Tag: 5th circuit

Update on FTC Noncompete Ban: Court Challenges Begin

On April ­­23 we reported on the Federal Trade Commission’s vote to ban almost all non-competition agreements in the United States. Within hours of that vote, Ryan LLC, a global tax consulting firm headquartered in Dallas, filed a lawsuit in the U.S. District Court for the Northern District of Texas challenging the FTC’s authority to issue such a rule.

The U.S. Chamber of Commerce has been allowed to intervene in that case and will join in the challenge to the FTC ban.

Ryan’s claims are that:

  1. The FTC lacks the legal authority to promulgate such a rule.
  2. Even if Congress had granted that authority by statute, such a grant would be an unconstitutional delegation of legislative authority to the executive branch, in violation of Article 1 of the U.S. Constitution.
  3. The FTC Act is unconstitutional because it limits the president’s authority to remove subordinates (in this case, FTC Commissioners).
  4. The FTC promulgated the rule in violation of the Administrative Procedure Act because it failed to establish a factual basis for the rule.
  5. The rule is retroactive in purporting to invalidate all existing non-competition agreements, but the FTC has no authority to issue retroactive rules.

Based on our review of the pleadings filed thus far in the case, we think that the U.S. Chamber and its allies agree that these are the correct arguments and that they will file a brief supporting them.

Ryan is asking the court for two things: a stay of the effective date of the rule, and preliminary and permanent injunctions barring the FTC from enforcing it. The case is on an expedited schedule, with briefing to be completed by June 12 and a ruling expected on the pending motion by July 3.

Given that the rule’s effective date is September 4, if the court can meet that schedule, employers should have sufficient time to take the necessary steps to comply, if the court allows the rule to go into effect.

However, we would advise employers to start identifying all employees who are subject to an existing non-competition agreement, so they can move quickly to meet the notice requirements over the summer, should that become necessary.

©2024 Pierce Atwood LLP. All rights reserved.
For more on the FTC Noncompete Ban, visit the NLR Labor & Employment section.

Federal Court Strikes Down NLRB Joint Employer Rule

On March 8, 2024, just days before it was set to take effect, U.S. District Judge J. Campbell Barker of the Eastern District of Texas vacated the National Labor Relations Board’s (“NLRB’s”) recent rule on determining the standard for joint-employer status.

The NLRB issued the rule on October 26, 2023. It established a seven-factor analysis, under a two-step test, for determining joint employer status. Under the new standard, an entity may be considered a joint employer if each entity has an employment relationship with the same group of employees and the entities share or codetermine one or more of the employees’ essential terms and conditions of employment which are defined exclusively as:

  • Wages, benefits and other compensation;
  • Hours of working and scheduling;
  • The assignment of duties to be performed;
  • The supervision of the performance of duties;
  • Work rules and directions governing the manner, means and methods of the performance of duties and grounds for discipline;
  • The tenure of employment, including hiring and discharge; and
  • Working conditions related to the safety and health of employees.

Set to take effect on March 11, 2024, the NLRB’s decision would have rescinded the 2020 final rule which considered just the direct and immediate control one company exerts over the essential terms and conditions of employment of workers directly employed by another firm. The new rule would have expanded the types of control over job terms and conditions that can trigger a joint employer finding.

In the lawsuit, filed by the United States Chamber of Commerce and a coalition of business groups, the Chamber and coalition claimed that the NLRB’s rule is unlawful and should be struck down because it is arbitrary and capricious. Judge Barker agreed as he held that the NLRB’s new test is unlawfully broad because an entity could be deemed a joint employer simply by having the right to exercise indirect control over one essential term. Judge Barker faulted the design of the two-step test which says an entity must qualify as a common-law employer and must have control over at least one job term of the workers at issue to be considered a joint employer, finding that the test’s second part is always met whenever the first step is satisfied. The Court vacated the new standard and indicated it will issue a final judgment declaring the rule is unlawful.

The NLRB quickly responded to the Court’s ruling. In a statement on March 9, 2024 NLRB Chairman Lauren McFerran said the “District Court’s decision to vacate the Board’s rule is a disappointing setback but is not the last word on our efforts to return our joint-employer standard to the common law principles that have been endorsed by other courts.” According to the NLRB, the “Agency is reviewing the decision and actively considering next steps in this case.”

