DEA Proposed Rule Would Limit Drug Manufacturer’s Annual Opioid Production

In yet another development on the fight to address the opioid epidemic, U.S. Attorney General Jeff Sessions announced on Tuesday, April 17th that the U.S. Drug Enforcement Administration (“DEA”) will issue a Notice of Proposed Rulemaking (“NPRM”) amending the controlled substance quota requirements in 21 C.F.R. Part 1303. The Proposed Rule was published in the Federal Register yesterday and seeks to limit manufacturers’ annual production of opioids in certain circumstances to “strengthen controls over diversion of controlled substances” and to “make other improvements in the quota management regulatory system for the production, manufacturing, and procurement of controlled substances.”[1]

Under the proposed rule, the DEA will consider the extent to which a drug is diverted for abuse when setting annual controlled substance production limits. If the DEA determines that a particular controlled substance or a particular company’s drugs are continuously diverted for misuse, the DEA would have the authority to reduce the allowable production amount for a given year. The objective is that the imposition of such limitations will “encourage vigilance on the part of opioid manufacturers” and incentivize them to take responsibility for how their drugs are used.

The proposed changes to 21 C.F.R. Part 1303 are fairly broad, but could lead to big changes in opioid manufacture if implemented. We have summarized the relevant changes below.

Section 1303.11: Aggregate Production Quotas

Section 1303.11 currently allows the DEA Administrator to use discretion in determining the quota of schedule I and II controlled substances for a given calendar year by weighing five factors, including total net disposal and net disposal trends, inventories and inventory trends, demand, and other factors that the DEA Administrator deems relevant. Now, the proposed rule seeks to add two additional factors to this list, including consideration of the extent to which a controlled substance is diverted, and consideration of U.S. Food and Drug Administration, Centers for Disease Control and Prevention, Centers for Medicare and Medicaid Services, and state data on legitimate and illegitimate controlled substance use. Notably, the proposed rule allows states to object to proposed, potentially excessive aggregate production quota and allows for a hearing when necessary to resolve an issue of material fact raised by a state’s objection.

Section 1303.12 and 1303.22: Procurement Quotas and Procedure for Applying for Individual Manufacturing Quotas

Sections 1303.12 and 13030.22 currently require controlled substance manufactures and individual manufacturing quota applicants to provide the DEA with its intended opioid purpose, the quantity desired, and the actual quantities used during the current and preceding two calendar years. The DEA Administrator uses this information to issue procurement quotas through 21 C.F.R. § 1303.12 and individual manufacturing quotas through 21 C.F.R. § 1303.22. The proposed rule’s amendments would explicitly state that the DEA Administrator may require additional information from both manufacturers and individual manufacturing quota applicants to help detect or prevent diversion. Such information may include customer identities and the amounts of the controlled substances sold to each customer. As noted, the DEA Administrator already can and does request additional information of this nature from current quota applicants. The proposed rule would only provide the DEA Administrator with express regulatory authority to require such information if needed.

Section 1303.13: Adjustments of Aggregate Production Quotas

Section 1303.13 allows the DEA administrator to increase or reduce the aggregate production quotas for basic classes of controlled substances at any time. The proposed rule would allow the DEA Administrator to weigh a controlled substance’s diversion potential, require transmission of adjustment notices and final adjustment orders to a state’s attorney general, and provide a hearing if necessary to resolve material factual issues raise by a state’s objection to a proposed, potentially excessive adjusted quota.

Section 1303.23: Procedures for Fixing Individual Manufacturing Quotas

The proposed rule seeks to amend Section 1303.23 to deem the extent and risk of diversion of controlled substances as relevant factors in the DEA Administrator’s decision to fix individual manufacturing quotas. According to the proposed rule, the DEA has always considered “all available information” in fixing and adjusting the aggregate production quota, or fixing an individual manufacturing quota for a controlled substance. As such, while the proposed rule’s amendment may require manufacturers to provide the DEA with additional information for consideration, it is not expected to have any adverse economic impact or consequences.

Section 1303.32: Purpose of Hearing 

Section 1303.32 currently grants the DEA Administrator to hold a hearing for the purpose of receiving factual evidence regarding issues related to a manufacturer’s aggregate production quota. The proposed rule would amend this section to conform to the amendments to sections 1303.11 and 1303.13 discussed herein, allowing the DEA Administrator to explicitly hold a hearing if he/she deems a hearing to be necessary under sections 1303.11(c) or 1303.13(c) based on a state’s objection to a proposed aggregate production quota.

Industry stakeholders will have an opportunity to submit comments for consideration by the DEA by May 4, 2018.

[1] DEA, NPRM 21 C.F.R. Part 1303 (Apr. 17, 2018).

 

©2018 Epstein Becker & Green, P.C. All rights reserved.

Don’t Gamble with the GDPR

The European Union’s (EU) General Data Protection Regulation (GDPR) goes into effect on May 25, and so do the significant fines against businesses that are not in compliance. Failure to comply carries penalties of up to 4 percent of global annual revenue per violation or $20 million Euros – whichever is highest.

This regulatory rollout is notable for U.S.-based hospitality businesses because the GDPR is not just limited to the EU. Rather, the GDPR applies to any organization, no matter where it has operations, if it offers goods or services to, or monitors the behavior of, EU individuals. It also applies to organizations that process or hold the personal data of EU individuals regardless of the company’s location. In other words, if a hotel markets its goods or services to EU individuals, beyond merely having a website, the GDPR applies.

The personal data at issue includes an individual’s name, address, date of birth, identification number, billing information, and any information that can be used alone or with other data to identify a person.

The risks are particularly high for the U.S. hospitality industry, including casino-resorts, because their businesses trigger GDPR-compliance obligations on numerous fronts. Hotels collect personal data from their guests to reserve rooms, coordinate event tickets, and offer loyalty/reward programs and other targeted incentives. Hotels with onsite casinos also collect and use financial information to set up gaming accounts, to track player win/loss activity, and to comply with federal anti-money laundering “know your customer” regulations.

