Category: COVID-19

New Legal Duty for Employers and Employees Regarding Self-Isolation in England Comes Into Force

The UK Government has enacted The Health Protection (The Health Protection (Coronavirus, Restrictions) (Self-Isolation) (England) Regulations 2020, which came into force in England on 28 September 2020. Failure to comply with these regulations is a criminal offence, the penalty for which includes a fine of £1,000 for a first offence, with fines increasing up to £10,000 for subsequent breaches.

The new regulations place a legal requirement on employers and employees regarding the enforcement of self-isolation for individuals in England who test positive for coronavirus, or who have been identified as close contacts of someone who has tested positive for the virus. An employee who has been instructed to self-isolate must inform his or her employer (or agency, if the worker is an agency worker) of the obligation to self-isolate as soon as practicable. Failure to do this will amount to a criminal offence.

Once an employer is aware of an employee who has tested positive, it must not permit the employee to attend any place of work other than the place where the employee is self-isolating. (This does not apply if an employee is working from home.) Agencies must notify hirers of workers’ obligations to self-isolate.

An employee who is notified of the requirement to self-isolate whilst at the work premises must return home immediately as the period of self-isolation has commenced directly.

Valid forms of notification of the requirement to self-isolate are not specified in the regulations. The only form of notification that the regulations specifically exclude is the National Health Service’s (NHS) COVID-19 smartphone contact tracing app. Other than this, the regulations merely state that if an individual is notified that he or she—or someone with whom he or she has had recent close contact—has tested positive for coronavirus, the individual must self-isolate (usually for up to 14 days) in accordance with the regulations.

Additionally, the regulations do not specify how the employee should inform his or her employer of the obligation to self-isolate. A commonsense approach may be adopted and employers might need to accept that self-isolation could largely be self-certified, much like regular short-term sickness.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

ARTICLE BY Daniella McGuigan of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
For more articles on labor law, visit the National Law Review Labor & Employment section.

Coronavirus and the Constitutional Rights of Businesses: Butler v. Wolf

In Butler v. Wolf, Judge Stickman of the Western District of Pennsylvania issued an important ruling on Pennsylvania Governor Wolf’s coronavirus lockdown orders which impacts the Governor’s ability to re-impose some of the more draconian restrictions that he, and governors in New York, New Jersey, and elsewhere, put in place between March and June. Whether or not you agree with the result from a political standpoint, the decision is a must-read for anyone interested in the constitutionality of the ongoing, and unprecedented, government intervention in citizens’ daily lives in response to the coronavirus pandemic. Judge Stickman’s ruling touches on many civil liberties, including the First Amendment’s right to assemble, as well as the Fourteenth Amendment’s protection of the right to travel, the right to leave one’s home for any reason or no reason, the right to support oneself by pursuing a chosen occupation, and other rights.

This firm has litigated the constitutional rights of businesses —particularly the Fourteenth Amendment right to due process—on behalf of its clients, and readers of this blog will be most interested in Judge Stickman’s ruling that the orders shutting down non “life sustaining” businesses violated businesses’ rights to due process and equal protection under the Fourteenth Amendment. “An economy is not a machine that can be shut down and restarted at will by government. It is an organic system made up of free people,” and “[t]he ability to support oneself is essential to free people in a free economy.” Small businesses should also take comfort in this ruling, which prohibits the re-imposition of blanket closures of all businesses.

The Ruling

The plaintiffs in Butler v. Wolf included small businesses that sold furniture and health and beauty products; these businesses were shut down by the Governor’s orders, while Walmart, Lowes, and The Home Depot stayed open and sold the exact same products. The judge found that the lockdown orders unfairly favored these big-box retailers over the plaintiff small businesses because it “treated these retailers differently than their larger competitors, which were permitted to remain open and continue offering the same products that Plaintiffs were forbidden from selling.” The court noted it was “paradoxical that in an effort to keep people apart, [the Governor’s] business closure orders permitted to remain in business the largest retailers with the highest occupancy limits.” The Governor’s order, therefore, was not rationally related to combatting the virus, because closing a small furniture store “did not keep at home a consumer looking to buy a new chair or lamp, it just sent him to Walmart.” “In fact, while attempting to limit interactions, the arbitrary method of distinction used by [the Governor] almost universally favored businesses which offered more, rather than fewer products,” and which also, therefore “attract large crowds.”

Because the business closures treated two types of businesses differently, and that different treatment did not actually accomplish the stated goal of limiting interpersonal interactions to combat the virus, Judge Stickman found the lockdown order violated the Equal Protection Clause of the Fourteenth Amendment. Right now, this ruling applies only in the Western District of Pennsylvania (Pittsburgh and its surrounding areas), but once Judge Stickman’s ruling is appealed to the Third Circuit, the decision of that court (whether they agree with Judge Stickman or overrule him), will become binding in New Jersey, all of Pennsylvania, and Delaware.

The Big Picture

The ruling issued on September 14, 2020, only a few days shy of the 233rd anniversary of the founding fathers’ signing of the Constitution on September 17, 1787. It is fitting that the Judge wrote a lengthy and well-written opinion reminding us of the importance of the rule of law, and role of courts, even in times of crisis. As he stated, “[t]he liberties protected by the Constitution are not fair-weather freedoms—in place when times are good but able to be cast aside in times of trouble. . . . Rather, the Constitution sets certain lines that may not be crossed, even in an emergency.” Anticipating what will most certainly be many peoples’ reactions to the ruling—i.e., that we must do whatever it takes to protect ourselves from the virus—the Judge wrote:

[G]ood intentions toward a laudable end are not alone enough to uphold government action against a constitutional challenge. Indeed, the greatest threats to our system of constitutional liberties may arise when the ends are laudable, and the intent is good—especially in a time of emergency. In an emergency, even a vigilant public may let down its guard over its constitutional liberties only to find that liberties, once relinquished, are hard to recoup and that restrictions—while expedient in the face of an emergency situation—may persist long after immediate danger has passed.

As this author said in March, people following China’s response to the outbreak would have seen references to the idea that a democracy, like the United States, could not impose such severe restrictions on its own citizens. Then governors here did impose extreme restrictions as the virus spread and have openly stated that these restrictions will become the “new normal.” Judge Stickman noted the incongruity created by states adopting the same approach as China: “[i]t appears as though the imposition of lockdowns in Wuhan and other areas of China—a nation unconstrained by concern for civil liberties and constitutional norms—started a domino effect where one country, and state, after another imposed draconian and hitherto untried measures on their citizens.” But, the Judge found, “the Constitution cannot accept the concept of a ‘new normal’ where the basic liberties of the people can be subordinated to open-ended emergency mitigation measures.” That is why, as this author also predicted in March, the constitutionality of restrictions here, unlike in China, will be subject to judicial review if and when they go too far. Judge Stickman’s ruling in Butler v. Wolf came in one of the many cases now winding their way through the courts raising these exact types of challenges.

