Litigation Archives - The National Law Forum

“Don’t You Have to Look at What the Statute Says?” – IMC’s Oral Arguments

As we noted earlier on TCPAWorld, the IMC odds against the FCC might be better than initially thought due to the panel of judges from the Eleventh Circuit hearing the oral arguments. Oral argument recordings are available online.

And the panel did not disappoint in pushing back on the FCC.

The conversation hinged on the FCC’s power to implement regulations in furtherance of the TCPA’s statutory language. This is important because the FCC is limited to implementation, and they are do not have the authority “to rewrite the statute” as was mentioned in the oral arguments.

Judge Luck (HERE) had some concerns with the FCC’s limitations on the consumer’s ability to consent. The statute, according to Luck, intends to allow consumers to agree to receive calls. If that is the case, then a limitation of the consumer’s ability to exercise their rights is an attempt to rewrite the statute.

Luck agreed that implementing the statute is fine, but limiting the right of consumers to receive calls they consent to receive is over reach. Luck continued “Just because you [the FCC] are ineffective at enforcing the authority doesn’t mean you have the right to limit one’s right, a statutory right, or rewrite those rights to limit what it means.”

The FCC attempted to argue that implementation of statute by their very nature is going to lead to restriction, but Judge Luck pushed back on that. According to Luck, there are ways to implement statutes that don’t restrict a consumer’s statutory rights. This exchange was also telling:

LUCK: Without the regulation do you agree with me that the statute would allow it?

FCC: Yes.

LUCK: If so, then it’s not an implementation. It’s a restriction.

Luck was not the only Judge who pushed back on the FCC. Judge Branch (I believe because she was not identified) also strongly pushed back on the FCC’s restriction on topically and logically associated as an element of consent. Branch stated that the FCC was looking at consumer behavior and essentially stated too many consumers didn’t know what they were doing in giving consent. The FCC stated “I think we have to look at how the industry was operating…” only to be interrupted by Branch who questioned that statement by asking “Don’t you have to look at what the statute says?”

YIKES.

Finally, the FCC’s turn in oral argument ended with this exchange:

JUDGE: Perhaps the question should be “We have a problem here. We should talk to Congress about it.”

FCC: Congress did task the agency to implement here.

JUDGE: It’s given you power to implement, not carte blanche.

DOUBLE YIKES.

There was also a conversation around whether or not the panel should issue a stay in this case. The IMC argued that yes – a stay was appropriate due to the uncertainty in the market.

It’s pretty clear that the judges questioned the statutory authority of the FCC to implement the 1:1 consent and the topically and logically related portions of the definition of prior express written consent.

While we don’t have a definitive answer yet on this issue, we do know this is going to be a lot more interesting than everyone thought before the oral arguments.

We will keep you up to date on this and we will have more information soon.

Litigants Beware: Unjust Enrichment v. Quantum Meruit

The distinction between unjust enrichment claims and quantum meruit claims have long bedeviled courts and practitioners. In Core Finance Team Affiliates v. Maine Medical Center, the Law Court provided important guidance regarding the differences between these claims while leaving open a difficult question relating to the implications of pursuing one claim but not the other.

Core Finance involved a suit by a contractor against hospitals relating to the provision of services for reimbursement submittals. The contractor asserted claims for breach of contract and unjust enrichment. After a jury concluded that the contractor failed to prove the existence of a contract, the court held a bench trial and awarded damages to the contractor for unjust enrichment.

The Law Court reversed the judgment on narrow grounds—namely, that the contractor failed to “prove the damages recoverable under either a quantum meruit theory or an unjust enrichment theory.” The Court concluded that, absent proof of conscious wrongdoing, “the appropriate measure of damages” for an unjust enrichment claim is the same as for a quantum meruit claim: “the market value of [defendant’s] uncompensated contractual performance.” The contractor had not presented evidence of the value of its services; rather, its evidence focused on the increase in reimbursement to the hospitals (i.e., the value to the defendants of the services). Thus, the record did not contain a sufficient basis for correctly determining damages.

Although this holding is of note in its own right, it was preceded by a particularly notable discussion of the differences between a quantum meruit claim and an unjust enrichment claim. The parties had disputed whether the trial court should have considered the unjust enrichment claim at all, absent any quantum meruit claim. The hospitals argued that the contractor had to exhaust its legal remedies by pursuing a quantum meruit claim before pursuing an unjust enrichment claim.