Privacy Law Lags in the U.S.

Before getting into the details of GDPR, it is important to understand that the concept of privacy in the United States is vastly different from the concept of privacy in the rest of the world. For example, while the United States does not even have a federal law standardizing data breach notification across the country, the EU has had a significant privacy directive, the Data Protection Directive, since 1995. The GDPR is replacing the Directive in an attempt to standardize and improve data protection across the EU member states.

Where’s the Data?

Probably the most difficult part of the GDPR is understanding what data a company has, where it got it, how it is getting it, where it is stored, and with whom it is sharing that data. Depending on the size and geographical sprawl of the company, the data identification and audit process can be quite mind-boggling.

A proper data mapping process will take a micro-approach in determining what information the company has, where the information is located, who has access to the information, how the information is used, and how the information is transferred to any third parties. Once a company fully understands what information it has, why it has it, and what it is doing with it, it can start preparing for the GDPR.

What Does the Compliance Requirement Look Like in Application?

One of the key issues for GDPR-compliance is data subject consent. The concept is easy enough to understand: if a company takes a person’s personal information, it has to fully inform the individual why it is taking the information; what it may do with that information; and, unless a legitimate basis exists, obtain express consent from the individual to collect and use that information.

In terms of what a company has to do to get express consent under the GDPR, it means that a company will have to review and revise (and possibly implement) its internal policies, privacy notices, and vendor contracts to do the following:

  • Inform individuals what data you are collecting and why;

  • Inform individuals how you may use their data;

  • Inform individuals how you may share their data and, in turn, what the entities you shared the data with may do with it; and

  • Provide the individual a clear and concise mechanism to provide express consent for allowing the collection, each use, and transfer of information.

At a functional level, this process entails modifying some internal processes regarding data collection that will allow for express consent. In other words, rather than language such as, “by continuing to stay at this hotel, you consent to the terms of our Privacy Policy,” or “by continuing to use this website, you consent to the terms of our Privacy Policy,” individuals must be given an opportunity not to consent to the collection of their information, e.g., a click-box consent versus an automatically checked box.

The more difficult part regarding consent is that there is no grandfather clause for personal information collected pre-GDPR. This means that companies with personal data subject to the GDPR will no longer be allowed to have or use that information unless the personal information was obtained in line with the consent requirements of the GDPR or the company obtains proper consent for use of the data prior to the GDPR’s effective date of May 25, 2018.

What Are the Other “Lawful Basis” to Collect Data Other Than Consent?

Although consent will provide hotels the largest green light to collect, process, and use personal data, there are other lawful basis that may exist that will allow a hotel the right to collect data. This may include when it is necessary to perform a contract, to comply with legal obligations (such as AML compliance), or when necessary to serve the hotel’s legitimate interests without overriding the interests of the individual. This means that during the internal audit process of a hotel’s personal information collection methods (e.g., online forms, guest check-in forms, loyalty/rewards programs registration form, etc.), each guest question asked should be reviewed to ensure the information requested is either not personal information or that there is a lawful reason for asking for the information. For example, a guest’s arrival and departure date is relevant data for purposes of scheduling; however, a guest’s birthday, other than ensuring the person is of the legal age to consent, is more difficult to justify.

What Other Data Subject Rights Must Be Communicated?

Another significant requirement is the GDPR’s requirement that guests be informed of various other rights they have and how they can exercise them including:

  • The right of access to their personal information;

  • The right to rectify their personal information;

  • The right to erase their personal information (the right to be forgotten);

  • The right to restrict processing of their personal information;

  • The right to object;

  • The right of portability, i.e., to have their data transferred to another entity; and

  • The right not to be included in automated marketing initiatives or profiling.

Not only should these data subject rights be spelled out clearly in all guest-facing privacy notices and consent forms, but those notices/forms should include instructions and contact information informing the individuals how to exercise their rights.

What Is Required with Vendor Contracts?

Third parties are given access to certain data for various reasons, including to process credit card payments, implement loyalty/rewards programs, etc. For a hotel to allow a third party to access personal data, it must enter into a GDPR-compliance Data Processing Agreement (DPA) or revise an existing one so that it is GDPR compliant. This is because downstream processors of information protected by the GDPR must also comply with the GDPR. These processor requirements combined with the controller requirements, i.e., those of the hotel that control the data, require that a controller and processor entered into a written agreement that expressly provides:

  • The subject matter and duration of processing;

  • The nature and purpose of the processing;

  • The type of personal data and categories of data subject;

  • The obligations and rights of the controller;

  • The processor will only act on the written instructions of the controller;

  • The processor will ensure that people processing the data are subject to duty of confidence;

  • That the processor will take appropriate measures to ensure the security of processing;

  • The processor will only engage sub-processors with the prior consent of the controller under a written contract;

  • The processor will assist the controller in providing subject access and allowing data subjects to exercise their rights under the GDPR;

  • The processor will assist the controller in meetings its GDPR obligations in relation to the security of processing, the notification of personal data breaches, and data protection impact assessments;

  • The processor will delete or return all personal data to the controller as required at the end of the contract; and that

  • The processor will submit to audits and inspections to provide the controller with whatever information it needs to ensure that they are both meeting the Article 28 obligations and tell the controller immediately if it is asked to do something infringing the GDPR or other data protection law of the EU or a member state.

Other GDPR Concerns and Key Features

Consent and data portability are not the only thing that hotels and gambling companies need to think about once GDPR becomes a reality. They also need to think about the following issues:

  • Demonstrating compliance. All companies will need to be able to prove they are complying with the GDPR. This means keeping records of issue such as consent.

  • Data protection officer. Most companies that deal with large-scale data processing will need to appoint a data protection officer.

  • Breach reporting. Breaches of data must be reported to authorities within 72 hours and to affected individuals “without undue delay.” This means that hotels will need to have policies and procedures in place to comply with this requirement and, where applicable, ensure that any processors are contractually required to cooperate with the breach-notification process.

