brought its fair share of excitement on the court.  The sport’s beloved Serena Williams, who was just two matches away from being only the fourth female to complete a calendar grand slam, was eliminated by an unranked Italian player, and an potential showdown between tennis’ rock stars Novak Djokovic and Roger Federer make this year’s tournament one for the record books.  Perhaps more notably, the tournament has seen much entertainment off the court, from Jimmy Fallon and Justin Timberlake’s dance tribute to Beyonce’s All the Single Ladies to fans booing current GOP presidential front-runner, Donald Trump.  While celebrity sightings at the tournament are somewhat expected, drone sightings are not.

In the opening week of the U.S. Open, a small, privately-owned drone crashed into open seats inside Arthur Ashe stadium, reigniting in the media conversations over private-sector use of drones and, in light of the fourteenth anniversary of September 11th, security concerns.  To say that September 11th is fresh for most Americans is an understatement. In fact, since September 11th, dialogue regarding terrorism concerns is no longer left to high-ranking public officials; rather, those concerns have permeated the typical American living room. With certain national organizations advocating for increased private-sector (particularly commercial) use of drones, we can expect that citizens’ groups having an interest in ensuring that individuals’ security and privacy concerns are properly balanced will take notice and will join the dialogue.

One of those national organizations advocating for integrating commercial use of drones in the National Air Space (NAS) is the National Association of Realtors.  On September 10, 2015, ironically one day before the anniversary of the 9-11 event, testimony of the NAR’s president, Chris Polychron, was taken by a House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet at a hearing on “Unmanned Aerial Vehicles: Commercial Applications and Public Policy Implications.”  In his testimony, Mr. Polychron highlighted that:

“the potential applications for UAS [unmanned aircraft systems] technology in the real estate industry are plentiful and growing.  They provide the opportunity for real estate practitioners to take unique and informative photographs and videos of properties that in many cases would require many time-consuming trips, or even using a helicopter or small plane to obtain.  Using UAS technology to do the same thing is less expensive, less time consuming, and less dangerous to everyone involved.”

and

“UAS technology will be an important tool especially for commercial real estate practitioners who work with these types of properties, such as shopping centers, office parks, parking structures or large tracts of land which can’t easily be captured in a single image.”

 Mr. Polychron readily acknowledged the reality that increased private-sector use of drones brings increased concerns regarding security and the protection of privacy.  In so doing, Mr. Polychron addressed, with the House Judiciary Subcommittee, NAR’s interaction with both the Federal Aviation Administration (FAA) and the National Telecommunications and Information Administration (NTIA), and the work of these groups to develop industry-wide standards for best practices, including security and privacy protection practices to allow for broader commercial use in the real estate industry.

Currently, commercial use of drones is prohibited unless a “Section 333” waiver has been obtained from the FAA.  However, earlier this year, the FAA took steps, through the FAA Modernization and Reform Act of 2012, towards more easily integrating drones for commercial use by releasing proposed rulemaking on integrating small UAS for commercial use into the NAS.  According to Mr. Polychron, “[t]his is the first step toward a regulatory environment where commercial drone use is legal and has prescribed federal guidelines.”

The use of drones in the real estate industry may be as exciting to real estate practitioners as a Djokovic-Federer U.S. Open match-up is to tennis lovers (or a Timberlake tribute to Beyonce is to SNL faithfuls).  Whether the ultimate regulatory regime, in which commercial use of drones is integrated, successfully balances security and privacy concerns remains to be seen.  Stay tuned.

It has been a busy year for the National Labor Relations Board.  Many employees celebrated Labor Day with a long weekend and a shorter work week.  However, employers also must reflect on the NLRB’s recent activity and consider the impact of such activity on their policies and procedures.  Of particular interest to employers, the NLRB’s recent actions included decisions and pronouncements related to the following:

  • Employee use of employer e-mail systems: In its “Purple Communications” decision, the NLRB found that, if employers decide to give employees access to company e-mail systems, employers must also allow employees to use e-mail for statutorily-protected communications during non-working time.   This includes e-mails among employees related to union organizing or joining together to bring grievances against the employer and marks a break from prior NLRB decisions.  According to the NLRB, an employer e-mail system cannot be restricted to work matters, absent a showing of “special circumstances.”  The decision did not apply to “any other electronic communications systems” other than e-mail.  Therefore, at this time, “business use only” restrictions on the use of company telephones, instant messaging, and other messaging systems are outside the scope of the Purple Communications decision and are still lawful in the eyes of the NLRB.  The NLRB also stressed that the decision did not prevent employers from monitoring their computer and e-mail systems for legitimate management and business reasons, such as ensuring productivity and preventing e-mail use for purposes of harassment or other activities that could give rise to employer liability.
  • Scrutiny of Employee Handbooks: In 2015, the NLRB General Counsel issued a memorandum regarding the NLRB’s rulings related to many common employee handbook policies in non-unionized workplaces, including policies related to confidentiality, standards of conduct, social media, disparagement, communications with third-parties, and conflicts of interest.  In many cases, the NLRB found the policies overbroad and unlawful because employees could “reasonably interpret” the policy or rule at issue to prohibit protected activity under the National Labor Relations Act.   The General Counsel’s memorandum is consistent with the NLRB’s prior scrutiny of such policies and continues the NLRB’s trend of invalidating common employer policies.
  • Joint Employers: The NLRB refined its standard for determining joint employer status.  As the NLRB explained in a recent press release the Board found that two or more entities are joint employers of a single workforce if:  (1) they are both employers within the meaning of the common law;  and (2) they share or co-determine matters governing the essential terms and conditions of employment.  In assessing  whether an employer possesses sufficient control over employees to qualify as a “joint employer,” the NLRB will (among other factors) evaluate whether an employer has exercised control over the terms and conditions of employment indirectly through an intermediary or whether it reserved the authority to do so.

As employers look ahead to year-end, employers should review current employment policies, manuals, and handbooks in light of the NLRB’s (and the other federal agencies) flurry of activity in the past year and consider revising and updating their policies to ensure compliance with the NLRB’s rulings and guidance issued this year.  Employers must also be mindful of the NLRB’s rulings in applying employment policies.

A recent CNN article highlights the need for employers to consider employees’ religious accommodation requests.  Charee Stanley is a Muslim and a flight attendant for ExpressJet Airlines.  As a Muslim, Stanley is prohibited from both drinking alcoholic beverages and serving alcoholic beverages, including serving passengers on flights while working as a flight attendant.  At her supervisor’s suggestion, Stanley and another flight attendant arranged for the second flight attendant to serve any alcoholic beverages to any of the airlines passengers.  Approximately 3 months later, a third flight attendant complained because Stanley was allegedly not performing all her duties because she was not serving alcohol to passengers.  Thereafter, the accommodation was revoked, Stanley was suspended, and Stanley filed a discrimination charge with the U.S. Equal Employment Opportunity Commission.  Although the reported facts were a little thin, the article was brief, and the EEOC charge is currently pending, the article nevertheless serves as a reminder for employers that they must consider employees’ religious accommodation requests.  A link to the full CNN article can be found here.