Discussing this issue, the Court emphasized that a quantum meruit claim involves “recovery for services or materials provided under an implied contract.” It thus involves enforcement of a promise, and is a legal remedy. An unjust enrichment claim, by contrast, does not involve an implied contract, but rather involves compelled performance “of a legal and moral duty to pay.” Unjust enrichment does not involve any express or implied promise, and is an equitable remedy.

The Court went on to observe that it had “never stated that an unjust enrichment claim involving the rendition of services cannot be adjudicated until after the court has rejected a quantum meruit claim involving the same services.” Importantly, it then acknowledged that this “premise can readily be inferred” for two reasons: (1) the limitation on the availability of equitable remedies if there is an adequate legal remedy, and (2) the primacy over contract over unjust enrichment in the remedial scheme, which requires determining whether an express contract exists before considering quantum meruit or unjust enrichment claims. The Court noted that equitable remedies should be granted “only when there is not an adequate legal remedy,” and that “the court need not consider unjust enrichment if quantum meruit is an adequate remedy.” Having said all that, however, the Court declined “to explore the dilemma further,” instead resolving the case on the damages issue.

The Court’s lengthy discussion is dicta, but it is important nevertheless. Although the Court did not hold that the failure to bring a quantum meruit claim barred an unjust enrichment claim, the Court walked right up to that line. Its language certainly is suggestive that it would so hold if it had to resolve the issue. As such, Core Finance is an important guidepost for litigants considering which claims to bring in the alternative to a breach of contract claim.

Trial Tactics: It Starts in Discovery

Trial preparation starts in discovery.

Yes, that statement seems a bit ridiculous – especially considering the fact that the majority of civil matters will never see a courtroom – but working a case backwards with trial prep as a starting point is truly the only way to ensure you are truly doing everything in your power to zealously protect your client’s interests and fully develop your client’s defenses in each case. This is especially important if the majority of your practice is within the same subset of law, such as toxic torts.

Embracing the “work backwards” approach has a few key benefits:

It ensures that nothing will be missed or overlooked in discovery.
It prepares you for the unexpected.
It will ultimately save you time and effort down the line.

Thorough Discovery

The eve of trial is not the time to realize you still have questions about the allegations or facts in a case. Hindsight is always 20/20, and by working backwards you can ensure your path forward in a case is clear.

Preparing a trial cross of the witnesses offered for deposition forces you to conduct a more thorough examination during their deposition, which ensures that no questions are left unanswered – or worse, never even asked. You will also have to look at potential exhibits you would want to use at trial which will ensure discovery is fully developed with all the avenues explored.

If an expert deposition is coming up, drafting potential Daubert motions or motions in limine can help you to fully develop what you need to obtain from their deposition prior to same.

The Unexpected

During settlement negotiations, Plaintiff’s Counsel unexpectedly demands double what the case is worth, in an attempt to catch you off guard and force your hand as trial is approaching. However, since you have worked backwards for this case, you are ready to call their bluff or, better yet, go forward with trial on your client’s behalf.

By embracing this approach, you have already developed potential Daubert motions, motions in limine, and cross examinations of Plaintiff’s expected witnesses, which you used to draft your cross outlines for each deposition. Further, you also identified all the key documents you plan to use as exhibits and have already incorporated those in discovery or witness depositions.

Time Saved

It is true that some trial prep is best saved for right before trial – such as the final draft of your opening statement, cross examinations, etc. However, by taking the work backwards approach, the large portion of the substance – or the most time-consuming part – should already be completed for each trial task.

Arguably, it is an injustice to your client if you are not adequately preparing for all potential outcomes – no matter how unlikely or distant trial may be – but also just as important is it allows you to think outside the box and continue to develop your skills as a trial attorney.

Federal District Court Issues Nationwide Preliminary Injunction Barring Enforcement of Corporate Transparency Act

In Texas Top Cop Shop, Inc., et al. v. Garland, et al., a federal district court judge issued a nationwide preliminary injunction barring enforcement of the Corporate Transparency Act (“CTA”), finding that the CTA likely exceeds Congress’s powers. Therefore, at present, a reporting company is not obligated to comply with the CTA and the government is enjoined from enforcing the CTA’s reporting requirements. As expected, on December 5, 2024, the government entered a notice of appeal of the preliminary injunction and may still seek a stay of the preliminary injunction pending the appeal. If a stay is granted by the Court of Appeals, the reporting obligations would once again be in effect. The Court of Appeals could also decide to keep the preliminary injunction in place while an appeal is pending.

