Federal Medicaid match matters to state’s healthcare providers

Introducing Becky-Pasternik-Ikard

Rebecca “Becky” Pasternik-Ikard is a lawyer, a nurse and a Medicaid program director who brings decades of experience to assist Phillips Murrah healthcare clients in copy with reimbursement, including negotiating payments, audits and appeals, and other regulatory issues related to governmental payments of providers.

In this article, Oklahoma City Attorney Rebecca Pasternik-Ikard answers questions about state and federal government’s role in funding Oklahoma’s Medicaid program.

What is the Federal Medical Assistance Percentage (FMAP)?

The Federal Medical Assistance Percentage is the federal government’s share of the expenditures for medical services and administrative costs for a state Medicaid program and is often called the “federal match.”

Why does it matter to Oklahoma’s healthcare providers?

FMAP matters because each state’s Medicaid program is funded jointly by state and federal dollars. Generally, states receiving a higher FMAP for medical services need fewer state dollars. But a state must have state dollars to leverage federal matching dollars. On a quarterly basis, a state submits to the federal government its Medicaid expenditures paid by state dollars seeking to “draw down” the federal matching dollars.

How often does the FMAP change?

The FMAP for medical services for all states is calculated annually by U.S. Department of Health and Human Services (HHS), based on a formula in the Social Security Act, and is effective from Oct. 1 through Sept. 30 of each year. The FMAP varies from state to state; it can be no lower than 50% and no higher than 83%. So, for every $1 states spend on Medicaid, states can “draw down” at least $1 from the federal government. However, the FMAP for a state’s Medicaid administrative costs is fixed, generally at 50% FMAP. States do receive enhanced FMAP for certain populations, services and a variety of administrative functions.

How does the FMAP specifically impact physicians, hospitals and other healthcare providers?

Fluctuations in the FMAP for medical services can have significant impact on all healthcare providers. Significant increases often allow a state to restore, increase or add benefits compensable under the Medicaid program, as well as adjust upward the rates paid to providers. Conversely, depending on a state’s ability to offset the loss of federal funds, a decrease in the FMAP can trigger the elimination or reduction in certain benefits provided to Medicaid enrollees, as well as a decrease in provider rates.

How is the FMAP for medical services calculated?

The FMAP is based on a rolling three-year average of the per capita income of each state as compared to the national average per capita income. However, there is a lag in the data used. For instance, for FY 2019 (effective Oct 1, 2018-Sept. 30, 2019) the FMAP calculation for states was based on state per capita personal income data for 2014, 2015 and 2016. Generally, what this means is that for states with lower per capita incomes relative to the national average, the federal government contributes more to the Medicaid program. Conversely, the federal government contributes less to the Medicaid program in those states with higher per capita incomes. However, the formula is not responsive quickly when a state experiences an economic downturn.

How does the FMAP work in Oklahoma?

With the exception of the FY 2014 FMAP of 64.02%, Oklahoma’s FMAP declined overall from 64.00% in FY 2013 to 58.57% in FY 2018. Oklahoma experienced the largest cumulative FMAP decrease in the nation over this period. This significant loss of federal dollars prompted the Oklahoma Health Care Authority (OHCA) to implement administrative and operational strategies to continue to operate the Medicaid program, resulting in physician and other provider rate reductions of 7.75% in July 2015 and 3% in January 2016. From FY 2018 to FY 2019, Oklahoma had the greatest FMAP increase of any state of 3.81%, from 58.57% ($1.43 in federal dollars for every state dollar spent in medical services) to 62.38% ($1.66 in federal dollars for every state dollar spent in medical services). This influx of federal matching dollars and OHCA’s management of its administrative and program budgets allowed OHCA to restore the last provider rate reduction of 3%. From FY 2019 to FY 2020, Oklahoma experienced another significant FMAP increase of 3.64% from 62.38% ($1.66 in federal dollars for every state dollar spent in medical services) to 66.02% ($1.94 in federal dollars for every state dollar spent in medical services). Once again, provider rates were increased. The good news is that, due to Oklahoma’s experience with shifting FMAPs, a Rate Preservation Fund of $29.4 million was created this year, to help offset future FMAP decreases and mitigate potential provider rate reductions.

Rebecca Pasternik-Ikard is an attorney at Phillips Murrah.

Medicaid, work and community engagement

This column was originally published in The Journal Record on November 27, 2019.


Introducing Becky-Pasternik-Ikard

Rebecca “Becky” Pasternik-Ikard is a lawyer, a nurse and a Medicaid program director who brings decades of experience to assist Phillips Murrah healthcare clients in copy with reimbursement, including negotiating payments, audits and appeals, and other regulatory issues related to governmental payments of providers.

By Phillips Murrah Of Counsel Attorney Becky Pasternik-Ikard

Physicians, hospitals and other health care providers continue to experience not only shrinking reimbursement rates, but also an increasingly formidable regulatory presence. A recent controversial Centers for Medicare and Medicaid Services policy reform permits states to require certain Medicaid beneficiaries to engage in meaningful work or in volunteer activities as a condition for continued eligibility.

This policy is a fundamental shift in Medicaid eligibility, eliciting criticism from the health care community that employment should not be a condition for coverage and access to medical treatment.

Although overall Medicaid enrollment has declined over the past two years, Medicaid enrollment has increased since the Affordable Care Act, driven primarily by newly eligible adults gaining coverage under Medicaid expansion, with the highest enrollment increases seen in Medicaid expansion states. This increase includes not only the Medicaid expansion population, but also those individuals who were currently eligible, but not enrolled. These people learned of coverage due to extensive outreach efforts by expansion states.

In its Jan. 11, 2018 State Medicaid Director letter entitled Opportunities to Promote Work and Community Engagement among Medicaid Beneficiaries, CMS announced the new policy and clarified that states could predicate continued Medicaid eligibility on participation in work requirements, including community service, caregiving, education, job training, and substance use disorder treatment. The basis for this policy is Section 1901 of the Social Security Act. Divisive reactions have opponents characterizing it as inconsistent with Medicaid’s objective of health coverage and an impermissible Medicaid enrollment reduction strategy.

Eighteen states have sought approval to implement work requirements. Although CMS has approved all requests submitted by Medicaid expansion states, the implementation of three, Arkansas, Kentucky and New Hampshire, has been interrupted or stopped due to legal challenge.

Kentucky, a Medicaid expansion state, received CMS approval the day after the new policy was announced. Kentucky had submitted a Section 1115 waiver authority request in 2017 incorporating work requirements. Shortly after Kentucky’s January 2018 approval, a legal challenge was filed. Kentucky’s implementation has been blocked twice by a federal district court judge and is under appeal. Kentucky Gov.-elect Andy Beshear has declared plans to rescind Medicaid work requirements.

In July 2017, Indiana submitted its request to CMS proposing work requirements for its Medicaid expansion enrollees. Although Indiana received CMS approval in February 2018, implementation did not begin until January 2019. In September 2019, a lawsuit was filed challenging Indiana’s program. Indiana has suspended its work requirements pending the outcome of the litigation.

In March 2018, CMS approved Arkansas’ June 2017 request to amend its Section 1115 waiver to implement work requirements. Implementation began in June 2018. In August 2018, a lawsuit was filed challenging Arkansas’ approval. A year after approval, the federal district court set it aside. The matter is under appeal.

In May 2018, New Hampshire became the fourth state to win approval for work requirements, with implementation scheduled in March, but it was postponed due to a lawsuit filed the same month. Consistent with the rulings for Kentucky and Arkansas, in July 2019, the same federal district court judge set aside the approval for New Hampshire.

State leadership and Medicaid programs nationwide await the outcome following the Oct. 11 oral arguments related to the appeals for Arkansas and Kentucky. Oklahoma, a non-expansion state, has a pending waiver request to impose work requirements on certain Medicaid beneficiaries. If approved, this would add barriers to access and continuity of care, which are likely to place additional administrative and financial burdens on hospitals, physicians and other health care providers.

Becky Pasternik-Ikard is the former CEO of the Oklahoma Health Care Authority and former state Medicaid director. She currently practices Of Counsel for Phillips Murrah law firm in Oklahoma City.

Your Racehorse Tested Positive for a Regulated Substance, Time Is of the Essence

Mary Westman is an Oklahoma attorney, Morgan horse breeder and registered nurse with an MBA. Mary provides legal representation in all aspects of equine-related businesses and activities including legal advising, business formations, preparing or reviewing contracts, litigating equine disputes and equine welfare advocacy.

This article will briefly discuss the regulation of drugs in Oklahoma horse racing and the critical steps to be followed should a test come back positive for a regulated substance.

The Oklahoma Horse Racing Act (OHRA), Okla. Stat. tit 3A, §200 et seq., provides the framework by which horse racing is conducted in Oklahoma. Among other things, the OHRA establishes the Oklahoma Horse Racing Commission (the Commission), which is charged with regulating horse racing within the state by creating and enforcing rules and regulations. The OHRA’s stated purpose and intent is set forth as follows:

In the interest of the public health, safety, and welfare, it is hereby declared to be the purpose and intent of the Oklahoma Horse Racing Act to vest in the Commission plenary power to promulgate rules and regulations for the forceful control of race meetings held in this state. The rules and regulations shall:

  1. encourage agriculture and the breeding of horses in this state; and
  2. maintain race meetings held in this state of the highest quality and free of any horse racing practices which are corrupt, incompetent, dishonest, or unprincipled; and
  3. dissipate any cloud of association with the undesirable and maintain the appearance as well as the fact of complete honesty and integrity of horse racing in this state; and
  4. generate public revenues. Okla. Stat. tit. 3A, § 203.7.

Under the authority granted to it by the Oklahoma legislature, the Commission creates and periodically changes the rules of racing. The rules, revised in both August and September of this year, are comprehensive and can be found on the Commission’s website. Rules and regulations related to prohibited practices and equine testing are outlined in chapter 45. According to the Commission’s rules, the purpose of chapter 45 is “to protect the integrity of horse racing, safeguard the health of horses, and defend the interests of the public and racing participants through the prohibition or control of all substances. …” OAC 325:45-1-1.

