In the e-discovery world, you need to be ready to make your case for using your proposed keyword search terms.

In the case of Custom Hardware Engineering & Consulting, Inc. v. Dowell, 2012 WL 10496, a dispute between the parties as to what search terms were to be used by the defendants to search for and respond to discovery made its way to the judge. The judge was not happy, and he “advised” the parties “to attempt with more civility to resolve similar discovery disputes in the future through agreement or other means.” The defendants wanted to limit the amount of potentially responsive ESI by searching only for exact matches of key search terms. The plaintiffs’ search terms (identified in their discovery requests) were much broader. The defendants argued that using the plaintiffs’ search terms would produce an unreasonable number of irrelevant results. The court rejected the defendants’ argument, finding that the defendants had not submitted evidence to support their contention. In addition, the court held there was no basis for that objection under the Federal Rules of Civil Procedure. The court found the defendants’ proposal would “fail to produce discoverable ESI simply because of an inexact match in capitalization or phrasing between a search term and the ESI.” The court said “whether information is discoverable under Rule 26(b) does not turn on the existence of an exact match in capitalization in phrasing.” The court said the defendants’ proposal would prevent the plaintiff from obtaining discoverable information and was inconsistent with the broad scope of discovery.

This case is another example illustrating how courts do not want to be put into a position of creating keyword search terms for parties. Courts prefer that parties resolve those issues among themselves. But, if you must involve the court, you need to be ready to establish, with evidence, how unreasonable a particular search term can be. The defendants in this case failed to do that.

Almost everyone knows insurance policies provide a defense and indemnity for insureds, if the terms and conditions of the insurance policy are met. Insureds include named insureds, other insureds (as defined by the policy) or additional insureds as provided by endorsement. However, insurance policies may also provide payment and defense to others who are not insureds under the policies.

Most liability policies provide coverage to the insureds for liability when the insureds have contractually agreed to provide indemnity and/or defense to or party to a contract. A typical example of contractual indemnity coverage can be found in a construction contract to supply labor and materials related to electrical wiring in the construction of a home, office, pipeline or oil rig.
Continue Reading Contractual Indemnity Coverage Under Someone Else’s Insurance Policy May Provide Coverage in Unexpected Places

Even for a “small company,” the failure to comply with discovery obligations to preserve electronically stored information (ESI) can be dangerous.  The case of Perez v. Vezer Industrial Professionals, Inc. 2011 WL 5975854 (E.D. Cal. 2011) involved a truck accident, but the lawsuit quickly reached the point where the plaintiff sought a default judgment against the defendant for failure to preserve emails and other ESI.  The court in Perez found the defendant had breached its discovery obligations, noting the following:

  • Two of the defendant’s executives, including the owner, admitted they made no effort to retrieve potentially relevant ESI from their computers.
  • The court rejected the defendant’s argument that it was a “small company,” that the case was not document intensive, and that most relevant communications took place by phone or in person.   The court said these facts were not valid explanations for the minimal to no effort made by the company to preserve relevant ESI, including documents sent, received, or created by key players.
  • According to the court, the fact that one of the key players’ computer crashed was “no excuse” given that the witness admitted he did not backup any of his ESI.  The court reiterated the following warning to lawyers:  “Defense counsel’s apparent failure, in this electronic age, to verify with appropriate representatives of their client whether there was an e-mail backup system, cannot be countenanced.”
  • The court found the company had “proceeded with business as usual, without making any special effort to retain ESI relevant to this litigation.”

Although the court concluded the death penalty (a default judgment) was inappropriate in the case, the court did award monetary sanctions.  This case is just another example that even small companies must pay attention to their ESI preservation obligations once those obligations are triggered.

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.
 

 

Kean Miller is pleased to announce the release of the ninth edition of the Practical Digest of Louisiana Class Action Decisions. The digest is produced by Charles S. McCowan, Jr., Bradley C. Myers, Gerald E. Meunier (Gainsburgh, Benjamin, David, Meunier & Warshauer), and Thomas F. Daley (District Attorney of the 40th Judicial District). The fifty-page book provides a digest of Louisiana class action decisions, classification by subject matter, and classification by certification disposition.

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.