At this time, companies are not required to file Beneficial Ownership Information (“BOI”) reports, although they are free to do so should they choose. Indeed, the Financial Crimes Enforcement Network (“FinCEN”) issued guidance after the entry of the notice of appeal, stating as much: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.” (available at https://www.fincen.gov/boi.)

At present, it is unknown how long companies would be given to file if the preliminary injunction is stayed, modified or the law is ultimately upheld. However, FinCEN’s statement suggests that a reasonable extension of time for filing can be expected, though that is not a certainty. Of course, if the CTA is ultimately struck down, no filing would be required.

FCA Enforcement & Compliance Digest — Fall 2024 False Claims Act Newsletter

Welcome to the Fall 2024 issue of “FCA Enforcement & Compliance Digest,” our quarterly newsletter in which we compile essential updates on False Claims Act (FCA) enforcement trends, litigation, agency guidance, and compliance tips. We bring you the most recent and significant insights in an accessible format, concluding with our main takeaways — aka “And the Fox Says…” — on what you need to know.

In this Fall 2024 edition, we cover:

Enforcement Trends: Manufacturers challenge AKS intent requirement as reflected in recent denials of OIG Advisory Opinion requests.
Litigation Developments: Implications of Florida judge’s ruling that the FCA qui tam provision is unconstitutional.
Compliance Corner: What health care companies need to know about AI.
ICYMI: Federal Court Permits Investors to Resume Kickback Suit Against Teva

1. Enforcement Trends

Do Violations of the AKS Require a ‘Corrupt’ Intent? Manufacturers Challenge the OIG’s Interpretation of the Statute

In a series of recent lawsuits filed by the pharmaceutical industry against the US Department of Health and Human Services (HHS) Office of the Inspector General (OIG), manufactures are challenging the OIG’s interpretation of the Anti-Kickback Statue (AKS), arguing that violations of the statute require a corrupt intent. While courts have so far ruled in OIG’s favor, should a court accept this argument, the AKS regulatory landscape could be upended, providing health care providers and suppliers the opportunity to develop and implement arrangements that have historically been prohibited by the OIG.

The challenges to OIG’s interpretation of the AKS come in the context of OIG Advisory Opinion requests submitted by the manufacturers (or a related charity) proposing various forms of patient assistance programs under which the manufacturers or their related charities offer financial assistance to patients on the manufacturers’ products. The OIG denied each of the Advisory Opinion requests, finding that the proposed forms of patient assistance would constitute remuneration intended to induce patients to purchase the manufacturers’ drugs in violation of the AKS.

The OIG has consistently reiterated its opposition to manufacturer-operated patient assistance programs, with both the OIG’s 2005 Special Advisory Bulletin: Patient Assistance Programs for Medicare Part D Enrollees and the 2014 Supplemental Special Advisory Bulletin: Independent Charity Patient Assistance Programs noting that manufacturers cannot provide co-pay assistance to federal health care program beneficiaries, as doing so would constitute a kickback. However, the guidance also described the parameters under which independent charities can provide co-pay assistance, including assistance to federal health care program beneficiaries (i.e., Medicare beneficiaries). One of the key factors with respect to the operation of charitable patient assistance programs, is the independence of the charities operating the programs. While the independent charities are primarily funded by manufacturers, to be considered independent for OIG’s purposes, the charities must retain independence from donors. This means the donors cannot influence the design or operation of the patient assistance programs, and the programs cannot favor patients on the donor’s drug (e.g., assistance cannot be contingent upon the patient being prescribed a donor’s drug).

In three separate litigations, Pfizer Inc. v. United States Department of Health and Human Services, Vertex Pharmaceuticals Incorporated v. United States Department of Health and Human Services et al., and Pharmaceutical Coalition for Patient Access v. United States of America et al., manufacturers are challenging OIG’s long-held position that manufacturers cannot provide patient assistance, including co-pay assistance, to federal health care program beneficiaries. In doing so, the goal of the manufacturers is to provide assistance to patients, including co-pay support, either directly or through a charity that is not considered independent by OIG’s standards due to the relationship of the proposed charities to the manufactures and the level of influence by the manufacturers over the proposed charities. In each litigation, the manufacturer or, in the case of the Pharmaceutical Coalition for Patient Access (PCPA), the charity controlled by the manufacturers, is challenging an unfavorable Advisory Opinion issued by OIG concluding that the proposed patient assistance programs would constitute remuneration intended to induce patients to use a particular manufacturer’s products.

