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Welcome to our redesigned Business Matters e-newsletter. The launch of this new format coincides with the unveiling of our new branding and logo, which was recently announced with our name change to Pannone Lopes Devereaux & O’Gara LLC and the relocation of our Rhode Island headquarters to Northwoods Office Park at 1301 Atwood Avenue, Suite 2015 N in Johnston. We hope that you enjoy the new design of this publication and find the articles informative. As always, we welcome your comments and invite you to contact us with questions or suggestions for articles important to you.
THIS ISSUE'S HEADLINES
Supreme Court Reaffirms that Plain Contract Language Controls in Recent Construction Law Case
Sally Yates: Gone But Not Forgotten
Nursing Facilities Under Increased Government Scrutiny
"Powered for Business Success" — Buy-Sell Provisions
Quirky Courts & Cases: Free Shopping Spree Turns Into Shoplifting for Collegiate Athlete
SUPREME COURT REAFFIRMS THAT PLAIN CONTRACT LANGUAGE CONTROLS IN RECENT CONSTRUCTION LAW CASE
 The first instinct of a business owner faced with a lawsuit may be to find the best attorney in town. That’s a good instinct, but even the best attorneys will tell you that a case begins long before anyone files suit. Protecting your business interests and prevailing in court begins with the basics: well-drafted employment agreements, corporate policies and contracts.
In the recent decision of High Steel Structures, Inc. v. Cardi Corporation, the Rhode Island Supreme Court reaffirmed these basic principles by highlighting the plain language of a contract as the basis for its decision. The case stemmed from a government contract for construction on an interstate highway. A subcontractor brought suit against the general contractor, seeking payment for a substantial amount of steel bracing used in the project. The general contractor brought the State of Rhode Island into the case for amounts allegedly owed to the subcontractor for the bracing.
The issue on appeal related to a contract provision for the price of the bracing. Importantly, the provision had been modified by an addendum requiring all costs associated with the bracing to be included in the general contractor’s bid. Evidently, the subcontractor failed to include those costs in its bid. The subcontractor then sought payment for amounts expended on the bracing. However, the Rhode Island Supreme Court concluded that the addendum’s plain meaning led to but one interpretation: the cost of the steel bracing should have been included in the initial bid. The Rhode Island Supreme Court specifically noted the subcontractor’s “vast experience and expertise” in bridge construction and public contracts, but stated that those factors were not “dispositive” to its interpretation of the plain contract language.
Though High Steel Structures involves the unique context of public bidding, its lessons on contract interpretation are critical for any business owner. In particular, the Rhode Island Supreme Court relied on dictionaries and principles of contract interpretation—not the subcontractor’s expertise in the field—to understand the relevant contract. Business owners cannot assume that court will accept an explanation of ambiguous contract terms merely because that’s “the way it’s always done.” Instead, relying on a well-drafted contract is the best first step to prevailing in a lawsuit. After all, the best offense is a good defense.
For information on protecting your business in the preparation of agreements and contracts or other business law issues, please contact Attorney Samantha Clarke at 401-824-5100 or email sclarke@pldolaw.com.
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SALLY YATES: GONE BUT NOT FORGOTTEN
On January 30, 2017, most of America heard the name Sally Yates for the first time. Ms. Yates, it is recalled, was the Acting U.S. Attorney General who was fired by President Donald Trump after she notified Department of Justice staff that the Department would not defend a temporary ban on certain refugees that President Trump had implemented by executive order.
However, to some who practice corporate law and compliance, Ms. Yates’ name was already well known. On September 9, 2015, the Department of Justice issued a seven-page memorandum from Ms. Yates titled “Individual Accountability for Corporate Wrongdoing.” The “Yates Memo,” as it came to be known, signaled a shift in enforcement priorities by “seeking accountability from the individuals who perpetrated the wrongdoing.” Rather than merely focusing on the corporation’s misconduct, the Yates Memo instructed that “the Department fully leverage its resources to identify culpable individuals at all levels in corporate cases.” The Yates Memo set forth six key principles to strengthen the Department’s pursuit of culpable individuals, including the requirement that corporations provide all relevant facts related to culpable individuals, that the Department focus on individuals from the inception of the investigation, that culpable individuals not be released when resolving a matter with a corporation, and that individuals be pursued regardless of their ability to pay.
Few industries have been more heavily targeted by the Department of Justice than the health care industry. A highly-regulated field that receives a significant percentage of funding from federal programs, the health care industry has long been among the Department’s favorite targets. In fact, since 2009, the Department’s Civil Division has recovered over $31 billion due to health care fraud and false claims, and that does not even account for recoveries by the Criminal Division. 2017 is shaping up to be no less robust, with the Department announcing six health care-related indictments, settlements, pleas or convictions in the first five weeks of the year.