It is beyond the scope of this article to list each prohibited or controlled substance outlined in chapter 45, but anyone licensed to race horses in Oklahoma should be well acquainted with all that chapter 45 regulates. When a horse tests positive for a regulated substance, the burden to prove no violation occurred shifts to the trainer or owner. OAC 325:45-1-4(g).

As mentioned above, the Commission not only creates the rules of racing, it also enforces them through a quasi-judicial process. Just as chapter 45 outlines the rules for regulating substances, the Commission rules also outline the process for investigating and appealing a positive drug test. Failure to follow the rules, to include the time frames for requesting a split test, will result in a waiver of the right to appeal any action that is taken because of the positive test.

In addition to preserving the right to appeal, timely investigation of a positive drug test is also important from the standpoint of evaluating whether or not the horse’s environment contributed to the positive drug test. To introduce mitigating evidence of environmental contamination, you must be able to test the stall, bedding, feed, supplements and even the horse’s handlers in order to show the horse was not intentionally given a prohibited or regulated substance. The more time that passes between the date of collection and the date of investigation, the more difficult it will be for a credible argument of environmental contamination to be made.

In case an investigation is necessary, good records should be kept of stall management, feed and supplement lot numbers, medication administration, and when grooms and other handlers worked with the horse, etc. Moreover, trainers should ensure that measures are taken to restrict access to the horses in their charge to protect against the nefarious actions of third parties.

Timeliness is the theme of this article on defending against a positive drug test. It all starts with keeping timely and accurate records on the management of the horse. In the event of a positive drug test, it then moves to the timely, written request for a split sample testing. And then, of course, it moves on to the timely appeal process. A well-researched and drafted appeal can go nowhere if the time frames outlined in the Commission’s rules are not strictly observed.

This article is intended for educational purposes only and does not constitute legal advice. This article originally appeared in Oklahoma Horses magazine as a part of Mary’s regular legal column.

The ABCs of the FLSA’s new overtime rules

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on November 21, 2019.


attorney Martin J Lopez III

Martin J. Lopez III is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

By Phillips Murrah Attorney Martin J. Lopez III

The Fair Labor Standards Act is the federal law regulating employee pay. Among other things, the FLSA covers minimum wages, maximum hours, overtime compensation and child labor.

The current federal minimum wage for most employees is $7.25 per hour. The FLSA requires employers to pay overtime, one-and-a-half times an employee’s regular hourly rate, when employees work more than 40 hours in a workweek. The FLSA also establishes categories of employees who are exempt from its overtime pay requirements, one of which is known as the white collar exemption. This includes executives, administrative employees, educational establishments, professional employees, computer employees and highly compensated employees.

Currently, exempt employees must be paid a salary of at least $455 per week. Being paid on a salary basis means that an employee must receive a full salary for any week in which work is performed, and they are not eligible for overtime. An exempt employee’s salary may not be reduced due to absences from work except in specific limited situations.

On Sept. 24, the U.S. Department of Labor announced its final rules for the revisions to the overtime regulations for the white collar exemptions. This change, effective Jan. 1, prospectively makes roughly 1.3 million American workers newly eligible for overtime pay. The rule updates the earnings thresholds necessary to exempt employees from the FLSA’s overtime pay requirements and allows employers to count a portion of certain bonuses and commissions toward meeting the salary level. These thresholds were last updated in 2004.

In the final rule, the Department of Labor is:

• Raising the standard salary level from the currently enforced weekly level of $455 to $684 (equivalent to $35,568 per year for a full-year worker).

• Raising the total annual compensation requirement for highly compensated employees from the currently enforced annual level of $100,000 to $107,432.

• Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.

• Revising the special salary levels for workers in U.S. territories and the motion picture industry.

In light of this, employers should review their employee records for any of its exempt workers making less than the new salary threshold level and determine what changes should be made.

Martin J. Lopez III is an attorney at the law firm of Phillips Murrah.

Wolfe reflects on Firm growth in Dallas market for Texas Lawyer article

Tom Wolfe is a trial attorney and commercial litigator whose practice is focused on complex business cases including product liability, oil and gas, mass tort and class action defense. Tom is also the president and managing partner at Phillips Murrah.

Thomas G. Wolfe, Managing Partner at Phillips Murrah law firm, was interviewed by Brenda Sapino Jeffreys for an article for Texas Lawyer on Law.com, giving insights on the Firm’s venture into the Texas legal market and on business strategies the Firm has found successful.

Read more below:

What do you view as the two biggest opportunities for your firm, and what are the two biggest threats?

For Phillips Murrah, our biggest opportunity is easy: TEXAS.  We opened our Dallas office about a year-and-a-half ago, and as a new entrant to the Texas legal market, we see virtually unlimited opportunities to gain clients, expand existing relationships and add top talent. Over the past 18 months, we have grown our Texas office from one full-time lawyer to five while increasing the quantity of work being handled for Texas-based companies more than tenfold. While much of that work is for new clients, we are also providing an expanding range of service to existing clients based in Texas and elsewhere.

The second opportunity for the firm is the ability to provide existing Oklahoma-based clients with niche services from Texas-based lawyers. In some cases, there are only a handful of Oklahoma lawyers in a niche practice while the pool of practitioners in Texas is much larger.

While Texas presents a huge opportunity, the size of the legal market and the number of competitors also serve as a threat. As a roughly 75-lawyer firm, we cannot chase every opportunity. We must remain focused and chose carefully.

Growth also presents a challenge to our firm culture, which has been a cornerstone for our success. As Phillips Murrah added, and then added to, a second office, we have worked diligently to include Oklahoma lawyers on teams serving Texas-based clients and vice versa. Since opening in Dallas, half of our Oklahoma lawyers have worked on relationships managed by a Texas lawyer while everyone in our Dallas office has worked on a relationship managed from our Oklahoma City headquarters. Fortunately, Oklahoma City is as close to Dallas as Austin and much closer than Houston.

The full article is exclusive to Law.com subscribers. Click here to view the full article.

Three main methods of acquiring business

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on October 10, 2019.


Travis Harrison

Travis E. Harrison is a transactional attorney who represents individuals and both privately-held and public companies in a wide range of transactional matters.

By Phillips Murrah Attorney Travis E. Harrison

Acquiring a business is done through three main methods: merging with the selling company, referred to as the target company; purchasing the assets of the target company; or purchasing the stock or other equity interests of the target company. Each method has pros and cons depending on the legal, tax and business implications. Therefore, it is imperative the parties carefully consider these at the outset.

A merger is simply a combination of two legal entities becoming one. The one that survives the merger, called the surviving entity, assumes all assets and liabilities of the other. The logistics of a merger are driven by state statute and case law, which informs the parties of the legal requirements and procedures. For example, an Oklahoma limited liability company that is the surviving entity must file articles of merger or consolidation with the Oklahoma secretary of state containing details of the merger and entities involved. Additionally, the parties should review the organizational documents to ensure compliance with any contractual procedures.

Purchasing the assets of the target company means the buyer acquires the assets of the target company, including real property, IP, equipment, inventory and licenses. The buyer also acquires contractual liabilities and tax obligations. This method affords the parties great flexibility for the buyer to choose specific assets and liabilities, and to carve out liabilities the target company should keep. However, this method can be more complicated because it may need preparation of ancillary agreements to transfer contracts, tangible property and title to certain assets.

Purchasing the stock of the target company means the buyer acquires all of the target company’s assets and liabilities. In this method, the stock purchase buyer essentially acquires the target company rather than the components of the business. A stock sale can benefit sellers where it effectively transfers all liabilities without requiring all of the formalities in an asset purchase agreement, such as documents to retitle assets to the buyer. A stock acquisition generally will not have the same statutory constraints of a merger.

Each method has unique advantages and disadvantages depending on the specifics of the deal. The parties need to analyze and evaluate all implications for each method. Careful consideration and planning leads to the best deal for both sides and prevents unnecessary complications down the line.

Travis E. Harrison is an attorney with the law firm of Phillips Murrah.

Attorney Ashley Schovanec in article on potential Oklahoma civil lawsuit award caps

Attorney Ashley Schovanec Web

Ashley M. Schovanec is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

Ashley M. Schovanec, Phillips Murrah Litigation Attorney, was quoted in a Journal Record article by Steve Metzer regarding the decision by Chris Kannady, chairman of the Oklahoma House Judiciary Committee, to consider a legislative compromise to a ruling that made caps on certain damages in civil lawsuits unconstitutional.

Read Schovanec’s comments below:

Ashley M. Schovanec, a litigation attorney with the firm of Phillips Murrah, said another result of the Supreme Court’s decision might be that businesses will be more likely to settle lawsuits than contest them on legal grounds,

Because the risk of large verdicts just went up, cases may settle earlier because of the uncertainty associated with leaving a damages calculation up to a jury,” she said.

Read the full article from the Journal Record.

Buying in to medical practices entails special planning

Erica K. Halley

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

In this article, Oklahoma City Attorney Erica K. Halley answers questions about the basics of investing in a medical practice.

What does it mean to buy in to a medical practice?

Small health care practices are typically owned by one or more of the health care providers at the practice. Such practices are usually organized as professional corporations (PCs) or professional limited liability companies (PLLCs). Although PCs and often PLLCs are considered corporations for legal and tax purposes, where the owners are technically “shareholders,” owners of a medical practice are colloquially referred to as “partners.” For a junior provider in a small practice, the pathway to partnership and the partnership itself can take on many different forms, but the key concerns are generally the same in every case.

Health care providers interested in purchasing ownership in a practice should invest with a comprehensive understanding of the valuation of the business, the compensation structure among partners and the exit strategies available to each of the partners. Retaining advisers who can alleviate this burden, such as an accountant and an attorney having experience in medical practice transactions, will ensure the tax implications are favorable and the exposure to risk is minimized.

How are medical practices valued and how do partners buy in?

Ordinarily, valuations consider the values of the hard assets, the accounts receivables and other intangibles, and the goodwill of the practice. Unlike other types of companies, it is common in health care practices for all partners to share ownership equally. This means a new partner to an existing two-partner practice will own a full 33.33% of the practice either immediately or shortly after the buy-in.