Nothing is certain, but it is likely that this case, and others like it, limit future “blanket” type orders, and force governments to take a more nuanced approach to combatting the virus (which includes deeper consideration of constitutional freedoms). Businesses trying to navigate the uncertainty created by government orders that have been ruled unconstitutional should consult experienced attorneys.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on COVID-19, visit the National Law Review Coronavirus News section.

Federal Judge Sides with Business Owners in Losses Resulting from Pandemic

A federal judge in Kansas City ruled that policyholders whose businesses have been interrupted as a result of the coronavirus pandemic may proceed with their cause of action against their insurers.

U.S. District Court Judge Stephen Bough of the Western District of Missouri who is presiding over a case involving multiple business owners ruled Aug. 12, 2020, that policyholders claiming a loss due to the pandemic may move forward with their cases because they made a plausible argument that their property losses were a direct physical loss attributable to COVID-19.

The seven business plaintiffs in the Kansas City case, led by Studio 417 salon, argued that coronavirus is a widespread airborne virus that very well could have been present in its business establishment, even though it might be undetectable by the naked eye. The presence of this virus rendered their businesses unsafe and unusable, thereby forcing their shutdowns by various municipalities or states’ orders. That shutdown, they argued, triggered their insurance coverage due to the presence of the virus that led to a physical loss even it did not cause structural physical damage. Studio 417, Inc., et al. v. The Cincinnati Insurance Co., Case No. 20-cv-03127-SRB.

Judge Bough ruled that under the ordinary meaning of “physical loss,” the policyholder suffered a loss when the spread of coronavirus led to prohibition or restrictions on their businesses. He cited a previous case of U.S. District Court Judge Catherine Perry of St. Louis in Mehl v. Travelers that denied summary judgment to an insurance company when a policyholder alleged his house was uninhabitable because of an infestation of spiders. “Mehl supports the conclusion that ‘physical loss’ is not synonymous with physical damage,” Judge Bough wrote in his opinion, and further commented that “other courts have similarly recognized that even absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.”

© 2020 by Clifford Law Offices PC. All rights reserved.
ARTICLE BY Clifford Law
For more articles on insurance, visit the National Law Review Insurance Reinsurance & Surety section.

With Retail Bankruptcies on the Rise, Opportunities for Distressed M&A Increase

While there were already a number of high profile retail bankruptcies in 2019, current economic conditions and pandemic-related market challenges have exacerbated an already difficult retail environment, which has led to a significant increase in bankruptcies in 2020. Year to date, more than 30 major retail and restaurant chains have filed for bankruptcy, which is more than in all of 2019. Furthermore, 2020 is on track to have the highest number of retail bankruptcies in 10 years. Although the Q4 holiday season often provides the strongest quarterly financial performance for many retailers, which may slow the pace of bankruptcy filings, projected holiday sales numbers may be uncertain this year, and additional bankruptcies are still likely to follow by year end.

Despite these bleak statistics, distressed companies may present attractive targets for strategic and private equity buyers with available cash or access to financing on favorable terms. Distressed M&A transactions may offer certain advantages that can be attractive to buyers, such as the potential to purchase at a discounted price or the ability to complete a transaction on an accelerated timetable. Already, the retail market has begun to see the reemergence under new ownership of some shuttered companies that were the targets of liquidation sales and distressed M&A transactions within the past two years. Some of these retailers have relaunched with modified business strategies, such as a significantly reduced number of brick and mortar locations or an exclusively online presence. The distressed M&A transaction opportunities resulting from existing market conditions will likely play an increasingly important role in overall M&A deal activity and could lead to a reshaping of the retail landscape in the near future.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more articles on bankruptcy, visit the National Law Review Bankruptcy & Restructuring section.

Eight Nebraska Football Players Commence Litigation Against the Big Ten Seeking Reinstatement of Their Season and Monetary Damage

On August 27, 2020, eight Nebraska football players commenced litigation against the Big Ten Conference in the District Court of Lancaster County, Nebraska. The lawsuit asserts that the Big Ten Conference’s cancellation or possible delay of the 2020 college football season was “arbitrary and capricious.” In support of the same, the student-athletes point to the SEC’s, Big 12’s and ACC’s decisions to move forward with their college football seasons.

The lawsuit alleges the contractual procedures required to cancel or delay the season were not followed. Moreover, the lawsuit asserts that although, the players are not parties to that contract, they enjoy certain rights as third-party beneficiaries and therefore have standing to assert those claims. Legally, the players’ assertion that they somehow enjoy third-party status is in my opinion extremely weak. Under Nebraska law, in order for the players to enjoy third-party beneficiary statute, “it must appear by express stipulation or by reasonable intendment that the rights and interests of such unnamed parties were contemplated and provision was made for them.” Properties Inv. Group v. Applied Communications, 242 Neb. 464, 470 (1993). In other words, the Court is likely to look to the express language of the contract or governing documents between the member institutions to determine whether or not it expressly or reasonably confers the rights to student-athletes to sue for violating the same. I expect that the express language of the contract between the 14 schools in the Big Ten does not give rights to their student-athletes to sue.

The lawsuit also alleges that because these players were permitted under Nebraska state law to sell their name and likeness the Big Ten’s decision to cancel or delay the season will result in damages. The players’ lawsuit alleges that the Big Ten tortuously interfered with their business expectancies. Factually, those claims are problematic because a review of the rooster, reveals that most of the plaintiffs are redshirt freshman with little to no playing experience. Moreover, based upon both the short and long term uncertainty concerning COVID-19, it will be extremely difficult, perhaps impossible for the players to prove that the Big Ten’s decision was “arbitrary and capricious.” Douglas Cnty v. Archie, 295 Neb. 674, 688 (2017). Nebraska law holds that an “action is ‘arbitrary and capricious’ if it is taken in disregard of the facts and circumstances of the case, without some basic which would lead a reasonable and honest person to the same conclusion.” In my opinion, based upon the medical and scientific data and the member institutions concerns for the health and well-being of their students, it will be next to impossible for the plaintiffs to meet that extremely high burden. Even if it turns out that the Big Ten made the wrong decision will not be dispositive to this issue.

The players’ lawsuit is also legally flawed because Nebraska law holds that damages cannot be speculative or conjectural. Pribiil v. Koinzan, 266, Neb. 222, 227-228 (2003). Although, the players assert that if they were given the opportunity to play, it would have resulted in them being able to sell their name and likeness, I suspect none of these players had contracts, endorsements or agreements when the Big Ten decided to cancelled or delay its college football season. If so, I believe the players’ damages would be speculative or conjectural and not subject to recovery. Because this is a legal issue, not a factual question, I suspect, the claim is likely to be dismissed at some point in the litigation.