© Copyright 2018 Dickinson Wright PLLC
This post was written by Sara H. Jodka of Dickinson Wright PLLC.

Massachusetts Legislature Pushes Forward With Amended Non-Compete Bill

This Blog has previously covered the six non-compete bills that were introduced in the Massachusetts Legislature in 2017. On April 17, 2018, the Joint Committee on Labor and Workforce Development submitted a revised bill, House Bill 4419 (“H 4419”), in place of the prior bills.  Through this action, the Joint Committee has taken a significant step toward the finish line regarding proposed non-compete legislation.

This post offers some quick impressions following our initial review of the bill.

Definition of Employee

Resolving a split among the 2017 bills, H 4419 proposes to include independent contractors under the definition of a covered “employee.”

Consideration

Like all contracts, non-compete agreements must be supported by valuable consideration. H 4419 provides that non-compete agreements presented to an employee after the commencement of employment must be supported by additional consideration over and above continued employment.  Further, while the bill does not impose a similar requirement for agreements that are entered into in connection with the commencement of employment, no employer may enforce a non-compete covenant without complying with the bill’s “garden leave” provision (see below).

Permissible Scope of a Non-Compete Covenant

Under H 4419, a non-compete covenant must be no broader than necessary to protect a legitimate business interest; must include a geographic scope that is reasonable “in relation to the interests protected”; must not exceed one year in duration from the date of separation (with tolling up to one additional year if the employee is found to have breached a fiduciary duty or unlawfully taken his or her former employer’s property); and must be reasonable in the scope of the proscribed activities in relation to the interests protected.

Requirement of Garden Leave Pay or Some “Other Mutually-Agreed Upon Consideration”

Like three of the 2017 bills, H 4419 requires the payment of “garden leave” or some “other mutually-agreed upon consideration” whenever an employer chooses to enforce a non-compete covenant following the date of separation (for a more in depth discussion of the “garden leave” concept, see our article dated December 27, 2017). For agreements that call for “garden leave” pay (as opposed to “other … consideration”), the employer must, during the restricted period, continue paying the former employee an amount defined as “at least 50 percent of the employee’s highest annualized base salary paid by the employer within the 2 years preceding the employee’s termination.”

H 4419 diverges from the 2017 garden leave bills by imposing no requirements on the value or timing of any “other” consideration that the employer and employee may agree upon as an alternative to garden leave. Under the 2017 bills, the value of the alternative consideration needed to be equal to or greater than the statutorily-defined garden leave payments.  Further, the timing of the consideration needed to be in line with the applicable garden leave period.

H 4419 imposes no such conditions, and, as such, appears to allow parties to agree to less valuable consideration which could be provided to the employee at any time, including the commencement of employment (for instance, a hiring bonus). This “other mutually-agreed upon consideration” provision effectively negates any requirement that the non-compete contain a garden leave clause, and may be a sticking point for certain legislators as the bill makes its way through the legislative process.

Exempt Employees

Under H 4419, non-compete agreements may not be enforced against the following types of employees:

  • Employees who are classified as non-exempt under the Fair Labor Standards Act;
  • Undergraduate or graduate students who are engaged in short-term employment;
  • Employees who have been terminated without cause or laid off; or
  • Employees who are not more than 18 years of age.

Blue-Penciling Permitted

H 4419 permits courts to “reform or otherwise revise” an overly broad non-compete covenant to the extent necessary to protect the applicable legitimate business interests. Of note, most of the 2017 bills would have rendered overly broad covenants null and void.

Effective Date

Finally, barring any further revisions, H 4419 would take effect on October 1, 2018 if it is ultimately enacted. Further, any agreements entered into prior to that date would be governed by Massachusetts common law standards.

Conclusion

According to the Legislature’s bill scheduling calendar, H 4419 has a July 31, 2018 deadline for passage. Although summer is close, this should afford sufficient time to get it to a vote.

Jackson Lewis P.C. © 2018

This article was written by Erik J. Winton and Colin A. Thakkar of Jackson Lewis P.C.

FDA Seeks Comments on Potential Marijuana Reclassification Under International Drug Control Treaty

The Food and Drug Administration requested comments in a notice published in the Federal Register on April 9, 2018 concerning the “abuse potential, actual abuse, medical usefulness, trafficking, and impact of scheduling changes on availability for medical use” of five marijuana-related substances: cannabis plant and resin; extracts and tinctures of cannabis; delta-9-tetrahydrocannabinol (THC); stereoisomers of THC; and cannabidiol (CBD).  The comments will be considered in preparing a response from the United States to the World Health Organization (WHO)’s request for information regarding “the legitimate use, harmful use, status of national control and potential impact of international control” for each of these substances.

The WHO’s Expert Committee on Drug Dependence (ECDD) will be meeting in Geneva from June 4 to 8, 2018, for a special session to review cannabis and its potential to cause dependence, abuse and harm to health as well as its potential therapeutic applications. WHO will make recommendations to the United Nations Secretary-General on the need for a level of international control of these substances. In advance of the June session, the WHO is asking United Nations member states to share their evaluations of cannabis, so the comments received by the FDA will be considered in the scientific and medical evaluations the U.S. submits. WHO is expected to make its official recommendation to the U.N.’s Commission on Narcotic Drugs in mid-2018.

The ECDD also will discuss potential changes to how marijuana is scheduled. The U.N. Single Convention on Narcotic Drugs currently lists marijuana as a Schedule I drug, the classification given to drugs with the highest potential for abuse and no medicinal value. Marijuana never has been subject to formal international review since first being placed in Schedule I of the international agreement enacted in 1961.

Under the United States federal Controlled Substances Act, marijuana is considered a Schedule I drug, meaning that it has (1) a high potential for abuse; (2) no currently accepted medical use in treatment in the United States, and, (3) a lack of accepted safety for use of the drug or other substance under medical supervision. CBD also is a Schedule I drug in the United States.

