In December 2012, the United States Supreme Court considered several cases of interest to all employers:
On December 26, 2012, the Court rejected a request by Hobby Lobby Stores for temporary injunctive relief from a $1.3 million per day fine for not complying with the Patient Protection and Affordable Care Act (“the Act”) Hobby Lobby Stores, Inc. v. Sebelis, 133 S. Ct. 641 (Dec. 26, 2012). Under the Act, non-grandfathered group health plans must cover “all Food and Drug Administration…approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity…” Hobby Lobby alleges that their constitutional rights and rights under the Religious Freedom Restoration Act of 1993 would be violated if they were required to provide coverage for drugs and devices that can cause abortions. The Supreme Court agreed with the lower courts’ decisions to deny the preliminary injunction, since Hobby Lobby had not proved the injunction was “[n]ecessary or appropriate in aid of [the court’s] jurisdiction” and that “the legal rights at issue are indisputably clear.” This is one of many pending cases regarding the religious exemption aspects of the Act.
The Court will review two decisions concerning the definition of marriage, which could affect federal and state employment law.
In Hollingsworth v. Perry, No. 12-144, the Court will consider whether the Equal Protection Clause of the 14th Amendment prohibits the State of California from defining marriage as the union of a man and a woman. In 2008, California voters approved Proposition 8, the California Marriage Protection Act (“Prop. 8”), which prohibited same-sex marriage. In February 2012, the 9th Circuit held that Prop. 8 is unconstitutional. Oral argument is scheduled for March 26, 2013.
In United States v. Windsor, No. 12-307, the Court will consider whether Section 3 of the Defense of Marriage Act (DOMA) deprives same-sex couples, who are lawfully married under the laws of their states, of equal protection. Read More
On January 2, 2013, the U.S. Department of Health and Human Services (“HHS”) announced the first settlement involving potential violations of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Security Rule involving less than 500 patients. The $50,000 settlement resulted from a breach of unprotected electronic protected health information (“ePHI”) on a stolen laptop.
The HIPAA Security Rule specifies that covered entities adopt a series of administrative, technical, and physical security procedures to ensure the confidentiality of ePHI. The Health Information Technology for Economic and Clinical Health (“HITECH”) Act includes a mandate to improve the enforcement of the HIPAA Security Rule. To that end, the HITECH Breach Notification Rule requires covered entities to report an impermissible use or disclosure of protected health information or a breach of 500 individuals or more to the Secretary of HHS and the media within 60 days after the discovery of the breach. Smaller breaches affecting less than 500 individuals must be reported to the Secretary on an annual basis, within 60 days of the end of the calendar year in which the breaches occurred. Notifications of all breaches that occurred in calendar year 2012 must be submitted by March 1, 2013.
The HITECH Breach Notification Rule also requires covered entities to: (1) have in place written policies and procedures regarding breach notification; (2) train employees on breach notification policies and procedures; and (3) develop and apply appropriate sanctions against workforce members who do not comply with the breach notification policies and procedures.
After an extensive investigation by the HHS Office for Civil Rights (“OCR”), the Hospice of North Idaho (“HONI”) agreed to pay HHS $50,000 for a breach involving less than 500 patients. The breach occurred after a HONI unencrypted laptop computer containing the ePHI of 441 patients was stolen in June 2010. Read More
On December 20, 2012, in the first major decision regarding the massive Medicare Part D program under the Federal False Claims Act (“FCA”), Judge Ronald Buckwalter denied CVS-Caremark’s motion to dismiss in U.S. ex rel. Spay v. CVS-Caremark, Corp., 2:09-cv-04672-RB (E.D. Pa). The whistleblower lawsuit was filed by an industry insider and licensed pharmacist, Anthony Spay, who alleged that Caremark has engaged in a nationwide scheme to defraud the Medicare Prescription Drug Program.
Background of Case and the Part D Program
Established in 2006, the Medicare Part D Program subsidizes the cost of prescription drugs for eligible Medicare beneficiaries. The Part D program relies on private contractors, called Part D Sponsors, to provide prescription drugs to Medicare beneficiaries. The sponsor, either directly or through pharmacy benefit managers (“PBMs”), then submits claims to the Center for Medicare and Medicaid Services (“CMS”) for the cost of these drugs and a bundle of related services.
CVS Caremark participates in Part D, both as a sponsor and a PBM. CMS pays the Part D Sponsors based on their estimated cost of providing Part D benefits to beneficiaries, and then reconciles the actual cost of providing Part D Services at the end of the year by requiring the Part D Sponsor to submit actual cost information to CMS in the form of Prescription Drug Event (“PDE”) data.
PDE data is electronic data that is submitted to CMS for each prescription that is filled for a Part D Sponsor’s members. CMS requires the submitting Part D Sponsor or PBM to certify to the accuracy, completeness, and truthfulness of the PDE data it submits.
