New Areas Targeted in OIG’s FY 2015 Work Plan

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The Office of the Inspector General (OIG) recently released its Work Plan for Fiscal Year 2015. There are a number of new items on the Work Plan which affect hospitals, nursing facilities, community health centers, and independent clinical laboratories. Set forth below is a summary of some of the new items which may be of interest to our health care clients.

Hospitals
 Billing and Payments

Review of Hospital Controls over the Reporting of Wage Data Used to Calculate Medicare Payments

Hospitals are required to report accurate wage data to the Centers for Medicare and Medicaid Services (CMS) on an annual basis. The data is used to calculate wage indexes for Medicare payments. Prior work by the OIG revealed hundreds of millions of dollars of incorrectly reported wage data.

Quality of Care and Safety

Expansion of Post-Acute Care Quality of Care and Safety Review to Include Adverse Events for Medicare Beneficiaries in Long-Term Care Hospitals

The OIG intends to estimate the national incidence of adverse events and temporary harm experienced by Medicare beneficiaries in long-term care hospitals, identify the factors that contribute to these events, determine the extent to which these events were preventable, and estimate the associated costs to the Medicare program.

Review of Hospital Compliance with Electronic Health Record System Contingency Plans

The security rule provisions of the Health Insurance Portability and Accountability Act (HIPAA) applicable to electronic health records require covered entities to have a contingency plan that establishes policies and procedures for responding to an emergency or other occurrence that damages systems that contain protected health information. The OIG intends to compare hospitals’ contingency plans with government and industry recommended practices.

Nursing Facilities and Group Homes

Investigation of Medicaid Beneficiary Emergency Transfers from Group Homes and Nursing Facilities to Hospital Emergency Rooms

The OIG is concerned that high occurrences of emergency transfers from nursing facilities or group homes to hospitals could be indicative of poor quality. Prior work by the OIG examining transfers from nursing facilities to hospital emergency departments raised concerns about the quality of care provided in the nursing facilities.

Other Providers

Review of Independent Clinical Laboratory Billings and Payments

The OIG intends to examine whether independent clinical laboratories are in compliance with certain Medicare billing requirements. Based on the results of its review, the OIG will identify clinical laboratories that regularly submit improper claims and will recommend that recoveries of overpayments be made. Prior OIG audits identified independent clinical laboratories as an area at risk for noncompliance with Medicare billing requirements.

Community Health Centers – Compliance with Grant Requirements of the Affordable Care Act

The OIG will review whether community health centers that receive grants under the Affordable Care Act are in compliance with federal laws and regulations governing the receipt of such funds, including whether the expenditures are allowable and the accounting systems that assess and account for program income are adequate.

-Rochelle

Zapol

If you have questions about the OIG’s 2015 Work Plan, or any concerns regarding your organization’s compliance with the items in the Plan, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and the author of this alert. You can reach Rochelle at 617 456 8036 or rzapol@PrinceLobel.com

Massachusetts Voters Pass Question 4 Requiring All Employers to Provide Sick-Time Leave to Employees

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On November 4, 2014, Massachusetts voters approved a ballot measure requiring employers to provide paid sick leave.  The measure, which goes into effect on July 1, 2015, requires all Massachusetts employers to provide up to forty hours of sick-time leave each calendar year to every employee regardless of whether they are a full-time, part-time, or temporary employee.  For employers with ten or fewer employees, that leave may be unpaid.

What Can Sick-Time Leave be Used For

The statute allows employees to use their earned sick-time for any of the following reasons:

  • Care for the employee’s physical or mental health;
  • Care for the physical or mental health of the employee’s child, spouse, parent, or spouse’s parent;
  • Attending medical appointments for the employee or the employee’s child, spouse, parent, or spouse’s parent; or
  • Addressing the psychological, physical, or legal effects of domestic violence.

Employers may require the employee to obtain a healthcare provider’s certification of need if the leave will last longer than twenty-four consecutive hours.

How Employees Accrue Sick-Time Leave

Employees will begin accruing sick-time leave on July 1, 2015, at a rate of one hour for every thirty hours worked.  New employees, hired after July 1, 2015, will begin accruing sick-time leave on their first day of work, but are prohibited from using any accrued leave until after their ninetieth day of work.  Employees can carry over up to 40 hours of unused sick-time to the next calendar year, but are not entitled to use more than 40 hours in one calendar year.  Additionally, employers are not required to compensate employees for unused accrued sick-time hours at the end of the calendar year or the separation of employment.

HR Concerns

All employers should immediately examine their existing policies to determine whether they are in compliance with the new law.

-Nick Soivilien

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If you have any questions on how to bring your employment policies and practices up to date, or have any employment law concerns, please contact Nicholas Soivilien, the author of this Alert at 617 456 8097 or nsoivilien@PrinceLobel.com, or Daniel S. Tarlow, chair of the firm’s Employment Practice Group at 617 456 8013 or dtarlow@PrinceLobel.com.

