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Litigation Update: Corporate Practice of Medicine

Month: January 2023

Litigation Update: Corporate Practice of Medicine

Posted on by Christie Bowness

In recent years, the healthcare industry has witnessed a boom of practice mergers, consolidations, and acquisitions of medical practices and healthcare organizations. In doing so, many of these transactions involve a management services organization (“MSO”), which is an entity that provides administrative services to medical practices and healthcare organizations.

Many states generally require that medical care may only be provided by a duly-licensed healthcare provider or facility, and prohibits unlicensed corporations from treating patients and/or directing patient care. This is commonly known as the prohibition of the corporate practice of medicine or “CPOM,” and each state varies in its application of CPOM, assuming it has such a prohibition. Parties involved in healthcare transactions must consider CPOM issues when creating an MSO.

There are only a few published cases addressing CPOM, and even less since In the Matter of Aspen Dental Management, Inc., No. 15-103, which was brought by the New York Attorney General.

Recently, however, a matter has been filed and is currently pending before the United States District Court for the Northern District of California, titled American Academy of Emergency Medicine Physician Group, Inc. v. Envision Healthcare Corporation and Envision Physician Services LLC, Docket No. 3:22-cv-00421-CRB, that raises CPOM issues. In this matter, the plaintiff, American Academy of Emergency Medicine Physician Group, Inc. (“AAEMPG”), alleges CPOM issues with Envision Healthcare Corporation and Envision Physician Services LLC (collectively “Envision”).

The matter involves a legal dispute between two MSOs providing services to competing emergency medicine physician groups. The case stems from a California hospital’s decision to award its emergency department contract to an emergency medicine physician group associated with Envision. AAEMPG, the MSO to the outgoing group, challenged the decision by filing a lawsuit in the Superior Court of the State of California alleging Envision’s arrangement with the incoming group, Glass Beach Medical Services (“Glass Beach”), violates California’s unfair competition laws.

AAEMPG’s unfair competition claims principally allege that Envision’s arrangement with Glass Beach violates California’s prohibition on CPOM. Specifically, AAEMPG alleges in the Complaint that Envision effectively controls the provision of medical care by, among other things, controlling hiring and terminations, setting compensation, establishing terms of employment, setting staffing levels and patient encounter quotas, handling the billing and coding, and establishment of physician best practices and quality metrics.

The Complaint, however, lacks any allegation that Envision actually directed medical services or otherwise abrogated the independent clinical judgment of Glass Beach’s physicians. Envision removed the matter from the Superior Court of California to the United States District Court for the Northern District of California on the basis of diversity of citizenship.

AAEMPG’s allegations are just that, allegations, and no determinations regarding the matter have been rendered.  This litigation, however, is one to monitor.

The Complaint filed by AAEMPG can be found here.

Nursing Home Arbitration Provisions and ACA Proposed Rules

Posted on by Christie Bowness

CMS Revised Long-Term Care Surveyor Guidance In Effect

Centers for Medicare and Medicaid Services (“CMS”) issued revised long-term care surveyor guidance to help assess noncompliance with arbitration agreements used by long-term care facilities which took effect on October 24, 2022.  CMS revised the guidance in Chapter 5 and related exhibits of the State Operations Manual ("SOM") to strengthen the oversight of complaints and facility-reported incidents ("FRIs") and further revised its guidance for all Medicare-certified provider/supplier types to improve consistency across the State agencies in their communication to complainants. CMS provided guidance related to arbitration agreements, which prohibits facilities from requiring residents to sign binding arbitration agreements as a condition of admission to the facility, or as a requirement to continue to receive care.

Long-term care facilities could face penalties from surveyors and civil monetary penalties for noncompliance with these arbitration rules. In 2021, the Eighth U.S. Circuit Court of Appeals decided Northport Health Services of Arkansas, LLC et al v. U.S. Department of Health and Human Services, No. 20-1799 (8th Cir. Oct. 1, 2021), which had ruled that long-term care facilities must fully explain any arbitration agreements to their residents to be eligible for reimbursement from federal payors including Medicaid and Medicare.

