Salisian Lee LLP Newsletter

Welcome to the Salisian | Lee LLP Newsletter

Welcome to the spring/summer issue of Salisian Lee Quarterly. To commemorate the launch of our new False Claims Act Practice, we have designated this an FCA special issue, covering some of the hot topics in this area of law, along with our regular content and firm updates. If you would like to know more about our new practice, feel free to contact us directly or check out our website at salisianlee.com.

Firm News

The firm held its annual firm anniversary party, once again at the Los Angeles Athletic Club, on May 9, 2019. Firm partners, associates and staff celebrated another successful year with firm friends and clients. Photos below.

Han Pai has embraced his new role as firm partner in the first part of this year with great success, building his practice and the firm's profile in the process.

Firm partner Richard Lee has stepped back into the classroom again this year, this time serving as a guest lecturer at both the Fashion Institute of Design and Merchandising and Southwestern Law School. His lectures focused on entrepreneurship and the law, drawing from his own experience founding and managing the firm.

The firm has continued its community service teambuilding events, with volunteer days at the Saint Francis Center to help support Los Angeles's homeless and otherwise disenfranchised citizens.

We have hired two new associates in recent months, Glenn Coffman and Isabelle Vidro, both of whom have featured articles in this issue. We are continuing the hiring process in 2019 and plan on growing our practices even further moving forward. Welcome Glenn and Isabelle.

Salisian Lee LLP Anniversary Party: Another One for the Books

We once again held our annual anniversary party on May 9th this year, once again at the Los Angeles Athletic Center downtown. We had a lovely evening of food, drinks and lively conversation with attorneys, staff and firm friends. Here are a few images from the event.

From left to right: Kat Agoopi, Cassidy Casillas, Christina Cyrulik, Glenn Coffman, Neal Salisian, John Winship, Isabelle Vidro, Amber Lopez, Kimberly Olmedo, Darren Mamaril, and Richard Lee.

From left to right: Richard Lee, Heidy Trombi, Meredith Bruno, and Eric Moore

From left to right: Eric Moore, Les Callahan, Neal Salisian, Colin Dunn, and Ivan Estrada

In this Issue

How the False Claims Act is Being Used to Fight the Opioid Crisis
The False Claims Act: An Important Check on Violators of Medicare Part D
California Laws Reflect Changing Tides in the Wake of the National #MeToo Movement
California's SB 826: A Landmark Bill for Gender Diversity or Short-Lived Victory?

Cases to Watch

Argus Leader Media vs. U.S. Dep't of Agric.

The U.S. Supreme began reviewing this 8th Circuit case beginning on April 22, 2019. The case revolves around what is exempted from The Freedom of Information Act's broad public right to request records from executive branch agencies and specifically, considers what is included in the exemption for "trade secrets and commercial information [that is] obtained from a person and [is] privileged or confidential." The Argus Leader, a newspaper in South Dakota, requested data on Supplemental Nutrition Assistance Program (SNAP) recipients while investigating SNAP-related fraud. The Department of Agriculture claims they do not have to turn over those records because of the trade secrets and commercial information contained in data relating to SNAP's acceptance of grocery stores. The ultimate decision in the case could have broader implications as to what types of commercial and trade information is considered exempt under the Freedom of Information Act.

Cochise Consultancy, Inc. v. U.S. ex rel. Hunt

In this May 2019 decision, the SCOTUS justices unanimously affirmed the 11th Circuit Court of Appeals decision holding that a second statute of limitations added to the FCA by Congress in 1986 applies to a relator-initiated suit in which the United States declines to intervene. Cochise Consultancy considered whether a relator in a qui tam FCA suit can draw out the limitations period in cases where the United States has declined to intervene by relying on 31 U.S.C. § 3731(b)(2). The statute runs from the date when "facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances." This decision has broad implications for FCA defendants as it relates to the likelihood of prevailing on a statute of limitations defense.

How the False Claims Act is Being Used to Fight the Opioid Crisis

By Isabelle Vidro, Associate

It is no secret that the United States is in the middle of a dire opioid crisis. The crisis is so dire that more than 180 people die every day from overdosing on opioids such as prescription pain relievers and heroin. This crisis has not only affected public health and lowered the American life expectancy, but has also been a substantial economic burden, as opioid misuse alone costs the United States $78.5 billion a year in healthcare costs, lost productivity, addiction treatment, and criminal justice involvement.