What Employers Need to Know

The legality of the NLRB’s joint-employer standard has been a contested issue since the October 2023 announcement. The rule will not go into effect as scheduled, but Judge Barker’s decision is unlikely to be the final word on the matter.

© 2024 Dinsmore & Shohl LLP. All rights reserved.
by: Brian J. Moore of Dinsmore & Shohl LLP
For more on the NLRB, visit the NLR Labor & Employment section.

Suing Attorneys In Texas For Participating in Fiduciary Breaches

It is not uncommon for an attorney to execute all or part of his or her client’s wishes, which may be in breach of a fiduciary duty owed by the client to a third party. The third party can certainly sue the client for breaching fiduciary duties. But can the third party also sue the attorney for participating in the client’s actions?

An officer or director of a company may set up a competing business and direct company business to the new competing business. If the officer or director uses an attorney to set up this business and the attorney knows that new business will be used to usurp opportunities, can the company sue the attorney for facilitating the creation of the new business? What if the attorney is an owner of the new company or works for the new company in a nonlegal position?

Certainly, Texas has legal theories that can hold a party liable for participating with a fiduciary in breaching duties owed by the fiduciary. There is a claim for knowing participation in a breach of fiduciary duty. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942); Paschal v. Great W. Drilling, Ltd., 215 S.W.3d 437, 450 (Tex. App.—Eastland 2006, pet. denied) (holding wife liable for knowing participation in employee’s embezzlement where funds were placed in joint account and wife benefitted from stolen funds). See also Westech Capital Corp. v. Salamone, 2019 U.S. Dist. LEXIS 143577, 2019 WL 4003093, at *1 (W.D. Tex. Aug. 23, 2019) (collecting cases that explain that “Texas appellate courts have routinely recognized the existence of a cause of action for knowing participation in the breach of fiduciary duty.”). The general elements for a knowing-participation claim are: 1) the existence of a fiduciary relationship; 2) the third party knew of the fiduciary relationship; and 3) the third party was aware it was participating in the breach of that fiduciary relationship. D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 216 (5th Cir. 2018); Meadows v. Harford Life Ins. Co., 492 F.3d 634, 639 (5th Cir. 2007). There is also a recognized civil conspiracy claim in Texas. The essential elements of a civil conspiracy are (1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result. Juhl v. Airington, 936 S.W.2d 640, 644 (Tex. 1996). Finally, there may be an aiding-and-abetting breach-of-fiduciary-duty claim. The Texas Supreme Court has stated that it has not expressly adopted a claim for aiding and abetting outside the context of a fraud claim. See First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017); Ernst & Young v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583 n. 7 (Tex. 2001); West Fork Advisors v. Sungard Consulting, 437 S.W.3d 917 (Tex. App.—Dallas 2014, no pet.). Notwithstanding, some Texas courts have found such an action to exist. See Hendricks v. Thornton, 973 S.W.2d 348 (Tex. App.—Beaumont 1998, pet. denied); Floyd v. Hefner, 556 F.Supp.2d 617 (S.D. Tex. 2008). One court identified the elements for aiding and abetting as the defendant must act with unlawful intent and give substantial assistance and encouragement to a wrongdoer in a tortious act. West Fork Advisors, 437 S.W.3d at 921. Some courts have held that here is no aiding and abetting breach of fiduciary duty claim. Hampton v. Equity Trust Co., No. 03-19-00401-CV, 2020 Tex. App. LEXIS 5674 (Tex. App.—Austin July 23, 2020, no pet.). See also Midwestern Cattle Mktg., L.L.C. v. Legend Bank, N.A., 2019 U.S. App. LEXIS 36966, 2019 WL 6834031, at *7 (5th Cir. Dec. 13, 2019); In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Liab. Litig., 888 F.3d 753, 782, 781 (5th Cir. 2018)  For a discussion of these forms of joint liability for breach of fiduciary duty, please see E. Link Beck, Joint and Several Liability, STATE BAR OF TEXAS, 10TH ANNUAL FIDUCIARY LITIGATION COURSE (2015).

