Tag: Litigation

Update Alert on Mickelson v. PGA Tour, Inc.

On August 16, 2022, we prepared an alert discussing Mickelson v. PGA Tour, Inc. and the claims made by suspended PGA Tour players (“Player Plaintiffs”) against PGA Tour, Inc. (“Tour.”) Quite a bit has transpired in the past three weeks both in and out of the courtroom. This alert highlights new developments that stem from an amended complaint that was filed in the US District Court, Northern District of California on August 26, 2022 (the “Amended Complaint.”)

The Amended Complaint can be found here and the original alert can be found here.

The Amended Complaint removes several Player-Plaintiffs listed as plaintiffs in the original complaint. Originally, the Player Plaintiffs were comprised of the following eleven golfers: Abraham Ancer, Bryson DeChambeau, Taylor Gooch, Matt Jones, Jason Kokrak, Phil Mickelson, Carlos Ortiz, Pat Perez, Ian Poulter, Hudson Swafford, and Peter Uihlein. Per the Amended Complaint, four of the original Plaintiff Players have been removed as plaintiffs, namely: Abraham Ancer, Jason Kokrak, Carlos Ortiz, and Pat Perez.[1] As a result, only seven of the eleven original Player Plaintiffs remain as Player Plaintiffs.

Perhaps the most significant development in the case is that LIV Golf has been added as a Plaintiff in the Amended Complaint. The Amended Complaint generally reiterates allegations made by the Player Plaintiffs (together with LIV Golf, collectively, the “Plaintiffs”) in the original complaint and incorporates LIV Golf’s alleged harm, mainly, that the Tour’s efforts made to prevent LIV Golf’s entry into the elite professional golf market forced LIV Golf to delay and restructure its 2022 launch plans and required LIV Golf “to pay excessively higher guaranteed payments to recruit a number of marquee players than would be required in a competitive market.”

Three more claims were added to the Amended Complaint, for a total of eight claims brought by the Plaintiffs. The first new claim alleges that Tour has violated Section 2 of the Sherman Antitrust Act by monopolizing the market for promotion of elite professional golf events (which is in addition to the Section 2 claim in the original complaint that alleges that the Tour maintains a monopoly on elite event services.) In addition to the now three antitrust claims brought in the Amended Complaint, LIV Golf also brought separate tortious interference claims of contractual relationships and prospective business relationships. The antitrust claims and the tortious interference claims are based on the premise that the Tour’s exclusionary actions: (i) prevent competition for the promotion of golf entertainment among stakeholders, such as broadcasters, players (via the Media Rights Regulation), vendors, sponsors, advertisers, partners, and agencies, and (ii) interfere with LIV Golf’s ability to negotiate and enter into contracts with those stakeholders.

Key Observations

Although more than one-third of the original Player Plaintiffs have withdrawn from Mickelson v. PGA Tour, Inc., the addition of LIV Golf as a plaintiff elevates the lawsuit because it brings the very public rivalry between the Tour and LIV Golf to the courtroom. The circumstances surrounding the case are also rapidly evolving. Since the order denying Player Plaintiffs Talor Gooch, Hudson Swafford, and Matt Jones’s motion for temporary restraining order (“TRO”) issued on August 9, 2022, six Tour members (most notably world number 2 Cameron Smith) have joined LIV Golf, which amounts to nearly half of the major winners since 2016 and 26 of the world’s top 100 golfers that have now signed with LIV Golf. In addition, the Tour announced various rule changes for the 2023 PGA Tour season, including increased purse winnings, bonus pools, and elevated events. It remains to be seen whether these circumstances will materially alter the arguments made throughout the TRO proceedings.

The tentative date to hear dispositive motions (such as summary judgment) has been scheduled for July 23, 2023, and the jury trial date is expected to begin on January 8, 2024.

FOOTNOTES

[1] Pat Perez was the only player who directly provided the reason for his withdrawal: “I didn’t really think it through… I did it to back our guys,” he reportedly said. He also said that he does not have “ill will” towards the Tour and emphasized his content of playing for LIV Golf.

Article By Richard L. Brand, Thomas R. Castiello, Brian D. Schneider, and Anjelica L. Fuccillo of ArentFox Schiff LLP

For more entertainment, art, and sports legal news, click here to visit the National Law Review.

© 2022 ArentFox Schiff LLP

The Supreme Court Is Poised to Weigh in on a False Claims Act Circuit Split

Three pending petitions for writ of certiorari have asked the U.S. Supreme Court to resolve a split among the federal courts of appeals as to the pleading standard for False Claims Act (“FCA”) whistleblower claims.

The FCA creates a right of action whereby either the government or private individuals can bring lawsuits against actors who have defrauded the government. 31 U.S.C. §§ 3729 et seq. Under the FCA, a private citizen can act as a “relator” and bring an action on behalf of the government in what is known as a qui tam suit. The government can elect to intervene, which means participate, in the suit; if it does not, the relator can continue to litigate the case without the direct participation of the government. 31 U.S.C. § 3730. Private individuals can receive a portion of the action’s proceeds or settlement amount. 31 U.S.C. § 3730(d).

The petitions ask the Court to clarify the level of particularity required under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) to plead a claim under the FCA. Rule 9(b) requires plaintiffs alleging “fraud or mistake” to “state with particularity the circumstances constituting fraud or mistake.”

Johnson v. Bethany Hospice and Palliative Care LLC, Case No. 21-462

In their petition for a writ of certiorari, the petitioners in Johnson asked the Supreme Court to take up the issue of whether Rule 9(b) requires FCA plaintiffs “who plead a fraudulent scheme with particularity to also plead specific details of false claims.” The Eleventh Circuit earlier affirmed the district court’s dismissal of an FCA claim based on the plaintiffs’ failure to plead “specific details about the submission of an actual false claim” to the government. Estate of Helmly v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC, 853 F. App’x 496, 502-03 (11th Cir. 2021).