To fight the prescription opioid crisis, in early 2018, Attorney General Jeff Sessions created the Department of Justice Prescription Interdiction and Litigation Task Force ("PIL Task Force"). The PIL Task Force deploys and coordinates all available criminal and civil law enforcement tools in an effort to reverse the opioid crisis. In particular, the PIL Task Force uses tools such as the False Claims Act ("FCA") to combat the opioid crisis at every level of the distribution system, from manufacturers to distributors, including pharmacies, pain management clinics, drug testing facilities, and individual physicians.

The FCA is a powerful tool for the PIL Task Force. The FCA is violated when one "knowingly presents or knowingly causes to be presented" a false claim to the government or "knowingly makes, uses, or causes to be made or used, a false record or statement material to" a false claim to the government. In particular, the PIL Task Force can use the FCA when the prescription of opioids involves Medicare and Medicaid.

For example, the PIL Task Force can use the FCA to target physicians who prescribe medications, including opioids that are not expressly approved by the Federal Drug Administration ("FDA"). This is relevant for individuals receiving Medicare Part D and Medicaid, as such "off-label" drugs are not covered under those programs. Although the "off-label" drugs are legal, a doctor who submits claims for payment to the government for off-label drugs may therefore be in violation of the FCA. Given that Medicare spent over $4 billion in 2016 alone, such claims under the FCA will have a large impact.

In August 2018, the PIL Task Force filed its first civil action under the Controlled Substances Act (CSA) and the FCA enjoining prescribers from "recklessly and unnecessarily distribut[ing] painkillers and other drugs." Although the prescriptions were legitimate and the pharmacists were simply following "doctor's orders," the pharmacists were nevertheless subjected to liability under the FCA for billing "Medicare programs to pay for controlled substances that were not used for a medically accepted indication and lacked a legitimate medical purpose in violation of FCA, 31 U.S.C. 3729."

In February 2019, the PIL Task Force brought an action against two pharmacies, their owner, and three pharmacists for allegedly dispensing and billing Medicare for prescriptions in violation of both the CSA and the FCA. The Government alleges that the Defendants dispense "scores of controlled substance prescriptions" that did not constitute valid prescriptions complying with federal and state law, and were not issued for a legitimate medical purpose or for a medically accepted indication, as required by Medicare. The Government argues that it would not have paid for the controlled substances medications had it known the prescriptions were illegitimate and invalid.

Moreover, the PIL Task Force has also used the FCA to bring actions against doctors. In particular, an action was brought against two doctors in Ohio allegedly prescribing opioids illegally and recklessly. One such doctor caused Medicare to pay approximately $1.6 million for at least 173 prescriptions of Subsys, a liquid formation of fentanyl, while receiving honoraria and compensation for speaking engagements to promote the drug. Although the drug is typically prescribed for patients diagnosed with cancer, the doctor allegedly prescribed Subsys to patients without cancer, therefore rendering the prescriptions unnecessary and excluding them from coverage under Medicare Part D.

Although the PIL Task Force has already found advantageous uses for the FCA, it may be limited in the types of actions that it can bring under the FCA. For instance, it may be difficult for the Government to show that a defendant acted "knowingly" as required by the FCA. In certain cases, there may not be enough evidence to support that a defendant or its employees had enough information to indicate whether or not doctors had prescribed “off-label” use of certain prescriptions. Additionally, it may be difficult for the government to prevail on medical-necessity cases given the subjective nature of medical judgment, especially for medications with broad indications like prescription opioids.

Overall, it appears that the FCA will be an effective tool for the PIL Task Force's use. While the FCA does not itself establish new standards for opioid providers, it is useful in enforcing existing standards of which providers should be mindful. It is likely that the FCA will continue to be used aggressively whenever possible.

The False Claims Act: An Important Check on Violators of Medicare Part D

By Glenn Coffman, Associate

The Federal False Claims Act ("FCA") imposes liability on anyone who defrauds federal government programs. In part, the FCA provides that any person who knowingly submits, or causes to be submitted, a false or fraudulent claim for payment to the government, is liable.