Cannabis, also known as marijuana, refers to the dried leaves, flowers, stems, and seeds from the Cannabis sativa or Cannabis indica plant. It is a complex plant substance containing multiple cannabinoids and other compounds, including the psychoactive chemical THC and other structurally similar compounds.  The principal cannabinoids in the cannabis plant include THC, CBD, and cannabinol.  Marijuana is the most commonly used illicit drug in the United States.

Any change in marijuana’s classification under international drug control treaties may influence the way marijuana is classified in the United States.  Employers who are opposed to marijuana legalization should consider submitting comments.

Anyone may comment online by clicking here (click on “Comment Now”), or by sending a comment by mail (click on the link to obtain the address). Comments are due by April 23, 2018.

Jackson Lewis P.C. © 2018
This article was written by Kathryn J. Russo of Jackson Lewis P.C.

Law Firm Email Marketing: It’s Time to Own Your Communications Platform

The importance of having complete control over the platform you use to communicate with current and prospective clients has never been more apparent following the Facebook data debacle. The platform that is easiest for law firms to control is email marketing, which means that building a strong email list should be one of your top priorities.

But it’s not always easy to get people to give you their email addresses unless you give them good reasons to do so. Here are some tips for building your email marketing list:

Use social media.

Even with some spectacular stumbles, social media will continue to be relevant to your law firm marketing goals. Every one of your social media pages should include a link to your email subscription page so your followers can opt in. Use social media ads to promote a special offer — something you give away in exchange for email sign-ups.

Check in on inactive subscribers.

With most email service providers, you can generate a list of recipients who have not opened your emails. Since they did opt in at some point, check in with them and ask why they’re not opening them — is your subject matter off-target? Are the emails going to the junk folder? Even if they ask to be removed, that’s better than having a list populated with people no longer interested in you.

Craft content for sharing.

When you are creating content for your e-newsletter or other email, keep sharing in mind. You want to have people on your list share with others so you can expand your influence beyond your list.

Use your blog.

The content you send out to email subscribers doesn’t have to be original. Using blog posts that you know have already resonated with your target market makes it more likely your email will be shared.

Share lists with a strategic referral partner.

A strategic referral partner is someone who is in a different business than you are but has the same target market. While you don’t want to give your email marketing list to another business — this could violate the terms under which you got those email addresses — you can offer to send an email for your referral partner’s business to your list, and then they reciprocate. Encourage your subscribers to sign up for your referral partner’s emails in exchange for the same from the other business.

Rethink your business cards.

The typical business card lists your name, the firm’s name, address and phone, and your email. But don’t stop there. Use the other side of the card to list all your social media accounts as well as a landing page where they can subscribe to your email list.

Ask for email addresses.

Every encounter you have is an opportunity to ask for an email address. Ask their permission to add their email address to your list and let them know the benefits of subscribing.

The effort to build a good email marketing list never ends, but it’s worth it since your email list is something you own and totally control. Plus, research keeps telling us that email is still the most effective and least costly way to communicate with clients and prospects.

© The Rainmaker Institute, All Rights Reserved
This article was written by Stephen Fairley of The Rainmaker Institute

Design Thinking in Law Firms: Q&A with Kate White and Andy Peterson of Design Build Legal on Upcoming Workshop at LSSO RainDance Conference

The Legal Sales and Service Organization (LSSO) and the RainDance Conference were started 15 years ago to provide the legal industry with a venue to grow and explore new trends in sales and service. Over the years, RainDance has become known for introducing new approaches to generating revenue and delivering value. This year, we are excited to bring you our first Design Thinking Workshop at RainDance 2018 on June 6 & 7 in Chicago, IL.

Design thinking is a method for creative generation of practical ideas that can be applied to architectural, engineering and business problems in a way that is focused on the users, customers or clients.   Unlike analytical thinking, to which law firms are so accustomed, design thinking includes “building up” ideas, with few, or no, limits during a “brainstorming” phase that is driven by user-focused empathy. The following Q&A with the workshop leaders, Kate White and Andy Peterson of Design Build Legal, offers a peak into the world of design thinking:

What is legal design thinking?

Design thinking, at its core, is about gaining empathy for the users of your product or service, identifying a challenge they are facing, and rapidly designing a solution. This is how the first Apple mouse was invented. It’s how many of those companies selling you new technology are identifying what you care about, and building you things you didn’t even know you needed. In fact, it’s a practice being used in most major industries, from retail to financial services.

The steps in design thinking include: empathize, define the problem, ideate, prototype, and test. The process is best done as a cross-functional team, bringing together designers, subject matter experts, technologists, data analysts, administrators, etc.

We teach and facilitate a version of this that we call “legal design thinking.” It’s not just “design thinking plus lawyers,” but rather we’ve adapted the model to fit the culture of law firms and legal departments — namely, to ensure that we’re using the audience’s time wisely by focusing on designing client-centered solutions to real-world legal and business challenges. Our workshops can run anywhere from two hours to a full day and leave the audience, whether it’s law firm lawyers and staff or corporate legal teams, with concrete prototypes that they can take back to their organizations and further develop with clients.

How are law firms using it?

Law firms are starting to see the opportunity to develop “productized services” – services that are priced on a fixed fee, scalable, and highly valuable to clients. Leveraging legal design thinking to identify and launch these services ensures that they are based on client needs and that the firm’s resources will be used wisely to develop something in which clients are prepared to invest.

Firms are also aware that investing in solutions that help them gain greater client loyalty are some of the most worthwhile investments they can make. If a firm can bring something to a client that hits home by reducing the cost of compliance or managing risk, helps them better serve their business clients, or just simply makes their lives easier, they’ve just really deepened that relationship.

When we partner with law firms to facilitate legal design thinking workshops, we encourage them to find a client that is important to them, one with which they want to differentiate their firm from their competitors. The workshop generally provides a crash course in design thinking, but most importantly features a client listening session that helps the audience quickly gain empathy for the in-house counsel or legal operations professional, in most cases. Clients are nearly always willing to participate, and generally walk away with the impression that the firm cares about their experience, is thinking creatively about how to solve their problems, and is making investments in designing enhanced services that create more value. We’ve also facilitated workshops focused on improving service for internal clients, such as leading a group of law firm staff through an exercise to take on a challenge faced by partners, and this can be a good place to start for a firm that is curious, but skeptical.