How to Use Stock Images (the Right Way)

Before becoming Prince Lobel’s Media Group Admin, I was a newspaper reporter in Florida. When I wasn’t writing or tweeting or figuring out how to smuggle Snickers from my editor’s candy bowl, I was taking photos to go along with my stories. But every now and then I would come across a photo from a source’s Facebook page that I would want to use in print. I knew there were legal ramifications of taking photos from Facebook, Twitter, Google Images, and so on, but I didn’t quite understand the rules. I was just like:

giphy

For all the other journo folk out there who would love to have some answers, Prince Lobel media lawyer Asya Calixto has written a neat, nifty (and free!) guide to using stock images. This will give reporters/editors/photo directors an overview of what rights and licenses are required to use images from social media sites as well as major stock houses like Getty Images and ThinkStock. It also covers limitations on use and required attribution for each origin.

Download the guide, save it to your desktop, show your colleagues and maybe your Grandma. And when in doubt, call your lawyers.

stock image

– Sabrina Rocco, srocco@princelobel.com

Neither a Sword nor a Shield? The Massachusetts Usury Statute and Default Loan Provisions

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Default interest rates and late fees are common provisions in many loan agreements. When reasonable in scope, they serve as a useful means of ensuring that a creditor can recover for the sort of incidental damages it suffers when a debtor defaults on the terms of its loan – such as administrative expenses and other costs above and beyond the underlying interest rate. But like any other contractual provision, default provisions are only useful to the extent courts are willing to enforce them, and if a default rate is too high, it is liable to be struck down. How does one tell if a default rate is too high? The answer is unclear in Massachusetts. The problem has to do with the uncertain relationship between the Massachusetts Usury Statute, M.G.L. c. 271, § 49, and principles of contract law.

At the very least, default provisions have to comply with the Usury Statute. That statute makes it a criminal offense to charge “greater than twenty per centum per annum,” and it also gives courts the discretion to void contractual provisions which exceed that amount. The Statute has been found to apply to default provisions, and at first glance, it would appear to provide debtors with significant protection against exorbitant default rates. Section 49(d) of the Usury Statute, however, goes on to state that creditors do not have to comply with the 20% cap so long as they notify the attorney general of their intent to charge usurious interest rates and comply with certain record keeping requirements. As a result, so long as creditors take fairly minimal precautions, the Usury Statute is unlikely to place much of a limitation on what default provisions they can include in their loan agreements.

But if a creditor notifies the attorney general pursuant to Section 49(d) of its intent to charge a usurious default interest rate, is it therefore free to charge whatever it wants? The Usury Statute, after all, is not the only grounds on which a default provision can be struck down. Courts, for example, have held that default interest rates and late fees constitute “liquidated damages” provisions, and not all liquidated damages provisions are enforceable. Rather, a liquidated damages provision will be held void unless (1) “at the time of contracting . . . actual damages flowing from a breach were difficult to ascertain,” and (2) “the sum agreed on as liquidated damages represents a reasonable forecast of damages expected to occur in the event of a breach.” NPS, LLC v. Minihane, 451 Mass. 417, 420 (2008) (internal quotation marks omitted). Otherwise, a liquidated damages provision will be found to be an unenforceable “penalty.” So default provisions would appear to be vulnerable if they do not reflect a reasonable forecast of uncertain harm, and plenty of default provisions have been struck down on precisely that basis. See, e.g., De Cordova v. Weeks, 246 Mass. 100, 104 (1923) (36% default interest rate found unenforceable as a penalty); SMS Fin. V, LLC v. Conti, 68 Mass. App. Ct. 738, 751 (Mass. App. Ct. 2007) (“A provision calling for double a recovery on a promissory note in a principal amount that exceeded $300,000” was unenforceable); Fleet Bank of Mass. N.A. v. One-O-Six Realty, Inc., Civ. A. No. 94-3392-G, 1995 WL 389862, at *3 (Mass. Super. Jan. 17, 1995) (Mass. Super. Jan. 31, 1995) (finding that “a 5% [monthly] late charge on a multi-million dollar balloon payment at maturity” was unenforceable).

The question then becomes whether compliance with the Usury Statute somehow immunizes a creditor from review under a “penalty” analysis. Here, the law gets unclear. On the one hand, at least one federal district court has suggested that, so long as the attorney general is notified, creditors have a defense against any challenge to a default rate. RFF Family P’ship, LP v. Link Dev., LLC, 932 F. Supp. 2d 213, 224 (D. Mass. 2013). This makes some intuitive sense. After all, it would be strange if the legislature expressly created a procedure whereby creditors could charge interest rates above 20% only to leave those rates subject to invalidation on some other basis.

