Court Rules That Whistleblower Must Face Trial On Former Employer’s Claims

Life is not necessarily all skittles and beer for whistleblowers.  Sometimes, they are sued by the very companies on which they blew the whistle.  Such is the case in the ongoing case of Erhart v. Bofi Holding, Inc., 2020 U.S. Dist. LEXIS 57137.  Judge Cynthia Bashant limns the background facts as follows:

“Charles Erhart was an internal auditor for BofI Federal Bank. After Erhart discovered conduct he believed to be wrongful, he reported it to BofI’s principal regulator. BofI responded by allegedly defaming and terminating him. Erhart then filed this lawsuit for whistleblower retaliation under state and federal law. The next morning, The New York Times published an article summarizing the lawsuit’s allegations—causing BofI’s stock price to plummet. The Bank quickly commenced a countersuit against Erhart claiming he committed fraud, breached his duty of loyalty, and violated state and federal anti-hacking statutes. The Court consolidated BofI’s countersuit with Erhart’s whistleblower-retaliation action.”

In the cited decision, Judge Bashant grants in parts and denies in part Erhart’s and Bofi’s motions for summary adjudication.  The ruling is lengthy and tackles a variety of issues, some of which I hope to address in future posts.  Nonetheless, a key point for whistleblowers is that Judge Bashant is allowing Bofi’s claims against Erhart to proceed to trial, albeit on a limited basis.

When “Whistleblower” First Became Figurative

Recently, I endeavored to identify the first figurative use of the term “whistleblower” in a reported California opinion.  I was surprised that earliest case dates to the presidency of Ronald Reagan.  Interestingly, the Court addresses the very tension at the heart of Erhart:

“There is a great public interest in the truthful revelation of wrongdoing, and in protecting the ‘whistleblower’ from retaliation; there is very little public interest in protecting the source of false accusations of wrongdoing.”

Mitchell v. Superior Court, 37 Cal. 3d 268, 283, 690 P.2d 625, 634, 208 Cal. Rptr. 152, 161 (1984).  Many cases dating back to the mid 19th Century mention the blowing of whistles, but the references are to actual, not figurative, whistles.


© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

For more on whistleblowers, see the National Law Review Litigation & Trial Practice Section.

FCC Subjects Robocallers and Caller Identification Fraudsters to Increased Penalties and Broader Enforcement

On May 1, 2020, the Federal Communications Commission (FCC) adopted rules to strengthen protections against robocalls and the manipulation of caller identification information to misrepresent the true identity of the caller (known as caller ID spoofing).1 The FCC’s amended rules, which implement portions of the recently-enacted Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), streamline the procedure for commencing enforcement actions against violators and expand the statute of limitations applicable to FCC proceedings against robocallers and caller ID spoofers2 (see GT Alert, TRACED Act Subjects Robocallers to Increased Penalties, Outlines Regulatory and Reporting Requirements to Deter Violations).

The FCC’s changes to its rules include the following:

  • Eliminating the requirement that the FCC issue a citation to a person or entity that violates prohibitions against robocalling before issuing a notice of apparent liability if the person or entity does not hold a license, permit, or other authorization issued by the FCC. As noted by FCC Chairman Ajit Pai in the news release accompanying the FCC’s Order: “Robocall scam operators don’t need a warning these days to know what they are doing is illegal, and this FCC has long disliked the statutory requirement to grant them mulligans.” Caller ID spoofers are already subject to FCC enforcement actions without receiving a citation as a warning.3
  • Increasing the penalty amount to up to $10,000 for each intentional unlawful robocall in addition to the monetary forfeiture permitted under 47 U.S.C. § 503 (for persons or entities that are not FCC licensees or common carriers, the forfeiture penalty shall not exceed $20,489 for each violation and $153,669 for any continuing violation).4 Importantly, each unlawful robocall is considered to be a separate violation, so the potential forfeiture amounts could be very high.
  • Extending the statute of limitations applicable to FCC enforcement actions for intentional robocall violations and for caller ID spoofing violations to four years. Under the amended rule, the FCC may not impose a forfeiture penalty against a person for violations that occurred more than four years prior to the date a notice of apparent liability is issued. The statute of limitations had been one year for all robocall violations and two years for call ID spoofing violations. This change will significantly increase the timeframe of conduct subject to FCC enforcement and that can be included in a proposed forfeiture amount.

Conclusion

The FCC’s amended rules, consistent with the TRACED Act, are intended to discourage unlawful robocalling and caller ID spoofing by abolishing the “one free pass” formerly applicable to entities that do not hold FCC authorizations, increasing the penalties for intentional violations, and expanding the statute of limitations period. This is the FCC’s most recent action to implement the TRACED Act by strengthening protections against unlawful robocalls and caller ID spoofing. Other steps recently taken by the FCC include initiating a rulemaking proceeding to prevent one-ring scams (when a caller initiates a call and allows the call to ring for a short duration with the aim of prompting the called party to return the call and be subject to charges). Given the FCC’s significant focus on combatting illegal robocalling, it is important that companies that rely on robocalls to contact consumers understand the federal laws governing such calls implement procedures to ensure that they comply with those laws and regulations.


1 The Telephone Consumer Protection Act (TCPA) (which was amended by the TRACED Act) and the FCC’s implementing regulations generally prohibit the use of autodialed, prerecorded or artificial voice calls (commonly known as robocalls) to wireless telephone numbers and the use of prerecorded or artificial voice calls to residential telephone numbers unless the caller has received the prior express consent of the called party (certain calls, such as telemarketing calls, require prior express written consent) or is subject to specified exemptions. See 47 U.S.C. § 227; 47 C.F.R. § 64.1200.

2 The FCC issued these rules pursuant to an order, rather than utilizing notice and comment procedures, because the content of the rules did not require the exercise of administrative discretion. The rules will become effective 30 days after the date of publication in the Federal Register.

3 The FCC may issue a forfeiture order if it finds that the recipient of a notice of apparent liability has not adequately responded to the FCC’s allegations. The FCC may also seek to resolve the matter through a consent order which generally requires the alleged violator to make a voluntary payment, develop a compliance plan, and file compliance reports.

4 See 47 U.S.C. § 503(b)(2)(D) as adjusted for inflation. The FCC has authority to make upward or downward adjustments to forfeiture amounts based on several factors. See 47 C.F.R. § 1.80.

©2020 Greenberg Traurig, LLP. All rights reserved.

May is Motorcycle Safety Awareness Month: Please Drive and Ride Safely

May is Motorcycle Safety Month, which highlights the need for all drivers to be especially aware of motorcycles as well as all vehicles on the roads. With the recent beautiful weather, I’ve seen and heard more motorcycles in the last week than I have in months. Please be especially vigilant and respectful of others as you drive, whether you are on a bike, in a car, or truck.

Because we don’t see as many motorcycles during the winter months, we are not as sensitive to their presence and often simply do not “see” them. Many crashes occur when a car or truck makes a left turn in front of a bike or pulls out of a driveway or side street in front of one. Please, expect that more motorcycles will be out now and look twice or even three times before making a turn or pulling into a street. Also, be even extra careful when driving after dark as the single headlight may confuse you or look farther away than it actually is.