How the new partner pays for his or her share of the business varies. Sometimes, buy-ins are structured over time. For example, if a buy-in were to take place over the course of three years, the new partner would pay one-third of the total purchase price every year, and he or she would slowly purchase their interest in the practice, not becoming an equal partner with full voting power until the third payment in the third year. Alternatively, a practice may grant the new partner his or her full ownership (with full voting power) at the outset, and treat the buy-in like a loan being paid off over time. In either event, the payoff of the purchase price is frequently in the form of income-shifting or plain reductions in salary and/or bonuses.

How are partners paid?

Compensation structures in medical practices also differ across the board. Many times, a partner’s compensation is determined, at least in part, by the partner’s “productivity” in the practice according to how much revenue each provider generates, how many patients each provider sees, how many hours each provider works, or a combination of any of the foregoing. Other variables used in determining partner compensation include the management duties of the partners, seniority, special training and allocations of expenses. Such formulas among the partners ought to be negotiated and agreed upon prior to a buy-in.

How do partners get out of practices?

Before partners buy in, they need to understand how to get out — and how the other partners can get out at their expense. Shareholder agreements in professional corporations and operating agreements in professional limited liability companies usually set forth the procedures for a partner leaving the practice in the event of employment termination, retirement and death, as well as the calculations for valuing the exiting-partner’s ownership. In most cases, the other partners will be ultimately responsible for buying that partner (or his/her estate) out of the business. In addition, practices often bind their partners to noncompetition covenants, which restrict them from competing with the practice after they leave the practice.

 

Erica K. Halley is an attorney with Phillips Murrah.

Summary of Oklahoma Opioid Decision

Oklahoma Opioid Decision by Phillips Murrah healthcare attorney Mary Holloway

Mary Holloway Richard is recognized as one of pioneers in healthcare law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as The following patients and their families.

The following summary of the Oklahoma opioid decision is also published at Lexology.com.

The decision in the non-jury trial, Oklahoma ex rel. Mike Hunter, Attorney General of Oklahoma v. Purdue Pharma L.P. et al was filed on August 26, 2019.  The trial, which lasted for thirty-three days, focused on the State’s sole claim against the defendants for public nuisance under state statute, during which forty-two witnesses were called by the parties and 874 exhibits were submitted into evidence, along with 225 additional court exhibits.

In the first such decision in the United States among a plethora of cases filed across the nation, the Court held that the State had met its burden of proof that the defendant, Johnson & Johnson, was the cause-in-fact of the extensively described injuries, and that the harm suffered was the kind recognized by the state law. Purdue and Teva Pharmaceuticals settled prior to trial. The court found no intervening causes to defeat a finding of direct and proximate cause.

Testimony ran the gamut of describing the development of opioids in the 1950’s and research and development that occurred from the 1990s until recent years, and it focused on what the Court considered intentionally misleading marketing information and activities. It is noteworthy that the Court included in its findings that there was no opioid epidemic in Oklahoma through the mid-1990s, according to the state Commissioner of Mental Health.

The Court found that “Defendants, acting in concert with others, embarked on a major campaign in which they used branded and unbranded marketing to disseminate the messages that pain was being undertreated and ‘there was a low risk of abuse and a low danger’…designed to reach Oklahoma doctors through multiple means and at multiple times over the course of the doctor’s professional education and career” in the state.  The defendants were found to have deceptively marketed the concepts of “undertreatment” and “pseudoaddiction” in the effort to avoid the “addiction ditch,” to increase the volume of prescriptions and increase use by state physicians.

An Abatement Plan was relied upon to represent the cost of addiction treatment included in the: assessment and treatment at all levels for addicted individuals; supplementary treatment; public medication and disposal programs; screening; Brief Intervention and Referral to Treatment (SBIRT) for all primary care practices and emergency departments; universal screening; pain management program for state Medicaid members; education; naloxone treatment and education; law enforcement and provider licensure agency investigation activities; and perinatal preventive services.

The total yearly costs for remediation as described to the Court for 2019 is $572,102,028.  While State witnesses testified that the abatement Plan will require twenty years, the Court found that “…the State did not present sufficient evidence of the amount of time and costs necessary, beyond year one, to abate the Opioid Crisis.” Oklahoma ex rel. v. Purdue Pharma L.P. et al at 41.

In a news release, counsel for Johnson & Johnson stated that it is confident that it has strong grounds for an appeal. This decision is expected to influence the settlement talks taking place in Ohio currently related to thousands of pending lawsuits against twenty-two opioid manufacturers and distributors, including Purdue.

OG&E and PSO seek to establish new compensation rates for customers’ solar power

Homeowners and businesses interested in utilizing rooftop solar panels to produce their own power should take note. Cases were filed Aug. 19 and Sept. 4 at the Oklahoma Corporation Commission that will determine how Oklahoma’s two largest electric utilities compensate customers for self-produced solar power.

Eric Davis

Eric Davis is an attorney in the Firm’s Clean Energy Practice Group and the Government Relations and Compliance Practice Group. He represents clients in a range of regulatory and energy matters.

Oklahoma Gas & Electric and Public Service Co. of Oklahoma filed the cases in response to new commission rules. The rules provide that customers who produce surplus electricity that is fed back onto the grid must be compensated, a standard practice in many states across the country. This is a departure from previous rules, which contemplated customers’ ability to offset their own energy usage with self-produced power, but any excess power was treated as a donation to the utility, which then could resell it without paying the homeowner.

As a result of the rule changes, OG&E and PSO are proposing to overhaul the terms and conditions applicable to customers who produce their own power. Among other things, the utilities propose paying for customers’ power based on the wholesale cost the utility would have paid in the market – a cost several cents lower per kilowatt-hour than retail rates.

In determining rates, the commission will consider whether solar customers are paying their fair share to maintain the utility’s grid that continues to support them.

Meanwhile, the commission may consider whether rooftop solar customers are fairly compensated for the value their energy offers to the grid. For example, as customers’ self-produced power reduces overall power demand, utilities will realize cost savings as their power plants operate less, and the need to build new, costly power plants is delayed or even avoided. Moreover, reductions in power demand will reduce the utility’s need for expensive upgrades to power lines, and less electricity is lost in long-distance transmission. These infrastructure-related savings would result in lower rates for all customers.

The commission’s ultimate determination regarding rates applicable to rooftop solar customers will impact whether it makes financial sense for customers to adopt solar to begin with. The issue is notable in Oklahoma, given the state is consistently ranked in the bottom 10 (approx. 46th) in the country in terms of solar energy production, yet it is ranked in the top 10 (approx. 6th) in terms of solar energy potential.

Recognizing this deficit, interim studies are scheduled this fall at the Capitol to explore how Oklahoma can improve its standing in solar production. Benefits of increased solar production include energy diversification, new job opportunities, improved grid resiliency, water conservation, and reduced greenhouse gas emissions. With industry projections calling for strong growth of rooftop solar installations nationwide, OG&E’s and PSO’s cases at the commission will impact the extent of that growth, or the risk of zero growth, in Oklahoma.

Those interested in these cases can participate in a number of ways, ranging from emailing comments to the commission, to formally intervening as a party. Formal parties have the right to issue discovery, present witnesses and cross-examine witnesses of other parties, including the utility’s witnesses. By intervening, parties optimize their ability to influence the utilities’ policies and terms of service.

Oklahoma’s solar opportunity is unlike any other form of energy. If the sun shines on your home, farm, or business, you have an opportunity to harness that energy for your own usage. Whether customers are paid fairly for what they share with the grid will affect the technology’s adoption in the future.


This guest column was originally published in The Journal Record on Sept. 9, 2019.

By Phillips Murrah Attorney C. Eric Davis

C. Eric Davis is an attorney with Phillips Murrah.

Partners are not employees

On June 28, the Internal Revenue Service finalized Treasury regulations relating to the tax treatment of partners (T.D. 9869).

Jessica Cory web

Jessica N. Cory represents businesses and individuals in a wide range of transactional matters, with an emphasis on tax planning.

These regulations confirm that owners of an entity treated as a partnership for federal income tax purposes, including limited liability companies, cannot be treated as employees for purposes of employment taxes and income tax withholding. Instead, an owner is treated as “self-employed” to the extent he or she receives compensation for services rendered to the partnership. This has important tax consequences for both the owner and the partnership.

For example, because an owner is not an employee, the partnership will not withhold taxes from his or her check or share the responsibility of paying any employment tax. Instead, an owner will be responsible for making estimated income tax payments and paying 15.3% self-employment tax on his or her compensation. Owners must also treat any partnership-paid health insurance premiums as income and are barred from participating in the partnership’s cafeteria plan, unlike the partnership’s employees. In addition, the partnership must report any owner compensation on Schedule K-1 versus the more traditional Form W-2.

Because many owners prefer to be treated as employees, especially current employees awarded an ownership interest in the company as compensation, partnerships have attempted to develop a work-around to these rules. One popular structure involved the formation of a wholly owned subsidiary to employ the partnership’s owners. In this scenario, the subsidiary would be disregarded for federal income tax purposes, allowing the partnership to continue filing a single Form 1065, U.S. Return of Partnership Income, but respected for employment taxes, enabling the partnership to treat its owners as W-2 employees rather than self-employed. The recently finalized Treasury regulations shut down this structure by clarifying that a disregarded entity cannot be used to convert an owner of a partnership into an employee.

Now that the IRS has finalized rules prohibiting this structure, it is important for tax partnerships, including many limited liability companies, to reevaluate how they are treating their owners for federal income tax purposes. To the extent a partnership has owners that would prefer to be treated as employees, or plans to offer an equity interest in the partnership to key employees as an incentive, the business should reach out to an experienced tax attorney to discuss potential structuring alternatives.


By Phillips Murrah Attorney Jessica N. Cory

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on August 29, 2019.

Jessica N. Cory is an attorney at Phillips Murrah who represents businesses and individuals in a wide range of transactional matters with an emphasis on tax planning.

Child support payments based on several variables

A headshot of Robert K. Campbell, a lawyer focused in the area of family law.

Robert K. Campbell’s legal practice is focused in the area of family law, specifically concentrated in matters of divorce, legal separation and custody issues.