By contrast, in In re 201 Forest Street LLC, 409 B.R. 543 (Bankr. D. Mass. 2009), the Bankruptcy Court determined that compliance with Section 49(d) did not prevent a court from reviewing a default provision under the liquidated damages framework. While the Court did not provide a detailed explanation for its holding, there are certainly arguments that could be made. For one, Section 49(d), according to its plain text, creates an exception only to the Usury Statute itself – it says nothing regarding other non-statutory defenses. Furthermore, reading Section 49(d) as abrogating a liquidated damages defense would be illogical from a policy perspective. The Usury Statute and the liquidated damages analysis, after all, address distinct concerns – the former seeks to regulate rates which are simply too high whereas the latter is concerned more with ensuring that default provisions are proportional to the likely foreseeable harm. Moreover, if Section 49(d) really did allow creditors to impose what would otherwise constitute unlawful “penalties,” the Usury Statute would create rather bizarre incentives. Creditors who charged interest rates above 20% would be granted immunity whereas creditors who charged less could conceivably be subject to higher judicial scrutiny because they fall outside of the Usury Statute’s scope. Creditors, therefore, might be encouraged to charge higher interest rates – precisely what the Usury Statute is intended to curb.

Unfortunately, Massachusetts state courts have provided little guidance regarding the interplay between the Usury Statute and contract law. The closest the SJC has come was in Begelfer v. Najarian, 381 Mass. 177 (1980). In Begelfer, the creditor charged a default interest rate in excess of 20%, and because it failed to first inform the attorney general as per Section 49(d), the Court affirmed the Superior Court’s decision to strike down the default interest rate as being usurious. The Court, however, then went on to conclude that “[w]ere [it] to treat the default charges in [that] case as ‘liquidated damages’ [it] would strike the default provision as” an unlawful penalty as well. The Court’s language here was somewhat unclear; the SJC may have been saying that default provisions have to pass muster under both the Usury Statute and the common law liquidated damages framework, or it may have been saying that the liquidated damages inquiry would only have applied had the Usury Statute not. But because the creditor in Begelfer failed to comply with Section 49(d), the Court never had to squarely address this issue.

More recently, in Olde Center Ventures, Inc. v. Dinapoli, No. 13–P–1307, 2014 WL 4211117 (Mass. App. Ct. Aug. 27, 2014), a case before the Massachusetts Appeals Court, the creditor did comply with Section 49(d) and argued that its doing so defeated the debtor’s claim that a late fee constituted a penalty. The Court was therefore squarely presented with the question of whether compliance with the Usury Statute precludes a penalty defense. While the Court acknowledged this issue, however, it determined that it did not need to resolve the scope of Section 49(d) because it determined that the late fee was not a penalty in any event. As a result, the question of whether compliance with Section 49(d) permits creditors to impose default obligations that would otherwise be penalties remains an open question in Massachusetts.

In the face of this uncertainty, what should parties who enter into loan transactions do? For creditors, it is important to understand that simply complying with Section 49(d) may not be enough when it comes to default provisions. Creditors, rather, should, at the very least, be prepared to justify why they chose the rates and fees that they did and ideally be able to relate those rates and fees to their actual costs. Creditors can also draft the penalty provisions in such a way that they are calibrated to rise as the costs of default gets higher, such as by having default rates and fees grow larger as the default continues over time. The burden of proving a penalty, ultimately, will lie with the debtor, so creditors should be able to successfully defend default provisions so long as they are adequately prepared to do so.

As for debtors faced with onerous default provisions, it is important to remember that while the Usury Statute may not be much of a sword with which to attack default rates, it is not necessarily a shield for creditors either. Certainly, any debtor trying to argue that a default provision is an unlawful penalty faces an uphill fight. But default provisions are more vulnerable than many other contractual terms, and if a creditor raises Section 49(d) as a defense, a debtor should be prepared to argue to the contrary.

***

Ultimately, it is unclear in Massachusetts as to how high default rates in loan agreements can be – and the higher they get, the less clear it becomes. The Usury Statute may not help debtors very much, but at the same time, it may not help creditors either. Absent more guidance from the courts of the Commonwealth, parties to loan agreements should be aware of this uncertainty and take appropriate steps. For creditors, that may mean more caution when drafting default provisions; for debtors, that means an opportunity to get out of them.

If you have any questions, please contact Thomas R. Sutcliffe, an associate in Prince Lobel’s Litigation Practice Group and the author of this post. You can reach Tom at 617 456 5054 or tsutcliffe@PrinceLobel.com.

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Proposed Rule to Amend the Safe Harbors to the Anti-kickback Statute Affects the Provision of Local Transportation Services

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On October 3, 2014, the Office of Inspector General (OIG) issued a proposed rule to amend the safe harbors to the anti-kickback statute and the civil monetary penalty rules. See 79 Fed. Reg. 59717 (October 3, 2014).  Comments on the proposed rule are due on December 2, 2014.  The OIG’s proposed rule is another example of how regulations that are aimed at reducing fraud and abuse by health care providers and suppliers end up disadvantaging the patients they serve.

“Established Patient” versus “New Patient”

One proposed change is to add a new safe harbor to protect an “Eligible Entity” which provides free or discounted local transportation services to federal health care program beneficiaries, provided the services meet specified criteria. The OIG proposes to add this safe harbor under the authority of section 1128A(a)(5) of the Social Security Act.  The OIG notes that “Congress intended that the statute not preclude the provision of complimentary local transportation of nominal value,” citing H.R. Conf. Rep. No. 104-736 at 255 (1966).  79 Fed. Reg.  59721.  The OIG interprets “nominal value” to mean “no more than $10 per item or service or $50 in the aggregate over the course of a year.” Id.