In particular, the relators alleged that several doctors purchased ownership interests in Bethany Hospice and Palliative Care, LLC (“Bethany Hospice”) and were allocated kickbacks for patient referrals through a combination of salary, dividends, and/or bonus payments.  Id. at 498. Among other allegations, the complaint alleged that both the relators had access to Bethany Hospice’s billing systems, and, based on their review of those systems and conversations with other employees, were able to confirm that Bethany Hospital submitted false claims for Medicare and Medicaid reimbursement to the government.  Id. at 502.

The Eleventh Circuit held that the allegations were “insufficient” under Rule 9(b)’s heightened pleading standard for fraud cases.  Id. Even though the relators alleged direct knowledge of Bethany Hospice’s billing and patient records, their failure to provide “specific details” regarding the dates of the claims, the frequency with which Bethany Hospice submitted those claims, the amounts of the claims, or the patients whose treatment formed the basis of the claims defeated their FCA claim.  Id. In addition, the relators did not personally participate or directly witness the submission of any false claims.  Id. The Eleventh Circuit also found unpersuasive the relators’ argument that Bethany Hospice derived nearly all its business from Medicare patients, therefore making it plausible that it had submitted false claims to the government.  Id. “Whether a defendant bills the government for some or most of its services,” the Eleventh Circuit stated, “the burden remains on a relator alleging the submission of a false claim to allege specific details about false claims to establish the indicia of reliability necessary under Rule 9(b).”  Id. (internal quotation marks omitted). Because the relators did not do so here, the Eleventh Circuit affirmed the dismissal of the case.

United States ex rel. Owsley v. Fazzi Associates, Inc., Case No. 21-936

The Sixth Circuit took a similarly hardline approach in United States ex rel. Owsley v. Fazzi Associates, Inc., 16 F.4th 192 (6th Cir. 2021), ruling in favor of a strict interpretation of Rule 9(b).  The petition for a writ of certiorari in Owsley asks the Court to take up the same question as in Johnson.

In Owsley, the relator alleged that her employer used fraudulently altered data to make its patient populations seem sicker than they actually were in order to increase Medicare payments received from the government.  Id. at 195. The complaint “describe[d] in detail, a fraudulent scheme,” and alleged “personal knowledge of the billing practices employed in the fraudulent scheme.”  Id. at 196 (internal quotation marks omitted). But the Sixth Circuit ruled that these allegations were not enough under Rule 9(b). Instead, to bring a viable FCA claim, a relator’s complaint must identify “at least one false claim with specificity.”  Id. (internal quotation marks omitted). A relator can do that in one of two ways: first, by identifying a representative claim actually submitted to the government; or second, by alleging facts “based on personal knowledge of billing practices” that support a strong inference that the defendant submitted “particular identified claims” to the government.  Id. (emphasis in original). Here, though the relator alleged specific instances of fraudulent data – such as upcoding a patient with a leg ulcer to include a malignant cancer diagnosis – she did not identify particular claims submitted to the government.  Id. at 197. “[T]he touchstone is whether the complaint provides the defendant with notice of a specific representative claim that the plaintiff thinks was fraudulent.”  Id. The Owsley relator, the court held, failed to meet that critical touchstone.

Molina Healthcare v. Prose, Case No. 21-1145

The Seventh Circuit adopted a more flexible pleading standard in United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021). As in Johnson and Owsley, the petition for a writ of certiorari asks the Court to weigh in on the Rule 9(b) standard under the FCA. It also presents an additional question about the requirements for an FCA claim under the implied false certification theory.

In Molina Healthcare, the relator brought an FCA claim against Molina Healthcare (“Molina”) for violating certain requirements of its Medicaid contract. The relator alleged that Molina, which had previously subcontracted with another entity for the provision of certain nursing home services, continued to collect payment for those services from the government even though it no longer provided them. Molina Healthcare, 17 F.4th at 736. Molina Healthcare received fixed payments from the government for different categories of patients. It received the highest per capita payment for patients in nursing facilities: $3,180.30.  Id. at 737-38. The relator alleged that Molina Healthcare knowingly continued to collect this rate from the government when it no longer provided a key service to nursing home patients.  Id.

The relator brought an FCA claim against Molina based on three theories of liability: (1) factual falsity (i.e., presenting a facially false claim to the government); (2) fraud in the inducement (i.e., misrepresenting compliance with a payment condition “in order to induce the government to enter the contract”); and (3) implied false certification (i.e., presenting a false claim with the “omission of key facts” instead of “affirmative misrepresentations”).  Id. at 740-741.

The Seventh Circuit held that the relator’s allegations satisfied Rule 9(b)’s pleading requirement under all three theories. First, as to factual falsity, the Court found that the relator provided sufficient information as to the “when, where, how, and to whom” Molina made the allegedly false representations.  Id. at 741. Though the relator did not have access to the defendant’s files, the information he provided “support[ed] the inference” that Molina had submitted false claims to the government.  Id. Second, as to fraud in the inducement, the Seventh Circuit found that the relator’s “precise allegations” regarding “the beneficiaries, the time period, the mechanism for fraud, and the financial consequences” again satisfied Rule 9(b)’s standard.  Id. at 741. The complaint also included details about Molina’s chief operating officer’s statements that indicated that Molina “never intended to perform the promised act that induced the government to enter the contract.”  Id. at 741-42.  Third, as to the implied false certification theory, the court found that the plaintiff adequately alleged that Molina knowingly omitted key material facts while submitting claims to the government.  Id. at 743-44.

The Supreme Court Invites Comment from the Solicitor General

Facing what appears to be a major circuit split, the Supreme Court invited the Solicitor General to file a brief “expressing the views of the United States” in Johnson in January 2022 and in Owsley in May 2022.

The Supreme Court invites the Solicitor General to comment on only a handful of the approximately 7,000 to 8,000 petitions for writ of certiorari that the Court receives in a year. In the 2021 Term, for example, the Solicitor General filed what it calls a “Petition Stage Amicus Brief” in only 19 cases. Four Justices must vote to issue an invitation to the Solicitor General.