I expect the Big Ten to file a pre-answer motion seeking the dismissal of the entire. I expect the Big Ten to assert that the players do not enjoy third-party beneficiary status, the decision was not arbitrary and capricious and that the alleged damages as asserted in the case are speculative and conjectural. While the Court in deciding a pre-answer motion to dismiss is required to assume all of the facts contained in the lawsuit are truthful and accurate, I suspect that most, if not all of the claims asserted in this lawsuit will be dismissed. Even if the damages issue were to survive a pre-answer motion to dismiss, I suspect after the completion of discovery the remainder of the case would be dismissed by way of summary judgment motion.

COPYRIGHT © 2020, STARK & STARK
ARTICLE BY Scott I. Unger of  Stark & Stark
For more articles on sports, visit the National Law Review Entertainment, Art & Sports section.

Returning Resident Visas and COVID-19 Travel

With global travel disruptions reaching six months, lawful permanent residents (LPRs) and conditional permanent residents (CPRs) who are abroad and cannot currently travel back to the United States due to the Coronavirus Disease 2019 (COVID-19) pandemic are experiencing extended absences from the United States. Absences from the United States between six months to one year by a permanent resident may result in questioning at the time of reentry to the United States by the inspecting officer. Absences from the United States of more than one year can be more problematic. Those LPRs or CPRs who cannot, for whatever reason, return to the United States within the required timeframe may need to secure a “returning resident visa” from a U.S. consulate or embassy abroad.

LPRs or CPRs who have remained outside the United States for longer than one year, or beyond the validity period of a two-year re-entry permit, may require a returning resident visa to re-enter the United States and resume permanent residence. The returning resident visa is intended for LPRs or CPRs who departed the United States with the intention of returning to the United States, and only prolonged their stay outside the country due to circumstances beyond their control. For an LPR or CPR, qualifying reasons for remaining outside the United States for longer than one year or beyond the validity period of a two-year re-entry permit could include, but are not limited to, severe illness, pregnancy, third-party withholding of passport or travel documents, or government restrictions on outbound international travel such as those that may have been caused by the COVID-19 pandemic. Returning resident visa applicants must be able to justify their excessive absence from the United States due to circumstances “beyond their control” while presenting sufficient support for their continuous desire to promptly resume residence in the United States due to strong and continuous financial, employment, family, and social ties to the country.

LPRs or CPRs abroad with the possibility of remaining outside the United States for longer than one year, or beyond the validity period of a two-year re-entry permit, should be cognizant of the requirement of maintaining and being able to document continuous financial, employment, family and social ties to the United States. Such documents could include copies of U.S. income tax returns, property ownership documentation, employment documentation, and evidence of family and social ties, among other relevant documentation. This documentation will potentially establish that the original intent of the trip was temporary in nature. Due to the infrequent availability of appointment dates as U.S. consulates and embassies worldwide gradually resume routine services following initial closures due to COVID-19, returning resident visa applicants are encouraged to plan their applications sooner rather than later to avoid prolonging their stays abroad even further throughout the application process, which is substantively similar to that of other immigrant visa applications and also requires a medical examination.

*Special thanks to Chris Costa for his valuable assistance with this GT blog post.

©2020 Greenberg Traurig, LLP. All rights reserved.

ARTICLE BY Jennifer Hermansky of Greenberg Traurig, LLP

For more articles on immigration, visit the National Law Review Immigration, VISA, USCIS, ICE, & DHS Legal Updates section.

COVID-19 Liability: Practical Guidance on Risk Management for Horse Shows and Competitions

As COVID-19 continues to alter our daily lives, many of us have found comfort in barn time spent with our four-legged friends.  With so many spring and summer events cancelled, we are eager to get back in the saddle and into the show ring.  However, the legal implications facing horse show boards and competition venues are complex and ever-evolving. Which rules and guidelines apply?  What if someone at the show has or contracts COVID-19?  How do we manage (can we manage) the risks inherent in a pandemic?  This legal alert will explore risk management for horse shows in the age of COVID-19, including best practices, the efficacy of COVID-19 waivers, and prospects for statutory immunity.

Meeting Your Standard of Care through Best Practices

“Standard of care” is the legal yardstick by which we measure whether a person or business is acting in a reasonable manner.  If a business breaches or violates its standard of care and someone is injured as a result, a judge or jury can find that the business is legally liable to the injured person.  The best way for horse shows to meet their standard of care is to follow best practices in planning and preparing for events.

Best practices start with having a detailed, written plan for how the event will address and minimize the risk of exposure to COVID-19.  A good starting place is the United States Equestrian Federation’s (USEF) Emergency Response Plan, which walks through the types of things to consider when developing a plan specific to your event.[1]  But simply having a plan is not enough – you must implement and live your plan.  From a liability perspective, having a plan that is not updated, followed, or that is even intentionally ignored, is worse than not having a plan at all.

Your plan should comply with all applicable requirements and guidelines from your governing body or bodies.  If you are a USEF affiliate or hosting a USEF-rated competition, your plan must incorporate the mandatory requirements found in the USEF’s COVID-19 Action Plan.[2]  In addition, check with your breed/discipline association and your state and local government for requirements or recommendations.  For example, in Kentucky, three sets of state requirements could apply: Minimum Requirements, Horse Show Requirements, and Venues and Event Spaces Requirements.[3]  The state requirements overlap with each other and with the USEF Action Plan on topics such as maximizing work from home and electronic options, staff health screenings, face coverings, and social distancing, but the Kentucky Minimum Requirements also require items like a plan to ensure testing of symptomatic staff within a certain period of time and mandatory staff training on COVID-19 and the applicable state requirements.

As part of living your plan, you should consider how you will enforce it and then train your staff accordingly.  Both the USEF and Kentucky require the use of face coverings.  Both also require that shows ask an individual to comply and, if the person refuses (and is not exempt), either deny entry to the person or remove the person from the show grounds.  What is your enforcement plan?  Think in terms of a tiered system of soft and hard enforcement.  Soft enforcement includes making masks readily available across the grounds, signs, floor markings for social distancing, and routine announcements reminding participants and spectators of masking and other protocols.  If you’re seeing sloppy compliance or non-compliance, soft enforcement can also be in the form of show management holding (socially distanced) trainers’ or competitors’ meetings to reinforce the importance of following the protocols.  It can also come in the form of hiring off-duty, uniformed police officers, since their presence alone can encourage compliance.  Hard enforcement means denial of entry, asking someone to leave, and, if necessary, escorting that person from the premises.  If you see persistent non-compliance from a specific barn or group, consider whether hard enforcement might mean banning them from competition.  Of course, the goal is to avoid the need for hard compliance.  Consider training your staff on de-escalation techniques and push the themes of “we’re all in this together” and “we want to be able to compete, so please help us make this show happen.”