Motorcycles come in all shapes and sizes. Some are small enough to be blocked by your windshield pillars or rear view mirror. They may travel in your blind spots and be unseen and unheard by you.

Please do not rely on your hearing to warn you of an approaching motorcycle. While we may associate the sound of a bike with the presence of one, most of the sound we hear occurs after the bike has passed. Depending on its speed, a bike may “sneak” up on you from behind or from a side road. Rely more on your vision and extra effort to be sure you can make a maneuver or turn safely.

Also, we bikers must be very careful and respect all drivers on the road. Many of us have not ridden for a few months, and I recommend we all take it slow and easy during our first few decent rides of the spring. Make sure your bike is in good physical shape and do a thorough check to be certain everything is functioning properly before riding. Also, make sure to wear the proper gear. Make sure you dress warmly enough for the ride in cool air. Wear the proper helmet if you are riding in New Jersey or another state which requires one. Consider attending a rider safety refresher course if you have not had one in a while. While riding, remember that often the roads have more gravel and debris on them from spring rains so be mindful when riding on curving roads where you may not see a hazard until you are upon it. Ride at a safe speed for both the conditions and how you are feeling as well as your expertise. Always keep a safe distance from other bikes and vehicles.

All, please understand that bikers are taught to drive defensively and to assume others will not see them. Therefore, riders drive in the portion of the lane where it is most visible to other drivers. However, we riders want to be seen, we do not want to be invisible to anyone. We are not being obnoxious, rather we are practicing safe riding.

Both motorcyclists and motorists should recognize the dangers of driving at all times. By practicing a little more vigilance and looking twice, we can all stay safe on the roads.


COPYRIGHT © 2020, STARK & STARK

For more on road safety, see the National Law Review Utilities & Transport law section.

IMS Insights Podcast: Episode 9- Rudhir Krishtel On Mindfulness And Wellness For Attorneys Amid COVID-19

In this episode, Rudhir Krishtel joins us to share guidance on mindfulness and wellness for attorneys. He also provides tips and strategies to help with adjustments for those balancing the intense demands of a legal career during the uncertainties of the COVID-19 pandemic.

In his lawyer days, Rudhir practiced law for fifteen years as a federal clerk, patent litigation partner at Fish & Richardson, and later as senior patent counsel at Apple.

Today, he is a certified Co-Active Coach and facilitator, focusing on workplace wellness and intensity for law firms and attorneys. Many lawyers struggle with stress and lack of purpose in their practice. As a former lawyer, Rudhir coaches clients and hosts workshops to identify the issues that hold lawyers back from advancing in their career with clarity and fulfillment.

His work during his lawyer days led Rudhir to train as a yoga teacher through the Baptiste Institute and on mindfulness meditation through Warrior One. He also a Professional Certified Coach through the Coaches Training Institute & International Coaching Federation, and uses this training along with his experience as a practitioner to deliver much-needed support for the legal community. Details on Rudhir’s consulting and mindfulness workshops for attorneys can be found at www.krishtel.com.

Transcript

Teresa Barber: Rudhir, hello, thank you. I really appreciate you joining us today. Could you tell me just a little bit for our listeners… Tell us a little bit about your background as an attorney and a little bit about your consulting practice.

Rudhir Krishtel: Yeah, Teresa, thank you so much, and thanks IMS for having me here. I was practicing law for 15 years. I started at my practice as a federal clerk. I was ultimately a partner at Fish & Richardson in their patent litigation team in the DC office. Then for the last five years of my practice, I was senior in-house counsel at Apple out here in the Bay area where I moved to seven, eight years ago.

Rudhir: After 15 years of practice, I started to notice… What I started to see were cycles of behavior in the practice over 15 years, just ways that we all behave at work that I felt like were somewhat compromising to our practice. I started to notice that we accept that stress is a part, a natural part, of our work life. We wouldn’t get paid as lawyers at the rates that we charge, and we wouldn’t be able to do the work that we do if it wasn’t something that was challenging or stressful, so I totally understood that.

Rudhir: But there’s this interesting relationship where work caused stress, but then stress actually started to impact the quality of our relationships and ultimately the work product. It is this weird cycle where work causes stress but then stress impacts the work. I think everyone just accepted that as the norm, and I felt like this was a dialogue that we needed to have and a cycle in the system that we needed to improve.

Rudhir: It’s when I decided to leave the practice. Three years back I left the practice. I retrained first as a mindfulness instructor and yoga instructor. And not wanting lawyers on their yoga mats all the time, I ultimately trained as an executive coach. Now, I coach attorneys. I have a coaching business that’s Krishtel Coaching. I coach attorneys in their practice one on one, and we identify some of the most challenging aspects of your practice and try to move them out of the way so that attorneys have a more fulfilling practice. I also host workshops. I visit law firms and legal departments and host dialogue on ways that we can start shifting our culture, build a greater resilience, incorporate emotional intelligence and mindfulness practices. I also host online coaching programs and webinars on these topics.

Rudhir: The consulting and the coaching practice has evolved over the last many years. I’ve now coached over 100 attorneys, managing partners at law firms, general counsel at companies, a wide range of attorneys on really how they can be better for themselves and others in their practice and really trying to shift and improve our culture in the legal workplace.

Teresa: Rudhir, it sounds like you identified the need while you were in the boiling pan yourself and didn’t really see anyone meeting those needs. As you’ve worked now for a number of years with clients, especially at big law firms and at corporations in house, what have you seen as the return on it? It sounds like you also had a theory that if we start to apply this, it’s not only going to improve quality of life and wellness and balance, but will also impact work product. I would be interested in some antidotes from clients you’ve worked with so far.

Rudhir: Teresa, what you said first is what I want to tap into a little bit, which is what I did notice during my time at Apple. You make this switch from a partner in law firm to go in house, and we think about it as sort of this greener pasture switch, attorneys going in house. What I notice is I got more senior in the practice. With every level up, growing of the team, salary bump, promotion, whatever it was, every time the further I got up, the lonelier I felt.

Rudhir: It’s very interesting that here we are achieving this so-called dream, and yet I felt somewhat more isolated, and I’m a pretty social person. I’m the person at Fish that was head of recruiting for our office. I’m definitely the person that planned all of the March Madness pools and getting everybody back together outside of work. I’m that person. For me to feel somewhat isolated was really fascinating, to be naturally connected and connecting and yet feel lonely at the same time was a very odd experience.

Rudhir: But I felt it more and more as I got more senior. I started to realize, “Well, if I’m experiencing this, how many other people are experiencing this?” There’s this unique thing that happens in legal practices that we are shrouded in confidentiality and in adversity in this adversarial experience. There’s a lack of trust that we have oftentimes with our colleagues. The thing that’s most challenging for me at work, I’m not sure I’d be comfortable talking to my colleagues about, whether it be a difficulty with a technical issue or a difficulty with building business or a challenge with how I’m managing my team. Sometimes we’re not comfortable being necessarily open about that with our colleagues just because of the legal work environment.

Rudhir: I started to notice this, and I realized I’m so senior in this practice I wish I had my own set of advisors. I’m at this point where I’m generating enough revenue. I’m generating enough revenue for myself that small businesses generate. We’re in the hundreds of thousands now. Some lawyers are in the low seven figures in terms of their business generation and their income. Yet, I don’t know who my closest advisors necessarily are that I just deeply trust.