It is clear that at least under some theories, that third parties can be held liable for participating in fiduciary breaches with the party owing fiduciary duties. Can the third party be an attorney? Prior to Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015), it was unclear in Texas whether a party could assert a claim against an attorney not representing the party, such as for negligent misrepresentation or aiding and abetting fraud or breaches of fiduciary duty. Some courts allowed the claim if the attorney was committing or participating in fraud. Others did not.

The plaintiff in Cantey Hanger alleged that the attorneys who represented her husband in a divorce proceeding had committed fraud by falsifying a bill of sale to shift tax liabilities from the sale of an airplane from her husband to her. Id. at 479-80. The Texas Supreme Court held that attorney immunity barred the claim because “[e]ven conduct that is ‘wrongful in the context of the underlying suit’ is not actionable if it is ‘part of the discharge of the lawyer’s duties in representing his or her client.’” Id. at 481. The following are key excerpts from the opinion:

Texas common law is well settled that an attorney does not owe a professional duty of care to third parties who are damaged by the attorney’s negligent representation of a client. Barcelo v. Elliott, 923 S.W.2d 575, 577 (Tex. 1996); see also McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 792 (Tex. 1999) (explaining that a lack of privity precludes attorneys’ liability to non-clients for legal malpractice). However, Texas courts have developed a more comprehensive affirmative defense protecting attorneys from liability to non-clients, stemming from the broad declaration over a century ago that “attorneys are authorized to practice their profession, to advise their clients and interpose any defense or supposed defense, without making themselves liable for damages.” Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App. 1910, writ ref’d). This attorney-immunity defense is intended to ensure “loyal, faithful, and aggressive representation by attorneys employed as advocates.” Mitchell v. Chapman, 10 S.W.3d 810, 812 (Tex. App.—Dallas 2000, pet. denied).

….

In accordance with this purpose, there is consensus among the courts of appeals that, as a general rule, attorneys are immune from civil liability to non-clients “for actions taken in connection with representing a client in litigation.” Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.—Houston [1st Dist.] 2005, pet. denied); see also Toles v. Toles, 113 S.W.3d 899, 910 (Tex. App.—Dallas 2003, no pet.); Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287-88 (Tex. App.—Fort Worth 1997, pet. denied). Even conduct that is “wrongful in the context of the underlying suit” is not actionable if it is “part of the discharge of the lawyer’s duties in representing his or her client.” Toles, 113 S.W.3d at 910-11;

….

Conversely, attorneys are not protected from liability to non-clients for their actions when they do not qualify as “the kind of conduct in which an attorney engages when discharging his duties to his client.” Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9; see also Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (noting that “it is the kind of conduct that is controlling, and not whether that conduct is meritorious or sanctionable”).

Because the focus in evaluating attorney liability to a non-client is “on the kind—not the nature—of the attorney’s conduct,” a general fraud exception would significantly undercut the defense. Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *8. Merely labeling an attorney’s conduct “fraudulent” does not and should not remove it from the scope of client representation or render it “foreign to the duties of an attorney.” Alpert, 178 S.W.3d at 406 (citing Poole, 58 Tex. at 137); see also Dixon Fin. Servs., 2008 Tex. App. LEXIS 2064, 2008 WL 746548, at *9 (“Characterizing an attorney’s action in advancing his client’s rights as fraudulent does not change the rule that an attorney cannot be held liable for discharging his duties to his client.”).

….

Fraud is not an exception to attorney immunity; rather, the defense does not extend to fraudulent conduct that is outside the scope of an attorney’s legal representation of his client, just as it does not extend to other wrongful conduct outside the scope of representation. An attorney who pleads the affirmative defense of attorney immunity has the burden to prove that his alleged wrongful conduct, regardless of whether it is labeled fraudulent, is part of the discharge of his duties to his client.

Id. at 481-484.

Based on the holding in Cantey Hanger, if an attorney is performing duties that a lawyer would typically perform, the attorney immunity defense would apply. This defense would likewise apply to aiding and abetting fraud and breaches of fiduciary duty. See Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 577-78 (Tex. App.—Dallas 2007); Span Enters. v. Wood, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008).