Finally, your plan should recognize what you do not know and plan for contingencies.  Revisit the plan as our understanding of COVID-19 evolves and as applicable requirements and guidelines change.  Since as many as 40 percent of COVID-19 cases are asymptomatic, encourage employees, volunteers, and contractors to take advantage of free testing in your area before, during, and after the competition.  Consider having staff operate in small pods with minimal face-to-face interaction with other pods.  This could minimize disruptions in the event a staffer becomes symptomatic or has to quarantine due to potential exposure or an asymptomatic positive.  Consider the conditions and circumstances under which you would cancel the show.  Will you rely on local positivity rates?  Will you consult with state and local health departments?  How far in advance do you need to make the call to be considerate to participants, sponsors, venues, and staff?  An insurance check-up – like an annual physical – is always a good idea, but this is especially so in the age of COVID-19.  Check your liability policy for language excluding claims related to communicable or infectious diseases.  If your policy excludes coverage for these claims (or if the policy isn’t clear on the subject), ask your agent if you can add coverage.  It may be cost-prohibitive to do so, but at least you will have a better understanding of your risk.  If you have event cancellation insurance, make sure you know what the policy covers and the type of documentation you will need if you have to make a claim.

Shows and competition venues should consider all of these factors when tailoring their individual plans.  While meeting the standard of care will not always deter claims or lawsuits, following best practices provides a solid starting point for your defense in the event of a claim.  It documents the careful planning, preparation, and implementation that went into making the show reasonably safe for participants and staff.

Should You Use COVID-19 Waivers?

COVID-19 waivers (“COVID waivers”) are an increasingly popular tool used by businesses in an effort to limit legal exposure.  However, like many popular trends, we have yet to see if the waivers have any staying power.  From a litigation perspective, there are serious questions about their enforceability.    Asking someone to waive potential claims related to “the inherent risks of being in public during a pandemic” is a much more abstract concept than asking them to sign the typical “inherent risk of equine activities” waiver.[4]  We do not yet know all or even most of the risks associated with COVID-19 and, as a result, courts may not enforce COVID waivers.  To compound this concern, courts in a majority of states (including Kentucky) have found that waivers signed on behalf of minors are not enforceable in at least some situations.[5]  Even putting enforcement concerns aside, COVID waivers – like most waivers – generally do not protect against gross negligence or willful misconduct.  In the context of COVID-19, this could look like a show that fails to follow their plan or a participant or staff member who knows he/she is positive and, nevertheless, comes to the competition.

Despite all of these challenges, a well-written COVID waiver can be useful to establish that a person was given fair notice of the potential for exposure and the potential risks of that exposure and chose to participate anyway.  If you decide to use a COVID waiver as part of your risk-management plan, consider including the following features.

  1. Draft the waiver in plain English with minimal legalese.
  2. Make the waiver a standalone document.  Avoid using combination waivers that lump in the standard equine activities language with vague references to “communicable and/or infectious diseases.”
  3. State the known risks of COVID-19 and the scope of the waiver in a clear and conspicuous manner.[6]  Does the waiver include claims arising from negligence?  Is it limited to the show board/committee, the venue, and staff, or does it include claims against other participants?
  4. One COVID waiver per person, signed by that person.  Do not permit trainers to sign on behalf of participants.  Develop a system for participants to access, sign, and submit the waiver online but avoid using fine print with a “Click Here to Accept Terms & Conditions” box.
  5. Use a specific waiver for minor children that requires the person signing to warrant and represent that she/he is the parent or authorized legal guardian.
  6. Use the waiver as a vehicle for compliance.  Consider attaching a copy of the show’s COVID-19 participant requirements and safety protocols.  Include language in the waiver that references those requirements and states that the participant acknowledges receipt and agrees to comply.

As discussed above, a well-written COVID waiver has uses beyond enforceability.  Even if a court finds that the waiver does not bar a claim, your show will still have important written evidence that the participant was warned of the risk in plain English and chose to participate anyway.

What about Statutory Immunity?

Several states and the federal government have enacted – or are considering – some form of statutory immunity to protect businesses from COVID-19 related claims.[7]  States like Kentucky limit that immunity to certain sectors, such as health care providers and PPE manufacturers.[8]   At least 10 states offer immunity to a broad range of businesses through heightened burdens of proof.[9]  For example, under Tennessee’s new COVID-19 Recovery Act, businesses are protected unless a plaintiff can prove (i) causation by clear and convincing evidence and (ii) that the business acted with gross negligence or willful conduct.[10]  The former will likely require proof of a verified, contact-traced outbreak at the business, and evidence that the plaintiff was at the business during a certain window of exposure.

While statutory immunity can provide some liability protection, horse shows should view it as a backstop rather than the centerpiece of their COVID-19 risk-management plan.  As with any immunity statute, COVID-19 immunity statutes will face court challenges on a variety of issues from the scope of immunity to the type of proof required to meet any exceptions.  Even if your state offers immunity for your event, it is not a substitute for careful planning and implementation of best practices.

Final Thoughts

Risk management in the age of COVID-19 is an ever-evolving challenge, but identifying best practices and putting them into action can help horse shows rein in potential liability and provide safe opportunities for competition.  Know the applicable governing body, state, and local requirements, be smart about how you use COVID waivers, and never rely entirely on statutory immunity.  It is impossible to eliminate all liability risks, but careful planning and living that plan give shows, venues, and equestrians the best chance for a return to safe and fun competition.

Footnotes

[1]See United States Equestrian Federation, COVID-19 Emergency Response Plan, August 18, 2020, available at: https://www.usef.org/forms-pubs/4Tog688hc10/covid-19-emergency-response-plan–

[2]See United States Equestrian Federation, COVID-19 Action Plan, August 18, 2020, available at: https://www.usef.org/forms-pubs/XhKGVYiiwTA/usef-covid-19-action-plan-for-operating

[3]See, e.g., Minimum Requirements for All Entities, Kentucky Healthy at Work Guidance Version 3.0, effective July 10, 2020, available at:  https://govsite-assets.s3.amazonaws.com/PuhOvvxS0yUyiIXbwvTN_2020-7-10%20-%20Minimum%20Requirements.pdf;  Requirements for Horse Shows, Kentucky Healthy at Work Guidance Version 3.0, effective July 10, 2020, available at:  https://govsite-assets.s3.amazonaws.com/1bjXrMecSSeEy8LR3mDk_2020-5-29_-_healthy_at_work_reqs_-_horse_shows%20draft%203.0.pdf; Requirements for Venues and Event Spaces, Kentucky Healthy at Work Guidance Version 3.0, effective June 29, 2020, available at: https://govsite-assets.s3.amazonaws.com/wHu3QCJdS6Bleg8gV5qR_HAW%20Venues%20and%20Events%20Spaces%20-%20FINAL%20-%202020-06-22.pdf

[4]See, e.g., KRS 247.4027 of the Kentucky Farm Animal Activities Act which endorses the use of waivers related to participation in equine and farm animal activities.

[5]See, e.g., Miller, as Next Friend of her Minor Child, E.M. v. House of Boom Kentucky, LLC, 575 S.W.3d 656 (Ky. 2019) (holding that pre-injury liability waivers for commercial businesses signed by a parent or guardian on behalf of a minor child are unenforceable under Kentucky law.)