CMS Issues HHS Notice of Benefit and Payment Parameters for 2024 Proposed Rule

CMS announced the U.S. Department of Health and Human Services’ (“HHS”) Notice of Benefit and Payment Parameters for the 2024 Proposed Rule. Through this rule, CMS proposed standards for issuers and health insurance marketplaces, as well as requirements for agents, brokers, web-brokers, and assisters that help consumers with enrollment through marketplaces that use the Federal Affordable Care Act (“ACA”) platform. This proposed rule aims to expand access to care for low-income and medically underserved consumers, strengthen the health insurance market, bolster program integrity, and make it easier to enroll in ACA plans.

Among other things, CMS proposes that beginning January 1, 2024, ACA marketplaces will have the option to implement a new special rule for consumers losing Medicaid or Children’s Health Insurance Program ("CHIP") coverage that is also considered minimum essential coverage, and additionally proposes to establish two additional major “essential community provider” categories for Plan Year 2024 and beyond: 1) Mental Health Facilities and 2) Substance Use Disorder Treatment Centers. CMS also proposes changes to the ACA standardized plan options and standalone dental plans.

CMS issued a Fact Sheet on the proposed rule.

Illinois Holds Title Insurance Claims Exempt From Complete Defense Rule

Posted on by Jessica Civetta

In Findlay v. Chicago Title Ins. Co., 2022 IL App (1st) 210889 (2022), the Appellate Court of Illinois, First Division (“the Court”), endorsed and adopted the reasoning of several outside jurisdictions in holding that title insurance claims were exempt from Illinois’ “complete defense rule,” due to the unique characteristics inherent to title claims and title insurance as a whole.

The matter involved a ten lot residential vacation community located near the shore of Lake Michigan.  Lots 1 through 7 possessed their own designated private beach areas, while Lots 8 through 10 were landlocked without a private beach.  Originally, the community contained a beach easement on the edge of Lot 5 which allowed access to Lake Michigan and the Lake’s beach area (“the Beach Easement”), which was used by the owners of Lots 8 through 10 to obtain beach access.  In the 1990s, the community erected a gate near the easement access point which, when closed, only allowed the landlocked owners to access the Beach Easement by cutting across a portion of Lot 5.

In 2007, Plaintiff James Findlay (“Plaintiff”) purchased Lot 5, and post-purchase began objecting to the other lot owners cutting across his property to access the Beach Easement.  This led to a lawsuit between Plaintiff and the owners of Lots 8 and 9 (“the Lot Owners”), with the Lot Owners seeking a declaratory judgment that an implied ingress-egress easement existed on Lot 5.  Both Plaintiff and the Lot Owners possessed title insurance through Defendant Chicago Title Insurance Company (“Chicago Title”), with both parties having submitted respective claims to Chicago Title prior to the commencement of litigation. Chicago Title retained counsel for both parties.

When settlement efforts failed and the Lot Owners brought suit, Chicago Title provided Plaintiff with an attorney, but only agreed to defend and indemnify Plaintiff on two of the Lot Owners’ four total counts.  At the same time Chicago Title accepted the Lot Owners’ tender and paid for their attorney, thus footing the bill for the attorneys of both parties.  During the litigation process, Plaintiff fired his appointed counsel and retained new counsel without Chicago Title’s approval or consent.  Ultimately, Plaintiff prevailed in the lower court, which held that no implied easement existed.

Following the conclusion of this first suit, Plaintiff then sued Chicago Title, alleging it had breached its contractual duty to defend by: (1) creating a conflict of interest by paying for both his attorney and the Lot Owners’ attorney; (2) failing to provide coverage for all four counts of the Lot Owners’ action; and (3) failing to approve his retention of a new replacement attorney.  Plaintiff ultimately failed on each of these claims before the trial court, appealing the dismissal of his action to the Court.