Under the arrangements proposed by Pfizer and PCPA, the proposed charities would be funded exclusively by manufacturers and would only provide support to patients on those funders’ drugs. In Pfizer’s Advisory Opinion request, the company proposed two potential co-pay assistance programs: (1) a direct co-pay assistance program and (2) a Pfizer-supported charity co-pay assistance program. Similar to the proposed Pfizer-supported charity co-pay assistance program, PCPA, an organization funded by manufacturers of Part-D-covered oncology drugs, proposed to create its own patient assistance program that would provide co-pay assistance to patients who meet certain qualifying criteria and then invoice each participating manufacturer for “the total amount of cost-sharing subsidies provided to eligible Part D enrollees.”

Vertex’s Advisory Opinion request focused on a proposed “Fertility Preservation Program” under which Vertex would pay fertility providers through a third-party vendor for the treatments provided to patients enrolled in the program. While this proposed program involved coverage of related treatment costs (i.e., the costs of the fertility treatments) rather than coverage of the co-pay costs associated with the Vertex drug itself, OIG nonetheless applied the same reasoning as in the Pfizer and PCPA opinions, concluding that the program would constitute remuneration to the patients in violation of the AKS.

In each litigation, the manufacturer (or, in the case of PCPA, the manufacturer-related charity) is challenging OIG’s position that the manufacturer’s subsidies constitute “remuneration” meant “to induce” patients to purchase manufactures’ products. The manufacturers argue that the AKS criminalizes conduct that “leads or tempts to the commission of crime” through “remuneration” that corrupts medical decision-making, as part of a quid pro quo transaction. In other words, according to the manufacturers, “to induce” requires a corrupt intent. Therefore, because the manufactures’ efforts to assist patients with meeting Medicare co-pay obligations or gaining access to Medicare-covered treatments (or treatments otherwise covered by the federal health care programs) are not done with malice or corrupt intent, such programs would not violate the AKS.

To date, no court has agreed with the manufacturers’ position. While Vertex is still pending trial in the District Court for the District of Columbia, the District Court for the Southern District of New York ruled against Pfizer, noting that “the law is clear that absent an express carve-out, the Anti-Kickback Statute prohibits any remuneration intended to induce someone to purchase or receive a drug or medical service.” Similarly, the District Court for the Eastern District of Virginia ruled against PCPA, concluding that HHS OIG’s “interpretation of the AKS adheres faithfully [to] the statute’s plain text, comports with its context, and does not offend its history.” On appeal, the Second Circuit affirmed the District Court’s decision in Pfizer, finding that an AKS violation does not require “corrupt intent.” Pfizer then appealed to the US Supreme Court, which denied certiorari. PCPA’s case is currently on appeal with the Fourth Circuit.

Should the Vertex court or a court of appeals agree that the statutory terms “induce” and “remuneration” should be construed more narrowly and require a corrupt intent to violate the AKS, AKS regulatory interpretation and much of OIG’s guidance could be called into question. Arrangements that have historically been viewed as suspect by the OIG could be considered compliant to the extent the parties lacked a corrupt intent to violate the law.

And the Fox Says… Ongoing efforts challenging OIG’s statutory interpretation of the AKS demonstrate manufacturers’ interests in narrowing the scope of prohibited activities under the law. Providers and suppliers should continue monitoring the ongoing litigation and any future efforts to challenge OIG’s interpretation of the AKS, as any judicial narrowing of the interpretation could provide opportunities to develop innovative arrangements that may be beneficial to patients. Regardless, developing compliant arrangements to benefit patients can be complicated, and legal counsel can help to ensure you remain apprised of all relevant developments and assist in structuring compliant arrangements.

2. Litigation Developments

What Is the FCA Without Its Qui Player? A Look Into Zafirov’s Future Implications and the Enforceability of the FCA Without a Qui Tam Device

As we previously discussed, a Florida federal district court recently held in Zafirov v. Florida Medical Associates LLC that the FCA qui tam provision is unconstitutional. The court reasoned that a relator who litigates an FCA lawsuit on behalf of the United States is not a properly appointed “officer” under Article II of the US Constitution and, thus, does not have the authority to serve in that position. This article examines several questions: What does FCA enforcement look like without a qui tam device? What questions did Zafirov leave unresolved? And what should one expect in the coming years as this issue is litigated on appeal and among other courts?