How did you get started in this area?

We were introduced to the concept almost five years ago when a friend at Nordstrom invited us to join their design thinking boot camp. Over two days, we were immersed in the design thinking process, including developing prototypes based on our empathy interviews, and testing those prototypes with shoppers in downtown Seattle. Design, prototype, test, incorporate feedback. Multiple times through the cycle. Our boot camp culminated in a presentation of our prototypes to the president of the Nordstrom Rack and other executives. By the end, we were exhausted, frankly, but also energized by the potential of design thinking. The question was: how do we apply this in law firms?

Following that, we visited one of the original homes of design thinking, the Stanford Design School. Kate completed Stanford’s Legal Design Thinking Bootcamp, offered by fellows bridging the gap between the law school and d.school there. We then spent many years reading as much as we could about design thinking and running experiments in the law firm setting when we were in-house. These experiments have resulted in multiple useful solutions – ranging from one firm’s first ever client dashboard to a regulatory audit tool that can save clients six-figures in government agency fines.

So why should law firms be interested in it?

Law firms have an opportunity to truly set themselves apart by designing services with clients at the center.

What is the workshop you are doing at RainDance?

Our RainDance workshop will give people a two-hour introduction to legal design thinking. We will tee up the idea, and then get straight into it, starting with an empathy interview. After that, it will be hands-on, small-group activities intended to get you out of your seat, stretch your mind, and teach you legal design thinking techniques that you can take back to your firm.

What can attendees expect to walk away with?

As mentioned, when we work with law firms or legal departments, we are keenly focused on creating solutions to real client or firm challenges. But at RainDance, with an audience from a diverse group of firms, our goals are to educate attendees about legal design thinking, and energize them to try it. It’s not exactly a “train the trainer” event, but you’ll know just enough about legal design thinking to be dangerous! (Which, in a law firm means to “go back and challenge assumptions.”) And you’ll know to call us when you want help implementing these techniques more robustly to design client-centered products or services.

RainDance 2018 will be held on June 6 & 7 in Chicago, IL.

Copyright ©2018 National Law Forum, LLC

U.S. Supreme Court: Immigration Act Unconstitutionally Vague on Removal for Aggravated Felony

The Immigration and Nationality Act provides that any alien convicted of an “aggravated felony” after entering the United States is subject to deportation. The Supreme Court has decided, 5-4, that the statute’s defining an aggravated felony as “a crime of violence” is unconstitutionally vague. Sessions v. Dimaya, No. 15–1498 (Apr. 17, 2018). Justice Neil Gorsuch sided with the liberals on the Court.

According to the INA, an aggravated felony includes “a crime of violence for which the term of imprisonment [is] at least one year.” In a residual clause, a crime of violence is defined as an offense “that is a felony and that, by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.”

James Dimaya, a legal permanent resident, was twice convicted of first degree burglary. The Supreme Court held that the residual clause was too unpredictable and arbitrary and created “grave uncertainty about how to estimate the risk posed by the crime.” The Court, in an opinion by Justice Elena Kagan in which Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Gorsuch joined (at least in part), also stated that a high threshold on vagueness should apply in this case because of the “grave nature of [civil] deportation” versus other civil penalties.

Justice Gorsuch agreed that the statute was unconstitutionally vague. He noted that the law requires fair notice and that this notice requirement “serves as a faithful expression of ancient due process and separation of powers principles the Framers recognized as vital to ordered liberty under the Constitution.” He also stated that the legislature may not “‘abdicate their responsibilities for setting the standards of the criminal law’ by leaving judges the power to decide” the issues. Gorsuch did not accept the government’s argument about the power of the executive in these matters as stated by Deputy Solicitor General Edwin Kneedler: “I think it is important for the court to understand that immigration provisions and grounds for deportation are often written in very broad and general terms and given content by the executive branch in which Congress has vested authority.” He wrote in his concurrence: “To acknowledge that the President has broad authority to act [in the immigration area] supplies no justification for allowing judges to give context an impermissibly vague law.”

Where Gorsuch differed from the majority was that he does not believe in a hierarchy of notice thresholds for different types of cases or that deportation should be singled out. Fair notice is his touchstone throughout.

Dimaya was originally argued before the Supreme Court in 2017 after Justice Antonin Scalia’s death. At that time, the case ended in a 4-4 deadlock. It has been suggested that Justice Scalia would have stood with the liberals on the Court regarding the vagueness analysis in this case, in accordance with his prior opinions.

Jackson Lewis P.C. © 2018
This article was written by Amy L. Peck of Jackson Lewis P.C.

CMS Benefit and Payment Rule: What is Success for the ACA?

On Monday, CMS published a number of policies changing the dynamics of the individual market, including the Benefit and Payment Parameters for 2019 Final Rule, guidance on hardship exemptions, and a bulletin on transitional (grandmothered) plans. When interpreting all of these policies it’s important to keep in mind the following: What is success? And who is defining it?

CMS_LogoTOPlittlePieces.jpg

The Obama Administration managed ACA implementation with the clear intention of making sure the outcome met the goals of the law: more people covered, more choices of coverage for those people, and lower premiums.  While the success of their efforts can be debated, the intention was always known.

For the Trump Administration, it is not necessarily clear how successful implementation of this next rule will be judged.  Are they trying to maximize the number of people covered, maximize the number of choices available or lower premiums?  What is the organizing principle?  Is it as simple as providing additional regulatory flexibility?

There are two other stakeholders who also have to determine their definition of success in the face of this rule: states and insurers.  For states, they will have to determine if and how they will use the additional flexibility granted to them under their rule.  Insurers, with the loss of the individual mandate and CSRs, and the looming threat of STLDIs and AHPs, have to decide if the rule provides a stable environment for participation.