The proposed safe harbor would protect free or discounted local transportation made available to an “established patient” and a person to assist the patient, if necessary, to obtain medically necessary items and services. However, it would not protect free or discounted local transportation made available to a “new patient.”  As explained by the OIG, an example of an “established patient” is a patient who “has selected an oncology practice and has attended an appointment with a physician in the group.”  79 Fed. Reg. 59722.  Under the OIG’s proposal, “the physician could offer transportation assistance to the patient who might have trouble reliably attending appointments for chemotherapy.” Id.  The OIG states this requirement is designed to reduce the risk of a health care provider or supplier using a transportation program to increase business by transporting patients to its premises or by inappropriately inducing referrals from other providers or suppliers by transporting patients to their premises.

But what about the patient who has not yet been diagnosed with cancer because he/she will not take that first step to schedule an appointment with a physician due to the fact that he/she does not have and/or cannot afford to pay for transportation? For that patient, the availability of free or discounted local transportation to a physician’s office may be a deciding factor in whether the patient lives or dies from the disease.

Eligible Entity

The proposed definition of an “Eligible Entity” excludes individuals and entities or family members of others acting on their behalf that primarily supply health care items, including but not limited to, durable medical equipment suppliers or pharmaceutical companies, as well as laboratories. The OIG believes these individuals and entities would use transportation services to generate business for themselves by steering patients to practitioners and referral sources who order their products.  The OIG is soliciting comments on whether home health agencies also should be excluded, in whole or in part, from protection as an “Eligible Entity” as it is concerned about the overutilization of home health services.  Specifically, the OIG is concerned that if a home health agency provides free or discounted local transportation to physician offices, it might induce the physician to refer to that home health agency and might result in overutilization in the form of unnecessary physician visits or unnecessary home health care prescriptions.  Because of this concern, the OIG is considering excluding home health providers from the safe harbor protections when they provide transportation to referral sources, such as physicians, but including them in the safe harbor protections when they provide transportation to non-referral sources, such as pharmacies.

But what about patients in need of free or discounted transportation services to attend their physician office appointments? If the OIG adopts a final rule which excludes home health providers from the safe harbor protections if they provide patients with free or discounted transportation services to referral sources, those patients will need to find an alternative source for transportation services.

If you have any questions about the OIG’s proposed rule or would like to submit comments on the proposal, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and the author of this post. You can reach Rochelle at 617 456 8036 or rzapol@PrinceLobel.com.

Zapol

-Rochelle H. Zapol

There Are Legal Issues In Blogging? – Amanda Schreyer’s Guest Post on Mom 2.0 Summit

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The following piece by Prince Lobel media and intellectual property attorney Amanda Schreyer first appeared on the Mom 2.0 Summit website.

I get some quizzical looks when I tell people what I do. I used to get them more often, though. I’m not asked “Why would a blogger need a lawyer?” as often as I once was. I think that’s a result of greater mainstream acceptance of blogging as an industry in the past few years. Increasingly, in addition to using a blog as a platform for self-expression and to connect with a community of like-minded people, opportunities exist for bloggers to use their social media platforms to benefit financially. Many of you have created businesses with your blog (whether you intended to or not), so you may be encountering some issues you have never dealt with before. And whether you blog for fun or for money or both, there are legal aspects to consider–such as intellectual property rights (yours and others’) and consumer protection rules. Here are some of the topics I discuss most often with bloggers:

1. Trademarks and branding

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods or services of one party from those of another. In the context of blogging, your blog name, as well as any logo you use in your blog, could be used as a trademark. In the United States, your rights in a trademark arise from your use of that trademark, not merely from being the first to register the mark with the government. A blog name or logo functions as a trademark when you are using it in connection with the services you provide (i.e., blogging), in interstate commerce (i.e., on the Internet). Once you have been using the name long enough to have established trademark rights in it, you can generally stop someone else from using a blog name “confusingly similar” to yours, if you can demonstrate you were using the name as a trademark first. The goal is to have your blog name act as a source identifier. This means that when people see the name/logo of the blog, they know the content comes from you. Using the name/logo consistently – same font, same color – over time will help you to create this kind of recognition and build goodwill in your brand.

2. Domain names

There are people who purchase domain names in which they have no intellectual property rights–domains often including other people’s trademarks, or common typos of those trademarks–and “cybersquat” on them. Typically, they buy the domains and hold them hostage unless you are willing to pay them a fee to have them transferred to you. Let’s say you have purchased the domain name www.uniqueblogname.com, and you are gaining a following on your blog located there, and by using @uniqueblogname as your handle on Twitter and Instagram. Then you learn that someone else has purchased www.uniqueblogname.net, and your readers are getting misdirected there. That person is also using @uniqueblognamedotnet, and you have received emails from your readers asking if both handles are yours. Again, if you were first to use uniqueblogname as the name of your blog and @uniqueblogname as your handle, then you may be able to stop that person from using that “confusingly similar” domain and handle through a non-judicial remedy such as a Uniform Domain-Name Dispute-Resolution Policy procedure.