Teresa: Right.

Rudhir: I started realizing, “Well, if I’m having that issue, there must be other attorneys that are having this issue.” And it becomes even that much more compounded with intersectionality. Now we’re talking about women that might be having these challenges, attorneys of color that might be having these challenges, really everybody. When I started to notice this, I thought, “Here’s a space that I feel like we need someone to step into.” That’s the decision that I made. It’s very interesting. I work with a wide range of clients, and to sort of address your second question, the second part of your question, is it’s just been deeply valuable this work for the clients that I’ve worked with, and it shows up in many ways.

Rudhir: People don’t often think about connecting with… Well, let me say that differently, Teresa. When we have somebody in our corner that is willing to champion us, that is willing to hear us out, that is willing to co-strategize with us, that is sort of a peer in the practice and that has real confidentiality, so much is possible. I’ve sort of seen that with my clients. I’ve seen a lot of growth and evolution on people having much better relationships with their teams, managing their groups in healthier ways, finding ways to solve problems with some of the challenges they face in their teams, interacting with people in a healthier way, becoming that much more adapt at generating business and for people that are looking for some sort of a transition and feeling stuck really having place where they can start to dialogue and strategize and brainstorm on that, and we come up with just incredible directional shifts for people in their life and their business. This practice I feel like has been a huge benefit to the clients that I work with.

Teresa: You touched on something that was interesting to you a minute ago, Rudhir. You were talking about this feeling of isolation, social isolation. We’re talking today and it’s later in March 2020. Back on December 31, 2019, the World Health Organization first identified an epidemic in China. Today, we’re looking at shelter in place orders not only around the San Francisco Bay area but throughout that entire state possibly with more coming in other markets and many people now working in a brand new environment, work from home environment where those lines between family and work are blurred a little bit.

Teresa: Looking at the 2019 novel Coronavirus pandemic, this is unprecedented territory, with you and your work with clients, what are you seeing right now?

Rudhir: It’s very interesting because I tend to think that lawyers as I mentioned despite us working with each other and connecting tend to have somewhat more of a natural isolation and loneliness already. This is just me saying this. There have actually been studies. The ABA has put out studies. There are psychologists that have put out studies that identify and indicate that lawyers have less sort of a lower social tendency than others than most.

Rudhir: And so at a time when we’re now even doubling down on the isolation, I’ve seen a lot of challenge. I see lawyers that are expressing concerns over a lot of things. Here we have a group of people that are natural problem solvers, lawyers are natural problem solvers. We are always thinking ahead. As we think ahead, we’re thinking ahead to how long is this going to last. There’s an uncertainty.

Teresa: Right.

Rudhir: We’re thinking to how is this going to impact my business? For in-house attorneys the business that they’re in and corporation that they’re in, but for outside counsel attorneys, how is this affecting my business development and business generation? What does this mean for my income? What does this mean for my team? What might this mean for the health of my family and the people around me? What might this mean for others? There’s just a lot of concern layered on top of a business and a practice that already has us sort of in a position where we’re “constantly putting out fires.”

Rudhir: I think that what I’m seeing is a higher level of anxiety in some than what might usually be the case. I think when anxiety comes up, we are not at our best self. We are not behaving in a way that is sort of rooted in our best self. We’re being reactive. We are thinking about we’re in sort of a flight or fight mode. We’re thinking about ways that we can run and save things or we’re thinking about ways that we can sort of fix things right away. I think there’s a deep discomfort that’s happening in this moment.

Teresa: With the questions that you’re seeing from clients right now, I know you’ve set up a webinar right now. You’re providing some guidance to people who are looking for it. What can people do right now? With the sense of what do I have control over, there is so much certainty. What are you telling people right now?

Rudhir: Yeah. I set up a free webinar Wednesdays mornings at 9:00 a.m. Pacific, noon Eastern on mindfulness tools for managing uncertainty. I find that mindfulness practices, resilience practices, emotional intelligence practices are very much relevant in this time. I think that even just paying attention to the news has me at a slightly higher level of anxiety. I’m waking up a bit more tired than usual this week. It’s just very interesting. Not much has changed because we work from home my wife and I, and so for us to practice social distancing and kind of put a barrier around our house is actually not too different than what we’re usually doing.

Teresa: Right.

Rudhir: I’m slightly more on edge and slightly more tired. These practices of mindfulness and resilience and emotional intelligence, I think, are just really valuable in this moment. I’ve started to offer them out on a weekly webinar, just simple tools. For example, you asked what might be something that we can do. Lawyers, we tend to be very head heavy. I didn’t even understand what that meant a few years ago because I didn’t know what the difference was between that and anything else.

Rudhir: We tend to be thinking people. We’re valued for our knowledge. People want us for our advice, and we want to offer our advice. We’re problem solving. We always respect and value the attorney that “knows more.” So much of our work is in our head. Settling the body and settling ourselves in these times actually happens in the body. What percentage of our livelihood is our mind physically, and what percentage is our body? That’s an interesting question to ask. So much of us is our body. In fact, most, if not all of us, is our body.

Rudhir: One of the first tools that we talked about in this webinar was a body scan technique. A body scan is a meditation technique that allows us to just pay attention to what else is happening right now in our body. There’s just a lot of information there. Lawyers are great at gathering information. We’re incredible at intake. I think in this moment one of the tools is just actually take intake for yourself. We’re always asking someone else, “So what’s your problem? What happened? Who are the people involved?” Et cetera. The questions that I offer are, “What’s happening in my body right now? What’s happening in my breath? What am I noticing in my chest? Is it tighter? What am I noticing in my stomach? Am I at unease? Are my feet grounded? What happens? What’s the difference between grounding my feet versus sitting them elsewhere? What’s the quality of my breath? What’s my body temperature?”

Rudhir: I think when we scan our bodies… And on my website I have mindfulness audio recordings and guided meditations, and these are available all over the place. There’s apps like Calm and Insight Timer and Headspace. UCLA has an incredible meditation center, and they have some great guided meditations. I offer a few on my website at Krishtel.com. Basically, what we’re inviting people to do is actually just pay attention to what’s happening for them in a moment.

Rudhir: This isn’t something that we need to do all day. A body scan meditation can be 10 minutes of your day, five minutes of your day. Pay attention to your breath. Even right now is one of those podcasts, Teresa, if you just sort of take a breath and pay attention to what’s going on in your lungs and what’s going on in your throat and just breathe. You just notice sort of a different quality show up. We kind of exist in this on edge slightly underlying nervosa, and it’s normalized in our practice. I think we can in this moment because it’s even exacerbated, it’s slightly more acute because of all the information coming in and everything that’s changing, I think is an incredible time to pay attention to breath, pay attention to body and just what’s going on for us.

Teresa: That’s really helping in hearing you talk about almost an inventory of awareness. Rudhir, for those, wellness has been a buzzword that’s been around and gaining increasing traction and attention in recent years. Can you break down mindfulness for those that may not be familiar with that term and just help us understand when we say mindfulness, when you say mindfulness, what do you mean?

