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Safe Harbor Update

Posted: November 9th, 2014

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On October 3, 2014, the Office of the Inspector General for Health and Human Services (“OIG”) published a proposed rule that revises the Safe Harbor under the Anti-Kickback Statute concerning discounted or complimentary transportation services that medical providers can provide to patients.

See 79 Fed. Reg. 59717 (October 3, 2014).  Medical providers should welcome this much needed update, as the “nominal value” rule has declared many providers’ plans to provide complimentary transportation for their patients illegal.

In the past, the OIG declared that under the legislative intent of the Civil Monetary Penalties Law and the Anti-Kickback Statute, Congress intended that the statutes not preclude the provision of complimentary local transportation of “nominal value.”  The OIG has interpreted nominal value to mean no more than $10 per item or service or $50 in the aggregate over the course of a year.  Based upon persistent feedback, the OIG now believes this interpretation of nominal value may be overly restrictive as applied to complimentary or discounted transportation for patients.

The proposed safe harbor would protect free or discounted local transportation made available to established patients to obtain medically necessary items and services.

First, the proposed safe harbor would apply to “Eligible Entities.” The OIG suggests that Eligible Entities include medical providers, but it would not include entities that primarily supply health care items, such as durable medical equipment suppliers or pharmaceutical companies.  The OIG also suggests excluding home health care providers from “Eligible Entities” designation when providing transportation to or from their referral sources, such as doctors’ offices, while extending safe harbor protection when transporting patients to non-referral sources, such as pharmacies.

Next, the OIG seeks to limit safe harbor protection to “established” patients.  It offers as an example a patient who has already selected an oncology practice and has attended an appointment with a physician in the group.  The oncologist may offer discounted or free local transportation to this “established” patient, who may have trouble reliably attending appointments for chemotherapy.  By contrast, the safe harbor would not extend to a practice providing free or discounted transportation to new patients.

Under the proposed safe harbor, the entity would not be permitted to restrict the transportation service to patients sent from specific referral sources, nor could the entity require the patient to utilize the services of other referral sources of the entity.  The entity may set limits on the free or discounted transportation, but such limits must be unrelated to the volume or value of referrals.  Likewise, entities would not receive safe harbor protection if they limit the offer of free or discounted transportation only to patients prescribed expensive treatments versus inexpensive ones.

Providers considering offering free or discounted transportation services should contact health care counsel, who can submit comments on the provider’s behalf to the OIG with the goal of having the final rule most closely resemble the provider’s proposal.   Our healthcare law department stands ready to assist in this endeavor for any interested providers.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

No Rescission of Contract in Dental Practice Sale Gone Bad

Posted: November 9th, 2014

While the sale of a business is a common occurrence, courts are often looked upon to interpret the terms of the relevant sale documents associated with the transaction when either the buyer or seller is alleged to have breached certain obligations post-closing.

This was the case in a recent decision in the Suffolk County Commercial Division in Huntington Village Dental, P.C. v. Rathbauer, et a. (J. Whelan).

In Rathbauer, plaintiff Huntington Village Dental, P.C. (“HVDPC”) purchased a dental practice from John F. Rathbauer, DMD, LLC (“Rathbauer LLC”), evidenced by an Agreement of Sale, Promissory Note, and Bill of Sale, all dated June 14, 2010.  HVDPC also executed a lease for the first floor of a building owned by another defendant, John F. Rathbauer, DMD, P.C. (“Rathbauer P.C.”).  Of particular significance, the Promissory Note provided that, in the event of a default in payment by HVDPC under the Note, Rathbauer LLC could send a notice of default requiring payment of the balance within 90 days.  Additionally, if the default was not cured within the 90 days, ownership of the dental practice and assets would revert to Rathbauer LLC.

As part of the sale documents, Rathbauer himself remained employed by the dental practice for one year following the sale.  However, shortly after the closing, HVDPC claimed that the defendants breached their obligations under the terms of the sale documents due to “failure to turn over full and complete patient lists, clinical quality copies of x-rays and practice management documents as data which plaintiff purchased from Rathbauer LLC.”  Despite these claims, HVDPC apparently continued performing under the Promissory Note until July 2012, approximately two years after the closing and one year after Rathbauer completed his employment.  Beginning in July 2012, HVDPC refused to pay it obligations under the Promissory Note going forward, essentially based upon the same alleged breaches it claimed back in 2010.

In the Complaint, HVDPC sought rescission of the Promissory Note and the other sale documents on the grounds that the defendants materially breached their obligations and fraudulently induced plaintiff to enter the sale.  HVDPC also sought money damages for alleged tortious interference due to the defendants’ alleged interference between HVDPC and HVDPC’s patients.  Plaintiff further sought a declaratory judgment finding that HVDPC was free from any further obligations under the sale documents and that the provision in the Promissory Note permitting Rathbauer LLC to “take back” ownership of the dental practice and its assets to be deemed null and void.

Defendants then asserted two of their own counterclaims – the first seeking declaratory relief that the “take back” provision in the Promissory Note is valid and enforceable, and the second for money damages due to HVDPC’s failure to pay amounts due under the Promissory Note.

Both parties ultimately moved for summary judgment.  With respect to HVDPC’s claim for rescission of the sale documents due to the alleged “material breaches” by the defendants, the Court noted that rescission of a contract is permitted when a breach “substantially defeats [the] purpose of the contract” when such breach is “material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.”  Wiljeff, LLC v. United Realty Management Corp., 82 A.D.3d 1616 (4th Dep’t 2011)(quoting Lenel Sys. Intl., Inc. v. Smith, 34 A.D.3d 1284 (4th Dep’t 2006)).

Based upon the record before it, the Court denied summary judgment and dismissed HVDPC’s claim for rescission, holding that HVDPC failed to satisfy its burden of proof.  Particularly, the Court noted that the breaches alleged by HVDPC were slight, casual and/or technical breaches, with nothing in the record pointing to a material, substantial breach by the defendants.  Furthermore, the parties operated under the agreement for two years after the closing; thus, rescission was not a remedy available to HVDPC at that point.   Given that the Court found no evidence of material breaches by the defendants, the Court also denied summary judgment and dismissed HVDPC’s declaratory judgment claim.

With respect to HVDPC’s fraudulent inducement claim, the Court held that the alleged representations by defendants were not actionable because the representations were promissory and futuristic in nature and HVDPC could not prove justifiable reliance.  The Court also noted that HVDPC essentially waived its rights for rescission under a fraudulent inducement theory by continuing to operate under the agreement for two years despite allegedly having knowledge of the alleged misrepresentations.

In considering the defendants’ separate summary judgment motion on their counterclaims, the Court granted summary judgment to the defendants for money damages as a result of HVDPC’s failure to pay amounts due under the Promissory Note because HVDPC had no bona fide defense to not paying the amounts due thereunder, given the Court’s finding that the defendants’ alleged breaches were non-material in nature.  However, with respect to the “take back” provision that was available to the defendants in the event HVDPC defaulted under the Promissory Note, the Court refused to enforce the provision, noting that no proof had been shown demonstrating the enforceability of the provision, which was actually handwritten into the Promissory Note at the closing.

This case provides an important illustration of how parties’ actions after the sale of a business is completed will affect how a Court interprets certain provisions of the parties’ agreements when the parties later seek to enforce them.  Particularly for HVDPC, while it thought it had a valid basis to rescind the sale agreements and to stop paying under the Promissory Note due to what it claimed were material breaches by the defendants, the Court ultimately found those breaches to be non-material and that HVDPC’s continued performance under the sale documents for two years post-closing resulted in a waiver of its right to rescission and, as a result, it was plaintiff HVDPC that was in default of the Promissory Note, owing money damages to the defendants.

McCormick quoted in “The Art of Making Objections”

Posted: November 9th, 2014

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By: Bernadette Starzee, Long Island Business News

 “Objection, your honor!”

It’s a line that fans of shows like “Law & Order” and “Boston Legal” have heard hundreds of times. But while TV lawyers make objections look easy, it’s not so simple when there’s no script or retakes.

“Young lawyers especially fear the use of objections,” said Jeffrey Kimmel, a partner at Salenger, Sack, Kimmel & Bavaro in Woodbury. “You have to object in real time, and since you don’t know in advance what your adversary is going to say, you don’t know if it will be objectionable. You have to decide on your feet the reason for objecting, whether you should object and if you will sound silly.”

To help attorneys choose their battles wisely, the Nassau County Bar Association offered a continuing legal education course entitled “Objections! When and How to Make Them” in October. It was attended by about 70 attorneys across many practice areas.

While it’s true there’s no script in real-life court, it is possible to prepare in advance of a trial for instances that may arise and warrant an objection.

Attorneys should prepare by reviewing the rules of evidence before every trial, said Mark Mulholland, managing partner and senior member of the litigation department at Ruskin Moscou Faltischek in Uniondale. Further, with the disclosure process, both sides generally know what their adversaries will present and what their witnesses will testify to.

“You should know what the potential objections will be before you even walk into the courtroom,” said Patrick McCormick, partner and head of the commercial litigation and appellate practice groups at Ronkonkoma-based Campolo, Middleton & McCormick.

As the trial progresses, or from trial to trial, “you get a sense of your adversary and how he asks questions and what he’s trying to accomplish,” McCormick said. “Most experienced lawyers know whether they’re going to object and what the objection will be based on before their adversary is halfway through with a question.”

Mulholland finds that inexperienced attorneys typically fall into two camps: those that are uncertain about the rules and therefore timid to stand up and object, and those that are what he called “spring-butts” – lawyers who jump to their feet for hyper-technical reasons.

The latter group runs the risk of coming across as inexperienced, naïve and/or obstructionist, he said.

“I think the most important thing to learn is just because you can make an objection doesn’t mean you should,” McCormick said.

There are certain objections attorneys must make in order to protect the record in case of potential appeal for BLC bankruptcy attorney san diego. But by making too many objections, an attorney can give the jury the impression he is trying to hide something, Cormick said.

Occasionally, making repeated objections may allow an attorney to gain momentum.

“Your adversary may run into trouble – he may be blocked in his attempt to put a piece of evidence in, and he may try a different approach to get the same evidence in,” Mulholland said. “A seasoned lawyer can seize upon the opportunity to object again; if the judge agrees and blocks the evidence a second time, the lawyer is effectively building momentum.”

In this scenario, Mulholland likened repeated sustained objections to a flurry of punches thrown late in a heavyweight boxing match.

“You can start to pummel your adversary whenever he goes back to the well again to try to get the evidence in,” he said. “The jury will begin to see that the judge and you are aligned, and that’s a terrific thing. Imagine in your mind’s eye, by the fifth or sixth round, jury members cocking their heads, with their arms folded across their chests, wondering, ‘why is the [adversary] wasting our time with this?’”

Hearsay is the most frequently cited rule of evidence in the courtroom, Mulholland said, noting it goes against the very heart of the trial process, which centers around cross-examination as a means by which a witness’ credibility is tested. In the case of hearsay evidence, the speaker is not in the courtroom, so he cannot be cross-examined.

Other common objections are “relevance” and “asked and answered,” said Kimmel, noting the latter can stop an adversary from repeating a point that is helpful to his side.

Another classic objection is to an adversary assuming a fact that is not in evidence, such as asking a witness, “When did you stop beating your wife?” when it has not been established that the witness has been beating his wife, Kimmel said.

Attorneys also frequently object when their adversary leads the witness. When addressing their own witness, attorneys cannot suggest an answer, Kimmel said. For instance, rather than “The light was red, wasn’t it?” the question should be, “What color was the light?”

One objection that’s frequently upheld is absence of a foundation, Mulholland said.

“Lawyers need to understand the technical rules required to build a foundation for different types of evidence,” he said, noting, for instance, the background information needed to introduce a telephone call is different from that needed for an email. “Inexperienced lawyers are tripped up by their inability to lay foundation, and if you come ill-prepared to do so, your adversary is going to jump up and object, and the judge will agree.”

Mulholland has seen judges help a young lawyer lay the foundation, but whether the judge will be willing to do so is a matter of speculation.

“It’s not a good approach to go into court planning to have the judge help you get your evidence in,” he said.

One of Mulholland’s favorite reasons to object is for evidence that’s misleading.

“This is one that can gain the judge’s attention,” he said. “I have had substantial success persuading the court that something my adversary was trying to present would mislead or create confusion.” He said judges are very protective of juries and the jury process, noting, “If you can make a compelling argument that a piece of evidence creates a specter of confusion or may be misinterpreted, you can dramatically increase your chances of success in keeping the evidence out.”

Young lawyers must keep in mind that judges are people too.

“If you have 10 judges listening to the same question, five may say ‘Sustained’ and five may say ‘Overruled,’” Kimmel said, noting the importance of getting to know individual judges and how they have ruled in the past. A judge who is familiar with one lawyer’s style may give that attorney more leeway than one he hasn’t seen before, he added.

“Many objections can go either way, and I tell young lawyers not to take them personally,” he said. “If you’re overruled, you have to persevere and get past it.”

http://libn.com/2014/11/12/sustained-li-attorneys-on-the-art-of-making-objections/

Nov 17 – CMM Bridgehampton Exec Breakfast – POSTPONED

Posted: November 1st, 2014

cmm exec breakfast

POSTPONED, New DATE TBD

November 17, 2015

Tax Update
Presented by Thomas Terry, CPA

Join us as Thomas Terry, of Markowitz, Fenelon & Bank discussing the  latest developments on federal and New York taxation, including techniques and tax planning ideas – perfect for business owners getting ready to wrap up the year.

Topics include:

  • Net Investment Income Tax
  • Affordable Care Act – what it means to the employer and employee
  • Proposed legislation, including new equipment regulations
  • Same sex couple developments

EVENT DETAILS:

8:30am – 9:00am
Arrival and Breakfast

9:00am – 9:45am
Presenting Speaker

9:45am – 10:00am
Q&A and Discussion

REGISTRATION: All events are FREE but registration is required. Complimentary breakfast will be served.

LOCATION: CMM’s Bridgehampton office, 2495 Montauk Highway, Bridgehampton

CMM Opens Office in Bridgehampton

Posted: October 29th, 2014

BH office

CMM is proud to announce the opening of a new office in Bridgehampton, New York. The new location enables the firm to further expand its client base into the East End of Long Island and provide easier access to its already existing clients in the Hamptons, and surrounding areas.

The office is located at 2495 Montauk Highway in Bridgehampton. The full range of Campolo, Middleton & McCormick’s services are available to its clients in the Bridgehampton office.

About CMM
Located in both the heart of Long Island and on the East End, Campolo, Middleton & McCormick, LLP is a full-service law firm with the expertise and experience to represent clients with every legal need they may face. We have an established record of results for our clients, who range from individuals to global companies, and approach each matter with a unique understanding of the issues and the highest level of integrity. Learn more at www.cmmllp.com.

Copyright Protection in Selfies Can Help to Prevent Unauthorized Reproduction and Distribution

Posted: October 27th, 2014

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Selfies have become a global phenomenon, but what type of protection does one have to prevent the spread of photos that have been hacked?

We have all heard the story that broke last month about the hundreds of intimate photographs of numerous celebrities, including Kate Upton and Jennifer Lawrence.   Although questions are still being raised about the security of cloud storage, copyright law may provide the strongest mechanism to stop the unauthorized dissemination of photos.

A selfie is a self-portrait photograph typically taken using a camera phone or hand-held digital camera.  These selfies are typically shared on social networking services such as Facebook, Instagram, and Twitter.  As soon as the selfie is taken, it enjoys copyright protection.  Copyright protects works of expression fixed in a tangible medium – which is a photograph.  There are no copyright formalities needed (i.e. you do not need to display the © emblem) and you do not need to register the photo with the U.S. Copyright Office.

Under Copyright Law, the owner of the selfie would have the right to control and prohibit the reproduction or distribution of the selfie.  Anyone making a copy has infringed the copyright.

Although there is a fair use defense to copyright infringement for criticism, comment, news reporting, teaching, scholarship, and research, the selfie owner will have a strong claim for copyright infringement given that the unauthorized use is not likely to fall within the fair use standard.  Courts will consider four factors in determining whether or not a particular use is fair:  (i) the purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes; (ii) the nature of the copyrighted work; (iii) the amount and sustainability of the portion used in relation to the copyrighted work as a whole; and (iv) the effect of the use upon the potential market for, or value of, the copyrighted work.

Further, although many states, such as New York, have right of publicity laws, they require that the image be used for commercial and business purposes, which is harder to demonstrate when the infringer utilizes the image for artistic purposes.

Accordingly, the strongest potential lies in copyright law.  Selfie owners would be wise to avail themselves of the automatic protection provided to them.  If the owner obtains an injunction, the selfie can be immediately removed from the public domain, which is likely the primary goal in these circumstances.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

How to Limit Fiduciary Duties in Delaware LLC Agreements

Posted: October 10th, 2014

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On August 1, 2013, the Delaware Assembly passed an amendment to Section 18-1104 of the Delaware LLC Act, expressly providing that corporate director-type fiduciary duties apply by default to LLC managers (and members active in the LLC operations).

The amended statutory language is shown below, with the change underlined.

“§ 18-1104 Cases not provided for in this chapter.
In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.”

The amended statue was a response to the Delaware Supreme Court decision, Gatz Properties LLC v. Auriga Capital Corp., C.A. No. 148 (Del. 2012), in which the court stated that the Delaware LLC statute is ambiguous about whether fiduciary duties apply to LLCs by default and urged the Delaware General Assembly to resolve the ambiguity (See bottom of p. 26 in the Decision).
Below is sample language that can be used to limit fiduciary duties for owners and officers of Delaware LLCs and LPs. I’ve modified it slightly because the original language was based on a Delaware Limited Partnership Agreement updated in February 2014, available here.

Duty of Loyalty
(a) The Manager and its principals, partners, directors, officers, members, employees, (the “Manager Agents”) will not be required to devote their full time efforts to the affairs of the Company. The Manager will devote so much of its time and effort in connection with the operations of the Company as in its sole discretion it deems necessary for the management of the affairs of the Company, except as may be required under the Investment Company Act of 1940 and the rules, regulations and orders under the 1940 Act, as amended from time to time, or any successor law.
(b) The Manager and any Member, and any Affiliate of any Member may engage in or possess an interest in other business ventures or commercial dealings of every kind and description, independently or with others, including, but not limited to, acquisition and disposition of Securities, provision of investment advisory or brokerage services, serving as directors, officers, employees, advisors or agents of other companies, Partners of any Partnership, members of any limited liability company, or trustees of any trust, or entering into any other commercial arrangements. No Member will have any rights in or to such activities of any other Member or any Affiliate of any Member or any profits derived from these activities.
(c) The Manager and and the Manager Agents, from time to time may acquire, possess, manage, hypothecate and dispose of Securities or other investment assets, and engage in any other investment transaction for any account over which they exercise discretionary authority, including their own accounts, the accounts of their families, the account of any entity in which they have a beneficial interest or the accounts of others for whom or which they may provide investment advisory or other services.
(d) To the extent that at law or in equity the Manager has duties (including fiduciary duties) and liabilities relating to those duties to the Company or to any other Partner or other Person bound by this Agreement, any such Person acting under this Agreement will not be liable to the Company or to any other Partner or other Person bound by this Agreement for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Manager otherwise existing at law or in equity, are agreed by the Members to replace the other duties and liabilities of the Manager.

DUTY OF CARE
(a) The Manager, the Manager Agents and the Members will not be liable to the Company or to any of its Members for any loss or damage occasioned by any act or omission in the performance of the Person’s services under this Agreement, in the absence of a final judicial or arbitral decision on the merits from which no further right to appeal may be taken that the loss is due to an act or omission of the Person constituting bad faith, gross negligence or reckless disregard of the Person’s duties under this Agreement.
(b) Managers and Members not in breach of any obligation under this Agreement or under any agreement pursuant to which such Manager or Member subscribed for Membership Interests will be liable to the Company, any Member or third parties only as required by this Agreement or applicable law.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.

Market Terms in M&A Transactions

Posted: October 9th, 2014

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The following checklist is based on a report from the American Bar Association Mergers and Acquisitions Committee, Market Trends Subcommittee, which published a study of 136 private target M&A transactions ranging in size from $17.5 M to $4.7 B, each completed in 2012.

1. Deals with an Earnout: % of deals with an earnout: 25%
2. Length of Earnout: 56% of earnouts last 24 months or less
3. “Material Adverse Effect” defined to include past events that could reasonably be expected to materially adversely affect the target: 93% included.
4. “Material Adverse Effect” excludes “force majeure”-type events (acts of war, general changes in industry, etc): 91% include these types of carveouts
5. “Knowledge” is defined as constructive knowledge as opposed to actual knowledge: 80% constructive knowledge
6. Target’s financials are a “Fair Representation” of Target’s condition:99% include a Fair Representation rep. 22% of those are qualified by GAAP (this qualification is usually beneficial to Seller, if Seller uses GAAP in its financials).
7. Target represents target is in compliance with all laws: 99% include this representation
8. Target represents it has made no untrue statement of material fact or omitted any material fact: 36%
9. When must Representations be Accurate: If signing occurs prior to closing, 57% of deals say representations must be accurate at signing and closing; 42% say at closing only, 1% had no condition.
10. How Accurate must the Representations be:
60% said target’s representations must be accurate “in all material respects”
1% said target’s representations must be accurate “in all respects” without any qualification
39% said target’s must be accurate except for inaccuracies which would not reasonably be expected to give have a material adverse effect on the target
11. “Sandbagging” means Buyer’s right to sue the Seller for breach of a representation or warranty even if Buyer knew of the breach beforehand.
41% of deals permitted this (contained a “Pro-Sandbagging” clause)
10% of deals prohibited this (contained an “Anti-Sandbagging” clause)
49% of deals were silent on this
12. Indemnification Deductible (“Basket”): 59% of deals provided that Seller was not required to indemnify Buyer for aggregate losses less than a certain amount. Of that 59%, 56% of those deals contained a “basket” of .5% or less of the total deal value.

The information contained in this article is provided for informational purposes only and is not and should not be construed as legal advice on any subject matter. The firm provides legal advice and other services only to persons or entities with which it has established an attorney-client relationship.