[6]See Symptoms of Coronavirus, Center for Disease Control, available at: https://www.cdc.gov/coronavirus/2019-ncov/symptoms-testing/symptoms.html?utm_campaign=AC_CRNA

[7] Congress has considered legislation that would impose strict nationwide limitations on COVID-19 tort liability.  In anticipation of a “risk of a tidal wave of lawsuits” the proposed bill offers immunity for businesses, educational, religious and nonprofit institutions, local government agencies and healthcare providers for exposing people to COVID-19. SeeSAFE TO WORK Act, S. 4317, 116th Cong., §2 (2020), available at: https://www.congress.gov/bill/116th-congress/senate-bill/4317/text

[8]See Kentucky Senate Bill No. 150, March 30, 2020; see, e.g., states including Alaska (S.B. 241, enacted April 9, 2020), Massachusetts (S2640, enacted April 17, 2020), New Jersey (S2333, enacted April 14, 2020), New York (S75006B-A90506B-Chapter 56 (Section GGG),and Wisconsin (2019 Wisconsin Act 185, enacted April 15, 2020, as well as the District of Columbia (B23-0734), have enacted similar protections for healthcare workers and personal protective equipment manufacturers.

[9] Like the contemplated federal legislation, some states have already enacted legislation limiting COVID-19-related civil liability for a broad range of businesses.  See, e.g., Georgia (S.B. 359, enacted August 5, 2020), Kansas (H.B. 2016a, enacted June 8, 2020), Louisiana (HB 826, enacted June 13, 2020).

[10]See Tennessee COVID-19 Recovery Act (SB 8002/HB 8001), August 17, 2020.

© 2020 Dinsmore & Shohl LLP. All rights reserved.
For more articles on horse racing, visit the National Law Review’s Entertainment, Art & Sports section.

District Court Strikes Down DOL Regulation Exempting Non-Healthcare Workers from Paid Leave

On August 3, 2020, the U.S. District Court for the Southern District of New York struck down part of a Department of Labor (“DOL”) regulation that would have prevented huge swaths of employees from taking paid leave under the Families First Coronavirus Response Act (“FFCRA”). The court’s holding has important consequences for employees who may need to take leave from work to care for themselves or others during the ongoing COVID-19 pandemic.

Congress passed the FFCRA on March 18, 2020, to provide paid leave for employees who are experiencing symptoms of COVID-19, are quarantined and cannot work because of COVID-19, or are caring for someone who is quarantined, or a child whose school or care provider is closed, because of COVID-19. In recognition of the essential role of frontline health care workers during the pandemic, however, the FFCRA permits an employer to deny an employee’s request for qualifying leave if the employee is a “health care provider or emergency responder.” The Act defines “health care provider” as “a doctor of medicine or osteopathy who is authorized to practice medicine or surgery (as appropriate)” or “any other person determined by the Secretary [of Labor] to be capable of providing health care services.” The Act also expressly authorizes DOL to “issue regulations to exclude certain health care providers and emergency responders from” from eligibility for paid leave.

DOL Expands Definition of ‘Health Care Provider’

On April 1, 2020, DOL issued a regulation implementing the FFCRA that significantly expanded the definition of “health care provider,” thereby excluding additional employees from eligibility for paid leave under the Act. The definition covered, among other employees, “anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, [or] pharmacy[.]” In its motion to dismiss, DOL conceded that its definition would encompass many employees who are not traditionally considered healthcare workers, such as professors, librarians, and cafeteria managers at a university with a medical school. In this sense, DOL’s new definition of “health care provider” created an exception that threatened to swallow the rule.

District Court Rejects DOL Definition

In its opinion invalidating the DOL definition, the court held that the FFCRA requires DOL to determine that a particular employee is “capable of furnishing healthcare services . . . not that [the employee’s] work is remotely related to someone else’s provision of healthcare services.” DOL’s definition, the court found, “hinges entirely on the identity of the employer, in that it applies to anyone employed at or by certain classes of employers,” as opposed to the identity of the employee, in violation of the statutory text. Administrative procedure law therefore “unambiguously foreclose[d] the [DOL’s] definition” of “health care provider.”  Finding further that DOL’s definition of “health care provider” was severable from the remainder of the regulation, the court simply invalidated that provision, restoring the definition of “health care provider” to the more limited one in the text of the statute.

The court also rejected DOL’s argument that its definition “operationalizes” the goal of “maintaining a functioning healthcare system during the pandemic.” Acknowledging that employees who “do not directly provide healthcare services to patients – for example, lab technicians or hospital administrators – may . . . be essential to the functioning of the healthcare system,” the court nevertheless held that this rationale could not supersede the “unambiguous terms” of the FFCRA, which require DOL to determine whether a particular employee can provide healthcare services.

Keeping Employees Safe 

More broadly, by enabling more employees to stay at home without sacrificing a paycheck, the court’s holding bolsters the FFCRA’s dual purpose of limiting the spread of COVID-19 while at the same time providing financial relief to American workers. The DOL regulation, on the other hand, would have forced employees to report to work despite symptoms of or exposure to COVID-19, increasing the risk of spreading the virus to others, or take leave without pay.

If you need to take leave from work because you are experiencing symptoms of or were exposed to COVID-19, or to take care of a loved one who is at home because of COVID-19, consider consulting with an employment attorney to determine whether you may be eligible for paid leave under the FFCRA.

© Katz, Marshall & Banks, LLP
ARTICLE BY Jessica L. Westerman of  Katz, Marshall & Banks, LLP
For more articles on healthcare, visit the National Law Review Health Care, Medicare, Affordable Care Act, HIPAA Legal News section.

COVID-19: CMS Issues Second Round of Groundbreaking Changes for Telehealth – What You Need to Know

The Centers for Medicare and Medicaid Services (CMS) has introduced a new crop of temporary regulatory flexibilities in response to the COVID-19 public health emergency (PHE) in the form of new blanket waivers, implementing guidance related to provisions of the Coronavirus Aid, Relief, and Economic Support Act (CARES Act) regarding rural health clinics (RHCs) and federally qualified health centers (FQHCs), as well as a new interim final rule (April IFC). This flurry of new guidance comes exactly one month after CMS published an interim final rule on March 30 (March IFC). The new guidance sets forth a historic expansion of telehealth services by fully expanding the list of permissible telehealth providers, significantly broadening the availably of audio-only telehealth services for Medicare beneficiaries, among other significant telehealth expansions. The new blanket waivers and the April IFC (except as otherwise specifically designated) are retroactively effective as of March 1, 2020.

This article discusses the telehealth waivers and flexibilities in this most recent guidance from CMS aimed at making health care available to Medicare beneficiaries in a manner that keeps both providers and patients safe during the PHE.