In Bethel v. Quilling, Selander, Lownds, Winslett & Moser, P.C., the Court extended the Cantey Hanger holding to allegations of criminal conduct. 595 S.W.3d 651, 657-58 (Tex. 2020). There, the plaintiff had urged the Court “to recognize an exception” to attorney immunity “whe[n] a third party alleges that an attorney engaged in criminal conduct during the course of litigation.” Id. The Court rejected the invitation to adopt an exception or state a categorical rule because doing so would allow plaintiffs to avoid the attorney-immunity defense through artful pleading—”by merely alleging that an attorney’s conduct was ‘criminal.’” Id. The Court eschewed a categorical exception for criminal conduct because such an exception would defeat the purposes of the attorney-immunity defense. Instead, the Court held that conduct alleged to be criminal in nature “is not categorically excepted from the protections of attorney civil immunity when the conduct alleged is connected with representing a client in litigation.” Id. As we explained there, a lawyer who is doing his or her job is not more susceptible to civil liability just because a nonclient asserts that the lawyer’s actions are fraudulent, wrongful, or even criminal. Id.

In 2021, the Texas Supreme Court further clarified the holding in Cantey Hanger to state that “When an attorney personally participates ‘in a fraudulent business scheme with his client,’ as opposed to on his client’s behalf, the attorney ‘will not be heard to deny his liability’ because ‘such acts are entirely foreign to the duties of an attorney.’” Haynes & Boone, LLP v. NFTD, LLC, 631 S.W.3d 65, 77 (Tex. 2021) (quoting Poole v. Hous. & T.C. Ry. Co., 58 Tex. 134, 137 (1882)). The Court in Haynes & Boone, LLP, also expanded the Cantey Hanger holding to extend to transactional work that the attorney performs, in addition to litigation work covered in the Cantey Hanger opinion:

Today we confirm that attorney immunity applies to claims based on conduct outside the litigation context, so long as the conduct is the “kind” of conduct we have described above. We reach this conclusion because we see no meaningful distinction between the litigation context and the non-litigation context when it comes to the reasons we have recognized attorney immunity in the first place. We have recognized attorney immunity because attorneys are duty-bound to competently, diligently, and zealously represent their clients’ interests while avoiding any conflicting obligations or duties to themselves or others.

Id. at 79.

Most recently, in Taylor v. Tolbert, the Court reviewed whether there was an exception to immunity for private-party civil suits asserting that a lawyer has engaged in conduct criminalized by statute. No. 20-0727, 2022 Tex. LEXIS 385 (Tex. May 6, 2022). The court discussed the immunity defense as follows:

The common-law attorney-immunity defense applies to lawyerly work in “all adversarial contexts in which an attorney has a duty to zealously and loyally represent a client” but only when the claim against the attorney is based on “the kind of conduct” attorneys undertake while discharging their professional duties to a client. Stated inversely, if an attorney engages in conduct that is not “lawyerly work” or is “entirely foreign to the duties of a lawyer” or falls outside the scope of client representation, the attorney-immunity defense is inapplicable.

In determining whether conduct is “the kind” immunity protects, the inquiry focuses on the type of conduct at issue rather than the alleged wrongfulness of that conduct. But when the defense applies, counsel is shielded only from liability in a civil suit, not from “other mechanisms” that exist “to discourage and remedy” bad-faith or wrongful conduct, including sanctions, professional discipline, or criminal penalties, as appropriate.

Conduct is not the kind of conduct attorney immunity protects “simply because attorneys often engage in that activity” or because an attorney performed the activity on a client’s behalf. Rather, the conduct must involve “the uniquely lawyerly capacity” and the attorney’s skills as an attorney. For example, a lawyer who makes publicity statements to the press and on social media on a client’s behalf does “not partake of ‘the office, professional training, skill, and authority of an attorney’” because “[a]nyone—including press agents, spokespersons, or someone with no particular training or authority at all—can publicize a client’s allegations to the media.” Immunity attaches only if the attorney is discharging “lawyerly” duties to his or her client.

A corollary to this principle is that attorneys will not be entitled to civil immunity for conduct that is “entirely foreign to the duties of an attorney.” “Foreign to the duties” does not mean something a good attorney should not do; it means that the attorney is acting outside his or her capacity and function as an attorney. For that reason, whether counsel may claim the privilege turns on the task that was being performed, not whether the challenged conduct was meritorious.