Can the government successfully enforce the FCA without a qui tam device? If, in the end, the qui tam provision is voided, that does not spell doom for the FCA. This is because the government still has the authority to file FCA actions itself and could hire many more attorneys to investigate and prosecute them. The government also has other mechanisms to entice whistleblowers to come out of the woodwork and inform it of wrongdoing. For example, recently, the US Department of Justice (DOJ) announced the “Corporate Whistleblower Awards Pilot Program.” This enforcement program compensates whistleblowers who inform the DOJ of original and truthful information concerning corporate misconduct. If the information leads to a successful forfeiture of over $1 million, the whistleblower is compensated. Currently, however, the program does not cover FCA claims. But the DOJ or US Congress could theoretically expand this program, or create a new one, to attract whistleblowers who have information concerning FCA violations. Under such a program, the government’s litigation of FCA claims would not be all that different from what happens currently. Rather than intervene in a meritorious FCA case brought by a relator, the government would file its own case based on information provided by a whistleblower. This would avoid the constitutional pitfalls identified in Zafirov. A post-qui tam landscape will certainly see fewer FCA claims being filed overall, but the government would likely file more FCA claims than it does now.

Still, many questions remain unresolved under Zafirov concerning the extent to which relator suits are constitutionally permissible. In Zafirov, the relator was litigating an FCA suit in which the United States declined to intervene. But what happens if the United States does intervene and takes over the case? Are those suits permissible? Does the relator act as an “officer” if her role is just limited to filing a lawsuit? Could the government get around Zafirov by intervening in more cases? Or are all FCA lawsuits filed by a relator invalid ab initio even if the government intervenes? If so, would Congress have to create a mechanism to appoint a relator as an officer for FCA purposes? In short, it is unclear how broadly Zafirov will be read. On one hand, it could be read to only apply to non-intervened cases. On the other hand, the very act of filing a complaint on behalf of the United States may require a constitutional appointment, and the government’s intervention would not cure that taint. These questions will remain unresolved until they are addressed by the Supreme Court.

Only time will tell what will happen as this issue percolates in the courts. Already, several circuit courts have upheld the constitutionality of the qui tam provisions. In the district courts located in circuits that have not yet addressed this issue, defendants are filing dispositive motions arguing that the relator’s appointment is unconstitutional. Though the decision in Zafirov is currently an outlier, it soon may not be as more courts consider arguments that rely on Zafirov’s reasoning.

And the Fox Says… Zafirov is significant because it may be the first blow to a significant enforcement mechanism on which the government heavily relies. But the qui tam provision’s fate is not set in stone. The relator in Zafirov will almost certainly appeal the decision to the Atlanta-based Eleventh Circuit Court of Appeals. That court’s decision may then be appealed to the Supreme Court. The appeals process for Zafirov may take years before the Supreme Court grants certiorari on the issue (if it does at all). In the meantime, the issue is not going away, and Zafirov is unlikely to be a one-off case. Those who are in the throes of an FCA investigation or litigation should raise this issue as a possible litigation risk or as an affirmative defense. The best possible time to raise this issue amid litigation is on a Rule 12(b)(6) motion to dismiss. Even if a case is past this point, Zafirov supports the position that such an argument is not waived, given that the issue goes to the relator’s very authority to bring the suit. So, defendants litigating a case brought by a relator should raise this issue as soon as possible. We at ArentFox Schiff will continue to monitor developments to help our clients navigate this ever-changing legal landscape.

3. Compliance Corner

AI Under the DOJ Microscope: How Health Care Companies Should Respond

Many companies, including health care companies, have incorporated artificial intelligence (AI) into their business practices. While historically, AI has largely been unregulated, that is starting to change. Recently, state governments have begun regulating the use of AI in the health care setting, as our colleagues summarized here regarding recently passed California legislation requiring health care facilities, clinics, and physician practices in the state to disclose the use of AI in communications regarding patient clinical information. Now, AI has the attention of the DOJ.

This past March, Deputy Attorney General Lisa Monaco indicated the DOJ’s interest in AI, stating at the American Bar Association’s 39th National Institute on White Collar Crime that “fraud using AI is still fraud.” Following Monaco’s statement, in September, the Criminal Division of the DOJ updated its Evaluation of Corporate Compliance Programs (ECCP) guidelines to require DOJ prosecutors to consider whether a company’s compliance program safeguards against misuse of AI or other emerging technologies. As a brief primer, the ECCP is a DOJ document that prosecutors use to evaluate the effectiveness of a corporate compliance program in determining whether to criminally charge a company. The document is published publicly and provides helpful insight into the DOJ’s expectations for companies as they build and implement their corporate compliance programs.