Although the FCA was initially enacted in 1863 as a vehicle to combat fraud by contractors selling deficient and substandard supplies to the Union Army, it has expanded to cover fraud throughout several industries, most notably the health care industry, which today pays a majority of all FCA recoveries. Americans today rely heavily on both federal and state health insurance plans, which has made programs such as Medicare and Medicaid significant targets for FCA violations.

FCA violations in the health care industry have taken many forms. Common examples include violations of the Anti-Kickback Statute, which covers improper referrals of patients or services in exchange for remuneration, and the Stark Law, which covers improper referrals to entities in which one has a financial interest. Other examples include submitting claims for services, procedures, or drugs that were not rendered or were medically unnecessary, or for patients that never received them or do not exist, as well as numerous other practices intending to falsify reimbursement amounts from government health care programs. Violations have also been exposed in the pharmaceutical industry, as companies have been found to promote non-FDA approved drugs, offer remuneration in exchange for prescriptions of their drugs to patients, and engage in billing schemes to overcharge government programs for drugs. However, one area ripe for FCA violations currently has lawmakers and government officials particularly concerned: Medicare Part D.

Medicare Part D was enacted in 2006, and refers to an optional federal program aimed at helping Medicare beneficiaries afford retail prescription drug costs. Under the program, beneficiaries pay monthly premiums to an insurance carrier, in return for access to the carrier's network of pharmacies, from which the insured may purchase his or her prescription drugs. These insurance companies are known as Part D sponsors, and contract with the Centers for Medicare & Medicaid Services ("CMS") to provide prescription drug coverage to Medicare Part D recipients. Sponsors receive monthly prospective payments from CMS based on estimates that sponsors provide in approved bids at the beginning of the plan year. Following the plan year, CMS compares the prospective payments made to sponsors with the sponsors' actual costs incurred to determine if Medicare owes money to the sponsors, or if the sponsors owe money to Medicare.

In the context of Medicare Part D, risks of FCA violations by sponsors include knowingly billing for medications not provided; billing for nonexistent prescriptions; modifying claims forms, medical records, or receipts to receive larger reimbursements; billing for expired drugs, drugs not covered by Medicare, or mislabeled drugs; and submitting claims for drugs provided for illegal purposes, to those with falsified or nonexistent prescriptions, or in excessive quantities. Although this fraudulent conduct - and any similar conduct with the intent of improperly obtaining increased payouts or reimbursements from Medicare - can be seen throughout the health care industry, the nature of the medications covered in Medicare Part D has created an added element of vulnerability to FCA violations.

Spending on drugs covered under Part D has increased dramatically since its inception in 2006. Drugs covered under Part D include both uncontrolled and controlled substances, including highly-addictive and commonly abused opioids, which themselves have contributed to a dramatic increase in spending. This increase in spending has been a result of both increases in total beneficiaries as well as increases in prescriptions per beneficiary.

Given the substantial increases in spending on Part D drugs, one would naturally expect an increase in billing by Part D sponsors for drugs covered under the program. However, billing by Part D sponsors has recently shown disproportionately high numbers of total prescriptions, total beneficiaries, and prescriptions per beneficiaries, particularly with respect to commonly abused opioids. Thus, recent trends appear to indicate a significant probability of fraudulent activity.

Since the implementation of Part D in 2006, the Attorney General has brought numerous claims against various entities participating in Part D for violations of the FCA, not including countless others brought by relators, in which the Government chose not to intervene. Such actions have led to significant payouts on the part of FCA violators, including by some well-known retailers. For example, in 2017, Kmart agreed to a $32.3 million settlement to settle allegations that its pharmacies offered discounted generic drug prices, which it failed to report to Medicare Part D and other programs. In 2012, CVS subsidiary RxAmerica agreed to a $5 million settlement to settle allegations that it also submitted false pricing information as part of the Medicare Part D program. However, these high-profile cases represent only a small fraction of Part D fraud across the health care industry.

Given the national attention opioids have received and continue to receive, particular attention has been, and must be paid to the conduct of Part D sponsors in the context of addictive prescription drugs. However, in addition to moral concerns surrounding opioid addiction, reliance on all prescription drugs, as well as the programs enacted to alleviate their costs, has created a system ripe with financial incentives to deceive government programs. As a result, the False Claims Act will continue to serve as a powerful check on abusers of Medicare Part D program.