This is so because the interests of clients demand that lawyers “competently, diligently, and zealously represent their clients’ interests while avoiding any conflicting obligations or duties to themselves or others.” To prevent chilling an attorney’s faithful discharge of this duty, lawyers must be able to pursue legal rights they deem necessary and proper for their clients without the menace of civil liability looming over them and influencing their actions. Attorney immunity furthers “loyal, faithful, and aggressive representation” by “essentially . . . removing the fear of personal liability,” thus “alleviating in the mind of [an] attorney any fear that he or she may be sued by or held liable to a non-client for providing . . . zealous representation.” In this way, the defense protects not only attorneys but also their clients, who can be assured that counsel is representing the client’s best interests, not the lawyer’s.

Id. The Court acknowledged that “there is a wide range of criminal conduct that is not within the ‘scope of client representation’ and [is] therefore ‘foreign to the duties of an attorney,’” and that “when that is the case, the circumstances do not give rise to an ‘exception’ to the immunity defense; rather, such conduct simply fails to satisfy the requirements for invoking the defense in the first instance.” Id. “[O]ur approach to applying the attorney-immunity defense remains functional, not qualitative, and leaves an attorney’s improper conduct addressable by public remedies.” Id.

The Court then held that the common-law defense of attorney immunity would still apply to state statutes (unless the statute specifically abrogated that defense). Id. The Court stated:

That does not mean that all conduct criminalized by the wiretap statute is immunized from civil liability or free of consequences. As we explained in Bethel, while criminal conduct is not categorically excepted from the attorney-immunity defense, neither is it categorically immunized by that defense. Criminal conduct may fall outside the scope of attorney immunity, and even when it does not, “nothing in our attorney-immunity jurisprudence affects an attorney’s potential criminal liability if the conduct constitutes a criminal offense.”

Id. However, regarding federal statutes, the Court concluded “that attorney immunity, as recognized and defined under Texas law, is not a defense under the federal wiretap statute because, quite simply, a state’s common-law defense does not apply to federal statutes.” Id.

In light of the foregoing authorities, it appears claims against attorneys merely doing work for a client (whether fraudulent, tortious, or even criminal) would be covered by attorney immunity and bar any participation in breach of fiduciary duty claim. However, if the misconduct relates to the attorney personally benefitting from the transaction, or having been a party to the transaction (as opposed to merely the attorney for a party), such an immunity would not apply. See, e.g., Olmos v. Giles, No. 3:22-CV-0077-D, 2022 U.S. Dist. LEXIS 77134 (N.D. Tex. April 28, 2022) (refused to dismiss breach of fiduciary duty claim and misrepresentation claim against attorneys where it was unclear whether the defendant attorneys were a part of the transaction).

Another issue that should be discussed is the impact on the attorney client privilege when an attorney participates in fraud or criminal activities. The attorney-client privilege cannot be enforced when “the services of the lawyer were sought or obtained to enable or aid anyone to commit what the client knew or reasonably should have known to be a crime or fraud.” Tex. R. Evid. 503 (d)(1). As one court describes:

The exception applies only when (1) a prima facie case is made of contemplated fraud, and (2) there is a relationship between the document at issue and the prima facie proof offered. A prima facie showing is sufficient if it sets forth evidence that, if believed by a trier of fact, would establish the elements of a fraud or crime that “was ongoing or about to be committed when the document was prepared.” A court may look to the document itself to determine whether a prima facie case has been established.…

We begin our analysis by examining the scope of the fraud portion of the crime/fraud exception. The Texas Rules of Evidence do not define what is intended in Rule 503(d)(1) by the phrase “to commit . . . [a] fraud.” Black’s Law Dictionary defines fraud as: “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” The Texas common law tort of fraud also requires proof of misrepresentation, concealment, or non-disclosure. The legal concept of fraud therefore has at its core a misrepresentation or concealment. This definition also dovetails with the apparent reasoning behind inclusion of fraud in the exception: by keeping client communications confidential–pursuant to the attorney-client privilege –the attorney whose client intends to make a misrepresentation or concealment helps prevent the injured party from learning the truth about the misrepresentation or concealment. Thus, in that situation, the attorney’s silence affirmatively aids the client in committing the tort. This is not generally true of other torts (not based on misrepresentation or concealment) and explains why the exception is not the crime/tort exception.