In this article, Oklahoma City Attorney Robert K. Campbell answers questions about the basics of arranging and handling Oklahoma child support.

Who pays child support in a divorce proceeding?

Oklahoma law requires both parents to provide financial support for their children during a divorce. That being said, typically it is one parent paying the other parent. There are, however, situations wherein neither parent may owe the other parent child support.

How is the amount of child support calculated?

The child support amount is calculated based upon the Oklahoma Child Support Guidelines. The Oklahoma Child Support Guidelines will calculate the child support obligation of each parent.

What does the Oklahoma child support calculation take into consideration when determining the amount of child support?

There are several variables that go into the Oklahoma Child Support Guideline calculation. The primary variables determine the base child support amount consist of the parties’ gross monthly income, the number of minor children of the parties, and the number of overnights each parent has with the children. There are other variables that can be taken into consideration. A common example of these are health insurance premiums and child care costs.

What is considered gross income for child support purposes?

Oklahoma’s definition of gross income is broad and intended to include earned income and passive income. Gross income consists of wages, salaries, tips, commissions, bonuses, etc. Passive income can include dividends, pensions, rent, interest income, trust income, gifts, gambling winnings, lottery winnings, etc.

If both parents agree, can the child support agreement differ from the Oklahoma Child Support Guidelines calculations?

Typically, an agreed amount other than the guidelines will likely be approved if it is in the best interest of the minor child and the amount of support indicated by the guidelines is unjust or inappropriate under the circumstances; both parties are represented by counsel and have agreed to a different amount; or one party is represented by counsel and the deviation benefits the unrepresented party.

How long does a parent have to pay child support?

In Oklahoma, the law typically provides that a child is entitled to support by the parents until the child reaches the age of 18, or graduates high school, whichever occurs later; however, it shall not extend beyond the age of 20. There are certain situations where the law may provide support to an adult child with a disability beyond the age of majority. If you are paying support for more than one child, your payment amount does not drop automatically when one child no longer qualifies for support. You must take affirmative steps to recalculate future support for the remaining child or children and ask the court to enter a revised support order. When the last child no longer qualifies for child support, the support obligation ends if there is no past due support owed.

Can child support be modified?

Yes. In Oklahoma, either parent may request a modification of the amount of child support based upon a “material change in circumstances.” The increase or decrease in either parent’s income may constitute a material change in circumstances warranting a modification.

What happens if a parent who is ordered to pay child support fails to pay?

The parent who fails or refuses to pay their child support obligation can be cited for indirect contempt of court, which if found guilty can result in a $500 fine and/or up to six months in jail. Additionally, state licenses can be revoked, suspended or not renewed.

 

Robert K. Campbell is a family law attorney with Phillips Murrah.

Employers should examine paid parental leave policies

The notorious absence of any federally mandated paid family leave in the United States was a significant issue during the 2016 presidential election. Recent legislative proposals indicate that the issue will only gain steam through 2020 and beyond. Paid parental leave is not a partisan issue, as demonstrated by legislators on both sides of the aisle introducing bills in 2019, including Marco Rubio and Kirsten Gillibrand.

Phillips Murrah litigation attorney Hillary Clifton discusses holiday legal hazards.

Hilary Hudson Clifton is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters. Click photo to visit her attorney profile.

With parental leave policies under particular scrutiny, it is a good idea for employers to examine their existing policies. As it looks ever more likely that paid leave will be federally mandated in the not-too-distant future, now might be the right time for employers without a paid leave policy to consider implementing one.

Though some states have passed laws requiring paid parental leave benefits, Oklahoma is not among them, and employers in Oklahoma currently offering paid leave to new parents do so voluntarily. Still, employers could find themselves in legal trouble if their policies impermissibly distinguish between different classes of parents. For example, while it might be tempting to offer a certain period of paid maternity leave to a mother, and a different period of paternity leave to a father, employers must be careful to draft policies that do not discriminate on the basis of sex, sexual orientation, and other potentially protected categories.

Paid parental leave to care for a new child, sometimes referred to as bonding time, should apply equally to all new parents, including biological mothers and fathers, adoptive parents, and same-sex couples. However, with biological mothers requiring medical attention and recovery time related to pregnancy and childbirth, it is not discriminatory to offer biological mothers an additional period of paid leave, provided the policy specifies that such leave is for the mother’s medical/physical needs.

Increasingly, employers around the country are opting for generous parental leave policies to attract and retain qualified employees. In that regard, employers considering a policy that offers a birth mother significant paid leave for recovery but little time for bonding and childcare might consider whether such a policy could encourage fathers or adoptive parents to look elsewhere for job opportunities.

With no federal or state mandate in Oklahoma, there remains room for any employer to adopt a policy in line with its particular needs and preferences. That said, well-intentioned employers should take measures to avoid inadvertent discrimination in their policies.

Hilary H. Clifton is a litigation attorney with the law firm of Phillips Murrah.


Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on July 18, 2019.

How to determine whether to hold or terminate an oil and gas lease

When a landowner leases property to an energy company, the lease agreement typically contains a held-by-production provision, also known as a habendum clause. In Oklahoma, habendum clauses in oil and gas leases establish that after the primary lease term has ended, the lease shall remain in force as long as the land is capable of producing a minimum amount of oil or gas. But how do courts decide whether to hold or end such a lease?

Habendum clauses typically describe the lease term as, “from the date hereof and as long thereafter as oil or gas … is produced from said land.” When the term “produced” is used in a “thereafter” provision of the habendum clause, it has been determined by courts to mean production in “paying quantities.”

However, “paying quantities” is not determined by a specific dollar amount. Rather, it is defined as an amount of production sufficient to yield a profit to the lessee beyond lifting expenses, which include costs of operating the pumps, gross production taxes and electricity.

To determine whether a lease is commercially producing and, therefore, may be held by production, there are four factors that courts take into account: the accounting period, revenue during that period, expenses during that period, and equitable considerations.

The accounting period chosen for any production analysis varies and is determined by examining facts and circumstances specific to the lease. Accounting periods can make or break a case when trying to ascertain whether there was production in paying quantities. Thus, to reflect the production status, it is crucial to determine a sufficient amount of time that would provide information that would allow a “reasonable and prudent operator” to decide whether to continue or cease operation.

For example, in Hoyt v. Continental Oil Co., the accounting period was 14 months. In Smith v. Marshall Oil Corp., the accounting period was 35 months.

Once an accounting period is established, all revenue generated by the lease during that period is considered. Next, lifting expenses are considered and compared against revenue to see which is greater. However, this consideration does not include overriding royalties, overhead, and depreciation.

Lastly, if the lease is unprofitable, the court will examine any equitable considerations to determine if any justify maintaining the lease. These considerations are very specific to the circumstances of the lease that may affect profitability, which could include market conditions, changes in public policy, pipeline access, and conflict resolution activity.

If, after examining all factors, it is determined that the oil and gas lease is returning a profit over lifting expenses, the lease will not be vulnerable to termination and shall be allowed to continue beyond the primary lease term.

Originally published in The Journal Record on July 5, 2019.

Deadline Monday for pharmacies’ annual inventory of controlled dangerous substances

In this article, Oklahoma City Attorney Martin J. Lopez III discusses requirements pharmacies must abide by when submitting controlled substance inventories and the consequences they may face if they neglect to do so.

attorney Martin J Lopez III

Martin J. Lopez III is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

There seems to be increasing regulation of pharmacies in recent years, and this has been heightened by the responses to the opioid crisis. What are the various inventory requirements of the Oklahoma State Board of Pharmacy (OSBP)?

According to state regulation, and because of the dangerous propensities of these controlled medications, OSBP requires pharmacies to perform inventories much like any retailer, although there are some distinctions based upon the nature of the pharmacy’s product. The regulation, Oklahoma Administrative Code 535:15-3-10, sets forth four distinct circumstances where inventories must be performed: The first is an annual inventory of controlled dangerous substances (“CDS”). Most relevant for all pharmacies at this particular time, the OSBP requires an inventory of all CDS be performed between May 1 and July 1 of each year; this annual inventory must be included with the pharmacy’s annual license renewal application. This annual license renewal application must be in writing, must contain the names of the pharmacy’s owners and shall provide any other information deemed relevant by the board — including the CDS inventory. Inventory is required for a Change of Ownership or a change of the Pharmacist-in-Charge (PIC) and must be sent to the board within 10 days. The OSBP requires the inventory include the new manager’s name and registration number and recommends that it include the outgoing manager’s name, registration number, and current place of employment. The OSBP further recommends that both the incoming and outgoing managers sign the inventory. Inventory also may be triggered by circumstances such as theft. In the case of suspected loss, theft, or other event, the OSBP may require an inventory be performed and sent to the board within ten days of the completion of the inventory. Inventory is also required when a pharmacy closes and must be sent to the board within 10 days of the pharmacy’s closing.

What is a controlled dangerous substance for the purposes of the annual inventory to be performed between May 1 and July 1?

Generally, a CDS is a drug, substance or immediate precursor (a substance that serves as a chemical intermediary to manufacture a controlled dangerous substance) in Schedules I through V of the Oklahoma Uniform Controlled Dangerous Substance Act, found at Title 63, Sections 2-203 through 2-212 of the Oklahoma Statutes; these Schedules range from those with high potential for abuse and no accepted medical use (includes many “street” drugs like heroin) to those with low potential for abuse and which are accepted for medical use (such as pseudoephedrine—such as brands commonly known as Sudafed PE and Allegra D.

What happens if a pharmacy misses or fails to complete an inventory or doesn’t perform or submit the inventory on time? For example, what happens if a pharmacy doesn’t perform inventories of its controlled dangerous substances between May 1 and July 1?

If a pharmacy fails to comply with the annual CDS inventory, both the PIC and the pharmacy itself are deemed to have violated the administrative code. A violation of the administrative code amounts to a violation of the Oklahoma Pharmacy Act, over which the OSBP may take a number of actions, including a reprimand, probation, suspension, permanent revocation of a pharmacy’s license, or other disciplinary action in its discretion; the OSPB also can levy fines up to $3,000.

Martin J. Lopez III is an attorney with Phillips Murrah law firm.