California Laws Reflect Changing Tides in the Wake of the National #MeToo Movement

By Isabelle Vidro, Associate

A movement that defined 2018 was, without a doubt, the #MeToo movement. The #MeToo movement came about when the New York Times published a report on Harvey Weinstein, who was accused of harassing and assaulting several women over decades. This report inspired women all over the country and all over the world to speak out about the abuse they have faced at the hands of men, with some women speaking out at great personal and professional risk.

It is unsurprising that, in the wake of this movement, new state workplace laws were implemented beginning January 1, 2019. In total, eight bills were signed aimed at preventing sexual and other forms of harassment on the job and promoting gender diversity on boards.

One such law, SB826, is crucial for employers to heed as it requires any publicly traded company that has its principal executive office in California to have at least one female director by the end of 2019, even if it has to expand its board to make room. But that's not it: by the end of 2021, these companies must have at least two women on five-member boards and at least three women on boards with six or more directors.

This law will undoubtedly bring about drastic changes for many companies located in California. Of the 457 public companies in the Russell 3000 stock index (a market-capitalization-weighted equity index that provides exposure to the entire U.S. stock market and tracks the performance of the 3000 largest U.S.-traded stocks), 94 previously had no female directors and 161 had only one.

While the 2019 required compliance will present a challenge for these companies, the law’s second phase will have a bigger impact than the first as it will require boards to be almost gender-even.

Although many women are pleased with the implementation of this law due to an inherent and systematic bias against experienced, qualified women that unfairly hampers their rise in the work place, this law was met with some backlash as some claimed that it was "not only condescending, but absolutely ridiculous."

Another, wide-ranging law, SB1300, has numerous provisions to restrain all kinds of workplace harassment, not just sexual harassment. One provision of this law prevents employers from requiring a worker to sign two types of documents as a condition of getting or keeping a job or receiving a raise or bonus. The first document is an agreement not to sue or bring a claim against the employer under the California Fair Employment and Housing Act, which outlaws discrimination on the basis of age, gender, race, or other protected status. The second document is a non-disparagement agreement or other document that prohibits the employee from disclosing information about unlawful acts in the workplace, including but not limited to sexual harassment.

The purpose of this law is to prevent employers from offering their employees something valuable, like a raise or bonus, in exchange for the employee's silence.

The law, however, is limited as it does not apply to severance agreements nor to negotiated agreements that settle cases filed in court, administrative proceedings, or arbitration.

SB1300 additionally adopts the standard in U.S. Supreme Court Justice Ruth Bader Ginsberg’s concurrence in Harris v. Forklift Systems that a sexual harassment plaintiff "need not prove that his or her tangible productivity has declined as a result of the harassment. It suffices to prove that a reasonable person subjected to the discriminatory conduct would find, as the plaintiff did, that the harassment so altered the working conditions as to make it more difficult to do the job." Additionally, SB1300 importantly provides that a "single incident of harassment is sufficient to create a triable issue of a hostile work environment if the harassing conduct has unreasonably interfered with the plaintiff’s work performance or created an intimidating, hostile, or offensive working environment."

This is a stark change from the standard that was previously articulated and utilized in Brooks v. City of Mateo, which held that a single incident of misconduct was insufficient to support a claim of sexual harassment.

SB820, on the other hand, applies specifically to settlement agreements that resolve civil or administrative claims of sexual misconduct, but not other workplace violations. It prohibits clauses in such agreements that prevent the disclosure of facts related to the case, except for the amount paid and the identity of the person who filed the claim if that person wants to remain anonymous. It does not require that such settlements be made public.

Traditionally, California law has favored non-disclosure agreements in certain types of cases. For example, California law has prohibited confidential settlement provisions in civil cases for acts that could be prosecuted as a felony sex offense or other types of sexual assault since 2006. With the implementation of SB820, however, the category of settlements agreements in which non-disclosure provisions are prohibited has been significantly increased.

This law is useful for several reasons. First, it clearly covers a broader category of claims that simply sexual harassment and also prohibits non-disclosure agreements in settlements involving sexual discrimination, failure to prevent, and retaliation. Therefore, SB820 will have an impact beyond the #MeToo movement and sexual harassment cases.

Any provisions contained in a settlement agreement entered into on or after January 1, 2019 that violate these prohibitions will be void as a matter of law and against public policy. Therefore, the new law will not impact settlement agreements entered into prior to this date.