The Spay case was filed in 2009 under the FCA by Spay, whose company was hired to audit the Part D claims processed by Caremark on behalf of Medical Card System (“MCS”), a Puerto Rican health insurance company. Read More
When it comes to certifying interlocutory appeals, if the government says it is so, then it must be so. At least that it is the conclusion reached by the Second Circuit in a Per Curiamorder denying a motion to dismiss the government’s appeal of a suppression order handed down by Judge Dora L. Irizarry in the U.S. District Court for the Eastern District of New York. United States v. Metter, No. 12-2423-cr (2d Cir. December 27, 2012).
The court rejected appellant Michael Metter’s argument that the government’s certification under 18 U.S.C. §3731 failed to establish that the evidence at issue (contents of over 60 computer hard drives and other electronic data) was “a substantial proof of fact material in the proceeding.” In doing so, the court found that the U.S. Attorney’s certification, in and of itself, was conclusive of the fact that the evidence at issue was a “substantial proof” of material fact, and that in such circumstances, there is no need to scratch below the surface of that representation. The court indicated that its treatment of this issue was consistent with the conclusion of “every circuit to have considered the question,” citing In re Grand Jury Investigation, 599 F.2d 1224, 1226 (3d Cir. 1979); United States v. Centracchio, 236 F.3d, 812, 813 (7th Cir. 2001); United States v. Johnson, 28 F.3d 920, 924 (8th Cir. 2000); and United States v. W.R. Grace, 526 F.3d 499, 506 (9th Cir. 2008) (en banc).
In 2010, the government indicted Metter and 6 others, alleging that he had participated in a fraudulent scheme relating to transactions in the common stock of Spongetech Delivery Systems, Inc., where he was the president and CEO. Prior to the indictment, the government had seized computers from both the Spongetech offices and Metter’s home. This included 61 computer hard drives, the company email server and contents of Metter’s four personal hard drives. Read More
The Fourth Circuit Court of Appeals recently reversed a $20 million criminal restitution order, finding that the order exceeded the mandate of its prior remand of the case to the district court. United States v. Pileggi, No. 10-5273 (4th Cir. January 2, 2013). With that decision, the court vacated the restitution order and remanded the case with instructions to reinstate a prior restitution order, directing the defendant to pay restitution in the amount of $4,274,078.40.
Following a trial in the U.S. District Court for the Western District of North Carolina, Giuseppe Pileggi was convicted of conspiracy to commit wire fraud, mail fraud and travel fraud, in violation of 18 U.S.C. §37, and 22 counts of wire fraud, in violation of 18 U.S.C. §§1343 and 2. All of these charges arose out of his participation in an elaborate fraudulent sweepstakes scheme out of Costa Rica that primarily targeted elderly United States’ citizens.
Mr. Pileggi was originally sentenced to 600 months (50 years) in prison, ordered to pay restitution in the amount of $4,274,078.40 and to forfeit $8,381,962 to the United States. In his initial appeal, the Fourth Circuit reversed the 600 month prison term, finding that the district court had committed a significant procedural error by imposing a “de facto” life sentence, based on “indisputably false information” provided by the government with respect to its extradition agreement with Costa Rican authorities, which had included an express agreement by the U.S. that Pileggi would not be subject to a life sentence. United States v. Pileggi, 361 F. App’x 475, 477-79 (4th Cir. 2010). The restitution and forfeiture orders, however, were not the subject of that appeal.
On remand, the district court imposed a sentence of 300 months (25 years) and ordered Pileggi to pay restitution in the amount of $4,274,078.40. The government then asked to address the amount of restitution. Read More
Background
In A.D.P. v. ExxonMobil Research and Engineering Co., 54 A.3d 813 (N.J. Super. A.D. 2012), a 29-year employee disclosed that she was an alcoholic and that she intended to check into rehabilitation. ExxonMobil had in place an Alcohol and Drug Use Policy (the “Policy”) which stated that “being unfit for work because of use of drugs or alcohol is strictly prohibited and is grounds for termination.” However, the Policy also stated that “no employee with alcohol or drug dependency will be terminated due to the request for help…or because of involvement in a rehabilitation effort.”
The employee returned to work after rehabilitation and signed an after-care contract, agreeing to: (1) maintain total abstinence from alcohol; (2) actively participate in treatment; (3) maintain acceptable work performance; and (4) be subjected to periodic and unannounced alcohol and drug testing. She eventually failed a random breathalyzer test and was terminated.
Decision
The employee filed an action in state court alleging disability discrimination under the New Jersey Law Against Discrimination (“LAD”) and wrongful termination. The trial court granted ExxonMobil’s Motion for Summary Judgment.
On appeal, the New Jersey Appellate Division found direct evidence of discrimination by ExxonMobil – “[t]he Policy’s requirements of total abstinence and…random testing, were only imposed upon employees who identified as alcoholics, demonstrating ‘hostility toward members of the employee’s class.'” Moreover, although the use of alcohol alone would not be grounds for terminating the employment of other employees, alcoholics, such as the plaintiff here, could be fired, therefore the court determined that the employer’s Policy was discriminatory on its face.