Possible Relief for FMLA Administration Pain Points

It’s no secret that employers have found administration of leave under the Family and Medical Leave Act (FMLA) to be a significant pain point. Relief, however, may be on the way.

In a spring regulatory agenda notice, the U.S. Department of Labor announced that it is considering making some changes to the FMLA. The Department has asked the public for feedback on how to:

“(a) better protect and suit the needs of workers; and (b) reduce the administrative and compliance burdens on employers.”

Although DOL has released no specifics, many believe that the White House’s labor policy adviser, James Sherk, will be the driving force behind any upcoming changes.  Sherk’s earlier outspokenness about the shortcomings of the FMLA leave provides good insight into his thoughts about what needs to change.

In his 2007 Heritage Foundation report, Sherk outlined his views on employee FMLA abuse. His report portends changes could be on the horizon that will:

  • narrow the definition of what constitutes “a serious health condition;”
  • provide more power to employers to investigate an employee’s condition;
  • allow employers to require workers to take leave in half-day, rather than smaller, increments; and
  • allow employers to count FMLA leave against attendance bonus policies.

What changes could mean for employers

If Sherk really is the man behind the plan, employers may get the relief they seek.

First, limiting the definition of “a serious health condition” should make it more difficult for employees to abuse the FMLA. In his report, Sherk highlighted several instances where “irresponsible” employees were taking advantage of the current vague definition by calling routine colds, stress, or even an injured toe a “serious health condition”—even when the condition has no impact on the employee’s ability to perform job duties. This would also help to lessen the burden on other employees who are required to pick up the slack when co-workers abuse FMLA leave.

Second, providing employers with more power to investigate employees’ conditions would resolve the communication barrier between employers, employees, and health care providers when issues surrounding the complex and lengthy paperwork arise—satisfying the goal of reducing administrative burdens.

Third, allowing employers to require workers to take leave in half-day increments would decrease the heavy administrative burden of tracking an employee’s leave in minute increments. Rather than tracking the 12-weeks of allowed FMLA leave a minute at a time, a more manageable tracking unit of half-day increments would make what once was a monumental task for employers more manageable.

Finally, allowing employers to count FMLA leave against attendance bonus policies would both help employees with favorable attendance not feel cheated when those with spotty attendance are nonetheless rewarded and incentivize employees not to abuse FMLA. The DOL has found that because an employer may not punish an employee for using FMLA, even workers who miss 50 days a year due to FMLA leave can still be eligible for a perfect attendance bonus, diluting the incentive these bonuses are intended to provide. Correcting this would allow employees with excellent attendance to reap due awards and hit FMLA abusers where it hurts—their bank account.

Conclusion

While employers will have to wait for definite answers as to what changes, if any, we will see, the good news is that it appears that employer concerns about FMLA abuse are not falling on deaf ears. In the meantime, employers should continue to monitor the situation and hope that relief is on the way.


Janet Hendrick Profile portrait

Janet A. Hendrick

By Janet A. Hendrick and Matt Andrus

If you have questions about this decision, contact Janet Hendrick, who represents and counsels employers on issues including proper classification, in the Dallas office of Phillips Murrah at (214) 615-6391 or at jahendrick@phillipsmurrah.com.

Matt Andrus is a second-year law student at Oklahoma City University and works as a law clerk for Phillips Murrah during Summer 2019.

Federal income tax challenges for medical marijuana businesses in Oklahoma

Jessica Cory web

Jessica N. Cory represents businesses and individuals in a wide range of transactional matters, with an emphasis on tax planning.

In this article, Oklahoma City Attorney Jessica N. Cory explores the conflict between federal and state law as it pertains to Oklahoma medical marijuana businesses.

What is the primary federal tax issue for Oklahoma medical marijuana businesses?

Jessica Cory, attorney with Phillips Murrah law firm answers: The primary tax issue for Oklahoma medical marijuana businesses stems from the conflicting treatment of the marijuana industry under federal and state law. Although the approval of State Question 788 last summer legalized the use, growth and sale of medical marijuana for state purposes, marijuana remains an illegal drug under the federal Controlled Substances Act. Special tax provisions apply to penalize anything deemed illegal drug trafficking under federal law, including licensed medical marijuana businesses.

What are the specific federal tax burdens a medical marijuana business will face?

Internal Revenue Code Section 280E represents the biggest tax challenge for medical marijuana businesses. Generally, the Internal Revenue Code allows a taxpayer to take a deduction for all “ordinary and necessary” business expenses paid or incurred during the taxable year. Congress has created an exception to this rule in certain instances, however.

One such exception is Code Section 280E, which prohibits a taxpayer engaged in the business of “trafficking in controlled substances” from taking a deduction for ordinary business expenses. Because the federal Controlled Substances Act defines marijuana as a Schedule I drug, Code Section 280E severely limits the types of deductions available to a medical marijuana business.

Although Code Section 280E prevents a marijuana business from taking normal business deductions, it does not bar a business from offsetting its gross receipts with its cost of goods sold (“COGS”). This means a business can at least reduce its potential taxable income by its direct costs of production. However, the Internal Revenue Code has issued guidance strictly limiting the types of costs a taxpayer engaging in a marijuana business can allocate to COGS, to prevent an end-run around Code Section 280E.

Case law supports this narrower interpretation of COGS for the marijuana industry, including prohibiting resellers of marijuana from including any indirect costs — costs other than the price paid for inventory plus any transportation or other necessary acquisition costs — in COGS.

Is there anything marijuana business owners can do to minimize their federal tax burden?

Yes, a tax professional can help marijuana businesses develop strategies for minimizing the impact of Code Section 280E. For example, a tax adviser can help a business differentiate between COGS and business deductions to take full advantage of the COGS offset allowed under federal law. In addition, a tax professional may be able to help a company structure its business to separate out its different activities to avoid having Code Section 280E apply too broadly. It is also essential for marijuana businesses to keep careful records, particularly if the business also engages in additional activities unrelated to growing, processing or selling marijuana.

Has there been any effort in Congress to fix the disparity in treatment under federal and state law?

Members of Congress have repeatedly introduced legislation to exempt marijuana businesses lawfully operating under state law from the parameters of Section 280E. For example, the Strengthening the Tenth Amendment through Entrusting States (“STATES”) Act, which would amend the Controlled Substances Act to protect people operating within the bounds of state cannabis laws, was recently reintroduced. Unfortunately, despite bipartisan support and the backing of several 2020 presidential candidates, the odds are not in favor of passage at this time.

Jessica Cory is an attorney with Phillips Murrah law firm.

Who should define the terms of an oil and gas lease?

Whose job is it to determine which expenses can be deducted from royalty payments under the terms of an oil and gas lease? Is it the lessee or the operator? People argue both positions and all parties desire clarity in who bears this burden.

Molly Tipton

Molly Tipton is an attorney in the Energy & Natural Resources Practice Group. She represents both privately-owned and public companies in a wide variety of oil and gas matters, with a strong emphasis on oil and gas title examination.

Unfortunately, there are many interpretations of the differing forms of deductions language in leases, and the courts have not had the opportunity to make a decision. Many operators have recently requested input from the lessee on royalty valuation, but some lessees may balk at this idea because current practice typically provides that the operator cuts the checks.

Pursuant to 52 O.S. § 570.8(A), a working interest owner in a gas well shall furnish to the operator the name, address, royalty interest, taxpayer identification number, and payment status of royalty interest owners for whom they hold a lease. While this language does not place the burden on the working interest owner to tell the operator how royalty proceeds should be valued under the terms of the lease, it is understandable that an operator wishes for input from the lessee, as they are a party to the lease.

However, when an operator asks a lessee to determine how royalty proceeds should be valued under the terms of the lease, the lessee may fear liability to the royalty interest owner in the event that the operator is paying the royalty contrary to how the lessor interprets the terms of the lease.

The lessee should take comfort in the language in 52 O.S. § 570.9(D), which states that any working interest owner that pays or causes to be paid royalty proceeds for gas production in accordance with the Production Revenue Standards Act valued according to the terms of such working interest owner’s lease shall be relieved of all liability to the royalty interest owners for any further payment of proceeds from such production.

The valuation of royalties will affect both the royalty owner and the lessee, and without any guidance from the courts, there is no definitive answer as to who should define the exact terms of the lease. One can understand why neither the operator, nor the lessee, wants the burden of defining the lease terms, as they affect royalty deductions. Only time will tell whose job it is after all.

 


By Phillips Murrah Attorney Molly E. Tipton

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on May 30, 2019.

#MeToo movement reaches merger transactions

In this article, Oklahoma City Attorney Erica K. Halley discusses the “#MeToo” movement and the Weinstein Clause as they relate to requirements in buying and selling companies.

Erica K. Halley

Erica K. Halley represents individuals and businesses in a broad range of transactional matters.

What is the #MeToo movement and how did it start?

In October 2017, The New York Times published an article detailing decades of sexual misconduct by film producer Harvey Weinstein. The scandal ultimately left Weinstein disgraced, his film studio bankrupt and victims of sexual harassment and assault emboldened. The #MeToo movement ensued, wherein victims tweeted (or otherwise went public with) their experiences, which highlighted the prevalence of such misconduct in the workplace. As a result, the chickens have come home to roost for many predators in power. This means, among many other things, companies must adapt and prepare for the potential PR and legal nightmare that necessarily follows misconduct allegations against employees, particularly those having influence over compensation, promotions/demotions and workplace culture. One way we see the #MeToo movement in the doldrums of corporate paperwork is through what is becoming known as the “Weinstein Clause” in merger and acquisition agreements.

What is a Weinstein Clause?

When a company is sold or merged, the selling company is typically required to make a litany of representations to the buyer concerning the status of the selling company. A Weinstein Clause is a representation made by the selling company where the seller promises that none of the selling company’s employees is the subject of allegations of sexual misconduct. In its broadest form, a seller represents that no allegations of sexual harassment or misconduct have been made to the company against any individual in his or her capacity as an employee of the company or any of its affiliates. Usually, if a seller makes a false representation, the buyer can sue the seller for all damages resulting from the breach.

How do sellers negotiate Weinstein Clauses in M&A transactions?