On appeal, the Court first considered Plaintiff’s conflict of interest claim, noting it was well established that “not every potential conflict of interest automatically triggers the right to independent counsel at [an] insurer’s expense” and that the “mere fact that opposing parties are insured by the same insurance provider does not necessarily entitle the insured to paid-for independent counsel.”  Based on this precedent, the Court thus held that Chicago Title paying for both parties’ attorneys did not create a conflict of interest, as the payment alone could not create such a conflict, and as there was no evidence in the record demonstrating that Chicago Title had directed Plaintiff’s counsel how to litigate the case.  As a practical matter, Chicago Title had also provided Plaintiff with a replacement attorney upon the start of litigation, thereby effectively providing both Plaintiff and the Lot Owners with “separate and independent counsel” which served to even further obviate any potential conflict.

The Court then turned to the more interesting and salient issue: Plaintiff’s contention that by refusing to defend and indemnify all four counts of the Lot Owners' action, Chicago Title had breached Illinois’ “complete defense rule,” which generally imposes an obligation upon an insurer “to provide a complete defense in a suit or action against its insured even if only one or some of the claims are potentially covered.”  While the Court acknowledged that this doctrine was valid, it held that “the complete defense rule does not apply in the context of title insurance,” citing as examples opinions from other jurisdictions in Wisconsin, Pennsylvania, Colorado, and Massachusetts.  The Court explained that this exception derives from several unique characteristics of title insurance, namely that it acts in a “retrospective rather than prospective” manner by protecting against defects arising prior to the issuance of coverage, and that its claims are easily bifurcated.  Thus, the Court ultimately held “that the complete defense rule does not apply in the context of title insurance.”

Finally, the Court found that Plaintiff’s remaining claim was barred by title policy Condition 5(a), which provided that Chicago Title had “the right to select counsel of its choice (subject to the right of [Plaintiff] to object for reasonable cause) [and Chicago Title] shall not be liable for and will not pay the fees of any other counsel.”  As Plaintiff had never provided any “reasonable cause” to object to his original attorney’s representation, this claim thus also failed.

As Plaintiff’s claims were each found defective, the Court affirmed the lower court’s denial.

Takeaways

This matter has potentially broad application, as it is the most recent in what appears to be a growing trend of jurisdictions wholly exempting title insurance from the “complete defense rule” or any other similar state analog using a different name.  When faced with a such a claim, this opinion, used in conjunction with the various holdings of other states summarized within, can potentially form the basis of a good faith motion to dismiss or motion for summary judgment.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

Axing the Faxing, Medicare Advantage Plans, and Pharmacist Reimbursements

Posted on by Jessica Civetta

HHS Proposes New Rule for Medicare Advantage Drug Coverage and Advertisements 

The U.S. Department of Health and Human Services ("HHS"), through the Centers for Medicare & Medicaid Services ("CMS"), recently published a proposed rule (87 FR 79452) seeking to improve the prior authorization process, coverage guidelines, and plan marketing requirements for Medicare Advantage and Medicare Part D.

Regarding Medicare Advantage plans, the proposed rule seeks to ensure Medicare Advantage enrollees receive the same access to medically necessary care they would receive in traditional Medicare. For example, the rule proposes regulatory  changes which would clarify and refine the way in which Medicare Advantage plans develop and implement coverage criteria and utilization management policies. Additionally, the rule also proposes streamlining prior authorization requirements by requiring that a granted prior authorization approval remain valid for a beneficiary’s full course of treatment, requiring Medicare Advantage plans to annually review utilization management policies, and requiring coverage determinations be reviewed by professionals with relevant expertise. Notably, these changes would complement CMS’ recently announced Advancing Interoperability and Improving Prior Authorization Processes Proposed Rule (CMS-0057-P).