Bottom Line
Despite an Alcohol and Drug Use Policy which supported the employee’s attempt at rehabilitation and allowed her to return to work at the conclusion of this treatment, the Court ruled against the employer because the Policy subjected employees with substance abuse issues to requirements different than employees without substance abuse issues. Read More
On December 10, 2012, DOJ announced that British contractor APTx Vehicle Systems Limited had entered into an agreement to plead guilty to conspiracy to defraud the United States, the Coalition Provisional Authority that governed Iraq from April 2003 to June 2004, the government of Iraq and JP Morgan Chase Bank.
The case centers on a fraudulent scheme involving an August 2004 contract valued at over $8.4 million for the procurement of 51 vehicles for the Iraqi Police Authority. The criminal information, to which APTx agreed to plead guilty as part of the deal, further charges that in May and June of 2005, APTx submitted shipping documents to JP Morgan, who had issued letters of credit for payment under the contract, so that APTx could draw down on the letters of credit. However, the shipping documents asserted that all 51 vehicles were produced and ready to ship to Iraq when, in fact, none of the vehicles had been built, none of the vehicles were legally owned or held by APTx and none of the vehicles were in the process of transport to Iraq. The fraudulent shipping documents also listed a company as the freight carrier that APTx knew was not a shipping company and named a fictitious company as the freight forwarder.
Benjamin Kafka, a representative for APTx in the United States, was charged in 2009, with one count of misprision of a felony in connection with his role in the conspiracy. The government alleged that Kafka allowed APTx to use his corporate name and identity as the freight carrier and freight forwarder on the fraudulent shipping documents presented to JP Morgan.
As part of the plea agreement filed with the information, APTx agreed to pay a criminal fine of $1 million. A civil settlement agreement resolving a related action filed under the False Claims Act was also announced. Read More
DOJ announced yesterday that it has entered into a deferred prosecution agreement (DPA) with Standard Chartered Bank, a financial institution headquartered in London, to resolve potential charges relating to Standard Chartered moving more than $200 million through the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan and Burmese entities, in violation of the International Emergency Economic Powers Act (IEEPA). As part of the agreement, where it agreed to forfeit $227 million to the U.S., Standard Chartered also entered into a separate DPA with the New York County DA’s Office, and separate settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System. As part of the DPA with the U.S., a criminal information was filed in the U.S. District Court for the District of Columbia, charging Standard Chartered with one count of knowingly and willfully conspiring to violate IEEPA.
According to the government, Standard Chartered operates a branch in New York that provides wholesale banking services, primarily U.S. dollar clearing for international wire payments. The New York branch also provides U.S. dollar correspondent banking services for Standard Chartered branches in London and Dubai. According to court documents, from 2001 through 2007, Standard Chartered violated U.S. and New York state laws by moving millions of dollars illegally through the U.S. financial system on behalf of Iranian, Sudanese, Libyan and Burmese entities subject to U.S. economic sanctions. The government alleged, and Standard Chartered acknowledged, that Standard Chartered knowingly and willfully engaged in this criminal conduct, which caused Standard Chartered’s branch in New York and unaffiliated U.S. financial institutions to process over $200 million in transactions that otherwise should have been rejected, blocked or stopped for investigation under the Office of Foreign Assets Control regulations relating to transactions involving sanctioned countries and parties. Read More
Michael A. Morse will present, “False Claims and Overpayment Rule,” at AHLA’s Audits, Self-Disclosures, Recoupment & False Claims Bootcamp Webinar Series, Part II in Philadelphia, PA on December 7, 2012. Read More
After having been convicted of criminal violations of the Clean Water Act, conspiracy and obstruction of justice following a federal jury trial earlier this year, John Tuma, the former owner and general manager of Arkla Disposal Services, Inc., was sentenced on Wednesday to 60 months in prison, three years of supervised release and a $100,000 fine. The sentence, handed down by Judge Tom Stagg in the U.S. District Court for the Western District of Louisiana, represents yet another example of the potential for significant consequences for environmental law violations.
Tuma was both owner and general manager of Arkla Disposal Services, Inc., a centralized wastewater treatment facility that received wastewater from industrial processes and oilfield exploration and production facilities. According to the contract for those services, Arkla was to treat the wastewater through a multi-step treatment process before discharging it to either the city of Shreveport publicly owned treatment works or into the Red River. Instead, Arkla discharged untreated wastewater directly into the Shreveport sewer system and the Red River. In addition to the unlawful discharges, Tuma was convicted of obstruction of justice for obstructing an inspection by the EPA.
Several regions around the country are witnessing the rapid spread of hydrofracking operations for the recovery of natural gas located deep beneath the earth’s surface. These operations generate significant amounts of wastewater. As hydrofracking continues on the upswing, the proper disposal of wastewater will become increasingly difficult. The issue is likely to remain a high priority for environmental regulators.
The potential for criminal liability for violating environmental laws in conducting hydrofracking and similar operations should not be taken lightly. The elements of proof for regulatory violations as compared with criminal violations of most environmental statutes, including the Clean Water Act, are technically quite similar. The factors that can cause a regulatory violation to develop into a criminal case include the level of intent of the violator, the violator’s prior compliance record, whether the violator voluntarily disclosed the violation, and the amount of environmental damage caused by the violation. Read More