Just like any representation in an M&A (merger and acquisition) transaction, sellers will try to limit the scope of the representation by adding knowledge qualifiers (ex: to the seller’s knowledge, there are no sexual harassment or misconduct allegations), defining or reducing the look-back period (ex: the seller represents that there have been no allegations in the past five years) and minimizing the number or type of employees subject to such allegations (ex: the seller represents that there have been no allegations against executive level employees). In addition, the lawyers on both sides will probably spend time negotiating the definitions of “sexual harassment” and/or “sexual misconduct,” as such terms are open to interpretation and, therefore, ambiguity. After the representation itself is determined, if the seller is aware of any such allegations, the seller will try to negotiate an exception to the representation and describe the allegations on a schedule attached to the agreement. In this case, the seller is essentially saying, “except for that one time, which buyer is going to overlook, there have been no allegations of sexual harassment/misconduct.”

Why should people care?

The Weinstein Clause itself will probably not have a noticeable impact on the viability or essential terms of M&A transactions. And most people will probably never lose sleep over how broadly or narrowly any Weinstein Clause is negotiated. However, everyone is affected by companies (some more directly than others), and most companies are led by individuals who have power and influence over other employees. The emergence of the Weinstein Clause is indicative of a broader social change. The Weinstein Clause provides evidence that sexual harassment and misconduct by such individuals is not tolerated, safe and respectful company cultures matter, and victims of sexual harassment and misconduct ought to be protected.

 

Published: 5/7/19; by Paula Burkes
Original article: https://newsok.com/article/5630647/metoo-movement-reaches-merger-transactions

Oklahoma Supreme Court ruling on noneconomic damages could have profound impact

On Tuesday, the Oklahoma Supreme Court ruled Oklahoma’s statutory cap on noneconomic damages violates the Oklahoma Constitution because it singles out for different treatment less than the entire class of similarly situated persons who may sue to recover for bodily injury.

Attorney Ashley Schovanec Web

Ashley M. Schovanec is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

In plain terms, the court found the statute is a “special law” that limits a living plaintiff’s right to recover noneconomic damages to no more than $350,000 and cannot be reconciled with the provision of the Oklahoma Constitution that expressly forbids any statutory damages limitation for injuries resulting in death.

Oklahoma’s statutory cap provides that in any civil action arising from claimed bodily injury, the trier of fact may award a plaintiff for noneconomic loss no more than $350,000, regardless of the number of parties against whom the action is brought or the number of actions brought—unless the claimed bodily injury is the result of more than mere negligence (i.e. reckless disregard for the rights of others, gross negligence, fraud, intentional injury, or malice).

The statute defines noneconomic damages as “nonpecuniary harm that arises from a bodily injury that is the subject of a civil action” and includes damages for, among other things, pain and suffering, loss of consortium, companionship, mental anguish, etc.

In Beason v. I.E. Miller Services, Incorporated, an employee was injured while operating a crane in his employment with I.E. Miller Services. As a result of his injuries, the employee underwent two amputations on parts of his arm. The employee and his wife sued I.E. Miller in a personal injury action. The matter went to trial in Oklahoma County and the jury awarded the employee and his wife a combined total of $15 million – $6 million of which was allocated as noneconomic damages. Applying the statutory cap, the district court reduced the jury verdict to $9.7 million, as the noneconomic damages to plaintiffs was lowered to $700,000, or $350,000 per person. On appeal to the Oklahoma Supreme Court, plaintiffs challenged the damages cap.

The Oklahoma Supreme Court held the statutory noneconomic damages cap is unconstitutional for one reason: the statue purports to limit recovery for pain and suffering in cases where the plaintiff survives the injury-causing event, while persons who die from the injury-causing event face no such limitation under Oklahoma Constitution Article 23, section 7 (“The right of action to recover damages for injuries resulting in death shall never be abrogated, and the amount recoverable shall not be subject to any statutory limitation . . . . ”).

The court explained that “[b]y forbidding limits on recovery for injuries resulting in death, the people have left it to juries to determine the amount of compensation for pain and suffering in such cases, and no good reason exists for the Legislature to provide a different rule for the same detriment simply because the victim survives the harm-causing event.”

Moving forward, the court noted that if the people of Oklahoma believe the jury system and judicial review are no longer effective in deciding compensation in private personal injury cases, then constitutional amendment is the proper way to make such a change, “not a special law.”

The impact of the Oklahoma Supreme Court’s decision in Beason is profound.

Now, after Beason, with the statutory damages cap removed, an unemployed, catastrophically injured plaintiff, and a defendant, may be looking at a substantially different recovery and exposure.  Consequently, and somewhat counter-intuitively, because the risk of large verdicts just went up, cases may settle earlier because of the uncertainty associated with leaving a damages calculation up to a jury.

Ashley M. Schovanec is a litigation attorney with the law firm of Phillips Murrah.

Supreme Court Holds Employees May Not Arbitrate Class Claims Unless Arbitration Agreement Unambiguously Provides for Class Arbitration

It’s been a big week in employment law at the Supreme Court.  Earlier this week, the Court agreed to hear three cases, Bostock v. Clayton County, Georgia, Altitude Express, Inc. v. Zarda, and R.G. & G.R. Harris Funeral Homes v. EEOC, to decide whether Title VII’s prohibition against discrimination “because of sex” protects LGBTQ employees.  Today, in Lamps Plus, Inc. v. Varela, the Court held that a party to an arbitration agreement may arbitrate only individual claims, rather than class claims, unless the arbitration agreement explicitly and unambiguously provides for class arbitration.

Janet Hendrick Profile portrait

Janet A. Hendrick represents and counsels employers on issues including proper classification

In a 5-4 vote, the Court overturned the Ninth Circuit Court of Appeals’ decision that the arbitration agreement between Lamps Plus and employee Frank Varela allowed him to bring class claims in arbitration even though the arbitration agreement was ambiguous on this point. Varela filed suit in a California federal court on behalf of a putative class of employees after approximately 1,300 employees’ tax information was disclosed as part of a phishing scam.  Because Varela had signed an arbitration agreement at the time of hire, Lamps Plus moved to compel arbitration.  The arbitration agreement was ambiguous on the issue of whether a party may pursue class claims in arbitration. The district court granted Lamps Plus’ motion and sent the case to arbitration, but allowed Varela to pursue his claims on a classwide basis in arbitration.  Lamps Plus appealed to the Ninth Circuit, which acknowledged the arbitration agreement was ambiguous, construed the ambiguity against Lamps Plus as the drafter of the agreement, and affirmed the district court’s decision.  Lamps Plus appealed to the Supreme Court.

Chief Justice Roberts wrote the opinion, joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh.  The primary question before the Court was “whether, consistent with the [Federal Arbitration Act, which governed the arbitration agreement], an ambiguous agreement can provide the necessary ‘contractual basis’ for compelling class arbitration.”  The majority answered this question in the negative, pointing out that arbitration on a classwide basis “undermines the most important benefits of” traditional individualized arbitration.  In its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the Court held that a court may not compel arbitration on a classwide basis when the arbitration agreement is silent on the availability of class arbitration.  In Lamps Plus, the majority held that “[l]ike silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration,” which is the individualized form of arbitration envisioned by the Federal Arbitration Act.  After all, ultimately, “[a]rbitration is strictly a matter of consent” between the parties.

Today’s decision continues the pro-arbitration trend from the Supreme Court over the past few years and comes nearly a year after Epic Systems Corp. v. Lewis, in which the Court upheld the use of class action waivers in arbitration agreements between employers and employees.


By Janet A. Hendrick
April 24, 2019

If you have questions about this decision, contact Janet Hendrick, who represents and counsels employers on issues including proper classification, in the Dallas office of Phillips Murrah at (214) 615-6391 or at jahendrick@phillipsmurrah.com.

Medical practice support can be costly to suppliers, others

In this article, Oklahoma City Healthcare Attorney Mary Holloway Richard discusses the “Anti-Kickback Statute” and potential, federal violations of the statute as it relates to providers in the healthcare industry.

Mary Holloway

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families.

What is the authority for the federal government to oversee providers’ relationships with durable medical equipment (DME) and device suppliers and drug companies, such as educational programs that would seem to benefit the patient? How active is that oversight?

The Anti-Kickback Statute (AKS) prohibits remuneration to induce referrals or use of products reimbursement by Medicare, Medicaid or other federal healthcare programs. The federal government, through its investigators and prosecutors, pursue civil remedies including fines for remuneration considered as kickbacks. Remuneration may be cash of in-kind contributions. Under the AKS both civil and criminal charges may result from an investigation by the federal government. Federal policy is designed to prevent relationships that purportedly “lead to excessive or unnecessary treatment,” drive up health care costs and inhibit free market competition. The kickback prohibition applies to all sources of referrals, even patients. For example, where the Medicare and Medicaid programs require patients to pay copays for services, you generally are required to collect that money from your patients. Routinely waiving these copays could implicate the AKS and you may not advertise that you will forgive copayments. However, providers are free to waive a copayment if the provider makes an individual determination that the patient cannot afford to pay or if reasonable collection efforts fail. In addition, providing free or discounted services to uninsured people is not prohibited. The beneficiary inducement statute (42 U.S.C. § 1320a-7a (a) (5)) also imposes civil monetary penalties on physicians who offer remuneration to Medicare and Medicaid beneficiaries to influence them to use their services.

Is the federal government even active in investigating and prosecuting under the AKS?

Yes. The Office of the Inspector General, counsel for the Department of Health and Human Services (HHS), estimated in 2018 that for every $1 spent on investigating health care fraud, $4 is recouped. The government has investigated, prosecuted and settled claims with many types of providers and continues to do so. The government does not need to prove patient harm or financial loss to the programs to show that a physician violated the Anti-Kickback Statute. A physician can be guilty of violating the AKS even if the physician actually rendered a medically necessary service. Taking money or gifts from drug or device companies or DME suppliers is not justified by arguing that providers would have prescribed that drug or ordered that wheelchair even without a kickback. An example of unlawful activities comes from the Covidien case. A supplier of vein ablation products in California and Florida, Covidien recently settled its claims with the federal government that it offered or provided free to medical practices, or at discounted rates, practice development assistance, lunch-and-learns, dinners with physicians, and market development support, such as vein screening activities designed to recruit new patients to the practices — all provided free of charge or at discounted rates. This virtually uncompensated support, according to the Department of Justice, was designed to induce the use of certain items or services, leading to excessive and unnecessary treatments and driving up health care costs for everyone.