From now through the start of the next open enrollment period, we expect significant backstage drama as insurers, states, and the Administration answer these questions.  The offerings and premiums available to Americans six days before the midterm elections depend on these decisions.

Now to the substance of the regulation …

We will start with essential health benefits (EHBs). Under the Benefits and Payment Final Rule, CMS is allowing states a variety of options to set EHB standards. CMS believes that this is an opportunity to increase state flexibility in how states select their EHB-benchmark plans. From the state perspective, this change grants them some flexibility to require fewer benefits to be covered in Marketplace plans, which could lower the costs of plans for consumers but ultimately provide less coverage. For some states, especially those with bare counties or those seeing rising premium costs, this could be an opportunity to bring lower cost plans to needed areas. However, it is important to note that this rule does not require states to change anything. States are still in control at setting the EHB-benchmark – they just have more choices to set the bar lower. It is likely that many states will continue their current benchmark levels.  How insurers react will likely depend on what happens at the state level. Plan offerings will only change if the state chooses to make that decision.

Next up is the Navigator program. Under the Benefits and Payment Final Rule, CMS is removing the following requirements: 1) that each Marketplace have at least two Navigator entities, 2) that one of the Navigators entities be a community and consumer-focused nonprofit group, and 3) that each Navigator entity maintain a physical presence in the service area. From CMS’s perspective, they drastically cut Marketplace Navigator advertising or outreach for plan year 2018 and there was not a significant change in enrollment. States also saw what happened despite limited funding for Navigators, and they watched grassroots groups take the lead in driving enrollment. This change can allow the provision of grant funding to groups that might not have been considered before. It can also can allow states to scale back their Navigator programs, which arguably may not be as useful as they were in the first few years of the ACA. However, insurers and consumer advocates will want Navigators to exist and be funded. They want people to have a stable and reliable place that they can go to get information regarding their coverage options.

Then there is the medical loss ratio (MLR). The ACA required plans on the individual market to spend at least 80% of income on actual patient care. The Benefits and Payment Final Rule will allow states to lower the MLR if they can prove that it will help stabilize the Marketplace. States could in theory argue that if they have limited plan options, lowering the MLR will bring more plans into the state. However, overall the Benefits and Payment Final brings us back to the place we were before the ACA. Depending on your perspective, is that a place you want to be?

On top of the Final Rule, CMS also issued guidance that expanded the Hardship Exemption, which allows individuals to basically be exempt from the individual mandate. So if you thought tax reform killed the individual mandate, CMS took an additional step to make sure the individual mandate is really dead. The Hardship Exemption was expanded to individuals who live in counties with no issuers or only one issuer, and those who live in areas where all plans cover abortion services.

And finally, we have the CMS Bulletin that extends transitional (or grandmothered) insurance plans for one more year (until December 31, 2019). These plans were intended to end in 2014, but were continued under Obama and now again under the Trump Administration. With STLDI and AHPs on the horizon and the changes in the Benefits and Payment Final Rule, the continuation of transitional plans is just one of the many options states, plans, and beneficiaries have to pick a non-ACA complaint plan.

We are beginning to find ourselves closer and closer to returning to the regulatory place we were a decade ago. How states make decisions regarding the flexibilities provided through these changes will not only drive distinct differences across states, but also drive insurer participation. How this all shakes out is not yet known. And what is a successful Marketplace depends on your perspective.

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Navigating a Cook County Department of Revenue Audit and the Procedure for a Formal Protest

A recent national trend in the practice field of state and local tax has been the uptick in local jurisdictions’ audit activity. The Cook County Department of Revenue (“Cook County” or “Department”) is no exception to this trend where in recent years, the Department has increased its audit activity, and much to the chagrin of taxpayers, has taken aggressive positions in the interpretation of its tax ordinances. Consequently, this has led to increased litigation in the administrative proceedings before the Cook County Department of Administrative Hearings (“D.O.A.H.”). This post provides an overview of the Department’s audit and ensuing D.O.A.H. processes and will highlight some of the procedural differences compared to other jurisdictions such as Chicago and Illinois. This background should assist any taxpayer in navigating the pitfalls and traps they will likely face if they receive a notice of Tax Assessment and Determination (“Assessment”).

Authority to Tax

The Illinois Constitution grants a home rule unit, which includes a county that has a chief executive officer elected by electors of the county, with authority to exercise any power and perform any function pertaining to its government and affairs, including the power to tax.  Ill. Const. Art. VII, § 6(a), 55 ILCS 5/5-1009. For taxes that are measured by income or earnings or that are imposed upon occupations, Cook County only has the power provided by the General Assembly.  Ill. Const. Art. VII, § 6(e). Cook County, however, is not preempted from imposing a home rule tax on (1) alcoholic beverages; (2) cigarettes or tobacco products; (3) the use of a hotel room or similar facility; (4) the sale or transfer of real property; (5) lease receipts; (6) food prepared for immediate consumption; or (7) other taxes not based on the selling or purchase price from the use, sale or purchase of tangible personal property.  55 ILCS 5/5-1009.

Audit Overview

Cook County, like the Illinois Department of Revenue and the City of Chicago Department of Finance, initiates an audit by issuing an individual or business a notice of audit to the taxpayer. The notice will generally identify the taxes subject to review, the periods under audit, and the time and location where the Department will undertake the audit. The notice will likely also include document requests and/or questionnaires that the Department has requested to review as part of audit. In some instances, however, if the Department believes that a taxpayer is not reporting a tax that the Department believes it is subject to, the Department will skip the audit and issue a “jeopardy assessment.” A jeopardy assessment assesses liability based on the books and records of who the Department deems to be similarly situated taxpayers.