3. Content and copyright

Copyright considerations in blogging involve ensuring that you are only using content that you have the right to use, and enforcing your rights to exclusively use content you create. Because digital content is so easy to reproduce, it can easily end up where it does not belong.

In the United States, as soon as you have fixed your work in a tangible medium (i.e., written content and posted it on your blog), you have secured copyright in that content. While there are benefits of registering your work with the Copyright Office, it is not required in order to stop someone else from using your content unlawfully.

I hear many common assumptions about copyright law and blogging, like “As long as I only use X number of words, or X seconds of music, from someone else’s work, I don’t need permission;” “I can repost someone else’s photo, or a portion of someone else’s article, on my blog without permission as long as I give that person credit;” “I can repost someone else’s photo, or a portion of someone else’s article, on my blog as long as I link back to the original source” and “If it’s on the Internet, it’s in the public domain.” While some of the above may be acceptable practices among content creators, generally they are not consistent with copyright law.

Unless your use of someone else’s work on your blog is truly an exception to copyright infringement such as fair use, reproducing someone else’s blog post, article, photo, or illustration will likely violate that person’s exclusive right to control copying of the work (i.e., her copyright).

In addition, you might find your article, photo, or illustration on someone else’s blog. Multiple avenues exist for enforcing your copyrights in those works, and you might not even need a lawyer to do it. For example, the Copyright Act contains a mechanism through which a copyright owner can direct an internet service provider to take down infringing content upon receipt of a properly-worded notice. Note, however, that a copyright registration with the Copyright Office is your ticket into court. You can’t file a lawsuit without one.

4. Endorsements and FTC required disclosures

Once you have gained a following, you may have the opportunity to provide sponsored content on your blog. In this method of monetization, you create a post or tweet or pin or video about a product or service (an endorsement) in exchange for some kind of consideration from the company owning that product or service. “Consideration” does not only mean money. If you have received clothes, hotel rooms, gadgets, subscriptions, etc., from the company sponsoring the post, then you have received consideration, and you must disclose this to your readers. The Federal Trade Commission wants to protect consumers, so it wants to make sure that your readers have the information they need to be able to decide whether they believe your endorsement was influenced by your receipt of consideration. In furtherance of this goal, the FTC has published guidelines for bloggers regarding advertising and endorsements of products and services to help you understand your obligations for disclosing your relationship with a sponsor.

5. Hosting contests and sweepstakes

If you are hosting a promotion on your blog or Facebook page or Twitter account where your readers enter to win a prize, you are hosting a sweepstakes or contest, and there are rules you need to follow to make sure you are doing it lawfully. A sweepstakes includes a prize, and a random chance to be chosen to win that prize. A contest includes a prize, and the use of the skill of the entrant to win the prize based on criteria (e.g., “best essay,” “cutest puppy photo”). A sweepstakes cannot require consideration to enter, because that would convert it into an illegal lottery. A contest can have consideration, because the awarding of the prize is based on skill, and not chance. Again, consideration does not mean only money. In some states consideration can be anything of value to the promoter, which may be submitting a friend’s email address, subscribing to a newsletter, or filling out a burdensome entry form. Laws regarding online promotions vary from state to state, and some states require that you register the promotion with the state or that you post a bond to cover the value of the prize. The official rules of the sweepstakes or contest are your contract with the entrant, and must contain certain terms required by each state’s laws. You should also make sure that any promotion you run on a platform outside of your blog – such as Facebook or Twitter – complies with that platform’s terms and conditions for running promotions.

Regardless of where you are in your blogging experience, you are dealing with intellectual property. And as you grow your blog, compliance with other laws and regulations may be necessary. By being aware of some of your rights and obligations, and being able to recognize issues early on, you will be able to spend less time thinking about any of them, and more time focusing on creating great content.

If you have any questions about blogging, media, or intellectual property, please contact Amanda Schreyer, attorney in Prince Lobel’s Media and First Amendment Law Practice Group. You can reach Amanda at 617 456 8091 or aschreyer@PrinceLobel.com.

Schreyer

A Tale of Junk Faxes, Wily Lawyers, and Super Bowl Seasickness

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faxThere’s very little common sense to be found in this story.

Dubious Fact No. 1:  When the folks who ran Firefly American Bistro behind Boston’s Copley Place received an unsolicited fax inviting them to a 2007 Super Bowl party on a cruise ship, they did not do what the rest of us would do: deposit it immediately in the circular file, to be picked up with the evening trash.

No, the restaurant’s parent company—quaintly known as Hazel’s Cup and Saucer—called its lawyers, who filed what they hoped would be a class action lawsuit.

Dubious Fact No. 2: The lawyers then engaged in what the Massachusetts Appeals Court described as “difficult and costly procedures” to engage an expert witness and hunt down the sender of the fax: a Florida travel agency using a New York fax broadcasting agency known as “Business to Business Solutions.”

Dubious Fact No. 3: Under the federal Telephone Consumer Protection Act, the 1,640 recipients of the 2,000-plus junk faxes, if certified as a class by the court, would potentially be entitled to anywhere from $1.1 million to more than $3.4 million.  Of which the lawyers would, of course, get their cut.  (Maybe those lawyers knew what they were doing, after all.)