Under the updated guidance, the DOJ emphasizes that companies need to assess AI-related risks as part of their overall enterprise risk management systems. Specifically, a corporate compliance program must consider whether it has specific policies and procedures to prevent “any potential negative or unintended consequences” resulting from the use of AI in its business practices and compliance program. Additionally, a company should proactively conduct risk analyses of its use of AI and mitigate the potential for “deliberate or reckless misuse of technologies” by company insiders. Other key considerations are whether the company trains its employees on the use of AI, whether there is a baseline of human decision-making used to assess AI-generated content, and how the company implements accountability over the use of AI.

In its September update, the DOJ also revised a section of the ECCP, asking whether compliance personnel have access to relevant data sources to allow for “timely and effective monitoring and/or testing” of policies, controls, and transactions. A key consideration is whether the assets, resources, and technology available to compliance programs are comparable to those available elsewhere in the company. An imbalance in access to technology and resources may indicate a compliance program’s inability to detect and mitigate risks, particularly if a business unit is given unfettered access to AI tools while compliance lags behind.

Compliance officers at health care companies should take steps now to ensure that the implementation and use of AI within their organizations do not raise any compliance red flags. Consider the recent Texas Attorney General settlement with Pieces Technologies, a company that markets generative AI products, which resolved allegations that the company made misleading statements regarding the accuracy of its products. As part of the settlement, Pieces agreed to provide more explicit disclosures to customers related to how the company’s products should be used and the potential harm that could result from the products.

Providers using such technologies may encounter data privacy and security risks, including cybersecurity risks such as ransomware and malware attacks, bias and fairness concerns with respect to the training of the AI systems that may result in preference for a particular drug or treatment, and reliability and accountability concerns affecting a health care professional’s ability to provide patient care. With that being said, the DOJ could conduct investigations similar to the Pieces investigation against health care providers that use AI without considering these risks.

To help mitigate the risks associated with AI, including in the event of a DOJ investigation, compliance officers should be involved during all stages of discussions around AI initiatives, including through implementation and use. Compliance officers should ensure their companies have appropriate policies and procedures governing the use of AI once it is introduced to their organizations and provide training to employees both on the AI technology and on the policies governing its use. Finally, compliance officers should ensure they have the necessary access to AI systems to conduct compliance oversight measures. Such oversight measures may include assessing AI-related risks as part of their organization’s annual risk assessment, conducting AI-related auditing, and monitoring to help identify potential issues with the technology as they arise.

And the Fox Says… The DOJ’s AI-focused compliance guidance is a call to action for companies to proactively address the legal and regulatory implications of AI technologies, reminding them that the age of AI requires more than just innovation — it demands robust compliance strategies. Companies that conduct regular risk assessments of their practices must consider the use of AI, update policies and procedures to address its use, provide compliance teams with equal data access, and regularly update training on the lawful use of these technologies. Empowering compliance personnel and working with outside compliance experts to make these regular updates will put a company in a good position to meet these new standards. By embracing these guidelines, companies can mitigate legal and regulatory risks while leveraging the capabilities of AI technologies.

4. In Case You Missed It

Our most popular blog post from the last quarter: Federal Court Permits Investors to Resume Kickback Suit Against Teva.

BREAKING: Federal Court Enjoins Government from Enforcing Corporate Transparency Act

On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (the CTA).

The CTA, which went into effect January 1, 2024, requires “reporting companies” in the United States to disclose information about their beneficial owners — the individuals who ultimately own or control a company — to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

A group of six plaintiffs filed a lawsuit in May 2024 claiming that Congress exceeded its authority under the Constitution in passing the CTA. In a 79-page order issued by United States District Judge Amos L. Mazzant, the Court found that the plaintiffs were likely to succeed on the merits of their claims and, although the plaintiffs sought a preliminary injunction on behalf of only themselves and their members, the Court issued a nationwide injunction instead.

The Court’s order states that neither the CTA nor the implementing rules adopted by FinCEN may be enforced and that reporting companies need not comply with the CTA’s upcoming January 1, 2025 deadline for filing beneficial ownership reports.

The Court’s order is a preliminary injunction only and not a final decision. The Court’s order temporarily pauses enforcement of the CTA on a nationwide basis, but enforcement could resume if the Court’s order is overturned on appeal or the Government ultimately prevails on the merits.

Understanding the New FLSA Overtime Rule: Texas v. United States Department of Labor

This article is an update to “Understanding the New FLSA Overtime Rule: What Employers Need to Know.”