In re Gen. Agents Ins. Co. of Am., Inc., 224 S.W.3d 806, 819 (Tex. App.—Houston [14th Dist.] 2007, orig. proceeding). Moreover, the Texas Court of Criminal Appeals has held that this exception includes the work-product in the proper circumstances. Woodruff v. State, 330 S.W.3d 709, 2010 Tex. App. LEXIS 9569 (Tex. App. Texarkana Dec. 3, 2010), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 749 (Tex. Crim. App. May 25, 2011), pet. ref’d No. PD-1807-10, 2011 Tex. Crim. App. LEXIS 770 (Tex. Crim. App. June 1, 2011), cert. denied, 565 U.S. 977, 132 S. Ct. 502, 181 L. Ed. 2d 347, 2011 U.S. LEXIS 7788 (U.S. 2011).

So, though an attorney may be immune from civil liability, the crime/fraud exception may open up attorney/client communications to the light of day. Regarding crimes involving breaches of fiduciary duty, in addition to theft crimes, the Texas Legislature has created the following crimes: (1) Financial Abuse of Elderly Individual in Texas Penal Code Section 32.55; 2) Financial Exploitation of Vulnerable Individuals in Texas Penal Code Section 32.53; (3) Misapplication of Fiduciary Property in Texas Penal Code Section 32.45; and (4) Failure to Report of the Exploitation of the Elderly or Disabled Individuals in the Texas Human Resources Code Section 48.051.

Article By David Fowler Johnson of Winstead

For more litigation and trial practice news, click here to visit the National Law Review.

© 2022 Winstead PC.

Surprise! The No Surprises Act Changes Again

The No Surprises Act (Act), which became effective Jan. 1, 2022, is the latest health care law passed with the best of intent: to create consumer protection from unexpected out-of-network medical bills and to create a federal independent dispute resolution (IDR) process to resolve payment disputes between payers and out-of-network providers. Unfortunately, the Act, especially the U.S. Department of Health and Human Services’ (HHS) implementation of the IDR process, also creates a new administrative burden for health care providers. Providers and medical associations filed lawsuits in multiple jurisdictions to challenge HHS’ implementation of the IDR process and the constitutionality of the Act before it was even in effect.

On Feb. 24, 2022, the United States District Court for the Eastern District of Texas granted the Texas Medical Association’s Motion for Summary Judgement to vacate select IDR requirements. The Court found that HHS’ interim final rule’s IDR process, intended to resolve payment disputes regarding reimbursement for out-of-network emergency services and out-of-network services provided at in-network facilities, was contrary to the clear language of the Act[1] (Rule).

In general, the Act[2] requires health insurance payers (Insurers) to reimburse providers for certain out-of-network services at a statutorily calculated “out-of-network rate.”[3] Where an All-Payer Model Agreement or specified state law does not exist, to set such a rate, an Insurer must issue an initial out-of-network rate decision and pay such amount to the providers within 30 days after the out-of-network claim is submitted.[4] If the provider disagrees with the Insurer’s proposed out-of-network reimbursement rate, the provider has a 30-day window to negotiate a different payment rate with the Insurer.[5] If these negotiations fail, the parties can proceed to the IDR process.[6]

Congress adopted a baseball-style arbitration model for the Act’s IDR process. The Insurer and provider each submit a proposed out-of-network rate with limited supporting evidence. The arbitrator picks one of the offers while taking into account specified considerations, including the “qualified payment amount,” the provider’s training, experience, quality, and outcomes measurements, the provider’s market share, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the provider’s/Insurer’s good-faith attempts to enter into a network agreement.[7] The “qualifying payment amount” (QPA), is designed to represent the median rate the Insurer would pay for the item or service if it were provided by an in-network provider.[8]

The Rule requires the IDR arbitrator to select the proposed payment amount that is closest to the QPA unless “the certified IDR entity [arbitrator] determines that credible information submitted by either party … clearly demonstrates that the [QPA] is materially different[9] from the appropriate out-of-network rate.”[10] This is a clear departure from the analysis set forth in the Act.

The Texas Medical Association challenged the Rule under the Administrative Procedures Act (APA), arguing that the Departments exceeded their authority by giving “outsized weight” to one statutory factor over the others specified by Congress, and that the Departments failed to comply with the APA’s notice and comments requirements in promulgating the Rule. In turn, the Departments argued that the plaintiffs did not have standing to bring the claims.