Seized by a moment of startling clarity and good sense, Superior Court Judge Frances McIntyre thought an award of that size would be preposterous, given that “the nature of the harm suffered by individual claimants—the cost of paper, ink, and toner—amounts to pennies.” To allow such claims to proceed as class actions, she said, would result in the TCPA being used by lawyers “as a device for the solicitation of litigation.”

So Judge McIntyre threw the 1,640 junk-fax recipients out of court, and sent them down the street to seek redress in Small Claims Court, where they could each receive automatic damages of $500.

Today, the Massachusetts Appeals Court (here comes Dubious Fact No. 4) reversed Judge McIntyre’s ruling, saying that anyone hiring a lawyer to bring a TCPA claim in small claims court would end up paying more for the lawyer than she or he would ever conceivably gain in a damages award.  (That’s sensible enough – until you ask yourself, “Who hires a lawyer to bring a claim in Small Claims Court?”)

The Appeals Court said the class action can now proceed in Superior Court.  That ruling seems plainly correct under the law–proving that, in the immortal words of Mr. Bumble, “The law is a ass.”

The ruling, while sound, leaves unanswered three pressing questions that confound this commentator.  The first:  “Who will benefit from this lawsuit other than the lawyers?”  The second: “Who sends faxes anymore?”  The third: “Who’d want to go a Super Bowl party on a cruise ship, anyway?”

Have at it in the comments: Can you explain to me what I’m missing?

–Robert A. Bertsche

Robert A. Bertsche

Prince Lobel Wins Appeal Affirming Availability of Escrow Arrangements for Secured Creditors

Prince Lobel attorneys Thomas M. ElcockKristin M. Knuuttila and Thomas R. Sutcliffe representing BHC Interim Funding II, LP and BHC Interim Funding III, LP (“BHC”) recently won an appeal before the Massachusetts Appeals Court in an important case involving questions of first impression under Article 9 of the Uniform Commercial Code.  BHC had intervened in a Superior Court case and sought to enforce its prior perfected security interest in funds that a judgment creditor, William Zimmerling, was trying to claim.  The Superior Court judge entered a preliminary injunction placing the disputed funds in escrow pending resolution of the competing claims.  Zimmerling, however, argued that once the funds were placed in escrow, BHC’s prior security interest was extinguished under M.G.L. c. 106, § 9-332(b).  Section 9-332(b) states that “[a] transferee of funds from a deposit account takes the funds free of a security interest in the deposit account.”  Zimmerling reasoned that, when the funds were placed into escrow, they were “transferred” either to the escrow agent (by virtue of the agent having physical control over the funds) or to Zimmerling (by virtue of his having received an equitable interest in the funds).  The Superior Court disagreed and ruled in favor of BHC.  Zimmerling appealed.

Prior to this dispute, no Massachusetts appellate court had opined on the meaning of the word “transfer” under Section 9-332(b).  Furthermore, case law in other jurisdictions was scant, and some of what did exist supported Zimmerling’s position.  The Appeals Court, however, relying heavily on arguments that Prince Lobel had made, concluded that neither the text of Section 9-332(b), nor the policy rationale behind that provision, supported a reading that would extinguish a creditor’s interest in funds simply because those funds were placed in escrow.  The Court determined that Zimmerling was not himself a “transferee.”  As the Court explained (and as Prince Lobel argued in the Superior Court and on appeal), the plain language of Section 9-332(b) applies only to a transfer “of funds” – i.e., the actual receipt of the funds themselves, not just a mere equitable interest.  The Court rejected Zimmerling’s claim that the escrow agent was a transferee because (as Prince Lobel had also argued), the escrow agent simply held the funds as a fiduciary and therefore did not have legal title.  The Court further determined that case law to the contrary in other jurisdictions was unpersuasive.

The Court further observed, as had Prince Lobel both in its briefing and at oral argument, that there were strong policy reasons for not allowing the placement of funds into escrow accounts to affect prior security interests. The purpose of Section 9-332(b) is to ensure the liquidity of funds and the finality of transactions in which funds are exchanged. But as the Court also recognized, “[b]y definition, a court-ordered escrow account is the antithesis of finality”; such escrow accounts, rather, are intended to freeze money pending resolution of the parties’ claims.  Therefore, the Court concluded, Zimmerling’s argument, when “[t]aken to its logical conclusion, . . . would render inoperable the use of escrow agreements in commercial transactions involving secured parties,” a result that would impede the U.C.C.’s goal of  “‘permit[ting] the continued expansion of commercial practices through custom, usage, and agreement of the parties.’” (quoting M.G.L. c. 106, § 1-103(a)(2)).

The Court’s decision applied a pragmatic analysis that accommodates both the importance of ensuring the liquidity of funds and the reality of commercial transactions involving escrow accounts – particularly where a court orders money placed into escrow.  Whether other jurisdictions will follow Massachusetts’s lead remains to be seen.

A copy of the Appeals Court’s decision can be found here.