The Solicitor General’s view on whether the Court should grant certiorari has often been extremely influential. In the 2007 Term, for example, the Court denied certiorari in every case in which the Solicitor General recommended that approach. By contrast, it granted certiorari in 11 out of the 12 cases in which the Solicitor General recommended a grant. More recent data confirm that the Solicitor General’s recommendations as to whether the Court should grant certiorari remain highly influential. One study found that between May 2016 and May 2017, the Supreme Court followed the Solicitor General’s recommended approach in 23 cases (85%). At the same time, even the act of requesting the views of the Solicitor General dramatically increases the chances that the Court will take up a case. For example, between the 1998 Term and 2004 Term, one study found that the Court was 37 times more likely to grant certiorari in cases where it had invited the Solicitor General to file an amicus brief.

The Solicitor General Urges the Court to Decline Review

On May 24, 2022, the Solicitor General filed its brief in Johnson; it has yet to comment on Owsley. The Solicitor General’s amicus brief in Johnson urges the Court to deny certiorari. The Solicitor General notes that certiorari might be warranted if the courts of appeals applied a rigid, per se rule that required relators to plead “specific details of false claims.” But instead, the brief argues that the courts of appeals have “largely converged” on an approach to FCA pleading requirements that allows relators “either to identify specific false claims or to plead other sufficiently reliable indicia” to support a “strong inference” that the defendant submitted false claims to the government. According to the Solicitor General, the “divergent outcomes” among the circuit courts are merely the result of those courts’ application of a “fact-intensive standard” to various distinct allegations.

The petitioners in Johnson filed a supplemental brief in response to the Solicitor General’s views. They argue that the Solicitor General misinterpreted the Eleventh Circuit’s pleading standard, which effectively requires a relator to allege specific details about false claims to survive a motion to dismiss. In other words, the petitioners argue that in the Eleventh Circuit, the Solicitor General’s “purported” rule that a relator can either allege details about specific false claims or identify reliable indica that false claims were presented are “one and the same.”

Though the Court did not invite the Solicitor General to comment in Molina Healthcare, the petitioners in that case also filed a supplemental brief in response to the Solicitor General’s amicus in Johnson. “Everyone but the Solicitor General agrees that the circuits are hopelessly divided over whether Rule 9(b) requires a relator to plead details of false claims,” the brief argues. The brief notes that the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits do not require plaintiffs to plead specific details of actual false claims; by contrast, the First, Second, Fourth, Sixth, Eighth, and Eleventh Circuits require relators to plead specific details. Accordingly, the brief urges the Supreme Court to resolve the “widely acknowledged circuit split” over Rule 9(b)’s pleading standards.

The Solicitor General has a history of urging the Court to reject certiorari in FCA cases. According to the petitioners’ supplemental brief in Molina Healthcare, since the 1996 Term, the Solicitor General has recommended against review in eleven out of the twelve FCA cases in which the Court invited the Solicitor General’s views. Still, the Court granted certiorari in three of the cases in which the Solicitor General recommended against review.

Given the Supreme Court’s apparent interest in the FCA pleading standard – as evidenced by its calls for the Solicitor General’s views in Johnson and Owsley – there is a chance that it will grant certiorari in at least one of the three cases pending before it. Depending on when the Solicitor General weighs in, the Court may decide to grant certiorari in the fall of 2022.

Any Supreme Court decision that clarifies the pleading standard for FCA cases will likely affect a relator’s ability to successfully litigate qui tam actions in which the government does not intervene more than in cases in which the government does intervene. When a relator files a qui tam action, the government investigates the alleged fraud. If it intervenes in that action, it can file a complaint to include evidence it has discovered in that investigation, allowing it to meet the more stringent version of the Rule 9(b) pleading standard. Relators, however, often do not have access to the same evidence that the government does, such as specific claims data, making it far harder for a relator to meet the more stringent version of pleading standard.

Until the Supreme Court decides to weigh in, qui tam relators will continue to have an easier time satisfying the requirements of Rule 9(b) in those circuits with relaxed pleading standards. In the meantime, and whether the Court takes one of these petitions or not, any FCA whistleblower should seek legal counsel to help her identify the type of factual information that would meet the pleading requirements of the courts that apply a strict pleading requirement.

Article By Kayla Morin of Katz Banks Kumin LLP

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

Katz Banks Kumin LLP Copyright ©

How To Help a Jury Understand Complex Litigation

We hear this quite a bit from our clients. An attorney, when introducing us to his pending complex litigation matter, tells us up front, “This is a complicated case.” It’s code for, “I don’t think jurors will understand this case.”

We hear it again in opening statements: “This is a complicated case.” So now, the attorney knows it’s a complicated case; the consultants know it’s a complicated case; the jurors know it’s a complicated case. Great. What now?

Here are a few ideas to help you connect your complex litigation to the jurors and make them more comfortable hearing it.

Change the Question

Instead of asking, “How can I make jurors understand my complex case?”, how about asking, “How can I simplify my case for the jurors (and the judge and the witnesses)?” This basic reframing can change your focus—instead of concentrating on the complexity, you and your team begin to think about simplification. There’s a big difference.

Don’t Tell the Jury It’s a Complicated Case

When you tell a juror the case is complicated, they hear one of two things: “They think I’m too stupid to understand this” or “This is going to be way above my head.” The first can cause them to feel offended and the second tends to stop them from listening. Finding ways to explain the unfamiliar in familiar terms helps them understand the concepts underlying your case. Characterizing the case does no good for anyone.

Tell the Jury a Story

 

 

 

Try thinking about your case as a story: What tale do you want to tell? Or think of it this way: If someone at a dinner party asked about your case, what would your side of the story sound like?