Expanded List of Eligible Telehealth Practitioners

A long awaited change is here! Now, for the duration of the COVID-19 PHE, physical therapists, occupational therapists, and speech language pathologists, along with all others eligible to bill Medicare for professional services, may furnish distant site Medicare telehealth services. Prior to this blanket waiver, only physicians, nurse practitioners, physician assistants, and other specified providers could deliver Medicare covered telehealth services. The new blanket waiver removes these restrictions. However, practitioners must still adhere to applicable state law practice and licensure requirements when performing telehealth services.

Audio-Only Telehealth Elevated

In the March IFC, CMS established separate payment for audio-only telephone E/M services, specifically including CPT codes 99441, 99442, and 99443. In response to stakeholder feedback that the use of these codes is more widespread than CMS expected—as well as CMS’s realization that the audio-only visits are appropriate for a higher intensity of service than initially anticipated—CMS is:

  1. waiving the required use of video technology, and is allowing the use of audio-only equipment to furnish services described by the codes for audio-only telephone evaluation and management services (E/M), and behavioral health counseling and educational services (the list of the designated audio-only codes can be found here); and
  2. increasing reimbursement for CPT codes 99441, 99442, and 99443 to more closely align with reimbursement for similar office visits.

Codes that may be billed without satisfying the interactive video requirement will have a notation in the telehealth code list indicating that audio-only is appropriate. The ability to receive these increased payment rates is retroactive to March 1, 2020. Also, while the code descriptors refer to an “established patient,” CMS is exercising its enforcement discretion during the PHE to relax the requirement that the audio-only services be limited to established patients. CMS reminds practitioners that the cost-sharing obligations are still applicable to these telehealth services in cases where the practitioner is not appropriately waiving the cost-sharing obligations.

Opioid Treatment Programs (OTPs) May Furnish Periodic Assessments via Telephone

Pursuant to the April IFC, during the PHE CMS is allowing OTP periodic assessments to be furnished via two-way interactive audio-video communication technology and, in cases where beneficiaries do not have access to two-way audio-video communications technology, the periodic assessments may be furnished using audio-only telephone calls, provided all other applicable requirements are met. CMS expects that OTPs will use clinical judgment to determine whether they can adequately perform the periodic assessment with audio-only phone calls, and if not, then they should perform the assessment using two-way interactive audio-video communication technology or in person as clinically appropriate. Regardless of the format that is used, the OTP should document in the medical record the reason for the assessment and the substance of the assessment.

Medicare Coverage of RHCs and FQHCs Provided Telehealth

Previously, RHCs and FQHCs were not able to be paid by Medicare for telehealth services as a distant site. However, as required by the CARES Act, Medicare will now cover and reimburse telehealth services provided by RHCs and FQHCs from January 27, 2020 through the duration of the PHE. The key flexibilities afforded to RHCs and FQHCs include:

  1. Any telehealth service listed in the Medicare telehealth code list may be provided by the RHC/FQHC practitioners and the RHC/FQHC must use HCPCS code G2025 to identify the services being provided via telehealth;
  2. Effective March 6, 2020, patients may be at any site, including their home;
  3. The services can be furnished by any health care practitioner working for the RHC or FQHC within their scope of practice; and
  4. The practitioners can furnish the telehealth services from any distant site location, including their homes, during the time they are working for the RHC or FQHC.

CMS released detailed guidance on (a) claims submission requirements for RHCs/FQHCs; (b) how CMS will go about reprocessing and paying claims; (c) the timing of processing; (d) special billing rules and requirements related to cost-sharing waivers; and, (e) other important information that RHCs and FQHCs should review in advance of billing for any telehealth services. CMS set a payment rate for these claims at $92.03 (average amount of all telehealth services on the telehealth service list, weighted by volume), which will be reassessed if the PHE extends beyond the end of the year. CMS hopes these changes will increase access to care for beneficiaries in rural and underserved areas.

Hospital Billing and Facility Fee Reimbursement for Outpatient and Home Settings

Now hospitals may bill for telehealth services furnished by hospital-based physicians to patients registered as hospital outpatients, including when patients are at home, provided the home is serving as a temporary provider-based department of the hospital. CMS stated that the March IFC did not specifically address billing for hospital outpatients. CMS also reminded providers that reasons for the visit must be documented in the patient’s medical record. As such, hospitals can bill for both the distant site provider fee and the originating site facility fee for telehealth services rendered by hospital-based practitioners, even for patients at home.

New Telehealth Code Approval Procedure

Ordinarily CMS adds codes to the telehealth code list as part of its annual rule making. CMS is now changing its process to allow for the addition of new telehealth codes to the designated Medicare telehealth code list on a sub-regulatory basis, without the need for notice and comment. This will allow for faster and perhaps more frequent additions to the telehealth codes list and scope of Medicare telehealth benefit. However, any codes added to the list during this time period will remain on the list only during the COVID-19 PHE.

Time-Based Level Selection for E/M Telehealth

In the March IFC, CMS allowed for the E/M level selection for office/outpatient E/M services furnished via telehealth can be based on medical decision-making or time for the duration of the PHE. In doing so, CMS referenced typical times associated with E/M services in the Medicare public use file. However, the times in the public use file do not always align with the typical times included in the office/outpatient E/M code descriptors, causing confusion in the physician community. CMS resolved this confusion in the April IFC by revising its policy to clarify that the times listed in the CPT code descriptor should be used.

Loosened Remote Physiological Monitoring (RPM) Billing Requirements

Historically, RPM service described by CPT code 99454 could not be reported for monitoring of fewer than 16 days during a 30-day period. However, in the April IFC, acknowledging that many patients with COVID-19 who need remote patient monitoring do not need to be monitored for a full 16 days, CMS, for the duration of the PHE, is allowing RPM services to be reported for periods of time that are fewer than 16 days of 30 days, but no less than 2 days, as long as the other requirements for billing the code are met. CMS emphasized that payment for when monitoring lasts for fewer than 16 days of 30 days, but no less than 2 days, is limited to patients who have a suspected or confirmed diagnosis of COVID-19.

Inclusion of Telehealth and Virtual Care in ACO Primary Care Services

For the duration of the COVID 19 PHE, for purposes of the Medicare Shared Savings Program, CMS is revising the definition of primary care services used in the program’s assignment methodology, for performance year starting on January 1, 2020, to include remote evaluation of patient video/images, virtual check-ins, e-visits, telephone evaluation and management services and telehealth.

What’s Next?

The breadth of these changes and speed at which they have been made undoubtedly illustrates CMS’s view of telehealth as a key tool in addressing the COVID-19 PHE. The question that remains is which of these changes will have staying power beyond the PHE and will industry supporters finally have their day when telehealth is simply an equal choice or option among others in health care delivery.

For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the websites of the CDC and the World Health Organization.

Foley has created a multi-disciplinary and multi-jurisdictional team to respond to COVID 19, which has prepared a wealth of topical client resources. Click here for Foley’s Coronavirus Resource Center to stay apprised of relevant developments, insights and resources to support your business during this challenging time.