Additionally, as my colleague Samantha Breslow discussed in ” Navigating a Chicago Audit and the Procedure for a Formal Protest“, taxpayers should take the Department’s information requests seriously.  It is especially important that the taxpayer stays engaged and responsive to Department auditors as a failure to do so may result in the Department issuing a jeopardy assessment. Cook County Code of Ordinances (“C.C.O.”) § 34-63(c)(2).[1]

Protest

While the Department’s audit process is very similar to Illinois, Chicago, and most other jurisdictions for that matter, the Department’s tax appeals process differs significantly. Unlike the Chicago Department of Finance which affords taxpayers 35 days to protest a notice of tax assessment, and the Illinois Department of Revenuewhich affords taxpayers 30-60 days to protest a notice of tax assessment, a taxpayer subject to a Department tax assessment must file its protest within 20 days of the Department’s mailing the notice of tax determination and assessment. C.C.O § 34-80. The taxpayer must either personally serve the Department with its protest, or place its protest in an envelope, properly addressed to the Department and postmarked within twenty days of the Department’s mailing of the protest. C.C.O. 34-79. At a minimum, a protest must identify the date, name, street address of the taxpayer, tax type, tax periods, the amount of the tax determination and assessment, and the date the county mailed the notice of assessment. The protest should also include an explanation of reasons for protesting the assessed tax and penalties. The Department has published a ” Protest and Petition for Hearing” form which must be used by a protesting taxpayer.  The form must be signed, and must include a power of attorney if the taxpayer is represented by someone other than the taxpayer.

Taxpayers should pay attention to the extremely short time frame in which to a protest must be filed. When considering the Department is only required to serve this notice by United States registered, certified or first class mail, a taxpayer is often left with less than 15 calendar days to file its protest. This is especially true for corporate taxpayers whose headquarters may differ from the address of its tax or legal department or the individual responsible for protesting tax assessments.

Administrative Proceedings

Upon timely receipt of a taxpayer protest, the Department will determine whether any revisions to the Assessment are warranted. This stage may result in a continuation of the audit where the Department will request additional documentation from the taxpayer and the Director of the Department does have the authority to amend the Assessment. While nothing prohibits the Department from increasing the Assessment during this stage, generally if a revision to the Assessment is made, the result is a reduction in the Assessment.[2]

If the parties are unable to resolve the audit, the Department then institutes an administrative adjudication proceeding by forwarding a timely filed protest to the D.O.A.H. C.C.O. § 34-81; C.C.O. § 2-908. The Director of the D.O.A.H. is appointed by the President of the County Board, and is subject to approval by the County Board of Commissioners. C.C.O. § 2-901(b).The Director appoints hearing officers, or administrative law judges (“ALJ”), who are independent adjudicators authorized to conduct hearings for the Department.C.C.O. § 2-901(a). The ALJ has authority to hold settlement conferences, hear testimony, rule upon motions, objections and admissibility of evidence. C.C.O. § 2-904. Note, however, the ALJ is prohibited from hearing or deciding whether any ordinance is facially unconstitutional. C.C.O. § 34-81.

At all proceedings before the ALJ, the Department will be represented by the State’s Attorney. The ALJ will set the matter for an initial pre-hearing status where the parties should be prepared to provide the ALJ with a brief overview of the facts and issues in dispute. The parties will then work to narrow the issues for presentment of findings by the ALJ. This will likely be accomplished by pre-hearing motion practice and the parties’ attempt to stipulate to facts and legal issues to be decided by the ALJ. Ultimately, the taxpayer and the Department will participate in a hearing, or trial, before the ALJ prior to the ALJ issuing a final order with findings of fact and conclusions of law. C.C.O. §  2-904.

Most taxpayers and practitioners are surprised to learn that the D.O.A.H. has no formal discovery. In fact, the parties are only entitled to conduct discovery with leave of the ALJ. Cook County D.O.A.H. General Order No. 2009-1 (“General Order”), Rule 6.3.In our experience,the ALJ will occasionally permit limited interrogatories and requests to admit, but requests to produce have been denied, and depositions arestrictlyprohibited. This is true even where a party intends on introducing an expert witness at the hearing.  Notably, because the Illinois Supreme Court rules do not apply, there is also no corresponding requirement that an expert submit its conclusions and opinions of the witness and bases thereof to the adverse party. See  Ill. S. Ct. R. 213(f). The ALJ may subpoena witnesses and documents which the ALJ deems necessary for the final determination. General Order, Rule 6.4. The lack of procedure naturally increases the likelihood of surprise at final hearing.

After the completion of any pre-hearing motions and the narrowing of the issues, the parties proceed to a hearing where each party will present its case. This is where the record is made for purposes of appeal. No additional evidence is permitted to be introduced at the Circuit Court. The Petitioner, often the Department, must present its case first and bears the initial burden.[3] However, the Department’s Assessment is deemed to be prima facie correct. C.C.O. § 34-64.Thus, a taxpayer has the burden of proving with documentary evidence, books and records that any tax, interest or penalty assessed by the Department is not due and owing.  C.C.O. § 34-63. The formal and technical rules of evidence do not apply at the hearing. C.C.O. § 2-911. A taxpayer can also present fact and expert witnesses in support of its position and may wish to call Department personnel such as the auditor and supervisor as adverse witnesses to support its case.

After both parties have concluded their case, each may request an opportunity to present a closing argument. General Order, Rule 9.4. In lieu of, or in addition to a closing argument, the ALJ may request the parties to file post hearing briefs. It is during the closing argument and/or brief, that the parties will have the opportunity to present its legal and factual defense to the Assessment.

After the hearing and review of post-trial briefs, the ALJ will issue a final order which includes findings of fact and conclusions of law. The findings of the ALJ are subject to review in the Circuit Court of Cook County pursuant to the Administrative Review and the aggrieved party has 35 calendar days to file an appeal. C.C.O. 2-917.

Conclusion and Takeaways:

The D.O.A.H. presents some unique litigation and procedural challenges for a taxpayer wishing to protest a Department Assessment. The major takeaways for a taxpayer protesting an assessment are (1) a taxpayer must file its protest within 20 days of the Department’s mailing of the assessment; (2) the D.O.A.H. has limited discovery rules and prohibits the use of depositions which can inhibit a taxpayer’s ability to build a case. Accordingly, a taxpayer must present adequate witnesses and documentation to support its case at hearing; and (3) a taxpayer must build a record at the administrative proceeding because it will be foreclosed from doing so at the circuit court if an appeal is necessary. These takeaways can go a long way in assisting a taxpayer’s chances of success in what is at times, an unpredictable venue.