We all think in stories, especially from the jury box. Jurors want to know what happened between these opposing parties that landed them in court, not a list of evidence and intricate facts. Instead, tell a story that answers jurors’ questions about motives for the lawsuit and the significance of your case, which should (again) simplify the details. Talking in stories makes your complex litigation more jury-friendly.

There’s a saying that goes, “What you focus on expands.” Ultimately, the key to helping jurors understand your complicated case lies in focusing not on its complexity, but on its simplicity.

Article By Robert Gerchen of IMS Consulting & Expert Services

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© Copyright 2002-2022 IMS Consulting & Expert Services, All Rights Reserved.

Supreme Court’s Decision In Famous Hale & Norcross Mining Case

Having read Professor Stephen Bainbridge‘s post about the origins of the judicial doctrine that directors must act on an informed basis, I passed along a reference to the California Supreme Court’s in Fox v. Hale & Norcross Silver Mining Co.,  108 Cal. 369, 41 P. 308 (1895).   The Hale and Norcross mine was a famous silver and gold mine in Nevada’s Comstock mining district.  Samuel Clemens (aka Mark Twain), who had worked in Virginia City, Nevada, even bought shares in the mine on margin, as he related in Chapter 15 of his autobiography:

“One day I got a tip from Mr. Camp, a bold man who was always making big fortunes in ingenious speculations and losing them again in the course of six months by other speculative ingenuities. Camp told me to buy some shares in the Hale and Norcross. I bought fifty shares at three hundred dollars a share. I bought on a margin, and put up twenty per cent. It exhausted my funds. I wrote Orion [his brother and the first and only Secretary of the Nevada Territory] and offered him half, and asked him to send his share of the money. I waited and waited. He wrote and said he was going to attend to it. The stock went along up pretty briskly. It went higher and higher. It reached a thousand dollars a share. It climbed to two thousand, then to three thousand; then to twice that figure. The money did not come, but I was not disturbed. By and by that stock took a turn and began to gallop down. Then I wrote urgently. Orion answered that he had sent the money long ago–said he had sent it to the Occidental Hotel. I inquired for it. They said it was not there. To cut a long story short, that stock went on down until it fell below the price I had paid for it. Then it began to eat up the margin, and when at last I got out I was very badly crippled.”

Samuel Clemens disappointing investment predated by a number of years the litigation that resulted in the California Supreme Court’s opinion.

The Hale and Norcross mine was located in Nevada, but the corporation that owned it was incorporated in California.  That is why the shareholders sued the directors in the Golden, rather than the Silver, state.  The Supreme Court’s decision was big news.  The day after the decision was issued, The San Francisco Call published this lengthy article that not only described the case, but also published the decision itself and a drawing of the plaintiff, M.W. Fox.

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP

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© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP

Unfashionably Late: Seventh Circuit Rejects Misappropriation Claim Premised On Prototype Created Eleven Years Prior

The Seventh Circuit recently affirmed summary judgment in favor of a former employee and his new employer on claims for misappropriation of trade secrets relating to a prototype of an actuator created eleven years prior, holding that the inference that the defendant used his knowledge of the prototype more than a decade later was “barely conceivable” and “exceptionally unreasonable.” REXA, Inc. v. Chester, — F.4th —, 2022 WL 2981167, at *6 (7th Cir. 2022) (internal quotation marks omitted).

In 2002, Mark Chester, an engineer at Koso America, Inc. (“Koso”), participated in a project to create a new valve for a hydraulic actuator. An actuator is a component of a machine that produces motion. While the project was unsuccessful, it did produce an experimental prototype of another actuator. Koso shelved the experimental prototype due to the improbability of commercial success. The following year, Chester left Koso.

After more than a decade had passed since Chester worked on the 2002 project for Koso, Chester and his new employer, MEA Inc. (“MEA”), built a new actuator prototype, later known as the Hawk. Chester and MEA filed a related patent application, which was approved in part. REXA, Inc. (“REXA”), a company affiliated with Koso, brought suit against Chester and MEA for misappropriation of trade secrets under the Illinois Trade Secrets Act (“ITSA”), among other claims. REXA argued that Chester and MEA’s actuator incorporated and disclosed confidential designs contained within the prototype Koso developed in 2002. The district court granted summary judgment in favor of Chester and MEA. REXA appealed.

On appeal, the Seventh Circuit affirmed summary judgment in favor of defendants on the misappropriation claims. First, the Seventh Circuit agreed that REXA failed to identify a concrete trade secret, as the Court was unable to determine which aspects of the 2002 designs are known to the trade, and which are not. The Court explained that several aspects of the 2002 actuator prototype are widely known in the industry, which by definition, is not sufficiently secret to qualify for protection under the ITSA.

Second, the Seventh Circuit held that even if REXA had identified a trade secret, REXA had not established that defendants misappropriated trade secrets when MEA filed its patent application or developed the Hawk actuator. With respect to MEA’s patent application, the Court explained that REXA’s allegations “rest on a series of untenable inferences.” Id. Indeed, eleven years had passed since Chester worked on the actuator prototype, and it was undisputed that he never saw or took any documents with him when he left Koso. Additionally, REXA did not cite any case where a court “inferred” a misappropriation of trade secrets despite a lack of evidence that the defendant seized or possessed documents, nor could the Seventh Circuit find any such case. As such, the Court found the lack of evidence, coupled with the eleven-year gap, “renders the inferences that REXA asks us to draw exceptionally unreasonable.” Id.

Regarding the design of MEA’s Hawk actuator, the Seventh Circuit held that the 2002 prototype did not include features of the patent application that made the Hawk both a non-obvious improvement over prior art and commercially valuable. Thus, Chester and MEA could not have misappropriated trade secrets contained within the 2002 prototype.

REXA serves as an important reminder that trade secret claimants must identify with specificity the elements that distinguish the alleged trade secret from general knowledge in the field or public domain. Additionally, REXA confirms that, at least in the Seventh Circuit, courts are hesitant to draw inferences supporting misappropriation claims without any evidence the defendant seized or possessed documents from the plaintiff, particularly if a significant period of time passes before the alleged misappropriation occurs.