After dispensing with defendant’s standing arguments, the Eastern District of Texas Court ruled in favor of the plaintiff’s Motion for Summary Judgment and determined that “the Act unambiguously establishes the framework for deciding payment disputes and concludes that the Rule conflicts with the statutory text.” Under the Act, the arbitrators (or certified IDR entities) “shall consider … the qualifying payment amounts” and the provider’s level of training, experience, and quality outcomes, the market share held by the provider, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the demonstrated good faith efforts of both parties in entering into a network agreement.”[11] The Act did not specify that any one factor should be considered the “primary” or “most important” factor. The Rule, in contrast, requires arbitrators to “select the offer closest to the [QPA]” unless “credible” information, including information supporting the “additional factors,” “clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.”[12] The Departments characterized the other factors as “permissible additional factors” that may be considered only when appropriate.[13] The Court found that the Department’s Rule was inconsistent with the Act and that since Congress had spoken clearly on the factors to be considered in the arbitration process, the Department’s interpretation of the Act was not appropriate and had exceeded the Department’s authority.[14]

Following the Court’s decision, the Departments issued a memorandum on Feb. 28, 2022, clarifying the Act’s requirements for providers and Insurers. The memo specifically noted that the Court’s decision would not, in their opinion, affect the patient-provider dispute resolution process.[15] The Departments also stated they would withdraw any guidance inconsistent with the Court’s Opinion, provide additional training for interested parties, and keep the IDR process portal open to resolve disputes. The Departments also will be considering further rulemaking to address the IDR process.

The No Surprises Act continues to surprise us all with more adaptations. Enforcement of this new law remains uncertain in light of the numerous legal challenges, including at least one constitutionality challenge.

[1] Requirements Related to Surprise Billing: Part II, 86 Fed. Reg. 55,980 (Oct. 7, 2021).

[2] Consolidated Appropriations Act of 2021, Pub. L. No. 116-260, div. BB, tit. I, 134 Stat. 1182, 2758-2890 (2020).

[3] 300gg-111(a)(1)(C)(iv)(II) and (b)(1)(D).

[4] 300gg-111(a)(1)(C)(iv) and (b)(1)(C).

[5] 300gg-111(c)(1)(A).

[6] 300gg-111(c)(1)(B).

[7] 300gg-111(c)(5).

[8] 300gg-111(a)(3)(E)(i)(I)-(II).

[9] “Material difference” is defined as “a substantial likelihood that a reasonable person with the training and qualifications of a certified IDR entity making a payment determination would consider the submitted information significant in determining the out-of-network rate and would view the information as showing that the [QPA] is not the appropriate out-of-network rate. 149.510(a)(2)(viii).

[10] 45 C.F.R. 149.510(c)(4)(ii).

[11] 300gg-111(c)(5)(C)(i)-(ii).

[12] 45 C.F.R. 149.510(c)(4)(ii)(A).

[13] 86 Fed. Reg. 56,080.

[14] Because the Departments had exceeded their statutory authority, no Chevron deference was owed to their regulations. Chevron U.S.A. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).

[15] This is a separate dispute resolution process designed to address disputes between patients and providers when bills for uninsured and self-pay patients are inconsistent with the good faith estimate provided by the health care provider.

Article By Stacey A. Borowicz and Joseph D. Wheeler of Dinsmore & Shohl LLP

For more healthcare legal news, click here to visit the National Law Review.

© 2022 Dinsmore & Shohl LLP. All rights reserved.

Can’t Hold Macklemore and Ryan Lewis Liable for Copyright Infringement Says Fifth Circuit

In 2017, a New Orleans Jazz Musician, Paul Batiste’s (“Batiste”), sued the world-renowned duo Macklemore and Ryan Lewis (“Macklemore”) alleging the duo copied eleven of his songs. Batiste v. Lewis, 2019 U.S. Dist. LEXIS 69130, 2019 WL 1790454 (E.D. La., Apr. 23, 2019). Batiste claimed Macklemore had, without permission, digitally sampled Batiste’s songs, and as a result, Macklemore’s hits, “Can’t Hold Us,” “Thrift Shop,” “Neon Cathedral,” “Same Love,” and “Need to Know” were based on or derivatives of Batiste’s copyrighted musical works. The district court disagreed after finding Batiste failed to sufficiently prove Macklemore had “access” to Batiste’s music and that Macklemore’s songs were strikingly similar to Batiste’s. Additionally, the district court held Batiste liable to pay Macklemore’s attorney fees pursuant to 17 U.S.C. § 505.