Additionally, the proposed rule seeks to protect the public from confusing and potentially misleading Medicare and Medicare Advantage marketing. In order to do so, CMS is (1) prohibiting ads that do not mention a specific plan name, use words and imagery that may be confusing, or use language or logos in a way that is misleading; (2) codifying guidance protecting people from misleading marketing or high-pressure enrollment techniques; and (3) strengthening the role of plans in monitoring agent and broker activity.

Moreover, the proposed rule contains significant changes affecting beneficiary access to certain medical services and incentivizing provider adherence to CMS’s health equity and coverage initiatives. For behavioral health services, CMS proposes revised minimum wait time standards for behavioral health and primary care services, heightened patient notice requirements for providers who are dropped from their networks, and requirements that most types of Medicare Advantage plans include behavioral health services in care coordination programs. Regarding CMS health equity and coverage initiatives, CMS proposes establishing a health equity index in the Star Ratings program, which would reward excellent care for underserved populations by Medicare Advantage and Medicare Part D plans, as well as requiring plans to provide culturally competent and equitable care to an expanded list of populations.

CMS has issued a fact sheet summarizing the proposed rule’s wide range of potential rule and policy changes. The public comment window for this proposed rule closes on February 13, 2023.

Axing the Faxing? CMS Proposes Simplification of Healthcare Attachment Transactions 

CMS recently proposed a rule (87 FR 78438) seeking to reduce administrative costs by adopting standards to simplify transactions involving “health attachments,” such as medical charts, x-rays and provider notes. Every health plan has requirements with which a health care provider must comply for the plan to authorize and pay the provider for health care services, frequently requiring the provider to utilize manual processes (mail, fax, internet web portals, etc.) to provide such health attachments in support of their claims. CMS estimates that providers’ efforts to comply with each plan’s varying health attachment methods and standards results in nearly $454 million of waste per year.

The rule modifications would simplify and streamline the healthcare claims and prior authorization processes, create standards for electronic signatures used with healthcare attachments transactions, and update the standard for the referral certification and authorization transaction.

CMS has issued a fact sheet summarizing this proposed rule. The public comment window for this proposed rule closes on March 21, 2023.

Federal Program Will Reimburse Pharmacists as Providers for COVID-19 Services

The U.S. Office of Personnel Management ("OPM") announced that it will begin listing and reimbursing pharmacists as clinical care providers on certain U.S. government employees' insurance bills.  On December 8, 2022 the OPM, which is the federal agency that handles employer-sponsored health insurance for civilian federal workers, issued a letter to all federal employee health benefit ("FEHB") carriers stating that it will require pharmacists to be reimbursed as clinical care providers for patient assessment and prescribing the COVID-19 therapy Paxlovid.

The OPM’s coverage letter specifically builds on the July 2022 decision by the FDA to allow state-licensed pharmacists to prescribe Paxlovid. Notably, the OPM coverage letter strongly suggests that FEHB carriers should have been reimbursing pharmacists as clinical providers since the FDA’s July 2022 clearance for state-licensed pharmacists to prescribe Paxlovid. Pharmacists seeking clarification on reimbursement for Paxlovid from FEHB carriers may contact the OPM via email at OPMPharmacy@opm.gov.

Florida Court Denies RESPA Claim Based on Mortgage & Promissory Note Rights Dichotomy

Posted on by Jessica Civetta

In the recently-decided matter of Fis v. Newrez, LLC, LEXIS 233104 (SD Fla. Dec. 28, 2022, No. 22-81364), the United States District Court for the Southern District of Florida (“the Court”) issued an interesting opinion highlighting the differing rights and obligations imposed by mortgages and their accompanying promissory notes, using the dichotomy between the instruments to dismiss a Real Estate Settlement Procedures Act (“RESPA”) claim on the basis of a lack of standing.

The background facts of the action were simple.  In May 2008, Rafael Fis, Maria Fis, Diana Fis, and Omar Fis jointly purchased a home at 8921 Starhaven Cove in Boynton Beach, Florida (“the Property”).  As part of the sale, Diana and Omar executed a mortgage (“the Mortgage”) and promissory note (“the Note”) with Bank of America–however, neither of these instruments named Raphael or Maria.  Subsequent to the purchase, the Mortgage was amended to add Raphael and Maria–thereby including all four parties–while the Note remained unchanged and included just two parties as obligors, Diana and Omar.