Article By Mikela T. Sutrina and Jenna G. Crawford of Sheppard, Mullin, Richter & Hampton LLP

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

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

5 Keys to SEC Compliance Success

The best way to avoid the scrutiny from the Securities and Exchange Commission (SEC) that can lead to significant legal liability is to strictly comply with all of the agency’s rules and regulations. Unfortunately, given the complexity of these regulations and the constantly changing legal landscape of securities laws, such as the Securities Act of 1933 and Securities Exchange Act of 1934, this is much easier said than done.

Here are five keys to SEC compliance.

1. Identify Your Particular Needs

It should be an obvious first step, but many compliance attorneys treat all clients the same and offer a one-size-fits-all approach to complying with the regulations promulgated by the Securities and Exchange Commission (SEC). While this might not be a terrible approach – so long as it is all-encompassing, it will keep your company in line with the SEC across the board – it can saddle your firm with concerns and extraneous internal rules that have no bearing on how you conduct business.

A great example is a cryptocurrency. The SEC is, belatedly, beginning to issue rules and regulations for financial firms that focus on and trade in Bitcoin and other cryptocurrencies. If your brokerage firm is not buying or selling securities in crypto-assets and has no plans to do so soon, then implementing compliance measures for cryptocurrency regulations has no benefit to your company. Those measures will, however, make the regulated securities professionals who work for your firm jump through pointless hoops in the ordinary course of their business.

Adopting a compliance strategy that more precisely meets your company’s needs will let your workers perform to their full capacity while still insulating your firm from legal liability or SEC scrutiny. It will just have to be updated if you choose to expand into new forms of securities trading.

2. Craft an All-Encompassing Compliance Strategy

Based on your firm’s precise regulatory needs, the next key to success is to come up with a compliance strategy that takes into account all of the SEC’s rules that could impact your company. Given the breadth of the SEC’s jurisdiction and the sheer number of regulations that it has put forth, this can take a while.

Once your firm’s legal requirements have been ascertained, the next step is to come up with ways that you can satisfy them during the day-to-day business activities at your firm. This is another reason why every compliance strategy should be tailored to your business – a compliance technique that works well and is easy for one firm may be onerous and inconvenient for another one.

As Dr. Nick Oberheiden, founding partner of the SEC compliance law firm Oberheiden P.C., often tells clients, “All SEC compliance measures should protect the securities firm from SEC liability. However, those measures should also be judged by how burdensome they are on the firm that is employing them. The least inconvenient method to adequately insulate your firm from liability is the best. Learning about a brokerage firm and understanding its strengths and weaknesses and its capabilities help compliance lawyers craft the best solutions for their clients. Unfortunately, one of the most common complaints that securities professionals have about attorneys is that they do not listen to their particular concerns. We strive to do better.”

3. Train, Train, and Retrain Your Workers

No compliance strategy is effective if it is not implemented. Training your employees and workers in the intricacies of the compliance strategy, explaining why it is important for them to follow it strictly, and describing the penalties for noncompliance is the next key to success.

Even here, though, it is not a matter of simply giving your employees a handbook of rules, policies, and procedures to memorize. Just like how the compliance strategy should be tailored to your firm, so too should the instruction materials be tailored to each type of worker at your company. While it can help to train non-regulated administrative staff how to detect the signs of financial misconduct or fraud, there is no reason to bog them down in the details of SEC regulations that only pertain to traders – doing so can overload them with irrelevant information and make them lose sight of what they need to know.

It is also important to remember that training is not a one-time ordeal. New hires must be onboarded and taught the rules of internal compliance. Existing workers should be retrained to keep them apprised of any updates and to ensure that they remember their roles in the compliance protocol.

4. Keep Your Compliance Strategy Updated

Keeping your compliance strategy updated is also essential when it comes to compliance inspections. An out-of-date compliance protocol may still cover many of the bases for SEC compliance. However, there will be gaps in the compliance requirements that you will be unaware of, giving you a false sense of security.

The compliance strategy should not just be updated to account for new SEC regulations, though: It should also get updated whenever your brokerage firm branches out into new types of trading or adds a new kind of financial service to its portfolio. With that new line of business will likely come new SEC regulations to abide by.

5. Audit Yourself Regularly

Even if you have a good compliance program or plan, have trained workers to follow it, and keep the protocols updated, you are still moving forward blindly if you do not regularly conduct internal audits of your company to make sure that those compliance rules are working. Many compliance programs and strategies check off all of the boxes, only to lead to an SEC investigation that finds problems because a single worker did not actually understand how to correctly perform a job task.

These situations of compliance issues are incredibly frustrating. They can also be detected, identified, and corrected through a compliance strategy that includes internal auditing by outside counsel or an SEC compliance attorney with prior experience investigating securities fraud.

Article By Dr. Nick Oberheiden of Oberheiden P.C.

For more securities and SEC legal news, click here to visit the National Law Review.

Oberheiden P.C. © 2022

In the Weeds? Humira “Patent Thicket” Isn’t an Antitrust Violation

The US Court of Appeals for the Seventh Circuit affirmed that welfare benefit plans that bought the drug Humira did not have valid antitrust claims against the patent owner. The Court found that amassing patents by itself is not enough to give rise to an antitrust claim, and that the welfare benefit plans would need to prove that the patents were invalid. Mayor and City Council of Baltimore, et al. v. AbbVie Inc., et al., Case No. 20-2402 (7th Cir. Aug. 1, 2022) (Easterbrook, Wood, Kirsch, JJ.)

AbbVie owns a patent covering Humira, which is a drug used to treat arthritic and inflammatory diseases. Humira is not covered by the Hatch-Waxman Act because it is a biologic drug, rather than a synthetic drug. Biologics are covered by the Biologics Price Competition and Innovation Act (BPCIA), under which a competitor must ask the US Food and Drug Administration for permission to sell a “biosimilar” drug based on certain guidelines. From the first sale of the original drug, the competitor must wait 12 years to enter the market. If the original drug seller believes that a patent blocks competition and initiates litigation, the competitor is still free to sell its biosimilar drug. The competitor sells at risk of an adverse outcome in the litigation.