For further information please contact Thomas M. Elcock at 617 456 8155, telcock@PrinceLobel.com, Kristin M. Knuuttila at 617 456 8170, kknuuttila@PrinceLobel.com, or Thomas R. Sutcliffe at 617 456 8054, tsutcliffe@PrinceLobel.com, the authors of this alert and counsel for BHC.

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Massachusetts Ruling Reduces Access to Criminal Court Records

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Analysis and discussion by Robert A. Bertsche

In a stark about-face, the highest court of Massachusetts today took a step toward reducing access to criminal court records.  It reversed its own ruling from 20 years ago—and picked a fight with the federal First Circuit Court of Appeals that could someday be decided by the U.S. Supreme Court.

The unanimous 46-page decision from the Supreme Judicial Court is a victory for individual privacy rights at the expense of public access to the court system.  It was a bow to our age of “rapid informational access through the Internet and other new technologies.”

The Court made it substantially more likely that a certain category of criminal court records—those that have been dismissed or have been the subject of a “nolle prosequi,” or decision not to prosecute—will simply vanish from public view.

Less than 20 years ago, the same Court had ruled that the First Amendment required a strong presumption favoring public access to the records of such cases.  But the Court said today that its 1995 decision “no longer achieves the proper balance of interests,” and it lay down a new standard that makes it far easier for secrecy to prevail.

* * *

Imagine this not-entirely-hypothetical scenario:

It is 2017, and the mayor of Smalltown, Mass., is considering his nephew, John Johnson, to be head of the town’s Department of Public Works. 

You hear a rumor that, some years ago, Johnson was picked up by police. You ask Johnson about it, and he insists he has no criminal record. You go to Smalltown District Court, but you find no criminal records about him.  

Nonetheless, and unknown to you, the rumors are true.  In 2014, before he ever got involved in town affairs, Johnson was charged with operating a motor vehicle while under the influence of alcohol (OUI) and leaving the scene of an accident.

He admitted to facts sufficient for a finding of guilty, and in 2015, a Smalltown Municipal Court judge continued the charges without a finding for one year, suspending Johnson’s driver’s license for 45 days and sending him to rehab. 

A year later, the judge dismissed the case on the recommendation of the probation officer—who just happened to be the niece of Smalltown’s state representative.

Why couldn’t you find any court records?  Because as of today, under Massachusetts law as re-interpreted by the Supreme Judicial Court in Commonwealth v. Pon, Johnson only had to meet a deferential standard of “good cause” before getting his entire criminal case file sealed.   The decision makes it clear that facts like those described above would warrant a judge to find that the “good cause” bar had been met.

* * *

Here’s what you should know about today’s decision:

  • The Standard For Sealing Is Far Easier to Meet Than It Was Before. 

By statute (G.L. c. 276, § 100C), a judge may seal the criminal record of a former criminal defendant whose case resulted in entry of a nolle prosequi or a dismissal, if the judge determines that “substantial justice would best be served” by sealing.  The question in 1995, and again in 2014, was what those words really mean.

In 1995, in Commonwealth v. Doe, the SJC said that sealing the record is permitted only if the defendant proves “that the value of sealing … clearly outweighs the constitutionally-based value of the record remaining open to society.”  It said that sealing “should occur only in exceptional cases,” and that an individual’s general reputational or privacy concerns aren’t enough.  “A defendant must show that specific harm is threatened by the continued existence of the record.”

The Court in 2014 is singing a different tune.  Now, the requirement of “substantial justice” is met merely by a showing of “good cause” for the secrecy.  That’s the same standard that governs when a court is asked to impound a particular document in the court record—but here it is being applied in a far more extreme setting, one in which the entire case is being made to disappear from public view.

  • The Court Makes It Sound Easy to Establish “Good Cause.” 

The decision says “good cause” for secrecy is determined by a balancing test.  But while it says it is striving to provide “clearer guidance” than under the prior standard, the scales it establishes seem already weighted in favor of sealing.

In one pan, the Court heaps amorphous ideals: the “general principle of publicity,” and the public’s “general right to know so that it may hold the government accountable.”  Quoting its 1995 decision in Doe, the court does concede that “‘[e]ven [where] a case has not been prosecuted, information within a criminal record may remain useful’ to the public.”

The other pan overflows even before the weighing has begun.  The SJC says there are “compelling” and “fully articulated” “governmental interests in reducing recidivism, facilitating reintegration, and ensuring self-sufficiency by promoting employment and housing opportunities for former criminal defendants.”

Judges don’t even have to make case-specific findings on that point; they “may take judicial notice that the existence of a criminal record, regardless of what it contains, can present barriers to housing and employment opportunities.”  Those barriers are “heightened by the immediate and effectively permanent availability of criminal history on the Internet.”

As to the specific factors to be considered, the following is the non-exclusive list laid down by the Court:

–”the particular disadvantages identified by the defendant arising from the availability of the criminal record”;

–”evidence of rehabilitation suggesting that the defendant could overcome these disadvantages if the record were sealed”;

–”any other evidence that sealing would alleviate the identified disadvantages”;

–”relevant circumstances of the defendant at the time of the offense that suggest a likelihood of recidivism or of success”;

–”the passage of time since the offense and since the dismissal or nolle prosequi“; and

–”the nature of and reasons for the particular disposition.”