[1] If a Taxpayer believes that it has paid a prior amount of tax, interest, or penalty in error to the department, in addition to amending its return, the taxpayer must file a claim for credit or refund in writing on forms provided by the Department. Cook County Code of Ordinances (“C.C.O.”) § 34-90.  The claim for refund must be made not later than four years from the date on which the payment or remittance in error was made. Id.  

[2] If the assessment is revised, the Taxpayer should determine whether the revisions are documented in an official “Revised Notice of Assessment and Determination” or alternatively, whether the revisions were documented in something less formal such as revised schedules or workpapers.  If it is the former, while the Ordinance does not expressly require an Amended Protest to be filed, the issue of whether a revised protestmust be filedwithin 20 daysof the Revised Assessment has been raised in administrative proceedings before the Department. 

[3] We have seen instances where the Taxpayer is identified as the Petitioner in the captioned matter.  In fact, the Taxpayer is identified as Petitioner in the Department’s Protest and Petition for Hearing Form.  However, because the Department submits the matter to DOAH, the taxpayer has no choice on whether it is identified as Petitioner or Respondent in the proceeding, and the Department’s inconsistency often leads to confusion regarding burden of proof issues.

 

© Horwood Marcus & Berk Chartered 2018. All Rights Reserved.
This post was written by David W. Machemer of Horwood Marcus & Berk Chartered 2018.

U.S. DOL Issues Three Opinion Letters After Nine-Year Hiatus

On April 12, 2018, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) issued the first Opinion Letters since the Bush administration, as well as a new Fact Sheet.  The Obama administration formally abandoned Opinion Letters in 2010, but Secretary of Labor Alexander Acosta has restored the practice of issuing these guidance documents.  Opinion Letters, as Secretary Acosta states in the DOL’s April 12 press release, are meant to explain “how an agency will apply the law to a particular set of facts,” with the goal of increasing employer compliance with the Fair Labor Standards Act (“FLSA”) and other laws.  Not only do Opinion Letters clarify the law, but pursuant to Section 10 of the Portal-to-Portal Act, they provide a complete affirmative defense to all monetary liability if an employer can plead and prove it acted “in good faith in conformity with and in reliance on” an Opinion Letter.  29 U.S.C. § 259; see also 29 C.F.R. Part 790.  For these reasons, employers should study these and all forthcoming Opinion Letters closely.

Opinion Letter FLSA2018-18 addresses the compensability of travel time under the FLSA, considering the case of hourly-paid employees with irregular work hours who travel in company-provided vehicles to different locations each day and are occasionally required to travel on Sundays to the corporate office for Monday trainings.  The Opinion Letter reaffirms the following guiding principles: First, as a general matter, time is compensable if it constitutes “work” (a term not defined by the FLSA).  Second, “compensable worktime generally does not include time spent commuting to or from work.”  Third, travel away from the employee’s home community is worktime if it cuts across the employee’s regular workday.  Fourth, “time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile” is not worktime.

With these principles in mind, this letter provides two non-exclusive methods to reasonably determine normal work hours for employees with irregular schedules in order to make an ultimate judgment call on the compensability of travel time.  Under the first method, if a review of an employee’s hours during the most recent month of regular employment reveals typical work hours, the employer can consider those the normal hours going forward.  Under the second method, if an employee’s records do not show typical work hours, the employer can select the average start and end times for the employee’s work days.  Alternatively, where “employees truly have no normal work hours, the employer and employee … may negotiate … a reasonable amount of time or timeframe in which travel outside the employees’ home communities is compensable.”  Crucially, an employer that uses any of these methods to determine compensable travel time is entitled to limit such time to that accrued during normal work hours.

Opinion Letter FLSA2018-19 addresses the compensability of 15-minute rest breaks required every hour by an employee’s serious health condition (i.e., protected leave under the FMLA).  Adopting the test articulated by the Supreme Court in the Armourdecision—whether the break primarily benefits the employer (compensable) or the employee (non-compensable)—the letter advises that short breaks required solely to accommodate the employee’s serious health condition, unlike short, ordinary rest breaks, are not compensable because they predominantly benefit the employee.  The letter cautions, however, that employers must provide employees who take FMLA-protected breaks with as many compensable rest breakers as their coworkers, if any.

Opinion Letter CCPA2018-1NA addresses whether certain lump-sum payments from employers to employees are considered “earnings” for garnishment purposes under Title III of the Consumer Credit Protection Act (the “CCPA”).  The letter articulates the central inquiry as whether the lump-sum payment is compensation “for the employee’s services.” The letter then analyzes 18 types of lump-sum payments, concluding that commissions, bonuses, incentive payments, retroactive merit increases, termination pay, and severance pay, inter alia, are earnings under the CPA, but lump-sum payments for workers’ compensation, insurance settlements for wrongful termination, and buybacks of company shares are not.

Finally, Fact Sheet #17S addresses the FLSA’s minimum wage and overtime requirement exemptions for employees who perform bona fide executive, administrative, professional, and outside sales duties (known as the “white collar exemptions”) in the context of higher education institutions.  Specifically, the letter provides guidance as to the exempt status of faculty members, including coaches, non-teacher learned professionals (e.g., CPAs, psychologists, certified athletic trainers, librarians, and postdoctoral fellows), administrative employees (e.g., admissions counselors and student financial aid officers), executive employees (e.g., department heads, deans, and directors), and student-employees (i.e., graduate teaching assistants, research assistants, and student residential assistants).  Of note, the letter confirms that the DOL is undertaking rulemaking to revise the regulations that govern the white collar exemptions.

Carly Baratt contributed to this post.

©2018 Epstein Becker & Green, P.C. All rights reserved.
This article was written by Jeffrey H. Ruzal of Epstein Becker & Green, P.C.

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