The original Humira patent expired in 2016, but AbbVie obtained 132 additional patents related to the drug. After the 12-year BPCIA requirement passed, none of AbbVie’s competitors chose to launch a biosimilar. Instead, competitors settled with AbbVie on terms to enter the US market in 2023. In exchange, AbbVie agreed that enforcement of all 132 of its patents would end in 2023 even if they were not set to expire.

Welfare benefit plans that pay for Humira on behalf of covered beneficiaries accused AbbVie of violating Sections 1 and 2 of the Sherman Antitrust Act. The payors argued that AbbVie’s settlements with potential competitors established a conspiracy that restrained competition in violation of Section 1, and that AbbVie’s “patent thicket” allowed AbbVie to reap unlawful monopoly profits from Humira after expiration of the original patent in violation of Section 2. The district court dismissed the complaint. The payors appealed.

The issue on appeal with respect to Section 2 was whether the payors had to prove that all of AbbVie’s Humira-related patents were invalid. Under the Walker Process antitrust doctrine, a party may be liable for an antitrust violation if it knowingly asserts a fraudulently procured patent in an attempt to monopolize a market. The payors did not argue that all 132 of AbbVie’s patents were fraudulent. The Seventh Circuit reasoned that because the patent laws do not set a cap on the number of patents a person (or company) can hold, the payors would need to prove that each of AbbVie’s 132 Humira-related patents were invalid to succeed in showing a violation under Section 2. Not only did the payors fail to prove that all 132 patents were invalid, but they did not even offer to do so. The Court thus agreed with the district court that AbbVie did not amass a patent thicket to maintain monopoly profits from Humira.

The issue on appeal with respect to Section 1 was whether AbbVie’s settlements with potential biosimilar competitors were anticompetitive. The Seventh Circuit found that the payors could have a Section 1 claim if they were injured by the terms of AbbVie’s settlements with its competitors (for example, by showing that AbbVie overpaid a competitor to defer entry). The terms of AbbVie’s settlements allowed the competitors immediate entry to the European market, and AbbVie agreed to US market entry before its last Humira-related patents expired. The Court found that those terms, as well as the payors’ failure to show that AbbVie overpaid the competitors to delay their entry, rendered the settlements lawful.

The Seventh Circuit therefore affirmed the district court’s dismissal.

Article By Alexandra Lewis of McDermott Will & Emery

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

© 2022 McDermott Will & Emery

Judge Approves $92 Million TikTok Settlement

On July 28, 2022, a federal judge approved TikTok’s $92 million class action settlement of various privacy claims made under state and federal law. The agreement will resolve litigation that began in 2019 and involved claims that TikTok, owned by the Chinese company ByteDance, violated the Illinois Biometric Information Privacy Act (“BIPA”) and the federal Video Privacy Protection Act (“VPPA”) by improperly harvesting users’ personal data. U.S. District Court Judge John Lee of the Northern District of Illinois also awarded approximately $29 million in fees to class counsel.

The class action claimants alleged that TikTok violated BIPA by collecting users’ faceprints without their consent and violated the VPPA by disclosing personally identifiable information about the videos people watched. The settlement agreement also provides for several forms of injunctive relief, including:

  • Refraining from collecting and storing biometric information, collecting geolocation data and collecting information from users’ clipboards, unless this is expressly disclosed in TikTok’s privacy policy and done in accordance with all applicable laws;
  • Not transmitting or storing U.S. user data outside of the U.S., unless this is expressly disclosed in TikTok’s privacy policy and done in accordance with all applicable laws;
  • No longer pre-uploading U.S. user generated content, unless this is expressly disclosed in TikTok’s privacy policy and done in accordance with all applicable laws;
  • Deleting all pre-uploaded user generated content from users who did not save or post the content; and
  • Training all employees and contractors on compliance with data privacy laws and company procedures.

Article By the Privacy and Cybersecurity Practice Group at Hunton Andrews Kurth

For more privacy and cybersecurity legal news, click here to visit the National Law Review.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Law Firm Specialization: Why It Matters

While in theory, the idea of casting a wider net may lead you to believe that you’ll catch more fish, the truth is it doesn’t always apply to business. When it comes to catching customers, the more you appeal to one specific kind of customer, the higher your success rate, and the more qualified you’ll be at what you do. Practicing law is no exception. In today’s age, more and more law firms are starting to recognize legal specialization as a necessity for tapping into their target market. Not only does it benefit clients, but it also benefits legal professionals. 

Benefits for Lawyers

Better Client Relationships

When you specialize in an area of law, you intimately know your niche, whether that be corporate law, health law, criminal law, environmental law, or international law.  As such, you can provide the best possible representation to your clients and better pinpoint solutions to their problems as a certified specialist. Exclusively specializing also means that you are well informed of all of the latest updates, news, legal issues, strategies, and changes in that area of law. When compared to having a general understanding of the law, this is a tremendous benefit to your clients since you offer tailored legal guidance unique to their circumstances. A law practice that has handled hundreds of cases similar to their clients’ can anticipate and navigate the nuances of such a case on a much deeper level than someone who doesn’t have the same kind of experience under their belt.

Less Competition

As an expert in a very specific area of law, you effectively position yourself as the easy choice to opt for you over a competing attorney with a more generalized approach. In essence, your competitor pool shrinks significantly. General practice attorneys with a wide breadth of practice areas are going to be competing with every other such law office within a ten-mile (or more) radius. Yet, if your law practice specializes in boat accident cases, you’re likely one of few options, if any, in your respective region, thereby lowering your marketing costs, and potentially increasing client acquisition volume for this legal specialization. Assuming your reputation is top notch, the more specific you can be about your legal services, the more challenging it is for competitors to keep up with you.