Are there any clear guidelines for physicians and other providers?

HHS has published guidelines for providers, such as “A Roadmap for New Physicians-Avoiding Medicare and Medicaid Fraud and Abuse,” which I routinely provide to new physicians, advanced-practice nurses and other providers. Failure to follow the guidelines can be costly. For example, the outcome of the Covidien investigation was a civil settlement agreement for violation of the AKS in the amount of $17,477,947, with additional payments in excess of $2 million by the company to the states of California and Florida for claims paid by their Medicaid programs.

How are violations of the AKS usually discovered?

Violations of the AKS are often discovered through “qui tam” actions brought by employees of the practice group or those with knowledge of its practices known as “whistleblowers” or “relators.” To avoid vulnerability to qui tam actions providers are advised to adopt and implement robust compliance policies, including training providers and other personnel regarding behavior that may constitute risk under a federal regulatory analysis. It is also advisable to have operating agreements of the practice’s legal entity and written agreements reviewed by counsel in order to shift legal liability where possible.

 

Published: 4/19/19; by Paula Burkes
Original article: https://newsok.com/article/5629122/medical-practice-support-can-be-costly-to-suppliers-others

Gender parity and the rise of women in the boardroom

It should come as no shock that, although women make up just over half of the U.S. population, they are underrepresented in corporate executive management, as well as in the boardrooms of public companies in the U.S. This is often due to stereotypes that characterize female leaders as abrasive, aggressive and emotional. This disparate societal perception rewards certain characteristics in men while condemning them in women, which damages women striving for leadership roles.

Kendra Norman Web

Kendra M. Norman represents individuals and businesses in a broad range of transactional matters.

A 2016 Catalyst report found that in the U.S., women made up only 21.2% of the S&P 500 board seats.

A recent push for diversity on corporate boards of directors may change the gender lines of corporate culture. For example, California is the first state to statutorily require female representation on boards of directors.

In 2018, roughly 25% of California-based companies had no female directors on their board. In October, Gov. Jerry Brown signed a law requiring all public companies having principal executive offices in the state to have at least one woman on the board by the end of 2019. By the end of 2021, any California public company with five directors must have a minimum of two female directors, and those with six or more directors must include at least three women. The law imposes a $100,000 fine for a first-time violation and a $300,000 fine for subsequent violations.

California follows several European countries, including Germany, France, Norway, and Sweden, which have implemented quotas and fines to increase female representation in the boardroom. Additionally, shareholder advisory firms such as Institutional Shareholder Services and Glass, Lewis & Co. are now using gender diversity as a factor for shareholder vote recommendations.

While a government-mandated requirement may not be the ultimate solution, it could accelerate the achievement of gender equality.

Such a change in gender representation is likely to benefit companies, as gender and culture diversity results in diverse perspectives, which is likely to improve a company’s performance. It will also create less gender discrimination in recruitment, promotion, and retention.

While Oklahoma continuously ranks in the bottom of states for women when it comes to the income gap, workplace environment, education, and health, Oklahoma ranks 20th with respect to the executive positions gap, according to a recent 2018 WalletHub study. While there is much room for improvement, there may be hope for Oklahoma in achieving executive gender equality.


By Phillips Murrah Attorney Kendra M. Norman

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on April 18, 2019.

Doing business by email can cause legal concerns

In this article, Oklahoma City Attorney A. Michelle Campney discusses email practices that could be considered legally binding.

A. Michelle Campney

As a litigation attorney, A. Michelle Campney represents companies in a wide range of business litigation matters with an emphasis on the construction industry.

What are the general legal concerns regarding conducting business through email?

It is estimated that there will be almost 3 billion email users by the end of this year, with an average of 128 business emails sent and received per person, per day. Often, only passively mentioned in employee handbooks and with little to no training during onboarding, employers and employees adopt varied practices for email use. The sheer volume of emails creates logistical problems for businesses (e.g., server space, data protection), but it can also create legal issues when exchanges can bind companies or reveal confidential, privileged or personal information.

How can emails bind someone until they actually sign an agreement?

Does the party you are working with know that you require hard copy agreement with handwritten signatures? If not, and if the email contains all the material terms and the facts, and circumstances surrounding that show that you were conducting the transaction electronically, then you could have an enforceable agreement under the Oklahoma Uniform Electronic Transactions Act (“UETA”).

But no one actually signed the agreement, so how can it be enforceable?

Not all agreements have to be signed to be enforceable, and specifically under the UETA, a signature only need be “attributable to a person if it was the act of the person.” Furthermore, an electronic signature under the act is “determined from the context and surrounding circumstances at the time of its creation, execution, or adoption … .” While Oklahoma does not have any case law on the issue, a Texas court found a simple “Thank you, Clyde” typed above the signature block was sufficient for a signature. Parks v. Seybold (Tex. App.—Dallas, 2015). Additionally, some courts (including those in Texas) broadly interpret the signature requirement to include an automatically generated signature block.

What are other potential concerns for email?

Let’s say that your company is involved in litigation regarding a contractual dispute. Most attorneys ask that all communications, including email communications, regarding the issue be turned over during the discovery process. While the communication may not ultimately be admissible in court, if there are emails between employees discussing the dispute and the surrounding facts and circumstances, those will generally have to be turned over to the other side. Additionally, if certain individuals are involved then you may have to turn over all emails regarding that person. Thus, if any mentions of any disciplinary action regarding that person or even your own personal feelings about the person are on email those may have to be turned over. While the emails may not ultimately impact your case, they could embarrass your company.

Are there any practices or policies that would help alleviate the concerns surrounding email?

While policies and procedures will be specific to each type of business and its standard practices, at the most basic level, having a robust email use policy will set a good foundation and, if properly drafted, help educate your employees on what to do and not to do. One important thing to remember is that email will only continue to grow as a means of communication. Setting good groundwork for how it is to be used in your company may help prevent issues down the road.

 

Published: 4/11/19; by Paula Burkes
Original article: https://newsok.com/article/5628396/doing-business-by-email-can-cause-legal-concerns

Lopez: A bitter pill – medical malpractice liability for new resident physicians

While becoming a resident physician is undoubtedly an exciting next step in the process, it inherently comes with daunting new realities – a plethora of health care regulatory compliance issues, constantly developing reimbursement requirements, and medical malpractice liability. This short article focuses on minimizing the risk of negligence-based medical malpractice lawsuits.

attorney Martin J Lopez III

Martin J. Lopez III is a litigation attorney who represents individuals and both privately-held and public companies in a wide range of civil litigation matters.

Medical school residency match day. It’s a chaotic, stressful revelation at which fourth-year medical students find out where they will spend the next few years of their lives as residents – newly minted physicians becoming experts in their respective fields.

While no practicing physician is immune from being sued, common-sense measures have proven effective in avoiding malpractice claims. And, although a resident physician’s liability is generally covered by the residency program, there remains ample reason to mitigate liability risk – notably, to avoid the stress, time, and hassle that comes with litigation.

Most obviously, physicians should provide the best medical care to their patients they possibly can. Lawsuits for medical malpractice involve determining whether the physician has met the standard of care owed to the patient; if she provided the best care she could have, she has positioned herself well from the outset.

Essential to providing a high level of care to the patient is communication about that care to the patient. Medical malpractice lawsuits often involve allegations of poor communication that may be rooted in a failure to convey respect, inadequate listening skills, and the use of technical medical jargon rather than patient-friendly language.

In a fast-paced environment with numerous patients to attend to, it’s understandably easy to use verbal medical shortcuts for efficiency’s sake; however, using patient-friendly language creates a stronger connection with patients, makes for well-informed patients, and may also manage patient expectations about treatment, diagnosis, and prognosis.

When a patient is dissatisfied, the physician should carefully listen and try to understand the basis for the concern or frustration and engage in meaningful dialogue about the issue. By making this concerted effort to proactively communicate and resolve issues, physicians affirm their commitments both to the patients and to a quality practice where people are treated with respect.

Another important aspect of mitigating liability risk is thorough detailed documentation in the medical record. Careful documentation is the foundation for quality and coordinated patient care, defending malpractice claims, and even for reimbursement issues by government programs – such as Medicare and Medicaid – and commercial insurers.

Proper documentation should include, but certainly isn’t limited to: details of discussions with patients, the physician’s thought and decision-making processes, results of laboratory tests and other ancillary services, proposed courses of treatment (including the impact of doing nothing), the bases for any physician recommendations, and communication of alternatives to the patient. In so carefully documenting, the physician establishes medical necessity for her services and creates admissible evidence in the event litigation arises out of the treatment.

While it may create extra work for physicians, taking the steps outlined in this article offers the benefits of more meaningful communication with patients, increases patient satisfaction, facilitates coordinated care with other providers on the patient’s behalf, and reduces the risk of medical malpractice lawsuit liability. Establishing these habits early in a medical career will undoubtedly offer great long-term rewards.

Martin J. Lopez III is a litigation attorney with the Oklahoma City law firm of Phillips Murrah.

What happens when a general contractor files for bankruptcy?

Image for general contractor bankruptcy

If you are a subcontractor or owner on a project where the general contractor has declared bankruptcy, you should act quickly to ensure, to the extent possible, that your rights are protected.

First, whether you are a subcontractor or owner, examine your contract and realize that termination due to bankruptcy is likely unavailable. Once an individual or corporation files bankruptcy, a provision called the “automatic stay” comes into play, which allows the individual or corporation filing bankruptcy to avoid creditors’ demands while organizing for the coming proceedings. Thus, generally, a contract with a general contractor cannot be terminated unless the bankruptcy court lifts the automatic stay.

Second, if you are a subcontractor, you should contact the surety (if the project is bonded) or the owner (if it is a private, unbonded project) to make sure that the owner or surety has a formal written claim from you that shows what has been paid, what invoices were submitted but not yet paid, and the balance to finish. Make sure that the owner or surety, as the case may be, is also aware of any submitted changed orders that may be going through the approval process. Note that lien rights are unaffected by a general contractor’s bankruptcy, as liens are against the owner and not the general contractor.