Rudhir: I’d love to. I’d start by actually just saying that when I started regularly meditating, it was the beginning of an incredible shift in my life both professionally and personally. It’s for those who are exploring meditation and dabbling, the commitment to a practice of 20 minutes a day, 20 minutes twice a day or even 10 minutes a day of mindfulness practices I think can be the beginning of a huge evolution and even revolution in your life in terms of how you feel and just fulfillment.

Rudhir: When I was at Apple about a year or two in, I started a daily practice of 20 minutes twice a day of meditating. I’ll tell you a little bit more about what is mindfulness and different ways of practicing. Just to kind of get people in tune with the benefits, I started practicing, and so much changing. Three months of regular practice, I committed to 20 minutes twice a day, and I did it because actually I paid for a class. When you pay for a class for some reason, it’s just like a gym membership. Something happens, and you’re like, “All right, I’m paying the money. I’m going to make a commitment.”

Rudhir: I make the commitment of 20 minutes twice a day. I’m a coffee drinker. It’s not the morning coffee. It’s the 2:00 p.m. coffee for all my friends at Fish and Apple. At 2:00 p.m. it was clockwork. I’d come around the halls and say, “All right, let’s just go get coffee.” I noticed after two or three months of practicing… It’s not like it has an alarm set, it’s just at that time of the day you start feeling a little bit tired. My morning energy is I’m ready to go. Around 2:00 p.m. it starts to wither.

Rudhir: I started to notice three weeks had gone by and I hadn’t asked anyone for coffee. I’m an engineer by trade. Trained as an electrical engineer, studied, became an IP attorney, so I need a logical underpinning for a mental practice. At least I did at that time. I don’t anymore. I’m all in now. But back then I sort of needed some evidence. The evidence was just clear. I have so much more energy that I don’t need coffee. I don’t drink coffee from 7:00 a.m. until midnight, and I’m just fully functioning.

Rudhir: I couldn’t believe the shift that happened for me in that moment that I was getting a physical benefit to a mental practice. That’s when I decided I was all in. I started to have healthier interactions professionally. I started to notice that things were slowing down. People talk about time is going by fast. That’s not a thing for me anymore. Time actually does not go by fast. I started to worry less about all the things that were coming and about what was happening. I just started to feel more present.

Rudhir: There’s so much energy there. The energy is because… And this is for the people that are just looking for the logic. If your mind is moving less, and it’s sort of moving at a less rapid pace, it’s triggering less emotions. If you think about when you pay attention to what your thoughts are in a two minute period, “What am I going to eat for lunch?” It’s the basic thoughts. “What am I doing this week? What’s my schedule? What am I going to eat for lunch? What’s for dinner? What’s happening with that meeting?”

Rudhir: Each of those thoughts… And you notice in a two minute period they just keep spinning. Each of those thoughts may trigger and may bring out an emotion. When emotions come up in our body that is a moment where your energy starts to get drained because an emotion can trigger you to hunch your shoulders, and you don’t even realize. It may start reducing… slowing down your breath. You don’t even know. When that email comes in from that challenging client or from that colleague, you sort of hold your breath.

Rudhir: Those little moments add up in the course of the day. In our jobs you can work from 8:00 a.m. until midnight, not leave your desk, and feel like you ran a marathon that day. Mindfulness and meditation practices start to slow that down. They start to slow down the rapidity of the thoughts. They start to readjust how reactive you are to these things. They relax your body in these moments when you might naturally be tense or stressed. You’re gaining back 5% to 10% energy.

Rudhir: There’s this book Ten Percent Happier. I relate to almost everything that’s in that book because you really are. Ten percent more energy in this moment can be huge. How much more energy do you have at the end of the day for your colleagues, your clients, your family? You just have so much more energy. Just 10% can make such a difference. You were asking about what is mindfulness, but before I go into that, I’m curious if any questions are coming up for you based on what I’m saying?

Teresa: Well, I’m just anticipating questions. I think seeing the email come in or thinking about the email, it’s not saying that email is not important or that client’s need isn’t important, it’s putting it into a place where we’re not maybe as reactive to it, where it’s kind of processed in a way that is a little more centered. Right?

Rudhir: Yeah. This is a great dovetail into what is mindfulness because I think there’s a lot there. When I think about mindfulness you’ll see a range of definitions. But I consider if we’re paying attention to ourselves, our thoughts, our emotions and our body, and noticing what’s happening with those things, without judgment. And the without judgment piece is actually really important because oftentimes what’s happening for us we might think is wrong or something’s not great about it or amazing about it. Mindfulness is actually just let’s just pay attention to what’s happening.

Rudhir: I talked about this body scan technique as sort of one way which is paying attention to what’s happening with your feet and your legs and your stomach and your lungs and your shoulders. When that email comes in as an example. We all know that email, that alert, that case alert. That colleague, that person we don’t like, all of it. It happens at least 10 times a day. Ten times a day, 20 times a day, 100 times a day you tense up when that message comes in, and just sort of noticing what’s happening in your body in that moment rather than necessarily solving the email. Because our first reaction is what am I going to say? You might notice the quality of your breath in that moment that you’re actually not breathing. It’s fascinating just taking a deep breath in that moment rather than reacting right away and just noticing what happens to your body that it settles.

Rudhir: Noticing what happens to your shoulders, they tighten up, that you sort of take a forward learning approach, that you might get uneasy in your stomach. All these things are happening. As we pay attention to that, when we’re responding to that email from that place, it’s actually fight or flight. We’re responding from a place of fight or flight. Fight or flight is sort of an old… It’s an old system. It comes from an old brain of ours. It’s the amygdala. It’s an old brain. It’s a lizard brain that we have. It basically really comes from this era and this time of evolutionarily when we were sort of fighting bears and lions. You’re sort of out in the wild and you’re worried about fight or flight. Either I attack this thing that’s in front of me or I’ve got to leave.

Teresa: Base survival.

Rudhir: It’s survival. Yeah. By and large in our legal office, outside of that scary partner in the corner, there’s no bears around. There’s no tigers. For us to be experiencing fight or flight as much as we do in the course of our day is really a ratio that it happens versus the actual need is way out of proportion. The other thing is that creativity, centeredness, true leadership, aren’t happening when we’re in fight or flight. We’re not coming from a collected and a gathered place. We’re coming from a reactive place.

Rudhir: When we write a brief in a case, we don’t write a react, we write a response. I use these two words differently. There’s reacting, and there’s responding. I think responding comes from a place when we gather data and information, we use our wise lawyer selves, we are using wisdom, and we are responding in a gathered and a collected way. We’re reviewing. We’re able to come back to people from a centered place. That’s what we want in our briefing. That’s what we want in our responses to our colleagues, in our communications. We end up feeling in a reactive place, and so it’s fight or flight. It’s like, “If they say something, I can defend myself,” or “I’m going to avoid this email for a few hours because I’m nervous about what’s going to happen.”

Rudhir: So all these things come up. But when we take a breath we notice what’s happening in our shoulders, we notice what’s happening in ourselves, we notice the thinking and the nervousness that might be happening in our head. Maybe we can respond in a healthier way. Maybe we can slow down some of that movement and gain some energy back.

Teresa: Interesting using the word creativity. We’re in a transformative moment. Whether it’s a temporary transformation or whether we’re going to see lasting effects. We have the White House signing the Defense Production Act. Many people working from home. I’m sure for many there’s a lot of scary elements to what we’re seeing with the public health crisis around COVID-19. You and I we’ve had some earlier conversations about possibilities out there, but what do you see, Rudhir, right now as possible in this moment?