Fourteen years later, in June 2022, Raphael and Maria (“Plaintiffs”) submitted a loan mitigation application (“LMA”) to Defendant Newrez, LLC (“Defendant”), which was the Note servicer.  Defendant failed to respond to both the June 2022 LMA request and an additional follow-up request sent in August 2022.  Plaintiffs thereafter brought suit against Defendant seeking damages for RESPA violations, with Defendant moving to dismiss on the basis that Plaintiffs lacked sufficient Article III Constitutional standing to maintain their action.

In ruling on the motion, the Court first noted that RESPA requires loan servicers to take specific actions in response to borrower requests, specifically mandating that servicers: (1) provide written acknowledgment of their receipt of an LMA request within five business days of reception; and (2) furnish a substantive written response to the LMA request within thirty business days of reception.  While it was undisputed that Defendant never responded to either of Plaintiffs’ LMA requests, Defendant alleged it nevertheless owed no liability because Plaintiffs had “not suffered a constitutionally-sufficient injury-in-fact [as] they were not borrowers or otherwise obligated on the Note,” observing that the Mortgage and Note were “separate agreements setting forth different rights and obligations.”

The Court agreed, explaining that, “[p]ut simply, [while] a loan obligates you to pay the lender back, [] a mortgage gives the lender the ability to take your house if you fail to meet that obligation.”  To illustrate this concept the Court summarized the holding issued by the Sixth Circuit in the analogous matter of Keen v Helson, 930 F3d 799 (6th Cir. 2019), wherein a husband and wife jointly purchased a home, with both parties signing the mortgage but the husband alone signing the note.  The Keen parties later divorced, with the husband conveying full title to the wife and subsequently passing away, following which the wife continued to make payments despite not being an obligor on the note.  The wife eventually fell behind on payments, requested relief from the lender via LMA, was ignored, and sued for a RESPA violation, with her suit dismissed on the basis that only the obligors on the note itself have sufficient standing to bring a RESPA action as being a mortgage signatory alone does not create any repayment obligation.

The Court held that Plaintiffs’ standing argument was identical to the standing observed in Keen, as while Raphael and Maria were parties to the mortgage–which operated to grant Defendant, as lender, a security interest in the Property–they were not parties to the Note.  By virtue of their absence from the Note they had no standing to request relief under RESPA, as they owed no obligation to issue payments, and without the existence of such obligation there could be no RESPA violation on Defendant’s part.  Plaintiffs’ action was therefore dismissed for a lack of Article III standing.

Takeaways

This Opinion highlights the differing rights and obligations imposed by mortgages and promissory notes, instruments which individuals often mistakenly conflate as imposing a singular global repayment obligation.  As mortgages grant a security interest in a property, and promissory notes impose the repayment obligation, this Opinion underscores the importance of proper closing procedures and ensuring all parties’ names are properly listed on all documents.  It also demonstrates the scope of RESPA and that causes of action under the statute flow from promissory notes themselves and not mortgage agreements.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

HIPAA Part 2 and Price Transparency Update

Posted on by Christie Bowness

HHS and SAMHSA Issue Proposed Rule Aligning HIPAA and 42 CFR Part 2

On November 28, 2022, the federal Department of Health and Human Services (“HHS”) and the Substance Abuse and Mental Health Services Administration (“SAMHSA”) released a proposed rule (87 FR 74216) to implement the bipartisan CARES Act legislation, which, among other things, will require HHS to bring 42 CFR part 2 (“Part 2”) into greater alignment with certain aspects of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") Privacy, Breach Notification, and Enforcement Rules.  As discussed by HHS in its public release, Part 2 protects patient privacy and records concerning treatment related to substance use challenges from unauthorized disclosures. Specifically, the proposed rule increases coordination among providers in treatment for substance use challenges and increases protections for patients concerning records disclosure to avoid discrimination in treatment. HHS released a Fact Sheet on the proposed rule.