As you know, on April 23, 2024, the Department of Labor (DOL) issued a Final Rule modifying nationwide overtime rules under the Fair Labor Standards Act (FLSA). The Final Rule increased the salary thresholds in the salary level test for highly compensated and white-collar employees. Under the new Final Rule, salary thresholds for both highly compensated and white collar employees increased in two stages, with the first increase already occurring as of July 1, 2024, and the second increase set to occur on January 1, 2025.

On November 15, 2024, in State of Texas v. Dep’t of Labor, 24-cv-468-SDJ, the United States District Court for the Eastern District of Texas vacated the April 2024 Final Rule.

The district court’s ruling vacates the Final Rule in its entirety on a nationwide basis, including the portion of the rule that went into effect on July 1, 2024, as well as the further increase set for January 1, 2025. This effectively reverted the FLSA minimum threshold for white collar employees back to $35,568 and highly compensated employees back to $107,432.

In its decision, the district court recognized a two-month-old decision by the Fifth Circuit in Mayfield v. United States Department of Labor, 117 F.4^th 611 (5th Cir. 2024), which upheld the 2019 increase. In Mayfield, the Fifth Circuit concluded that Congress had “explicitly delegated authority to define and delimit the terms of the [e]xemption.” However, while the Eastern District acknowledged Mayfield, it nevertheless concluded that, while the DOL has the power to impose some limitations on the scope of terms identified in the white collar exemption, it does not have the authority to “enact rules that replace or swallow the meaning those terms have.”

Significantly, the court also relied upon the recent U.S. Supreme Court decision in Loper Bright Enterprises v. Raimondo, stating that “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” 144 S.Ct. 2444, 2273 (2024). Loper Bright is the much-publicized case that overturned the Chevron doctrine, which required courts to defer to an agency’s interpretation of the law. As such, Texas may just be the tip of the iceberg when it comes to battles between courts and agencies.

The Texas court reasoned that while the DOL can use a minimum salary threshold, it cannot do so in a manner that disrupts the other factors considered for the above-described exemptions. Under the court’s interpretation, the April 2024 Final Rule disturbed the balance of other factors, effectively making “salary predominate over duties for millions of employees.”

While this decision may have national implications, it is unclear whether the DOL will appeal the decision. In the meantime, the April 2024 Final Rule sits in limbo. Now, the question on everyone’s mind is simple: “What do we do with employees whose salary we changed in order to comply with the July 1, 2024 increase?”

9th Circuit Finds ‘Fruit Naturals’ Label Not Deceptive

The 9th Circuit Court of Appeals affirmed the dismissal of a class action alleging that Del Monte Foods, Inc., falsely advertised its “Fruit Naturals” fruit cups as “natural” despite containing synthetic preservatives. The original lawsuit was filed in early 2023 and dismissed in October of that year.
The fruit cups, which are labeled as “Fruit Naturals,” contain ingredients like potassium sorbate and methylcellulose gum. According to the plaintiff, Del Monte did not disclose that these ingredients are synthetic, and consumers are not “expected or required to ‘scour’ a product’s listed ingredients” to determine whether products are, in fact, natural. However, the district court found that, because the ingredients are specifically listed on the back label, the label was not “unambiguously deceptive” because the “front label, as clarified by the back label, [would not] mislead a reasonable consumer into thinking that the products don’t contain synthetic ingredients.”
In affirming the district court ruling, a 9th Circuit panel found that a survey cited by the plaintiff to support the deceptive nature of the label was uninformative because it asked respondents about the adjective “natural,” rather than the noun “naturals.” Here, the word is used as a noun in the name of the product. Further, the label depicts the picture and name of the fruit in the cups followed by the phrase “in extra light syrup.” This conveys that the fruit itself is natural, but the syrup may not be.
According to the panel, the labels are ambiguous, meaning that “’reasonable consumers would necessarily require more information before they could reasonably conclude’ that the front label makes a specific factual representation.” A reasonable consumer would look to the back label, which, here, “accurately and clearly discloses several synthetic ingredients,” thus resolving the ambiguity.

You See Health, Whistleblower Saw Fraud: Uncovering a $23 Million Healthcare Fraud Scheme

A whistleblower’s vigilance has led to the revelation of alleged Medicare and TRICARE fraud involving UCHealth, a healthcare system with locations throughout the state of Colorado. University of Colorado Health agreed to a $23 million settlement to resolve allegations of improper coding for emergency room visits subsequently billed to government-funded healthcare programs. The qui tam provisions of the False Claims Act empower whistleblowers—individuals with non-public knowledge of fraud against the government—to file a lawsuit on behalf of the government. The qui tam whistleblower in this case will receive $3.91 million or 17% of the settlement.