In keeping with the Yates Memo’s focus on the culpability of individuals rather than simply organizations, all six of those announcements involved recoupment from, or an indictment or conviction of, at least one of the individuals who participated in the fraud or false claims. The most high-profile of these involved the indictment of a former senior executive at Tenet Health care Corporation for his alleged role in a $400 million scheme to defraud Medicare and Medicaid. In a Louisiana case, two owners of psychological service companies were convicted in a $25 million scheme to defraud by billing Medicare for services that were either unnecessary or not provided. In Massachusetts, two owners of an ambulance company agreed to pay $12.7 million to resolve allegations of billing for services that were not medically necessary, that were provided at a higher service level than was required, or that were not provided at all.
Furthermore, recent prosecutions have demonstrated the Yates Memo’s commitment to identify culpable individuals “at all levels” in corporate cases. In Texas, the administrator of five home health agencies pled guilty in a $7.8 million fraud case. Moving down the chain of command, a patient recruiter has already pled guilty in that case, and a registered nurse has been charged. In Brooklyn, three individuals pled guilty in a $55 million fraud case involving medically unnecessary services and falsified charts and billing documents at two clinics. Notably, one of the three who pled guilty was a medical biller, and another was a therapist manager. In one of the more telling cases, a California neurosurgeon received 235 months in prison for his role in a $2.8 million scheme whereby he was given a share of a spinal implant device maker’s profits in exchange for his use of the company’s devices in procedures that were not medically necessary. This last case bears emphasis: $2.8 million is a relatively small fraud by comparison to others that the Department has pursued; nonetheless, not only did the Department prosecute a culpable physician rather than just the company and its owners, that culpable physician received a prison sentence of nearly twenty years.
Health care fraud recoveries by the Department of Justice are presently averaging over $4 billion per year, and there can be little doubt that 2017 will continue this trend. Further, it seems from the start of 2017 that the Department remains committed to prosecuting not merely corporations, but culpable individuals at every level of health care fraud. As such, physicians, executives, and even line-level staffers should take heed. Its namesake may be gone, but the Yates Memo, it would appear, is alive and well.
To learn more about the six key principles of the Yates Memo or other business and health care-related matters, please contact Attorney Joel K. Goloskie at 401-824-5100 or email jgoloskie@pldolaw.com.
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NURSING FACILITIES UNDER INCREASED GOVERNMENT SCRUTINY
Nursing homes and skilled nursing facilities (“SNF”) should be aware that they will be in the crosshairs of the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) in 2017. As part of this year’s Annual Work Plan, OIG has identified several high priority focus areas, including failure to properly investigate complaints and report incidents, adequate use of the Minimum Data Tool Set, and various reimbursement-related subjects.
 Referencing a 2006 OIG report on the failure to timely investigate serious complaints, OIG signaled that it will conduct a new investigation to closely scrutinize facilities’ compliance with two key timelines, 1) the requirement that facilities investigate “actual harm” complaints within ten days and 2) “immediate jeopardy” complaints within two days. The investigation will focus on both the number of complaints as well as the timeliness of facilities’ investigations. As an increase in on-site investigations can be expected in conjunction with this report, facilities are advised to review and update their policies and procedures, and to undertake staff training and internal audits in this high-profile subject area.
The 2017 Work Plan also identifies a new investigation area for skilled nursing facilities: unreported incidents of potential abuse and neglect. OIG intends to “sample” facilities to assess the rate at which incidents of abuse and neglect have been properly reported and investigated. This assessment will be followed up with OIG interviews of state officials, as well as a determination of whether the state agency properly investigated and prosecuted facilities’ failure to timely report. Thus, facilities can expect an increase in state agency investigation and prosecution related to this topic.
The 2017 Work Plan also focuses on facilities’ use of the Minimum Data Tool Set, as well as continuing its emphasis on the upcoding of therapy services. OIG will also analyze hospital transfers related to potentially preventable conditions to assess compliance with residents’ care plans. Additionally, OIG intends to issue a report on the Skilled Nursing Facility (SNF) adverse event trigger tool it believes will help facilities better avoid such undesirable outcomes.
Nursing facilities and SNFs face razor-thin margins in today’s reimbursement environment, and must astutely manage overhead costs to remain solvent. However, with the increased scrutiny such facilities have come under in the last few years, the development of an effective compliance program that addresses key focus areas is a small investment that can pay large dividends when the OIG comes to call.