Rudhir: We have to be very thoughtful about many people whose health is being compromised in this moment, and we have to really be thoughtful about many people whose lives have shifted and are challenged by access to resources and hourly workers and wage workers whose jobs are being eliminated in the short term. There’s a lot of challenge and compromise that’s happening at this moment. We want to make sure that we keep our awareness on that.

Teresa: Right.

Rudhir: I actually feel like interestingly enough a lot is possible in this moment. I think there are new ways that we’ll be able to connect with people and we’ll be testing out. For example, this webinar that I’m doing or the greater number of video calls and group calls that I’m having online where people are finding healthier ways to interact. I actually think it’s an incredible time to call that colleague or that contact that you haven’t been in touch with for a while and just say, “Hey, how are you doing?” And just get on the phone or get on a video call and just listen and be with somebody and connect in a way that you might not have otherwise.

Rudhir: I do feel like people might have a little bit more time now, and if you think it’s a time where, for example, business development dies down, I think actually it’s the exact opposite. People are looking to connect in this moment, so fill that void. Finding new ways to connect right now, to reach out, to interact, to connect with your families and yourselves, I think that’s huge in this moment.

Rudhir: I think time alone can be an incredible time for coming up with new solutions and to be creative. I think about Isaac Newton came up with some of his most valuable theories, the roots of calculus, and the basic understandings that we have on gravity, some of the most critical theories that he came up with were during the Plague when he had to leave Cambridge and isolate during that moment.

Rudhir: Social distancing, this isn’t the first era of social distancing. This has been going on with every pandemic that we’ve experienced in the history of time. Even in that moment he came up with some of the most valuable scientific principles and mathematic principles that we lean on today. There’s this huge opportunity in this moment to be creative, to think about what’s possible.

Rudhir: And as lawyers we are in this service industry, and so there’s this incredible opportunity to think about what are the new ways and the different ways in which we can serve others and add value? When we are reactive and in fight or flight, we aren’t thinking from that place. We’re wondering how to protect ourselves or wondering how… what’s going to happen to us. But when we start slowing down and rooting in, we remember that there’s so much possible in this moment for all of us, so many systems that we can build to serve our clients and to support our colleagues.

Rudhir: I’m going to be offering team building webinars in the next few weeks. Here’s an opportunity. Your entire team is isolated. How do we stay connected in this moment? So maybe we jump on an hour and a half Zoom call, and we actually do a team building exercise, facilitated exercise, in this moment. For me, I just feel like so much is possible, and it’s time to really start thinking about creative ways that we can connect with others, which we all need as humans and in our professions, and so what are the ways that we can do that now?

Teresa: That’s really interesting. We’ve been hearing talk about… We’ve all been hearing the guidelines around social distancing, but moving to the term physical distancing to recognize that we need… We still as humans we still need a little bit of that connectivity that you’re talking about. Interesting. Rudhir, some of the resources we’ve been monitoring and sharing with our clients have been resources you have been sharing with broader audiences. Can you talk to us about what’s out there right now? What resources are there? You’ve really been pouring a lot of your focus to provide some guidance and help right now in the recent days and weeks. What’s out there right now? What are you working on, and what could you suggest as resources for people?
Rudhir: Well, we mentioned it once already, but I’m doing this weekly webinar on mindfulness tools for handling uncertainty, and I’m doing this every Wednesday morning through my relationship on the co-chair of the wellness committee for the National Asian Pacific American Bar Association. We’re doing a similar webinar on Thursdays every week right now, myself and a mentor of mine, Angela O., are doing this webinar every week for that community.
Rudhir: I’m talking with the Association of Corporate Counsel on putting out a webinar on what tools we can use to manage the challenge. There’s a couple of bar associations that I’m working with on how we can exhibit our leadership in this moment. How can we show leadership in this moment of challenge and difficulty? From my perspective, there’s a lot of offering that’s happening in this moment, and I think what’s really beautiful and really nice about the community is actually seeing all the things that are being offered up in this moment and ways that we can support each other.

Rudhir: I think it’s a great time to pay attention and listen and get online and see what’s being offered by others. There’s a lot of opportunities to interact in workshops and dialogues and ways to connect from home right now that I think people should be tapping into. I think it’s also just a time to connect for people that have the luxury of doing that with family in their home or even with nature. There’s no restriction on necessarily going out in some areas and actually just taking a walk and connecting in that way.

Rudhir: I do workshops on building resilience. Part of those dialogues we talk about, “What’s restorative for you?” What’s restorative for you? The answers that people typically come up with are things that are just very accessible to us even in this moment, which is time with my family and my friends, connecting with my pets, eating a really good meal, watching a good show, taking a walk in nature. All of these things people find restorative are by and large free and still very accessible to us in this moment.

Rudhir: This might just be a nice healthy hibernating moment for all of us. I think that another thing is this is actually a great opportunity for skills building. I work with a range of clients. For some of them, presentations and stand up are something that they like working on. There’s nothing stopping people from being at home and recording a presentation and seeing how they are. When we start thinking about what’s possible in this moment, I feel like there is so much opportunity.

Teresa: One of the other areas, we were discussing earlier, Rudhir, related to the new work at home scenario. Looking at the normal heavy workload that an attorney deals with, at least having that separation between work and home, without being blurred now, which not the case for you necessarily. You’re accustomed to it. What guidance are you providing right now for how to handle that new blurred line and how to handle what is really a novel situation for many professionals and especially for attorneys?

Rudhir: I think that it’s very interesting seeing this transition that people are making to being at home. Luckily, I’ve been working at home for a few years now, and so this transition wasn’t so difficult. I definitely feel like there are things that we can do to make this that much more comfortable. First, I think for people that don’t work from home a lot, it’s actually setting up a comfortable situation for sitting.

Rudhir: Some people might think this is the time to just work at the dining table or in that uncomfortable chair, but we might be here for a while. Maybe it’s time to get a nicer chair, a nicer desk at home. Maybe it’s time to invest in that, a standup desk or something, a chair that’s got good support for you. So actually just sit in a place that’s comfortable and not necessarily in the thing that you might default to when you do a little bit of work from home.

Rudhir: Second, I think that things that are really helpful are really when we’re working from home the boundaries really start to fade between work and home literally. There’s really no boundary anymore. You might have this urge to almost work all the time. There’s really no limit to it. I think there’s this mentality around clocking in and clocking out that I think can be a really welcome shift in this moment.
Rudhir: If you’re putting in certain hours, actually when does the pen go down? When does the laptop get shut? What are the few hours during the day where you’re actually just doing the thing that you need to do to take care of yourself or center? For some people, they’re not commuting anymore. They use that commute time as the period to transition from work to home. Create that transition period for yourself. Sit for five or ten minutes and do nothing and allow the mind to settle and shift. Let’s not just use all of our time now or fill all of that time with work because doing that along with all the information that’s coming in and the way that the world is changing can really start draining you further.