Authored by:  Thomas B. Ferrante Rachel B. Goodman Emily H. Wein of 
Foley & Lardner LLP
© 2020 Foley & Lardner LLP

What to Do Now With Your CARES Act PPP Loan

A Warning

Those who have obtained Paycheck Protection Program (PPP) loans (or have applied or been approved for such loans but not yet received the loan proceeds) have been warned by the U.S. federal government to make sure that they, in fact, qualify for the loans. Secretary Mnuchin exonerated lenders who processed the loans and warned that it is the borrowers themselves who sign the application and make the relevant certifications who face potential criminal action for false certifications. Borrowers have now been given a grace period until May 7, 2020, to repay loans they may have obtained “based on a misunderstanding or misapplication of the required certification standard.” This short — now less than one-week — period gives PPP loan borrowers very little time to act and is aggravated by the ambiguity of applicable regulatory and other guidance as discussed below.

Thinking About What to Do

Borrowers are, and should be, asking, “what do we do about our PPP loan?” They are doing so in a unique moment. Indeed, a former member of a Congressional oversight board following the last financial crisis opined in the Wall Street Journal: “[B]orrower beware! Businesses with flexibility should seriously consider to what extent accepting the terms of federal loans or other support may be a Faustian bargain. The ultimate cost may dramatically outweigh the temporary gain.” Understanding the issues that inform the answer to this question, unfortunately, involves some detailed analysis as discussed below.

Broad Loan Availability Initially Heralded and Broad CARES Act Approach

The signing into law of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)on March 27, 2020, was heralded as a critical response to the COVID-19 economic crisis. The PPP loan program was enacted to make $349 billion of loan funds broadly available to qualifying businesses so that those businesses could keep their employees employed. In fact, following enactment, the federal government repeatedly encouraged businesses to apply for (and lenders to quickly process) PPP loans. Even as late as April 15, 2020, Secretary Mnuchin announced that “[w]e want every eligible small business to participate and get the resources they need.” In order to broaden its reach, the CARES Act affirmatively took action to cut back eligibility restrictions in the existing Small Business Administration (SBA) loan program through which PPP loans are administered, including:

  • suspending the requirement that borrowers must not be able to obtain credit elsewhere;
  • repealing the requirement that liquid owners contribute capital alongside an SBA loan;
  • creating a presumption that loan applicants were adversely impacted by COVID-19; and
  • reducing the breadth of the complex affiliation rules.

The SBA itself even published guidance allowing borrowers to restructure their governance arrangements to qualify for a loan.

A Continuing Changing Landscape; Making a Decision to Keep a PPP Loan

Since the passage of the CARES Act, the landscape has continued to evolve — sometimes daily — with ongoing guidance from the SBA and Treasury, whether in the form of Interim Final Rules (immediately effective upon publication in the Federal Register without first soliciting public comment due to the emergency nature of the situation), FAQ guidance from the SBA with new questions and answers added frequently over the past month, or mere public statements by public officials. Through the end of April — just a month into the CARES Act — seven formal Interim Final Rules for the CARES Act have been issued and 12 updates to the SBA’s FAQs on the PPP have been published. It has been difficult to find clear guidance and sure footing, even before the most recent government warnings.

A Sudden Shift in Approach

On April 23, 2020, after significant press reporting and commentary on those participating in the PPP loans, the SBA and Treasury Secretary abruptly shifted course with the publication of a new FAQ (Question 31) stating that the certification each borrower makes in its application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” must be made “in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business” (emphasis supplied). As to specific examples where certification might raise questions or get a closer look, an April 23 FAQ highlighted large public companies and an April 24 Interim Final Rule highlighted Private Equity (PE) portfolio companies. On April 28, Secretary Mnuchin made public comments promising audits of all loan amounts over $2 million, and then — also on April 28 — the SBA updated its FAQs twice to highlight this new certification interpretation as also applicable to private companies and to formalize the $2 million audit threshold requirement. In other words, virtually all borrowers must be cognizant of the certification that they made in their loan application.

What Does the Certification Mean?

Unfortunately, there is no real guidance as to what this certification means. However, one thing is certain — this certification and the question of access to “other sources of liquidity” will be judged in retrospect. It is anyone’s guess how long the “look back” risk will exist. Our experience is that these kinds of after-the-fact examinations have a long life. In this respect, a borrower may legitimately ask how it knows if it has access to liquidity — must a public company try to test the capital markets; must a PE fund owner consider drawing down on undrawn commitments or fund level credit agreements to fund a highly distressed portfolio company; will VC-backed companies be judged poorly in this context if their investors have large amounts of so-called “dry powder” to invest; and will private business owners have to evaluate their own wealth, liquidity positions, and borrowing capacity? These are all questions that have no ready answer through current SBA rules or guidance. The fact that the CARES Act “suspended” the normal requirement that a borrower be unable to obtain credit elsewhere and repealed the requirement of liquid owners to contribute capital has simply not been reconciled with the SBA’s new scrutiny on available liquidity, as the Treasury and SBA have leaned hard into the statutory certification requirement that any loan request must be “necessary.” Borrowers and applicants would be excused from asking what it means for the SBA to require liquidity that is not “significantly detrimental to the business.” Does that mean “significantly detrimental” to the current business owners (whether public company stockholders, PE or VC fund investors, or the owners of private businesses themselves) in terms of dilution or the like, or does this important phrase instead mean just what it says — such alternative available liquidity is not “significantly detrimental to the business” itself (e.g., financing that the business cannot make “work“ for any real period of time and which damages the business as a going concern)? Again, the SBA and Treasury have provided no clear answers.

The Other Key Certification Issue:

As borrowers evaluate their options to return loans before the expiration of the safe harbor on May 7, 2020, they must also focus on compliance with the SBA “affiliation” rules. The affiliation rules are complex and directly impact the question of who may apply for a PPP loan. This is because the way in which the CARES Act defines eligible borrowers largely turns on the number of employees involved, and an applicant must generally (under applicable regulatory guidance and rules, but subject to certain waivers set forth in the CARES Act itself) apply the SBA’s affiliation rules to aggregate its own number of employees with that of all of its affiliates. Thus, the application of the SBA’s affiliation rules is critically important to an applicant’s ability to make another certification in each PPP loan application: that “the Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the Small Business Administration (SBA) implementing the Paycheck Protection Program ….” So, in addition to the question of necessity for the PPP loan and alternate sources of liquidity, borrowers must ensure that they have considered the application of the affiliation rules (unless otherwise waived) in deciding whether to keep SBA loans.

Who Is an Affiliate Under the CARES Act?

According to the SBA, affiliate status for purposes of determining the number of employees of a business concern for PPP loans works as follows:

  • “Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both”;
  • “It does not matter whether control is exercised, so long as the power to control exists. Affiliation under any of the circumstances described [in 13 C.F.R. § 121.301(f)] is sufficient to establish affiliation” for applicants for the PPP; and
  • There are four general bases of affiliation that the SBA will consider when determining the size of an applicant: (1) affiliation based on ownership; (2) affiliation arising under stock options, convertible securities, and agreements to merge; (3) affiliation based on management; and (4) affiliation based on identity of interest.