Third, if you are a subcontractor, your automatic reaction may be to stop or slow work. However, simply pulling from the job may not be the best option in all circumstances. General contractors can still enforce their rights for performance under the subcontract, and you do not want to be dealing with a breach claim at the same time as trying to receive payment for work performed but unpaid. However, if a general contractor decides to enforce his or her rights to performance, the general contractor will have to pay you for that work. To ensure payment, joint checks from the owner may need to be negotiated. In either event, slowing work while working with the general contractor, owner, or surety may be the best option to preserve all rights and make sure you do not incur additional costs or obligations.

Fourth, if you are an owner and the project is bonded with a performance or payment bond, you will want to make sure you are in close communication with the bonding company. Additionally, you will want to make sure the surety is paying claims so you are not faced with lien claims by unpaid subcontractors or suppliers.

In conclusion, the key point is to communicate up and down the chain. Owners need to know what claims are outstanding and who was working on the projects so they can protect their rights and move forward with the project. Similarly, and for the same reasons, subcontractors need to let owners and the surety, if applicable, know that they have outstanding unpaid bills and receive guidance on how to proceed. While this article addresses certain considerations after bankruptcy is declared, owners and subcontractors should consider contacting legal counsel to make sure they are protected while moving the project forward and to protect their rights in the bankruptcy proceedings.

Data breach still compliance concern for health care providers

cyber breach artworkHIPAA concerns, established in 1996 and evolving ever since, continue to be a very real compliance concern for healthcare providers. As an example, last year HHS collected $28.7 million from providers of healthcare services and payors for responses to HIPAA data breaches that HHS considered inadequate.

According to Modern Healthcare, this is $5.2 million over the prior high for settlement and penalties reported in 2016.  The data for 2018 may be skewed by the $16 million settlement by Anthem for a breach involving approximately 79 million people. That breach occurred in 2015, and the settlement was record-setting for the Office of Civil Rights.

Changes being discussed by HHS include the possibility of sharing a percentage of civil monetary penalties or monetary settlements with affected individuals; revisions to HIPAA rules that facilitate the additional information demanded by coordinated care, outcome-focused care and value-based payments; and reconciliation of behavioral health care’s 42 CFR Part 2 rules with HIPAA.


Mary Holloway Richard portrait

Mary Holloway Richard

If you are concerned about how this issue affects your business or practice, contact Mary Holloway Richard, who represents and counsels clients on issues including healthcare compliance, health services contracting, reimbursement audits and appeals, OIG investigations, and regulatory and corporate matters. 

Mary can be reached at 405.552.2403 or at mhrichard@phillipsmurrah.com.

Click here to view Mary’s Attorney Profile page.

Gavel to Gavel: The uphill battle faced by creditors in bankruptcy

Bankruptcy is a debtor’s remedy, meaning many of the rules and regulations are more favorable to debtors than to creditors. To even the playing field a bit, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005.

Gretchen Latham Web

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

Several of its provisions were put in place to provide assurances to creditors that the system is fair and impartial. Of note, those that file must now undergo credit counseling both prior to filing and prior to receiving a bankruptcy discharge.

Also of significance are the changes to the Bankruptcy Code regarding what chapter of case a debtor is eligible to file. Prior to enactment of BAPCPA, many creditors were missing out on substantial payments because most debtors elected to file a Chapter 7 case, which acts as a total liquidation of debts, other than debts that are reaffirmed. The result was that most unsecured creditors were losing out on repayment of their entire outstanding balance.

With BAPCPA, debtors are no longer free to decide what type of case to file. Rather, a complex mathematical computation is performed prior to filing, and if the results show a debtor has funds available to repay a portion of their unsecured debt, that debtor may be required to file a Chapter 13 case.

Chapter 13 is similar to debt consolidation, in that the debtor proposes a plan of repayment to all creditors, to include paying back a percentage of unsecured debt. The result is that unsecured creditors, such as credit card companies and medical providers, receive some payment.

A creditor is also permitted to file an objection to the proposed repayment plan. The most common objections are to the interest rate and value of secured claims. There are other bases for objecting, including that plan is not feasible or that the case was filed as a delay tactic.

Aside from having a statutory basis for objecting, a creditor must also adhere to the Bankruptcy Court’s local rules when objecting to avoid the risk of an improperly filed objection.

While bankruptcy is still a very viable option for those with overwhelming debt, the arena is now viewed as being much more equal. Creditors have many tools at their disposal when a consumer files bankruptcy and should take full advantage of those tools to maximize repayment where possible.


By Phillips Murrah Attorney Gretchen M. Latham

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on March 7, 2019.

NewsOK Q&A: Some qualifications necessary to conduct businesses in other states

In this article, Oklahoma City Attorney Travis E. Harrison discusses practical legal issues related to conducting business in multiple states.

Travis Harrison

Travis E. Harrison is a transactional attorney who represents individuals and both privately-held and public companies in a wide range of transactional matters.

When is a corporation, limited liability company or other registered legal entity “transacting business” in another jurisdiction?A legal entity required to be registered under the laws of one state must be cognizant of whether its structure or company activities constitute “transacting business” in another state. For example, a corporation formed under the laws of Oklahoma might provide services or buy and sell real estate in Texas. If Texas law defines this activity as “transacting business,” then the corporation should take the required steps to qualify to do business in Texas — as the failure to do so may result in unforeseeable fines or other consequences. Each state establishes its own variations on what activities by a foreign (out-of-state) business constitute doing business in that state. As a practical matter, a business that has a strong presence or engages in successive transactions in another state is likely “transacting business” and will need to take the appropriate steps to qualify in that state.

What are the consequences of failing to qualify to do business in another state?

Similar to the issue of what activities constitute “transacting business” in another state, the ramifications for failing to qualify to do business are a creature of state statute and vary by jurisdiction. However, the most common legal consequences for failing to qualify are fines and the inability to utilize that state’s court system to bring a lawsuit. For example, assume the previously mentioned corporation formed under the laws of Oklahoma fails to qualify to do business in Texas even though it meets Texas’ criteria for “transacting business.” If the Oklahoma corporation files a breach of contract action in Texas, then its case may be dismissed because it failed to qualify to do business in Texas. This pitfall is especially problematic if the corporation is jurisdictionally restrained from bringing the lawsuit in Oklahoma because of other procedural issues.

How does a company qualify to do business in a state other than its state of formation?

As mentioned above, a company should be cognizant of whether its operations in other states require it to qualify to do business in those states. Generally, an enterprise qualifies by filing a certificate with information about the enterprise and its good standing and paying the respective filing fee with the state’s secretary of state (or other designated office). Additionally, a company should ensure that it complies with the other government’s applicable tax requirements for foreign businesses. In Oklahoma, for example, a foreign corporation’s failure to pay annual franchise taxes may subject it to unnecessary penalties.

 

Published: 2/21/19; by Paula Burkes
Original article: https://newsok.com/article/5623523/some-qualifications-necessary-to-conduct-businesses-in-other-states

Federal income tax challenges for medical marijuana businesses in Oklahoma

On June 26, Oklahoma voters approved State Question 788, which legalizes the use, growth, and sale of marijuana in the state for medicinal purposes.  In addition to providing rules for individual use of medical marijuana, the approval of SQ 788 also created a number of opportunities for new related businesses, such as retailers or dispensaries, commercial growers and processors. However, although licensed medical marijuana businesses are now legal under Oklahoma state law, conflicting federal law creates a number of challenges for business owners, particularly with respect to federal income tax law.

Attorney Jessica N. Cory

Jessica N. Cory advises clients regarding corporate and general business matters, including choice of entity, formation, tax-free reorganizations, acquisitions and dispositions and tax planning.

Generally, the Internal Revenue Code allows a taxpayer to take a deduction for all “ordinary and necessary” business expenses paid or incurred during the taxable year.  Congress has created an exception to this rule in certain instances, however.  One such exception is Internal Revenue Code Section 280E, which prohibits a taxpayer engaged in the business of “trafficking in controlled substances” from taking a deduction for ordinary business expenses.  For purposes of this provision, a controlled substance is any Schedule I or Schedule II drug under the federal Controlled Substances Act, which includes marijuana.  Although taxpayers have argued that Code Section 280E should not apply to businesses operating legally under state law, courts have repeatedly rejected this argument, concluding that any business buying or selling marijuana regularly is subject to the restrictions of Code Section 280E until Congress chooses to amend the Internal Revenue Code.

Although Code Section 280E’s bar on deductions represents a significant obstacle for medical marijuana business owners, several exceptions help reduce the burden on these taxpayers.  For example, although a medical marijuana business cannot deduct expenses in the same way as other taxpayers, it is entitled to offset its gross receipts with its cost of goods sold (“COGS”), although the Internal Revenue Service has issued guidance strictly limiting what types of costs a taxpayer engaging in a marijuana business can allocate to COGS.  Caselaw supports this narrower interpretation of COGS, including prohibiting resellers of marijuana from including any indirect costs – costs other than the price paid for inventory plus any transportation or other necessary acquisition costs – in COGS.

Another important exception to Code Section 280E is the separate business rule recognized by the Tax Court in an early medical marijuana case.  Under this rule, although Section 280E may preclude a taxpayer from taking any deductions relating to its medical marijuana sales, it can still deduct its expenses for any separate, non-trafficking trade or business.  Accordingly, it is extremely important for a marijuana business to keep careful records of any other businesses it may also operate, unrelated to growing, processing, or selling marijuana.

Members of Congress have repeatedly introduced legislation to exempt marijuana businesses lawfully operating under state law from the parameters of Section 280E.  Until this type of legislation is enacted, however, federal tax law will remain a potential minefield for any unwary medical marijuana businesses.  It is therefore important for businesses opening under SQ 788 to seek out an experienced accountant or tax lawyer to discuss the best way to structure their business to comply with federal tax law while minimizing their tax burden.


If you would like to know more about how this affects your business, contact Jessica N. Cory at 405.552.2472 or jncory@phillipsmurrah.com.