Rudhir: I think healthy boundaries with work right now are imperative and actually maybe just creating some mental shifts. When I go down to the living room, when I’m in my next room, that’s when I put the laptop… The laptop stays in this area of the house. I don’t let it carry everywhere. Just trying to think about physical and mental barriers that you can start to create between work and home even when you’re in one place so that it’s not all bleeding together. We work effectively when we are restored. We need to reenergize. So think about the things that reenergize you and try to build in systems at home that allow you to keep that energy.

Teresa: That’s helpful. Rudhir, you mentioned one mentor a few minutes ago in our conversation. Can you talk to me about any mentors that you’ve had throughout your career who’ve especially shaped your thinking, shaped your own career?

Rudhir: There’s so many. It’s a difficult question. I remember when you emailed me in advance about some of the things you might ask, I said let’s do this at the end. I was hoping it wouldn’t even get to these. I have so many mentors. There’s so many people that have been valuable. In the work that I do I always feel like I stand on the shoulders of so many people that came before, and so there’s just so many experiences that I have that are learning.

Rudhir: I think the place to start is that I just feel like every opportunity and every interaction is a moment of learning. I feel like I’m learning from people all the time. Mentors is a really higher elevated state for somebody I feel to hold that space. I learned so much from my clients. I learned so much on calls like this. I learned so much from every interaction. I think the first thing that comes to me is actually just not losing sight of the learning opportunities in every interaction. What can you learn about this person across from you and the rich experience that they have? What value might you be able to get in that possibility of that conversation?

Rudhir: The person that made this entire next chapter of my life that much more possible for me was my wife. When I was in my last few years at Apple, I started to feel this itch, and it was… I’m not sure, but I can’t say that I’m as happy as I’d like to be in my life professionally. I think there’s something else. I don’t know exactly what I want to do. I’d sort of come home every few days with this dialogue with her.

Rudhir: I’d sort of talk about different things that I want to do. I’d tell her, I’d say, “You know, I think I need a month or two off. I need a month or two off. I’m going to ask my manager and team if I can combine my four weeks of vacation with one other month off. It could be unpaid. I don’t care. I just need a couple of months to sit.” She said, “You don’t need two months. You need a year.”

Rudhir: I just thought, ” A year?” Apple doesn’t have a year long sabbatical program. How are we going to do that? She said, “I’m giving you a year.” She said, “For one year you don’t need to do a thing. You don’t have to generate any income. You don’t have to do anything around the house. You don’t have to do anything for a year, and whatever you do after that I don’t care. But for one year just take a break.”

Rudhir: I have never had that kind of permission before or just being met by somebody that was saying, “Look, you’re good as you are. You don’t need to do anything.” I think that that’s amazing. I just felt like to get that type of support from somebody… My wife runs a nonprofit. My mind was, “How are we going to manage the finances and everything?” She’s like, “We’ll budget. We’ll plan the way that organizations plan when they go through a transition.”

Rudhir: So we made the plan. As soon as the plan came into place, and I saw that it was possible, everything that was happening was leading to signs of leaving and taking this time off. I think she has a way of thinking and a being that’s very different from what I’m used to in my environment. It’s very refreshing. She really values people taking the time to restore because we don’t know what’s possible. She’s really at the sort of root of this transition, which is allowing me the time and space to think and see some of the challenges in our workplace.

Rudhir: What I did during that time off is I just wrote a lot and investigated and understood a lot about our work, and that’s what allowed me to see this opportunity for stepping into this whole new career path for me. When I think about people that I look up to or I look to, I think about right now in this moment of my life I think about my wife first.

Teresa: Rudhir, that’s really wonderful to hear you say it, and I appreciate you sharing too on such a personal level that story.

Rudhir: Well, I just want to offer that in this moment I feel like we’re experiencing challenging times. I feel like we’re part of an amazing profession that can actually offer a lot. If anyone could use any support or has any questions, please feel free to reach out. My website is Krishtel.com. My email is simple. It’s my first name Rudhir@Krishtel.com, and I’m sure you’ll be providing it, Teresa.

Rudhir: But feel free to reach out in this moment because I just feel like it’s an incredible opportunity for making sure that all of us are feeling good in a way that allows us to support our community in the way that lawyers do. We are very important center, I feel like fabric, of the world. I feel like we are really the center of a lot of leadership in the world. I feel like we’re in this position to offer a lot, and for anyone that needs support through that process I just welcome people to reach out and connect.

Teresa: Thank you, Rudhir. It’s been really wonderful speaking with you learning more about what you’ve been doing. We’ve enjoyed seeing it and really are happy to be able to share it with our audience too. We will be in touch for sure. We’ll definitely have your resources available on the podcast.

Rudhir: All right. Fantastic. Thank you, Teresa. Talk soon.

Teresa: Thanks, Rudhir. You too. Bye-bye.

Rudhir: Bye.

 

 


© Copyright 2002-2020 IMS ExpertServices, All Rights Reserved.

SEC Announces Formation of Cross-Divisional COVID-19 Market Monitoring Group

On April 24, the Securities and Exchange Commission (SEC) announced the formation of an internal, cross- division COVID-19 Market Monitoring Group (COVID-19 Group). The COVID-19 Group will be a temporary, senior-level group that will assist various divisions and offices within the SEC with (1) developing staff actions and analysis related to COVID-19’s effect on markets, issuers and investors (including Main Street investors), and (2) responding to requests for information, analysis and assistance from other regulators and public sector partners.

The COVID-19 Group will also assist and support the COVID-19-related efforts of other federal financial agencies and bodies, including, but not limited to, the President’s Working Group on Financial Markets (PWG), the Financial Stability Oversight Council (FSOC) and the Financial Stability Board (FSB).

A copy of the announcement is available here.


©2020 Katten Muchin Rosenman LLP

For more SEC regulations, see the National Law Review Securities & SEC law page.

OSHA Issues New COVID-19 Alert to Restaurants & Beverage Vendors

On May 1, the Occupational Safety and Health Administration (OSHA) issued a new safety alert for restaurant and food and beverage businesses operating during the pandemic. In the alert, OSHA suggests that restaurants providing curbside and takeout service should reserve parking spaces near the front door for pickup, avoid handing food off directly when possible, and allow workers to wear masks.

OSHA also urged businesses to display signs detailing their services such as pickup instructions and hours; take “sensible social distancing” measures such as moving workstations or installing plexiglass partitions; provide alcohol-based hand rubs and a place to wash hands; train workers in proper hygiene practices and the use of workplace controls; and encourage workers to report safety and health concerns.

This alert is the latest in a series of industry-specific documents OSHA has issued offering recommendations on ways to protect workers and patrons during the COVID-19 pandemic.

The agency has made the tips available in a one-page poster employers can display in the workplace.


© 2020 Jones Walker LLP

For more reopening regulations, see the National Law Review Coronavirus News section.

Is a Moratorium on Mergers During the Pandemic a Bridge Too Far?

In an interview with Politico’s Leah Nylen and Betsy Woodruff Swan, Rep. David Cicilline (D-R.I.) explained that he wants the next coronavirus relief package to include a moratorium on mergers while the U.S. economy struggles to face the pandemic. According to the report, the Rhode Island Congressman’s proposal would allow deals “only if a company is already in a bankruptcy or is otherwise about to fail.” Any other deals would be on hold at least until the national pandemic declaration is lifted.