As noted, these affiliation rules are both subtle and complex. Interestingly, even Congress did not seem to get the affiliation rules quite right in the CARES Act. In this regard, there are two SBA-related affiliation rules — rules set forth in 13 C.F.R. § 121.103 (Section 103) and rules set forth in 13 C.F.R. § 121.301 (Section 301). When Congress exempted certain business concerns from the affiliation rules for the PPP, it did so under the Section 103 rules. Yet, according to the SBA April 3 Interim Final Rule, it is, in fact, the Section 301 rules that govern affiliation for the PPP loan program (though the SBA explained that it would, consistent with the Congressional Section 103 waiver, also make that waiver applicable for Section 301).

Uncertainty in Application

As questions have arisen under these affiliation tests, borrowers who relied on them in submitting their application would be well advised to “double check” their analysis with appropriate counsel given the heightened scrutiny that will most certainly be applied in retrospective audits of PPP loan recipients. And, it is not just the application of the four bases of control that have given rise to questions of how the affiliation rules work, but the actual language of the CARES Act itself. In this regard, while the CARES Act clearly waives affiliation rules for “any business concern with not more than 500 employees that, as of the date on which the loan is disbursed, is assigned a North American Industry Classification System [(NAICS)] code beginning with 72,” the CARES Act itself has a separate and more expansive provision for NAICS code 72 companies allowing for more than 500 aggregate employees and which provides: “During the covered period, any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72 at the time of disbursal shall be eligible to receive a covered loan.” This seems to be clear and self-executing language. Indeed, both applicable House and Senate publicly available explanations of the CARES Act suggest as much, explaining that a qualifying borrower is “Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72, for which the affiliation rules are waived” (emphasis supplied). But, nowhere has the SBA specifically addressed the question of how these two specific NAICS code 72 provisions of the CARES Act are to be applied in conjunction with one another. Even the SBA FAQs seem to intentionally avoid addressing this issue head-on, leaving borrowers at risk for after-the-fact second-guessing.

The Criminal Issue

Secretary Mnuchin referenced criminal liability for a reason. During the past two decades, for every major crisis this country has witnessed, from the Financial Crisis to Hurricane Katrina, high levels of fraud were identified and addressed post-crisis. From the experience gained in prior disasters, the Department of Justice and other enforcers are well aware that fraud may occur under the CARES Act as well. They almost certainly realize that a strong way to prevent such fraud is to take an early, aggressive stance against misconduct. We would predict that U.S. law enforcement will seek to make extreme examples of the individuals who exploited COVID-19-related government assistance improperly and precluded the assistance from helping those actually in need.

The underlying criminal issues relating to PPP loans are relatively straightforward. The loan application itself makes clear that applicants are required to state they qualify, and advises that there are criminal penalties for knowingly making false certifications. Each applicant, by signing the loan application, makes the following statements:
I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.

This certification is essentially the same certification generally applicable to forms and information required by a bank or the government that involve applications for loans, grants or other financial assistance. The certification provides that if you knowingly mislead or lie on the application, you have committed a felony. However, the one completing such an application should endeavor in good faith to provide correct information. This means not simply guessing or blindly answering to expedite processing of the loan application or superficially making the certifications in question. In short, if you mislead in order to receive a PPP loan or lie to receive forgiveness, there is a material risk that the government will believe a felony has been committed.

As stated above, because of the intense pressure to protect the integrity of the PPP loan program and to deter widespread fraud, government enforcers may well use additional criminal statutes to prevent fraud on the United States and the banks. PPP-related prosecutions may involve the usual bank fraud, wire fraud and other common financial fraud statutes. These specific laws all have the common requisite element of deceit. Further, the government will clearly feel free to use whatever remedies possible to recover ill-gotten PPP money and assess related fines to make the U.S. taxpayers whole through various civil enforcement remedies. To avoid such criminal consequences, borrowers need to exercise their best efforts to provide the government with accurate information. There is no criminal liability for mistakes or inadvertent omissions, but when actions are judged retrospectively, trying to prove a lack of intent is not a situation any borrower would want to face. Of course, possible criminal prosecution is not the only redress or negative consequence that wrongful borrowers may face. There are, for example, civil penalties and actions that can be pursued by regulatory or government authorities, qui tam actions, and possible stockholder or equity holders claims against boards or managers, not to mention the potential negative press.

In Sum – This Much is Clear – Double Check, Document and Be Careful Either Way

It would not be surprising or unreasonable for business owners to ask how they are supposed to act with any comfort as to PPP loans given all the uncertainty noted above, with the Treasury Secretary highlighting criminal penalties in relation to improper applications, and with a new “safe harbor” loan “give back” period running only until May 7. It also would not be surprising to see those borrowers who can find a way to make it without the PPP loan decide to return PPP loan proceeds (or not accept funds that have been approved but not yet been received) — even when they have been truly harmed by the COVID-19 pandemic, even when they have always intended to use the loan to keep employees paid exactly as intended by the CARES Act, and even when they believe they qualify for the PPP loan. What is clear from all of the above is that not much is truly clear with respect to the eligibility criteria and certification requirements for PPP loans. What also seems clear — including from the most recent SBA rules issued April 30 stating that the maximum loan amount for a related corporate group will be limited to $20 million — is that loans (even big loans) for qualifying firms are legitimate.

Some Practical Points

Finally, those borrowers who ultimately elect to keep their loans should strongly consider working with counsel to create a contemporaneous, written record to support their certifications or their current decisions to keep those loans based on the certifications that were made at the time of the loan application. There are two key inquiries. First, the borrower should review compliance with the affiliation rules to support the eligibility certification. Second, the borrower should review support for its “necessity” certification, considering (for example) the following questions:

  • What were the specific facts and circumstances showing that the applicant bore financial hardship and faced material economic uncertainty?
  • Did the applicant consider its ability to access capital, including conducting discussions with those who were in a position to provide capital such as the applicant’s current lender(s) and equity holders?
  • Did the applicant prepare a forecast projecting its liquidity position and effect on the operations of not obtaining a PPP loan and that would demonstrate that the loan was necessary to support the ongoing operations of the borrower? Alternatively, did the borrower conduct any other financial review in connection with such certification?

Best practices would then have the foregoing crisply documented and reviewed and approved by the borrower’s board or other governing body. The written record should demonstrate that a bona fide, good-faith effort was undertaken to support the certifications truthfully. If this exercise cannot produce a defensible written record, then the prudent decision may be to return the loan proceeds, ideally before elapse of the grace period for doing so.

Authored by: Trevor J. Chaplick, Peter H. Lieberman & Nathan J. Muyskens  of Greenberg Traurig, LLP

 

©2020 Greenberg Traurig, LLP. All rights reserved.