Through its new laws, California is making steps in the direction of preventing not only sexual harassment, but all harassment in the work place as well as making moves to level the playing field between men and women in large, publicly traded companies.

California's SB 826: A Landmark Bill for Gender Diversity or Short-Lived Victory?

By Glenn Coffman, Associate

California has long served as a leader in promoting diversity, and recently, that commitment expanded to California’s boardrooms. On January 1, 2019, SB 826 came into effect, requiring more female representation on California companies’ boards of directors. Specifically, the bill requires that no later than the end of 2019, every publicly held corporation whose principal executive offices are located in California have a minimum of one female on its board of directors. In addition, by the end of 2021, every such corporation shall have two females on its board if the corporation has five or more directors, and three females if the corporation's board has six or more directors. Corporations who fail to adhere to these guidelines shall be subject to fines imposed by the California Secretary of State.

Although one would be hard-pressed to argue against the benefits of more balanced gender representation in corporations' boards of directors, the method of achieving such a goal through SB 826's mandate may face difficulties. Most notably, legitimate questions have arisen as to whether the bill passes constitutional muster.

First, SB 826 may violate the Commerce Clause of the United States Constitution. As it reads, SB 826 applies to all corporations that are (1) publicly held, and (2) whose principal executive offices, as stated on its SEC 10-K form, are located in California. Thus, the bill applies to corporations headquartered in California, but incorporated in another state. As a general rule, the Commerce Clause may invalidate laws that affect interstate commerce by subjecting business to different or inconsistent regulations. In the corporate context, as explained in Edgar v. Mite Corp., the internal affairs doctrine recognizes that only one state has authority to regulate a corporation’s internal affairs, including matters involving relationships between the corporation and its officers, directors or shareholders, so as to avoid conflicting legal requirements. In CTS Corp. v. Dynamics Corp., the Supreme Court found such authority to generally rest in the hands of the incorporating state.

Thus, SB 826 may face challenges under the internal affairs doctrine of the Commerce Clause. Not only are many publicly-held California corporations incorporated in other states, particularly Delaware, or even outside of the United States, many corporations incorporated in California may not have their principal headquarters in the state. Accordingly, given the Supreme Court’s rulings regarding the application of the internal affairs doctrine, SB 826 may face constitutional difficulties with the substantial percentage of its corporations that are not both headquartered and incorporated in California.

Second, SB 826 may face equal protection concerns. Because the bill makes a clear gender classification, it would be subject to heightened scrutiny. At the federal level, in Craig v. Boren, the United States Supreme Court established what would be known as "intermediate scrutiny," under which a gender classification would require a showing of an important government interest, with the classification being substantially related to that interest. Years later, in United States v. Virginia, the Court raised the test for gender classifications, requiring an "exceedingly persuasive justification." At the state level, the California Supreme Court in its In Re Marriage Cases, ruled that gender classifications were subject to strict scrutiny. That is, the state would have to establish a compelling interest to justify the law, and that the law is necessary to further that purpose. Thus, the level of scrutiny applied to SB 826 would depend on whether a challenge is brought in federal or state court.

In addition, in the context of beneficial classifications - promoting diversity to attempt to remedy past discrimination - Courts have generally adopted the view that race may be used as a factor to promote diversity, but have generally rejected the use of quotas, as explained in Regents of University of California v. Bakke. Although the decision in Bakke involved the classification of race, given the view by federal and California courts that gender classifications should receive heightened scrutiny, one would expect a similar outcome for beneficial gender classifications.

Although well-intentioned, it is possible that SB 826 may be deemed a quota system, as has generally been rejected by courts. However, on the other hand, the bill does not mandate replacement of male board members with female members, as corporations are free to simply add seats to their boards to fulfill the bill’s requirements. In addition, SB 826 has the added hurdle of imposing its requirements on private companies, rather than government institutions. Thus, the bill may be susceptible to challenges on equal protection grounds.

Although critics of SB 826 may argue that the mandate is unworkable or unfairly oppressive for companies, or that it addresses diversity only in the context of gender, the underling motivation of increasing female representation in boardrooms is certainly a step in the right direction. Whether this particular vehicle for achieving this goal ultimately holds up in the courts is an issue to keep an eye on going forward.

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