In prepared remarks, Rep. Cicilline’s stated: “As millions of businesses struggle to stay afloat, private equity firms and dominant corporations are positioned to swoop in for a buying spree.” The remarks continued: “This is not complicated. Our country can leave room for merger activity that is necessary to ensuring that distressed firms have a fresh start through the bankruptcy process or through necessary divestitures while also ensuring that we do not undergo another period of rampant consolidation.”

These comments were part of the Congressman’s presentation for an event run by the Open Markets Institute (OMI), which recently said that it favors “an immediate ban on all mergers and acquisitions by any corporation with more than $100 million in annual revenue, and by any financial institution or equity fund with more than $100 million in capitalization.” The OMI claims the ban should remain in place during the current economic and health crisis.

According to the OMI, the ban is necessary because enforcement agencies are partially shut down and unable to effectively evaluate mergers. The OMI believes the ban will help “prevent a wholesale concentration of additional power by corporations that already dominate or largely dominate their industries, especially in ways that may significantly worsen the crisis that now threatens America’s health, social, and economic systems. The history of the Panic of 2008 and the subsequent Great Recession instructs us that such a massive, uncontrolled consolidation will result in the unnecessary firing of millions of employees, the unnecessary bankrupting of innumerable independent businesses, a dramatic slowing of innovation in vital industries such as pharmaceuticals, and a further concentration of power and control dangerous both to our democracy and our open commercial systems.”

Piles of Cash

The organization says that private equity firms and corporations “sit today atop vast piles of cash” and can readily swallow up distressed companies.

Rep. Cicilline and the OMI are rightfully concerned about an uptick in unlawful mergers stemming from the pandemic and should be commended for proactively raising the issue. History has demonstrated that well-capitalized firms will use economic downturns and the consequent drop in company valuations to acquire struggling rivals. And antitrust enforcers are certainly not operating at full capacity given current health and safety guidelines.

Even so, a moratorium on mergers seems like an overcorrection. Most mergers are lawful. While we can debate their overall effectiveness, since 2015, federal antitrust authorities have made second requests in less than 3% of qualifying transactions. And lawful mergers can lead to lower prices, higher quality, and increased innovation, as well as providing liquidity events.

Given these realities, lawmakers should craft legislation that aims to preserve the integrity of the pre-pandemic oversight process. This presumably can be achieved by giving regulators the power to slow down the merger review process when necessary. A resolution along these lines would seem to strike a better balance between protecting against rampant, unlawful consolidation and permitting lawful mergers to proceed.


© MoginRubin LLP

For more on COVID-19 related legislation, see the National Law Review Coronavirus 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.

© 2020 Foley & Lardner LLP

COVID-19 Government Enforcement And Investigation Priorities: Minimizing Your Business Risk

The 2019 novel coronavirus (COVID-19) pandemic has changed our day-to-day routines and forced us to navigate many unique challenges in our personal and business lives. One challenge many businesses are facing is how to operate within the confines of the pandemic while complying with federal rules and regulations, both those that are well-established and those that have been promulgated to address specific needs brought on by COVID-19. While the pandemic has also affected the U.S. Department of Justice (DOJ) and other agency enforcement offices, there is no sign that government investigations into wrongdoing will decline. In some cases, government authorities are increasing their efforts to protect the public.

In this environment, it is important that businesses ensure operations are in accordance with DOJ and agency guidance so their actions do not trigger a government investigation. While some steps businesses can take to minimize the likelihood of an investigation were commonplace prior to the pandemic, others require a better understanding of specific guidance promulgated by DOJ and other agencies in the wake of COVID-19.

DOJ PRIORITIZATION OF EXPLOITATION CASES

The DOJ has taken clear steps to establish prioritization of investigations during the pandemic and will be focusing on exploitation cases and other COVID-19-related fraud schemes.

In March 2020, Attorney General William Barr directed all U.S. Attorneys to prioritize the investigation of these fraud schemes. Common schemes include:

  1. Individuals and business selling fake COVID-19 cures
  2. Phishing emails from entities posing as being associated with the World Health Organization or the U.S. Centers for Disease Control and Prevention
  3. Malicious websites or apps appearing to share COVID-19-related information to gain and lock access to devices until payment is secured
  4. Illegitimate or non-existent charitable organizations seeking donations
  5. Fraudulent billing by medical providers obtaining patient information for COVID-19 testing and then billing for other tests and procedures

To further that directive, the Attorney General’s Office also instructed each U.S. Attorney to appoint a Coronavirus Fraud Coordinator (Coordinator) for his or her judicial district. This Coordinator is to serve as legal counsel for his or her district on COVID-19 matters, direct the prosecution of COVID-19-related crimes, and conduct outreach and awareness initiatives regarding common forms of fraudulent schemes that seek to wrongly take advantage of needs and conditions resulting from the pandemic. The Coordinators in the Eastern District of Wisconsin and Western District of Wisconsin are Assistant U.S. Attorneys Kelly Watzka and Chadwick Elgersma, respectively.

DOJ is actively investigating and prosecuting wrongdoing during pandemic

Watzka, Elgersma and their colleagues at the various U.S. Attorneys’ Offices across the nation are encouraging the public to report fraud and other schemes resulting from the pandemic. Many U.S. Attorneys are contacting health care facilities for leads on potential schemes involving hoarding personal protective equipment and warning and advising the public on scams related to COVID-19 Economic Impact Payments. Additional measures include teaming with the American Association of Retired Persons (AARP) and other organizations to disseminate information to the public.

Since late March 2020, enforcement actions have been filed against providers and nonmedical personnel for promoting fake COVID-19 treatment. Charges have also been filed against those attempting to sell fake personal protective equipment to the U.S. Department of Veterans Affairs, attempting to smuggle mislabeled drugs into the U.S. to treat COVID-19, making false statements regarding accumulation and sale of personal protective equipment, and soliciting investments in a company fraudulently claiming funds would be used to market COVID-19 treatments and cures. Further, the DOJ estimates federal authorities have disrupted hundreds of internet domains that were used to exploit the pandemic to commit fraud and other crimes.

REDUCE YOUR RISK OF ALLEGATIONS OF FRAUD OR MISUSE OF GOVERNMENT FUNDS

While the cases above involve particularly egregious cases of fraud, it is important to remember that we are in the early months of COVID-19 relief programs and pursuit of COVID-19-related investigations. As the government continues to provide various aid packages to individuals and businesses alike, it will be important for all businesses, and especially those receiving federal funds, to take action to ensure compliance with the law relating to those funds in order to prevent future investigations. It is likely future investigations would be for less flagrant corporate actions.

Initiatives such as the White House’s National Emergency Declaration, which devotes $50 billion to containing the pandemic, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which includes a $2 trillion dollar stimulus package, will help relieve some of the financial stress impacting businesses. However, with these initiatives comes rules and regulations to ensure that the funds are used as intended.

The CARES Act also created a Special Inspector General for Pandemic Recovery (SIGPR) to “conduct, supervise, and coordinate audits and investigations” of the CARES Act’s financial assistance programs and any other U.S. Department of the Treasury programs established under the CARES Act. In so doing, the SIGPR will be meticulously monitoring those businesses that have received assistance under the CARES Act to prevent and detect fraud and abuse, and to facilitate the identification and prosecution of participants of fraud and abuse.