To learn more about the OIG priority focus areas and assistance to develop an effective compliance program for your organization or other business or health care-related matters, please contact Attorney Joel K. Goloskie at 401-824-5100 or email jgoloskie@pldolaw.com.
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"POWERED FOR BUSINESS SUCCESS" — BUY-SELL PROVISIONS
In the third installment of our “Powered for Business Success” information series, Managing Partner Gary R. Pannone explains why a “buy-sell” provision in a business agreement between owners is necessary and describes the details of this mechanism, which serves as a pro-active means to resolve disputes when an owner chooses to leave the company on his or her own accord or for any other reason, including death or disability.
 It is certainly understandable that the founders of a new company are more focused on building the brand than they might be in what happens if one of them dies; however, the event of disability or premature death is an event that must be contemplated and committed to in writing by and among the parties. When two or more owners each own fifty percent (50%) of a company, a mandatory “buy/sell" provision is extremely important, particularly in the event of a deadlock or other situation where the parties cannot agree and the business of the company is impacted. This structure provides an opportunity to avoid a deadlock by creating an opportunity for one owner to give the other owner a buyout offer at any time. The recipient of the offer must either accept the offer and be bought out, or conversely, purchase the interest of the first owner on the same terms and conditions as the first owner’s offer.
The use of this mechanism to resolve a dispute preserves the enterprise; however, it must be well-thought-out and fair to both parties in order to be effective. This type of arrangement should result in a price and terms that are considered fair by both parties, since the owner initially making the offer may be forced to sell on the terms and conditions of the initial offer he makes. A buyout provision can create a mechanism with which the owners can terminate an unhappy business relationship with a buyout that is fair.
The method by which a buyout is to be effectuated should be included in the agreement to provide fair pricing and an orderly transfer of the departing owner’s interest. The method outlined in the agreement should create a procedure by which a transferring owner is to give notice of the transfer and initiate any right of first refusal. It should also set out deadlines for the exercise of options and specify a pricing formula, or a fixed price as well as the payment terms for a mandatory buyout or optional buyout, without which disputes may arise between the company and the owner or the estate of the departing owner. A properly crafted pricing mechanism is essential to achieving the initial goals of the founders and will enhance the opportunity for a smooth and fair buyout of the remaining owner(s).
Determining a fair price for the seller’s interest may be accomplished with any one of the following methods, and should include an appraisal from an outside source at the time of the buyout:
- Yearly valuation of the interest, set by the owners of the company on an annual basis;
- Percentage of gross income;
- Book value, determined by deducting the company’s liabilities from assets and dividing the figure by the number of outstanding owner’s interests; and
- A formula based on a multiple of earnings, which multiplies the company’s last year of earnings by a fixed number, and divides the figure by the number of outstanding owner’s interests.
It is important that the founding owners contemplate a possible buyout and take considerable time in developing a fair mechanism to accomplish the buyout and determine the price of the seller’s interest.
For more information, please contact Attorney Pannone, who was named Rhode Island’s 2017 Lawyer of the Year by Best Lawyers for his business law practice, at 401-824-5100 or email gpannone@pldolaw.com.
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FREE SHOPPING SPREE TURNS INTO SHOPLIFTING FOR COLLEGIATE ATHLETE
By Patrick J. McBurney, Esq.
 College football season just ended and Clemson University was crowned National Champion in a thrilling bowl game. Bowl games are the culmination of a year of hard work for the teams and players lucky enough to be invited to play. One such bowl game—the Belk Bowl—is held in Charlotte, North Carolina and is sponsored by Belk department stores. Unfortunately for one of the players, his bowl game experience never came to pass.
The Belk Bowl was to be played between the University of Arkansas and Virginia Tech. Often times, in the days leading up to the game, the sponsor of the bowl game will provide the student athletes with “perks.” One such perk of playing in the Belk Bowl was that every player on both teams received a $450 gift card to the local Belk store to buy anything they wanted within 90 minutes.
Apparently, one Arkansas player did not think that $450 was enough. Jeremy Sprinkle, a senior tight end, attempted to shoplift an additional $230 in merchandise from the store by hiding the items in one of his shopping bags. In addition to being suspend by the team for his final collegiate game, Sprinkle was cited for unlawful concealment by the local police. There is no word on whether Sprinkle was able to keep the items he purchased with his gift card.
Simply put, Jeremy Sprinkle was invited to play in the Belk Bowl, but was later suspended for the Belk Bowl, because he attempted to shoplift from, of all places, a Belk store. Apparently the “perks” of playing in a bowl game did not include the ability to commit criminal acts.
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