Batiste appealed and on September 22, 2020, the Fifth Circuit affirmed the lower court’s decision. See Batiste v. Lewis, Nos. 19-30400, 19-30889, 2020 U.S. App. LEXIS 30346 (5th Cir. Sep. 22, 2020). The Fifth Circuit agreed Batiste did not sufficiently prove Macklemore had access to Batiste’s works and failed to show substantial similarity between the competing works. Furthermore, the Fifth Circuit upheld the attorneys’ fees award, to the tune of $125,000, in favor of Macklemore.

Batiste argued Macklemore must have had access as a result of Batiste’s songs being “widely disseminated” through radio stations, record stores, and live performances at local nightclubs. Citing to evidence of “meager sales in only a handful of local stores” and “sparse” streaming and downloads, the court disagreed with Batiste and found the dissemination of his music was “quite limited.” The court further noted that Batiste’s songs did not become available to stream until after Macklemore had released most of their hit songs. Because Batiste failed to prove Macklemore had actual or constructive access, he was then tasked with proving “strikingly similarity” in order to prevail on his infringement claim since a “probative similarity can make up for a lesser showing of access.” In that regard, the Court found Batiste fell flat and did not “even try to meet the striking-similarity standard.”

Considering the objective unreasonableness of Batiste’s claims, his history of litigation misconduct, and his pattern of filing pugnacious copyright infringement actions, the court upheld the district court’s award of attorneys’ fees to Macklemore.

Accordingly, copyright infringement plaintiffs should think twice before filing suit capriciously and without first objectively evaluating the strength of their “access” and “similarity” proofs. The more access a defendant had to plaintiff’s copyrighted works the less similarity is required for a finding of infringement, and vice-versa, however, proof of both is ideal.

COPYRIGHT © 2020, STARK & STARK
ARTICLE BY Gene Markin of Stark & Stark
For more, visit the NLR Intellectual Property section.

Federal Appeals Court Hands Down Important Ruling in Overtime Exemption Lawsuit

A federal appeals court earlier this year handed down an important ruling in an unpaid overtime lawsuit brought by a plaintiff who claims that his employer violated various provisions of federal wage and hour laws, including failure to pay overtime.

With the Fifth Circuit Court of Appeals’ ruling, employers will no longer be able to satisfy the salary basis component required to qualify an employee as overtime-exempt under federal wage and hour laws.

According to the unpaid overtime lawsuit, filed in U.S. District Court for the Southern District of Texas, the defendant Helix Energy Solutions Group violated the Fair Labor Standards Act (FLSA) when the company failed to pay the plaintiff his premium overtime wages.

Under the FLSA, employers must pay overtime-eligible workers premium overtime wages calculated at one and a half times their average hourly rate of pay for the time spent working past the 40-hour per workweek overtime threshold.

The plaintiff’s lawsuit claimed that he was improperly classified as overtime exempt when Helix Energy Solutions paid him a flat daily rate, regardless of the number of hours he put into his job each week.

The plaintiff claimed that he regularly worked more than 40 hours in a week on an oil rig but was not compensated with any additional premium overtime pay.

Helix Energy Solutions claimed that the company satisfied the salary requirements for the plaintiff to be overtime exempt when they paid him a daily salary because his weekly pay was greater than the minimum required under the FLSA.

While the trial court agreed with the defendant and dismissed the plaintiff’s case, the Fifth Circuit Court of Appeals rejected Helix Energy Solutions’ argument on appeal that it satisfied the criteria to classify the plaintiff as an independent contractor.

By ruling in favor of the plaintiff, the Fifth Circuit Court of Appeals, which covers Louisiana, Mississippi, and Texas, now brings its interpretation in line with the Sixth Circuit, which covers Kentucky, Michigan, Ohio, and Tennessee.

Sources:

Buckfire & Buckfire, P.C. 2020
For more articles on employment litigation, visit the National Law Review Labor & Employment section.