With these initiatives comes special concern for investigations, charges and enforcement actions under the False Claims Act (FCA).1 The FCA is the primary civil enforcement tool used by the DOJ to pursue those who fraudulently obtain relief money, and fraudulently bill under contracts with the government. The government’s employment of the FCA is likely to expand as small businesses and large corporations alike receive federal funds under the CARES Act, and enter contracts to meet the increased need for emergency goods and services.

Businesses of all sizes and operating in all industries should therefore take additional steps beyond their standard practices to limit the potential for allegations of fraud or misuse of government funds. These steps should not only reinforce pre-pandemic workplace compliance and internal governance standards, but should also involve a system for maintaining documentation and preservation of relief-related correspondence, documents and actions. Importantly, no business should ignore or loosen any of their internal governance procedures or any laws, rules or regulations in the name of expediency.

OTHER FEDERAL AND STATE AGENCY ENFORCEMENT POLICIES DURING COVID-19

Beyond DOJ, several federal and state government agencies have issued policy statements regarding their enforcement priorities and activities during the pandemic.

U.S. Securities and Exchange Commission

Unlike some agencies that have publicized their willingness to be flexible and considerate of the unique circumstances in exercising their enforcement authority, the Securities and Exchange Commission (SEC) has maintained that its enforcement division is fully operational and that it will be vigilant against threats targeting “Main Street” investors.

In its public statements, the SEC has emphasized the importance of maintaining market integrity and following corporate controls. Its recent enforcement activities have focused on fraud schemes and other illegal activity arising from the COVID-19 emergency. It has issued trading suspensions for a number of stocks, many for companies that purported to offer health products or services related to COVID-19. Additionally, the agency has cautioned about “fraudulent stock promotions, unregistered offerings, phony charitable investments, affinity fraud, and fake products offering high returns.”

Investment scams come in a variety of flavors suited to COVID-19. For example, investment in underfunded or fraudulent companies that supposedly make products or services related to COVID-19 prevention or treatment, alternative investments claiming to not be vulnerable to ongoing market risk, or investments purporting to offer unrealistic returns by taking advantage of the market volatility or low prices. In Wisconsin, the Department of Financial Institutions has specifically called out the threat of COVID-19-related charity scams.

In addition to investment scams, the SEC has warned about an increased potential for insider trading owing to a greater number of people who may have access to nonpublic information. The enforcement division has released a statement reminding directors, officers and employees of their obligations to keep nonpublic information confidential and to comply with insider trading laws. The statement likewise urged public companies to adhere to their established disclosure controls, codes of ethics and other regulatory obligations.

The SEC is also encouraging consultation with its staff to ensure that financial reporting standards are maintained, demonstrating enhanced focus on these issues, and may not be forgiving of regulatory lapses where consultation with the SEC was not undertaken. However, the SEC has stated that it is not looking to second-guess good faith attempts to provide investors and other market participants appropriately-framed, forward-looking information.

U.S. Department of Health and Human Services

In the wake of extraordinary efforts by health care providers to combat the COVID-19 pandemic, including through enhanced and novel collaborations among different entities, the U.S. Department of Health and Human Services (HHS) has issued blanket waivers with respect to the Stark Law, which generally prohibits providers from referring Medicaid or Medicare patients to entities with which they have a financial relationship. The blanket waivers permit such referrals for 18 specifically designated relationships, such as referrals by owners of physician-owned hospitals or owners of ambulatory surgery centers that temporarily convert to hospitals. The relationship must be related to the COVID-19 emergency (which is broadly defined) and must not raise concerns regarding fraud or abuse. The blanket waivers are retroactive to March 1, 2020.

Subsequently, in an April 3, 2020, policy statement, HHS’s Office of the Inspector General (OIG) announced that it will similarly relax enforcement of the Anti-Kickback Statute in relation to certain remuneration related to COVID-19. The Anti-Kickback Statute generally prohibits providing or receiving remuneration in exchange for patient referrals. The purpose of the OIG’s temporary policy is to afford flexibility to providers of health care services who may be unable to comply with technical aspects of the Anti-Kickback Statute. The policy permits providers to pursue certain financial relationships that would otherwise be prohibited, such as payments made by a facility or physician for space or equipment rental below fair market value, the purchase of items or services below fair market value, or payments to physicians that are above their normal contracted rate.

Importantly, while the Anti-Kickback Statute policy is based on the Stark Law blanket waivers, it is notably narrower than the blanket waivers, covering only certain of the 18 enumerated categories provided for in the blanket waivers. All other arrangements prohibited by the Anti-Kickback Statute are unaffected by this policy. Moreover, the Anti-Kickback Statute policy applies only prospectively to conduct occurring on April 3, 2020, and later. Like the blanket waivers, to qualify for the Anti-Kickback Statute policy conduct must be related to care provided in connection with COVID-19, must not create a risk of fraud or abuse, and must be adequately documented.

While these HHS policies show the agency’s willingness to accommodate the special needs of health care providers, the policies are complex and warrant careful review to determine how they may apply to your organization or practice.

U.S. Environmental Protection Agency

After early reports suggesting that the U.S. Environmental Protection Agency (EPA) was significantly curtailing enforcement efforts, the agency has since issued a more detailed temporary policy.

Under the Temporary COVID-19 Enforcement Policy, the EPA will not seek penalties for noncompliance with routine monitoring and reporting requirements, if, on a case-by-case basis, the EPA agrees that such noncompliance was caused by COVID-19. The same policy applies to administrative settlement agreements: the EPA will not seek penalties for noncompliance with basic reporting requirements provided such failure was occasioned by COVID-19. Businesses should continue to use notice provisions set forth in agreements to keep the EPA apprised of their compliance efforts.

Regulated parties must document the basis for a claim that the pandemic prevented it from conducting the routine monitoring and reporting. These case-by-case determinations will be made after the pandemic is over and the EPA reserves its right to disagree that any asserted noncompliance was caused by the pandemic.

The temporary policy does not excuse exceedances of pollutant limitations in permits, regulations or statues due to COVID-19. Regulated entities are expected to comply. The temporary policy does not affect businesses’ responsibility to prevent and respond to spills or releases, or to criminal violations. However, the temporary policy contemplates that the EPA’s response to compliance will be determined in light of the circumstances created by the public health emergency, provided that the facility contacts the EPA or their state agency as soon as possible.

Businesses that may encounter challenges complying with environmental laws and regulations as a result of COVID-19, due to workforce or resource issues, for example, should review the temporary policy carefully to determine whether it may apply.

As usual, states maintain parallel authority to enforce many environmental laws, and any exemptions allowed by the EPA may not be respected by state agencies. The Wisconsin Department of Natural Resources (DNR), in particular, has issued its own process for case-by-case determinations of flexibility from regulatory burdens. Regulated entities are encouraged to work with their DNR contact to discuss compliance assistance if COVID-19 justifies the assistance sought.

1Learn more about the FCA and COVID-19 through our recent article entitled Managing and mitigating the risk of qui tam actions in the wake of COVID-19.


Copyright © 2020 Godfrey & Kahn S.C.

For more on governmental actions on COVID-19, see the National Law Review Coronavirus News section.

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.