  • The First Circuit Court of Appeals No Longer Matters.

The Supreme Judicial Court had reached its anti-sealing ruling in 1995 by adopting the reasoning of a 1989 ruling from the federal First Circuit Court of Appeals.  In 2014, the SJC is defiantly going it alone, noting that state courts “‘are not bound by decisions of Federal courts except the decisions of the United States Supreme Court on questions of Federal law.’”

In a footnote, the Court turns the principle of stare decisis on its head.  It notes that the relevant federal precedents are more than two decades old, from which it concludes that because “our society has changed drastically since either we or the Federal courts have given great thought to the consequences of sealing,”  Therefore, “[c]learly, the issue is ripe for revisiting….”

  • The First Amendment No Longer Matters. 

In 1995, following the lead of the First Circuit , the SJC repeatedly spoke of the First Amendment-based “constitutional right of access to judicial records.” By 2014, the First Amendment is on the sidelines: “We conclude that the records of closed criminal cases resulting in these particular dispositions are not subject to a First Amendment presumption of access.”

The Court acknowledges that its conclusion is “at odds with that of the First Circuit” and other federal appellate courts, but finds solace in the fact that “at least one” other state supreme court (Florida) has reached the same result.  Take that, First Circuit.

  • In Fact, the Real World Doesn’t Matter Much, Either.

The Court briefly acknowledges that commercial background check services may disclose the criminal arrests that are meant to be hidden by a court-ordered sealing of records.  While noting that such services are “immune in practice (but not in law) from sealing,” it says that to factor in the futility of court-ordered sealing would lead to the apparently unacceptable result of barring sealing altogether: “Were we to accept this argument, sealing would never be justified.”

There is a second problem with the commercial background check services: that they can be inaccurate, a fact that the Court acknowledges.  The Court fails to note, however, that if actual court records are put under lock and key, then the public and media will be more likely to turn to those commercial services.  In other words, unreliable information will take the place of reliable information.

  • The Court Might Apply a Different Analysis if the Arrestee is a Public Figure.

One can take some comfort from the fact that the Court notes, in an aside, that if the former criminal defendant is a public figure, then “a different analysis may be necessary.”  Certainly it seems less justifiable to seal a sitting politician’s past brushes with the law, than to seal the same material when it relates to a private individual.  The problem is that today’s private individual may be tomorrow’s public figure.  In the hypothetical above, John Johnson obtains sealing as a private figure; only later does he go into public life, and by then his prior arrest record is safely hidden away.

  • This Decision May Be Just the Beginning.

The Court says it will not address the public-figure issue because “those facts are not before us.”  It is not as reticent when it comes to discussing whether the eased sealing standard it sets out should also apply to the records of criminal court proceedings that end in an acquittal instead of a dismissal or nolle prosequi.  In a page-long footnote, the Court suggests that even if one cannot enforce the purported statutory requirement of mandatory sealing of court records of cases that result in acquittals, nonetheless discretionary sealing can occur, and should be subject to the same “good cause” standard.

* * *

It should not, perhaps, be altogether surprising that the SJC has established a new, more deferential standard for sealing of certain cases.  The Court is primarily concerned with effectuating what it sees as the legislative goal of CORI reforms: to foster rehabilitation and integration into the community of former arrestees, and to reduce the housing and employment blacklisting of those who have been through the judicial system and come out of it without a criminal conviction.  The Court is also concerned that the legislative goal is made more difficult by the impossibility of erasing facts from the Internet.

What is surprising, and disturbing, about the Pons decision is how little discussion there is of the public right to know, or the media’s role in monitoring the integrity of the judicial system.  Take the hypothetical of John Johnson, above.  In that situation, there is a public interest in knowing why the charges against John Johnson led only to a continuance without a finding, followed by a dismissal after a politically connected probation officer testified.

If You Don’t Like This Decision: Who’s to Blame?

CALL TO ACTION:  Perhaps those of us who represent the media and who advocate for public access to the courts have ourselves to blame.  The Supreme Judicial Court routinely calls out for amici curiae to submit briefs to help the Court consider points of view that will not be adequately represented by the parties.  In this case, such briefs came only from parties who supported a more deferential sealing standard.

Is it time for a coalition of public access advocates and media entities to step up to the plate to be sure that the arguments in favor of public access are adequately represented to the Court?

Robert A. Bertsche is a partner in Prince Lobel’s Media and First Amendment Law Practice. You can reach Rob at 617 456 8018 or rbertsche@PrinceLobel.com.

How Media Coverage Affects Judicial Independence

Click on the image to check out Rob Bertsche’s first Storify, based on live tweets from the American Bar Association’s Annual Conference in Boston on Aug. 8, 2014.

Bertsche Storify

Robert A. Bertsche is a partner in Prince Lobel’s Media Practice. You can reach Rob at 617 456 8018 or rbertsche@PrinceLobel.com.

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