Improved Visibility

Law firms that choose to specialize don’t just stand out, but are often featured in publications related to their practice area. The more you can partner with local businesses that are related to or adjacent to your area of expertise, the greater your sphere of influence. For instance, if your practice focuses solely on estate planning for the highly wealthy, you’ll likely opt to leave business cards where the wealthy are bound to spend time, like country clubs, civic clubs or auctions. Get creative with candidates in your referral network; it’ll pay dividends over the lifetime of your business.

Greater Satisfaction

As the saying goes, “do something that you love and you’ll never work another day in your life.” When choosing what you want to specialize in, consider an area that speaks to you on an emotional and even philanthropic level. One of the benefits of choosing a niche is doing something that you truly enjoy day in and day out. Not only will you get a real sense of fulfillment on the best days of your profession but clients can easily sense when your practice area originated from a true passion of yours. Plus, it’s always more advantageous to be a big fish in a small pond as opposed to a small fish in a big one.

Increased Expertise

Expertise involves becoming a thought leader in your area of law. Naturally, mastery requires experience. Attorneys who bounce between different types of cases don’t have the same familiarity with the nuances and challenges as someone who handles the same type of legal representation every time. While it’s always a good idea to have legal malpractice insurance, specializing in one niche area of expertise may also lessen the chances of your law firm having to put it to use. When you are recognized as an expert in your specialization area, you don’t just attract more clients, but you also win more referrals through client trust.

Better Efficiency

Completing the same workflows and legal documents over and over again in quick succession equates to faster completion, since you know them inside and out. As such, specialized lawyers can master the administrative side of running their law firm in a fraction of the time.

In today’s legal climate, more and more legal professionals are turning to automation tools to streamline recurring processes such as client intake and billing. Time-consuming document generation, for instance, can now be done in a matter of seconds rather than hours thanks to automated workflows.

Greater Profitability

When your practice is specialized you’ll increase your value thanks to the power of referrals.  Concentrating on one type of case brings extra knowledge and experience to the table that clients yearn for, who will in turn refer you to their friends and family. Since 80% of a law firm’s business typically comes from referrals, the more targeted you are, the more your practice may benefit from word of mouth.

As a result of your greater understanding of the inner workings of certain cases, you’ll develop a strong reputation for getting clients the results they’re after, ultimately increasing your overall profitability. The more you can offer experience paired with efficiency, the more work you can take on, increasing your overall revenue.

Benefits for Clients

Improved Guidance

When a client seeks out a legal professional that is well versed and focused on their particular needs, they in return receive much better guidance for their specific context. Beyond the legal support that a specialist offers, also comes a deeper understanding of the emotional needs of their client. For more turbulent cases such as divorce cases or immigration, a specialized lawyer can be an enormous benefit to the mental well being of those they have trusted with their case.

Increased Network

Specialists have a wide network of other experts that they can use to the client’s advantage. Because they have a more comprehensive list of contacts to support their case, clients have greater access to leading experts who can provide adjacent services and even strengthen their case.

Better Success Rate

There’s a reason why general practitioners in the medical field typically don’t perform spinal surgery — because it requires unique skills. The same logic can be applied to law. Attorneys specializing in a particular field generally have a higher rate of winning cases in court or settling successfully. Specialized lawyers who see the same case types day in and day out can offer a much higher success rate based on experience and dedication. Those who hire specialized attorneys generally are more at ease knowing they’re in good hands when it comes to their legal proceedings.

When is a Good Time to Consider Specialization?

It can be unnerving to dive into specialization from a generalized legal focus, so it’s important that you read the room first. In order to ensure that whatever you choose to specialize in will deliver the kind of demand that you hope for, answer the following questions using the data at your disposal:

  • What trends are you seeing in the types of cases you currently manage?
  • What is your success rate in those cases?
  • How satisfied were the clients?
  • Which cases have been the most lucrative for you?

If you notice that you take on a considerable amount of one type of case that’s yielding happy clients, then it’s a good indication that it would make a great choice to specialize in. If you don’t feel like you have the experience or know-how to call yourself an authority on one particular niche yet, then allow yourself more time to grow.

Ultimately, there is no defining moment that is the same for every lawyer who chooses to specialize. It all comes down to how much knack and drive you have for one kind of legal resource.

How to Identify Your Specialization Niche

1. Create a Vision

Every achievement starts with a vision. Your vision will be the very foundation of your overall success, and how you are perceived as a brand. When creating your vision, take into account not only your skills but also what drives you. How do you see yourself representing your clients and what do you hope to achieve for them? Are you passionate about one type of law specifically, such as civil rights, intellectual property, or family law? What do you love about practicing law and why? Let these answers be your guiding light when forming a vision for how you hope to stand out.

2. Consider Your Experience

First and foremost, it’s ill-advised to choose a niche that you have no experience in. Choosing to specialize in something that you aren’t well versed in would not only be setting yourself up for failure, but it’s a risk to any potential clients who choose to come your way.

One of the greatest tools you have for narrowing down your choices is consulting with other more experienced lawyers and mentors. Ask them for their advice based on personal stories, recommendations, and experience-based guidance.

Talk to other lawyers that specialize in the area you’re considering and pick their brains. Be direct and ask the questions that matter most like:

  • What are the biggest challenges in this area of law?
  • What are the greatest rewards?
  • What is the success rate?
  • What are the long-term implications?

When you hear about the advantages that law firm specialization can offer, it may be tempting to jump in head first. Yet, it’s important to step back and assess all of your choices. Weigh out the pros and cons, and go back to your overall vision.

Rushing in too quickly can lead to prematurely pigeon-holing yourself into something that ultimately restricts you from your full potential and passions.

Pick a Specialization and Pursue it

There are many advantages to becoming a specialized legal professional. If you can manage to pick a niche and master it, you won’t just find yourself with less competition, but you’ll have a greater devotion to practicing law.