Summary of the Allegations

According to court documents, from November 1, 2017, through March 31, 2021, certain UCHealth hospitals allegedly engaged in a fraudulent practice concerning Evaluation & Management (E/M) emergency department facility claims. These claims, submitted to both Medicare and TRICARE, are intended to compensate hospitals for resources associated with patient visits, including medical evaluations and management.

UCHealth’s alleged fraudulent activity centered around the misuse of Current Procedural Terminology (CPT) codes, specifically CPT 99285. This code represents the “highest level of severity” in emergency department visits and requires comprehensive medical evaluations and examinations, and high-complexity decision-making. However, UCHealth reportedly manipulated the coding process by automatically assigning the highest severity code, CPT 99285, based on the frequency of vital sign monitoring rather than the actual severity of the patient’s condition or resource utilization. According to the settlement agreement, employees had complained about the overuse of the highest severity code, and the hospital system had been flagged by the Centers for Medicare & Medicaid Services (CMS) as being a “High Outlier” for that CPT code as well.

Upcoding Fraud Scheme

Upcoding and improper billing to Medicare and TRICARE are forms of healthcare fraud that involve misrepresenting the services provided to obtain higher reimbursements than justified. Upcoding occurs when a healthcare provider submits claims for more expensive services or procedures than were actually performed, such as billing for a comprehensive exam when only a basic consultation was provided. Improper billing includes practices such as double billing for the same service, billing for services not rendered, or charging for medically unnecessary procedures. These fraudulent activities exploit government-funded programs, increasing costs for taxpayers and undermining the integrity of healthcare systems.

The Whistleblower’s Journey

The case began when Timothy Sanders, a concerned individual, filed a qui tam lawsuit on April 28, 2021, under the False Claims Act. This legal action initiated an investigation into UCHealth’s billing practices. Whistleblowers are integral in exposing fraudulent activities within healthcare systems, as they possess insider knowledge that can lead to substantial recoveries for the government. By filing a qui tam lawsuit, individuals, such as the healthcare fraud whistleblower in this case, can bring fraudulent activities to light, potentially leading to significant financial repercussions for the involved parties. With whistleblowers, as the Principal Deputy Assistant Attorney General said, “We will pursue health care providers that defraud the taxpayers by knowingly submitting inflated or unsupported claims.”

Department of Labor’s New Overtime Rule Overturned by Federal Court in Texas

On November 15, 2024, in State of Texas v. Dep’t of Labor, the US District Court for the Eastern District of Texas overturned a Department of Labor rule that would have increased the number of employees subject to the Fair Labor Standards Act (FLSA). The rule established by the Department of Labor in April of 2024 increased the minimum salary at which executive, administrative, and professional (EAP) employees are exempt from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). In their opinion, the court held that the Department of Labor’s 2024 rule should be overturned because it was an unlawful exercise of agency power that went beyond the scope of the authority granted to them by Congress.

Impact of the Ruling

The ruling in State of Texas v. Dep’t of Labor impacts the entire nation because it prevents the Department of Labor’s 2024 rule from going into effect. As a result, the minimum salary threshold reverts back to $35,568 per year for executive, administrative, and professional employees to be exempt from overtime pay. The Department of Labor can still appeal this decision but with the impending change of administration, they are unlikely to do so.

Still, employers should keep in mind that despite this ruling, states are allowed to set a higher minimum salary for exemption than the ones set by federal law. In Massachusetts, an employee has a right to overtime pay if they work more than forty hours in one week and are not on the list of exempted workers. In Rhode Island, the minimum weekly salary for exempt executive employees is $200 per week. However, employers cannot use the exemption unless the employees are paid at least the standard minimum wage if their salaries are computed on an hourly basis.

Practical Takeaways

In light of the court’s ruling law, employers should:

Review the job descriptions and salaries of your employees to see if they are exempt from the federal standards set forth in the Fair Labor Standards Act.
Review your state laws regarding overtime pay.

Category: Litigation

Litigants Beware: Unjust Enrichment v. Quantum Meruit

Like this:

Trial Tactics: It Starts in Discovery

Like this:

Federal District Court Issues Nationwide Preliminary Injunction Barring Enforcement of Corporate Transparency Act

Like this: