Archive for July, 2010
Update on Associate “Gripe Site” Litigation
Levinson Axelrod and former associate Edward Heyburn have settled the firm’s suit seeking damages and an injunction against Heyburn’s gripe site. The lawsuit is discussed at http://tinyurl.com/25jm8jm. The parties entered into a nondisclosure agreement, so the terms of the settlement are unknown. But the website levinsonaxelrodreallysucks.com is down, and the domain name is now available. I don’t think anyone will be registering it any time soon.
SMART REDEVELOPMENT OR EMINENT DOMAIN ABUSE?
On June 24, the New York Court of Appeals held that the New York State Urban Development Corporation properly exercised its power of eminent domain to acquire privately owned commercial property for the development of a new Columbia University campus. For many years, Columbia has been planning its “Educational Mixed Use Development Land Use Improvement and Civic Project,” commonly referred to as the “Manhattanville Project.” The Project consists of approximately 6.8 mil. gross square feet and up to 16 new buildings in an area immediately north of Columbia’s existing Morningside Heights campus. The Project also would create approximately 94,000 square feet of accessible open space, maintained as such in perpetuity, with trees, open vistas, paths, landscaping and street furniture and well-lit widened sidewalks. Columbia plans to open its facilities, including its libraries and computer centers, to students attending a new public school that Columbia will host rent-free for 49 years. Columbia will also open its swimming facilities to the public, and an open-air market zone will be created.
In December 2008, the Empire State Development Corporation (“ESDC”), after reviewing numerous reports and holding public hearings, issued a determination concluding that it should condemn 17 acres of privately owned property in connection with the Project. On February 20, 2009, owners of several commercial properties in the area filed in the New York Appellate Division petitions challenging the ESDC determination and findings. In Matter of Kaur v. New York State Urban Dev. Corp., available here http://tinyurl.com/2dqvvbg, the Appellate Division held that there was no independent credible proof of blight in Manhattanville. A finding of “blight” was necessary in order to condemn properties located therein. The court noted that Columbia began purchasing properties in the area in 2002, and by October 2003, it controlled 51% of the project area. According to the court, the record before ESDC contained no evidence whatsoever that Manhattanville was blighted prior to Columbia’s gaining control over the vast majority of property there. The court was particularly concerned with evidence that Columbia itself forced out tenant businesses, ultimately vacating 15% or more of the tenants in 17 buildings. The record also indicated that Columbia let water infiltration conditions in properties it acquired go unaddressed, even when minor repairs could arrest the deterioration. It left building code violations open and allowed tenants to use premises in violation of local codes by parking cars on sidewalks, obstructing fire exits and letting garbage and debris in some buildings to collect over a period of years. The court suggested that Columbia, ESDC and the Economic Development Corporation engineered the blight that would serve as the basis for the determination that eminent domain for redevelopment purposes was proper. The court also savaged the use of “underutilization” of property to support a finding of blight.
ESDC appealed to the New York Court of Appeals, which reversed. (Opinion available here http://tinyurl.com/256vrcf.) The Court held that ESDC’s condemnation of private commercial properties for the development of the new Columbia University campus was supported by sufficient public benefit as required by the New York Constitution and Eminent Domain Procedure Law. ESDC’s finding of blight and determination that the condemnation qualified as a “land use improvement project” were rationally based and entitled to deference.
Although both courts defined the “standard of review” similarly, the Court of Appeals criticized the de novo review of the record undertaken by the plurality of the Appellate Division. The Court of Appeals stated that, on the record upon which the ESDC determination was based, it couldn’t be said that ESDC’s finding of blight was irrational. Since there was record support, “extensively documented photographically and otherwise on a lot-by-lot basis” for ESDC’s determination that the project site was blighted, the Court of Appeals held that the lower court erred when it substituted its view for that of the legislatively designated agency, the ESDC. “Simply put, petitioners’ argument that ESDC acted in ‘bad faith’ or pretextually is unsubstantiated by the record.” It is not necessary that the degree of deterioration be arrived at with mathematical precision for a determination that an area is “substandard or insanitary” to be constitutionally made. Many factors may be taken into account in determining whether blight exists: “blight is an elastic concept.”
The Court rejected concerns that Columbia had contributed to the blighted conditions. It noted a study that commenced in 2003 and concluded that there was ample evidence of deterioration of the building stock in the area and that substandard conditions were detected. “Thus, since there is record support that the project site was blighted before Columbia began to acquire property in the area, the issue is beyond our further review.”
Finally, the court rejected the Appellate Division’s holding that expansion of a private university does not qualify as a “civic purpose.” It noted that there was nothing in the statutory language limiting a proposed educational project to public educational institutions. The Court of Appeals thought that the Columbia project did not differ significantly from the Atlantic Yards project, which authorized a private entity to construct and operate an area for the Nets basketball team. “In sum, there can be no doubt that the Project approved by ESDC – which provides for the expansion of Columbia’s educational facilities and countless public benefits to the surrounding neighborhood, including cultural, recreational and job development benefits – qualifies as a civic project …”
It is really not clear, as it is in so many cases, that the lower court was wrong and the upper court is correct. Controversy about the use of eminent domain for private redevelopment has existed for more than 60 years. Governments without controversy frequently condemn property to build an admittedly public facility, like a school, to widen roads, etc. However, when a governmental entity wishes to use its eminent domain power to condemn property owned by private entities and then turn it over to other private entities for development, the issue of “eminent domain abuse” can arise.
In the 1950’s, the District of Columbia Redevelopment Land Agency adopted a plan to acquire land in southwest Washington, D.C. The plan included detailed housing provisions for homes and provided that at least one-third of the homes were to be low-rent housing with a maximum rent of $17.00 per month. Several private owners in the area appealed the eminent domain usage, and the case made it to the U.S. Supreme Court in 1954, available here http://tinyurl.com/28o29h4. The Supreme Court upheld the exercise of eminent domain, holding that the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation enacted in the exercise of police power. This principle does not change just because the power of eminent domain is involved. If Congress, which established the D.C. Redevelopment Authority, decides that the Nation’s Capital should be beautiful as well as sanitary, nothing in the Fifth Amendment stands in the way. Public ownership is not the sole method of promoting the public purposes of a community redevelopment project. Congress may utilize private enterprise for this purpose or authorize the taking of private property and its resale or lease to private parties as part of such a project. The standards contained in the authorizing legislation were sufficiently definite to sustain the delegation of authority to administrative agencies to execute the plan to eliminate not only slums but also the blighted areas that tend to produce slums. Courts should not review the amount or character of the lands to be taken for a project or the need for a particular tract to complete an integrated plan. “The rights of these property owners are satisfied when they receive the just compensation which the Fifth Amendment exacts as the price of the taking.”
Numerous cases followed in the last 50 years. In 2005, the U.S. Supreme Court decided Kelo v. City of New London, available here http://tinyurl.com/26jhl9o. The city approved a development plan designed to revitalize its ailing economy and purchased most of the property earmarked for the project from willing sellers. However, it had to initiate condemnation proceedings when the owners of the rest of the property refused to sell. These owners claimed that the taking of their properties would violate the “public use” restriction in the Fifth Amendment’s Takings Clause.
The Supreme Court held that the city’s proposed disposition of the petitioners’ property qualified as a “public use” within the meaning of the Takings Clause. Though the city could not take petitioners’ land simply to confer a private benefit on a particular private party, the takings at issue in Kelo were to be executed pursuant to a “carefully considered” development plan, which was not adopted to benefit a particular class of identifiable individuals. (Note, the New York Appellate Division stressed that the Manhattanville Project was adopted to benefit primarily Columbia University.) The city’s determination that the area at issue was sufficiently distressed to justify a program of economic rejuvenation was entitled to deference. “Given the plan’s comprehensive character, the thorough deliberation that preceded its adoption, and the limited scope of the Supreme Court’s review in such cases,” the Court held that it is appropriate to resolve the challenges of the individual owners in light of the entire plan. The Court rejected the petitioners’ proposal that economic development did not qualify as a public use. It also rejected the argument that for takings of this kind, the Court should require a “reasonable certainty” that the respective public benefits will actually accrue. Such an approach would merely encourage litigation and prohibit the orderly implementation of a comprehensive plan.
Interestingly, both the New York Appellate Division and Court of Appeals in the Columbia University case described the Kelo case and claimed that they were following it. They just reached different conclusions.
Since the Kelo case, numerous groups and individuals have fought against “eminent domain abuse.” For example, voters in Mesa, Arizona in 2004 approved an initiative to require the city to retain ownership of property taken by eminent domain for ten years before selling to private owners. A nursery in Auburn, California galvanized its community to oppose a redevelopment plan that included the nursery property and to remove eminent domain from the plan. There is controversy in Lakewood, Ohio about a plan to use eminent domain to acquire single-family homes to make way for more expensive condominiums. The Columbia University ruling from the New York Court of Appeals has already been described as eminent domain abuse. However, others say that there are benefits to using eminent domain for redevelopment. Planners point out that government agencies must pay fair market value for the properties they condemn, as well as provide relocation benefits and help owners find other properties. They also argue that eminent domain is rarely used for redevelopment. Most properties are acquired through negotiated purchases.
The controversy over the wisdom of taking of private property for redevelopment by other private entities will continue. However, the constitutionality of using eminent domain for redevelopment purposes has been settled now for over 50 years.
CAN CHARITIES ASSIST PATIENTS TO PURCHASE MEDICATIONS?
Individuals who are seriously ill, even if covered by Medicare or private insurance, often face crushing co-payments and cost sharing obligations in purchasing their medications. Nonprofit organizations that wish to provide financial assistance to individuals must satisfy both the Medicare fraud and abuse rules and IRS requirements applicable to 501(c)(3) organizations.
Such organizations are often established by pharmaceutical companies to fund cost-sharing amounts incurred by financially needy patients. Others are independent from pharmaceutical companies and offer assistance programs that provide premium support, one-time emergency relief grants or non-financial support services to financially needy patients and their families. Many of these programs assist patients with one or more particular diseases.
In a June Office of Inspector General (“OIG”) Advisory Opinion, available at http://oig.hhs.gov/fraud/docs/advisoryopinions/2010/AdvOpn10-07.pdf, the Department of Health and Human Services (“HHS”) approved a charitable organization’s proposal to provide assistance with cost-sharing obligations to financially needy individuals, including Medicare and Medicaid beneficiaries, diagnosed with multiple sclerosis, cancer or rheumatoid arthritis (the “Specified Diseases”). A separate fund for each of these Specified Diseases would be established, as well as a fourth fund that would subsidize genetic testing associated with any of the Specified Diseases. The organization would provide grants that would assist with cost sharing amounts of specialty medications or cover up to 100% of the cost of a genetic test that a physician orders to determine an effective course of treatment for a Specified Disease. Free therapy management information would be provided on its web site to assist patients in complying with their medication requirements.
The charity planned to publicize the availability of the grant program on its web site and to medical providers and pharmacies that typically treat patients with the Specified Diseases. Applicants would have to be under the care of a physician and already undergoing treatment for a Specified Disease and would have to establish that they are financially needy. However, the patients would be free to change providers, suppliers or specialty medications without losing eligibility for aid.
Grants would be awarded on a sliding scale based on the patient’s financial need. The organization would not make eligibility determinations based in any way on the interest of any contributor to the organization, the patient’s choice of provider or the identity of the referring person or organization, including whether the referring person is a donor to the organization.
Although there are currently several different specialty medications available to treat each of the Specified Diseases, the charity certified that it would cover all new specialty medications as they become FDA approved. The organization would not refer applicants to any particular medication or provider. The organization intends to solicit donations from the public, including pharmaceutical manufacturers. Donors either could provide unrestricted donations or could earmark their donations for the support of patients with a particular Specified Disease or for the support of patients requiring a genetic test. However, donations could not be earmarked for patients using a specific specialty medication, requiring a specific genetic test or for genetic tests associated with a particular Specified Disease. The organization’s discretion to use the donations would be “absolute, independent, and autonomous.” The charitable organization is independent of all health plans and donors, and no donor or related person would be eligible to serve on the organization’s board. The organization would inform donors on a monthly basis of the aggregate number of all qualifying applicants for particular Specified Diseases, as well as the aggregate number of applicants qualifying for assistance for genetic testing. However, it would not provide any individual patient information or any other information that would enable a donor to correlate the amount or frequency of its donations with the number of patients that use its specialty medications or genetic tests.
The organization had two Anti-Kickback concerns. First, it was concerned that the donor contributions to the organization might be treated by HHS as remuneration for referring individuals to a particular genetic test or prescription drug. Second, it was concerned that its financial assistance to Medicare and Medicaid beneficiaries could be interpreted as improper influence on the beneficiaries’ selection of a particular provider, product or test. OIG ruled that in both situations, the likelihood of improper influence was so minimal that it would not impose sanctions on the nonprofit.
With respect to the donor contributions, OIG pointed out that the donors would not exert any control over the organization, which would award assistance in a truly independent manner that would sever any link between the donors and the beneficiaries. The organization would award assistance based on financial need only, not with respect to any donor’s interests or any applicant’s choice of provider or product. The donors would not be able to correlate the amount or frequency of its donations with the amount or frequency of the use of its products or services. OIG concluded that the organization was an independent intermediary between donors and patients, so that the assistance to patients could not be attributed to any donor.
With respect to the financial assistance to Medicare and Medicaid beneficiaries, the organization would assist all eligible financially needy patients on a first come first served basis, and the qualifications for assistance would be based only on financial need. The assistance would in no way limit beneficiaries’ freedom of choice, because they would be free to select any provider, product or test, regardless of whether that provider or vendor contributed to the support program.
To obtain/maintain 501(c) (3) status, an organization of this sort must demonstrate that it is “charitable.” Thus, it must demonstrate that it is providing financial aid to a “charitable class.” In this case, the organization certified that it would assist only those who can demonstrate financial need – clearly a charitable class. It may not benefit only one specified needy person – such financial assistance benefits only one individual or family, not a charitable “class.” Thus, donations to funds established to assist a specific struggling family with a critically ill child are not deductible.
In addition, under 501(c)(3), the earnings of the organization may not “inure to the benefit of any private shareholder or individual.” In this case, the organization certified that no donor or related person could serve on its board of directors. Therefore, there could be no suggestion that its financial assistance was used to purchase drugs manufactured or sold by a donor or related person in a position to influence the decision on which applicants to accept.
Although both the rules applicable to 501(c)(3) organizations and to federal health care programs are stringent, they can be satisfied in a way that provides needed financial aid to seriously ill individuals.
DEFINING “MEANINGFUL USE” AND “CERTIFIED EHR”
This post has been updated at http://www.patriciakanewilliams.com/recent-news-articles/ and at http://www.patriciakanewilliams.com/healthcare-and-affordable-housing/update-on-certification-criteria-for-electronic-health-record-technology/.
As part of the 2009 Stimulus Law, Congress enacted the Health Information Technology for Economic and Clinical Health (“HITECH”) Act. Inter alia, the HITECH Act provides for Medicare incentive payments to health care professionals and hospitals to promote the adoption and “meaningful use” of “certified” interoperable health information technology. The incentive payments are to begin in 2011, and downward payment adjustments will start in 2015 for services by providers that are not meaningful users. The HITECH Act also subsidizes states that make incentive payments to healthcare providers participating in their Medicaid programs, as well as provides 90% support for state administrative expenses related to the incentive payments.
Both the “meaningful use” and “certified” requirements are generating regulatory interpretation. In January, HHS published a proposed rule concerning the “meaningful use” requirement, available at http://www.cms.gov/Recovery/Downloads/CMS-2009-0117-0002.pdf. It proposed a phased approach to Meaningful Use:
Stage 1: Electronically capturing health information in a coded format; using that information to track key clinical conditions and communicating that information for care coordination purposes; implementing clinical decision support tools to facilitate disease and medication management and reporting clinical quality measures and public health information.
Stage 2: Continuous quality improvement at the point of care and the exchange of information in the most structured format possible, such as the electronic transmission of orders entered using computerized provider order entry and the electronic transmission of diagnostic test results (such as blood tests, microbiology, urinalysis, pathology tests, radiology, cardiac imaging, nuclear medicine tests, pulmonary function tests and other such data needed to diagnose and treat disease).
Stage 3: Promoting improvements in quality, safety and efficiency; focusing on decision support for national high priority conditions; patient access to self-management tools; access to comprehensive patient data and improving population health.
Under the proposed Meaningful Use rule, providers must satisfy the requirements of the Stage 1 criteria of Meaningful Use in their first and second payment years (2011 and 2012) to receive the incentive payments. HHS anticipates updating the criteria of Meaningful Use to Stage 2 in time for the 2013 payment year and therefore anticipates that for their third and fourth payment years (2013 and 2014), providers whose first payment year is 2011 would have to satisfy the Stage 2 criteria of Meaningful Use to receive the incentive payments. The Department anticipates updating the criteria of Meaningful Use to Stage 3 in time for the 2015 payment year and therefore anticipates that for their fifth payment year (2015), if applicable, a provider whose first payment year is 2011 would have to satisfy the Stage 3 criteria of Meaningful Use to receive the incentive payments. Similar phasing would apply to users who begin Meaningful Use after 2011.
As for the “certification” requirement, HHS proposed a temporary and permanent certification program for health information technology (“HIT”) in March, available at http://edocket.access.gpo.gov/2010/pdf/E9-31216.pdf. It specified the process that the Office of the National Coordinator for Health Information Technology (“ONC”) would follow to authorize organizations to certify HIT.
Certification of health information technology is important in another context. In August 2006, HHS published two final rules relating to the Stark and Anti-Kickback Laws. The rules provided exceptions for arrangements involving the donation of “interoperable EHR software” to physicians and other healthcare practitioners. The safe harbor provides that EHR software will be deemed interoperable if a certifying body recognized by HHS has certified the software no more than 12 months prior to the date it is given to the healthcare provider. At the same time, ONC published a Certification Guidance Document (“CGD”) to explain the factors it would use to determine whether to recommend a body for “Recognized Certification Body” status. In the March 2010 Proposed Certification Rule, HHS began the formal notice and comment rule making process to take the place of the CGD.
The final rule was published on June 24, available at http://edocket.access.gpo.gov/2010/2010-14999.htm. It establishes a temporary certification program whereby ONC will authorize organizations to test and certify complete electronic health records (“EHRs”) and/or EHR modules, thereby assuring the availability of certified EHR technology in time for health care providers seeking incentive payments to satisfy the Stage 1 requirements.
As of June 24, the Certification Commission for Health Information Technology is the only organization that has been granted “Recognized Certification Body” status under the CGD. In the Final Rule, HHS indicated that the Temporary Certification Program would apply to both certification requirements; the CGD is no longer applicable.
Under the Temporary Certification Program, ONC will accept applications for Authorized Testing Certification Body status at any time. The organization must demonstrate its competency and ability to test and certify complete EHRs and/or EHR modules. HHS anticipates that only a few organizations will qualify under the Temporary Certification Program. The Temporary Certification Program will sunset on December 31, 2011, or, if a permanent certification program is not fully constituted at that time, then upon a subsequent date to be determined by ONC. This temporary final rule is effective June 24, 2010.
These rules are important because so many hospitals and other providers are beginning to invest in EHR technology. They need to know that they are purchasing systems that will allow them to be eligible for Medicare and Medicaid incentive payments.
WHO OWNS THE COPYRIGHT IN THAT SOURCE CODE?
The United States Court of Appeals for the Ninth Circuit recently decided a case concerning whether a small technology start-up company owns the copyright in the source code developed for its product. The company maintained informal employment practices, so it was unclear whether the person who wrote the code was an “employee” when he did so.
Joel Just and Michael Byce, brothers-in-law at the time, in the 1990s together developed and patented the idea of a digital audio larynx. In 2003, Joel Just and his wife formed JustMed, Inc. to continue to develop the project. Byce was a shareholder. The company operated financially by selling shares to family members and by relying on loans from the Justs. Byce, in 2004, began to work on the source code for the company’s product “JusTalk.” He did not have a written agreement with the company. Initially he was paid in shares of stock, not cash, so Byce had to live on credit. A year later, he told Just that he would soon need cash, and Just agreed to have the company pay him half in cash and half in shares.
In order to protect what Byce perceived as his intellectual property, he changed the copyright statement on the software so that it read “Copyright© Mike Byce 2005” instead of referring to JustMed. Becoming concerned about the disparity between the number of shares that he owned and the number of shares that the Justs owned, Byce then deleted all copies of the source code from the company’s computers. Discussions ensued, but the parties were never able to reach an agreement on whether Byce was entitled to additional shares. When Just realized that Byce had removed all copies of the source code from the company’s computers, the company filed suit against Byce.
United States law provides that copyright in any work belongs to the “author.” However, who is the author? Under the Copyright Act, in the case of a “work made for hire,” the employer or other person for whom the work was prepared is considered the author. A “work made for hire” is a work prepared by an employee within the scope of his or her employment. Unless the parties have expressly agreed otherwise in a written instrument signed by both of them, the employer owns all the rights comprised in the copyright. So, who is an employee for this purpose?
The U.S. Supreme Court addressed this issue in 1989 in Community for Creative Non-Violence vs. Reid, available at http://tinyurl.com/2a07tz2. The work in question in that case was a statue dramatizing the plight of the homeless for display at a 1985 Christmas pageant in Washington. Reid worked on the statue in his Baltimore studio, and the organization paid Reid and displayed the sculpture. Both parties, however, filed competing copyright registration applications.
The Supreme Court held that Reid was an independent contractor, rather than an employee. The Court believed that Congress meant “employment” in its ordinary sense. The Committee for Creative Non-Violence (“CCNV”) directed enough of the work to ensure that the statue met their specifications. However, Reid engaged in a skilled occupation, supplied his own tools, worked at his home studio without daily supervision, was retained for a relatively short period of time, had absolute freedom to decide when and how long to work in order to meet his deadline and had total discretion in hiring and paying his assistants. Moreover, CCNV had no right to assign other projects to Reid. CCNV did not engage regularly in the business of creating sculpture or, in fact, in any business. It did not pay payroll or social security taxes, provide any employee benefits or contribute to unemployment insurance or workers’ compensation funds. Moreover, the parties had entered into only an oral agreement.
The Ninth Circuit in the JustMed case, available at http://tinyurl.com/2e3fss2, considered the CCNV factors and concluded that Byce was an employee. The contemplated duration of the relationship, the tasks Byce performed for JustMed, the fact that Byce earned a salary from JustMed (even if paid in stock) and the nature of JustMed’s business led to the finding that he was an employee. The company hired Byce primarily to work on the JusTalk software, but he was not hired for a specific term or with a discretely defined product in mind. Other individuals employed by JustMed also worked on the source code. Byce’s work on the source code lasted only nine months. It was halted not because the code failed or the work had reached a logical termination point but because of the parties’ dispute. Byce also performed other services for JustMed: he updated the company’s website and demonstrated at trade shows. In addition, the primary business of JustMed was developing and marketing of the JusTalk device. Byce’s work was integral to that regular business, since the units could not work without functioning software. Byce’s development of the software was part of the regular business of the firm.
The Court did point out those factors that did initially seem to favor Byce. The company and Just did not exercise much control over the manner and means by which Byce created the source code. JustMed failed to pay benefits or to fill out any employment forms. It did not issue Byce a W-2 Wage Statement form, withhold taxes or pay workers’ compensation or unemployment insurance. The Court noted that some courts relied heavily on these factors as highly probative of the true nature of the employment relationship. However, the Ninth Circuit said that there is a danger in relying on the employee benefits and tax treatment factors alone, because they do not bear directly on the substance of the employment relationship right to control. Byce did eventually fill out a W-4 form and have taxes withheld once he started receiving paychecks from the company. “Insofar as JustMed did not comply with federal and state employment tax laws, we do not excuse its actions, but in this context the remedy for these failings lies not with denying the firm its intellectual property but with enforcing the relevant laws.”
This is yet another case where attention to these legal niceties at the beginning of the relationship would have avoided much grief and litigation. Whenever an entity hires someone, either as an independent contractor or as an employee, to create something for it, whether it is marketing materials, artwork, etc., the parties should discuss ownership rights in the work product. If it is intended that the company that retained the “author” will own the rights in the work, the author should, in a proper written agreement, assign its rights over to the company. A little bit of attention at this point in the transaction is much cheaper and effective than litigation when the relationship has soured.