Article By Sarah Bottorff of Lawmatics

For more business of law legal news, click here to visit the National Law Review.

©2022 — Lawmatics

Medicare CERT Audits and How to Prepare for Them

CERT audits are an unfortunate part of doing business for healthcare providers who accept Medicare. Failing the audit can mean the provider has to pay back overcharges and be subjected to increased scrutiny in the future. 

The best way to be prepared for a CERT audit is to have a compliance strategy in place and to follow it to the letter. Retaining a healthcare lawyer to craft that strategy is essential if you want to make sure that it is all-encompassing and effective. It can also help to hire independent counsel to conduct an internal review to ensure the compliance plan is doing its job.

When providers are notified of a CERT audit, hiring a Medicare lawyer is usually a good idea. Providers can fail the audit automatically if they do not comply with the document demands.

What is a CERT Audit?

The Comprehensive Error Rate Testing (CERT) program is an audit process developed by the Centers for Medicare and Medicaid Services (CMS). It is administered by private companies, called CERT Contractors, which work with the CMS. Current information about those companies is on the CMS website.

The CERT audit compares a sampling of bills for Medicare fee-for-service (FFS) payments, which were sent by the healthcare provider to its Medicare Administrative Contractor (MAC), against medical records for the patient. The audit looks at whether there is sufficient documentation to back up the claim against Medicare, whether the procedure was medically necessary, whether it was correctly coded, and whether the care was eligible for reimbursement through the Medicare program.

Every year, the CERT program audits enough of these FFS payments – generally around 50,000 per year – to create a statistically significant snapshot of inaccuracies in the Medicare program.

The results from those audits are reported to CMS. After appropriately weighing the results, CMS publishes the estimated improper payments or payment errors from the entire Medicare program in its annual report. In 2021, the CMS estimated that, based on data from the CERT audits, 6.26 percent of Medicare funding was incorrectly paid out, totaling $25.03 billion.

The vast majority of those incorrect payments, 64.1 percent, were marked as incorrect because they had insufficient documentation to support the Medicare claim. Another 13.6 percent were flagged as medically unnecessary. 10.6 percent was labeled as incorrectly paid out due to improper coding. 4.8 percent had no supporting documentation, at all. 6.9 percent was flagged as incorrectly paid for some other reason.

The CERT Audit Process

Healthcare providers who accept Medicare will receive a notice from a CERT Contractor. The notice informs the provider that it is being CERT audited and requests medical records from a random sampling of Medicare claims made by the provider to its MAC.

It is important to note that, at this point, there is no suspicion of wrongdoing. CERT audits examine Medicare claims at random.

Healthcare providers have 75 days to provide these medical records. Failing to provide the requested records is treated as an audit failure. In 2021, nearly 5 percent of failed CERT audits happened because no documentation was provided to support a Medicare claim.

Once the CERT Contractor has the documents, its team of reviewers – which consists of doctors, nurses, and certified medical coders – compares the Medicare claim against the patient’s medical records and looks for errors. According to the CMS, there are five major error categories:

  • No documentation

  • Insufficient documentation

  • Medical necessity

  • Incorrect coding

  • Other

Errors found during the CERT audit are reported to the healthcare provider’s MAC. The MAC can then make adjustments to the payments it sent to the provider.

Potential Repercussions from Errors Found in a CERT Audit

CERT audits that uncover errors in a healthcare provider’s Medicare billings lead to recoupments of overpayments, future scrutiny, and potentially even an investigation for Medicare fraud.

When the CERT audit results are brought to the MAC’s attention, the MAC will adjust the payments that it made to the provider. If the claims led to an overpayment, the MAC will demand that money back.

But Medicare Administrative Contractors (MACs) can go further than just demanding restitution for overpayments. They can also require prepayment reviews of all of the provider’s future Medicare claims, and can even suspend the provider from the program, entirely.

Worse still, CERT audits that uncover indications of Medicare fraud may be reported to a law enforcement agency for further review. This can lead to a criminal investigation and potentially even criminal charges.

Appealing a CERT Audit’s Results

With penalties so significant, healthcare providers should seriously consider hiring a lawyer to appeal the results of a CERT audit.

Appeals are first made to the MAC, requesting a redetermination of the audit results. The request for redetermination has to be made within 120 days of receiving notice of the audit results. However, if the provider wants to stop the MAC from recouping an overpayment in the meantime, it has to lodge the request within 30 days.

Providers can appeal the results of the redetermination, as well. They can request a reconsideration by a Qualified Independent Contractor within 180 of the redetermination, or within 60 days to stop the MAC’s recoupment process.

Providers who are still dissatisfied can appeal the case to an administrative law judge, then to the Medicare Appeals Council, and finally to a federal district court for review.

How to Handle a CERT Audit

The best way to handle and to prepare for a CERT audit is to hire Medicare audit attorneys to guide you through the process. It would also help to start internal audits within the company.

For providers who have been notified that they are under an audit, getting a lawyer on board immediately is essential. An experienced healthcare attorney can conduct a thorough internal investigation of the claims being audited. This can uncover potential problems before the audit points them out, giving the healthcare provider the time it needs to prepare its next steps.

Providers who are not currently being audited can still benefit from an attorney’s guidance. Whether by drafting a compliance plan that will prepare the provider for an inevitable CERT audit or by conducting an internal investigation to see how well a current compliance plan is performing, a lawyer can make sure that the provider is ready for an audit at a moment’s notice.

Taking these preventative steps soon is important. CMS put the CERT audit program on halt for the coronavirus pandemic, but that temporary hold was rescinded on August 11, 2020. While the CMS has reduced the sample sizes that will be used for its 2021 and 2022 reports, it will likely go back to the original numbers after that. Healthcare providers should prepare for this increased regulatory oversight appropriately.

Article By Dr. Nick Oberheiden of Oberheiden P.C.

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

Oberheiden P.C. © 2022