CMS Issues New Resources to Aid Compliance With Hospital Price Transparency Requirements

The Centers for Medicare and Medicaid Services (“CMS”) released three new processing formats to assist hospitals in meeting the federal hospital price transparency requirements. The published resources can be found here and include CMS’s “tall,” “wide,” and “plain” formats as well as other resources to assist in hospital compliance with these requirements. The three formats help facilitate the listing of the standard charges such as gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges.

HHS Issues New Rule to Adopt Standards for Health Care Attachments Transactions and Electronic Signatures

HHS issued a proposed rule (87 FR 78438) under HIPAA that would allow providers to electronically transfer “health care attachments,” such as medical charts, x-rays, and provider notes that document physician referrals, and office or telemedicine visits, and sign documents electronically to facilitate prior authorizations and other healthcare claims transactions. According to the release issued by CMS on December 19, 2022, this move is a part of HHS’ and CMS’ ongoing efforts to “significantly reduce paperwork burdens and empower health care providers to focus on direct patient care and streamline the care experience for patients and providers.” Under the proposed rule, CMS estimates a savings of $454 million annually in administrative costs. CMS issued a Fact Sheet on the proposed rule.

Alaska Holds Improperly Recorded Lien Effective Under “Equitable Mortgage” Doctrine

Posted on by Christie Bowness

On December 7, 2022, the Alaska Supreme Court (“the Court”) issued an opinion in the matter of Jae Chang v. Jungmok Rhee, LEXIS 135 (Dec. 7, 2022, No. S-17827), holding that an improperly-recorded lien could still be held effective under the “equitable mortgage” doctrine, but could not confer adequate notice to defeat a bona fide purchaser for value claim put forth in opposition to its enforcement.

Between 2014 and 2016, Plaintiff Jae Chang (“Plaintiff”) issued three personal loans to Hyeran and George Hunziker (“the Hunzikers”) which cumulatively totaled $115,000.  Each of these loans was secured by a promissory note stating that the loan had been collateralized by the Hunzikers’ personal residence.  In connection with the first loan, which was issued in February 2014, a “Claim of Lien” was recorded in the county recording office using a form intended for the recordation of mechanics’ liens.  This form nevertheless identified Plaintiff as “Lienholder,” the Hunzikers as “Property Owner,” and contained an accurate street address and description of the Hunzikers’ residence.  The form was signed by the parties and notarized, but contained no timeframe indicating how long the lien was to be in effect or at what point it would be deemed expired or satisfied.  No additional forms were filed in connection with the subsequent two loans.

In April 2018, the Hunzikers sold their residence to Defendants Jungmok Rhee and Ukyung Lee (collectively “Defendants”).  An unnamed title insurance company conducted a title search before the sale, but the resulting title insurance policy did not mention the recorded February 2014 lien.  In November 2018, Plaintiff filed suit, alleging a breach of contract claim against the Hunzikers and a foreclosure claim against Defendants.  During discovery the Hunzikers admitted that they had never informed Defendants of the lien, explaining they failed to do as they “thought that because [they] [were] making the payments [] there was not a lien” and because the title company had “told [them] that there [were] no liens on the property.”

Defendants moved for summary judgment on the foreclosure claim, asserting they were never informed the lien existed when they purchased the property, lacked any knowledge of its existence, and thus were bona fide purchasers for value.  Plaintiff opposed, contending that the recording of the lien provided “at the very least [] inquiry notice” of its existence, thus defeating the bona fide purchaser claim.  The trial court ultimately held that Defendants were in fact bona fide purchasers and granted their summary judgment claim.

Plaintiff appealed to the Court–which heard the appeal because in Alaska all appeals of civil superior court matters go directly to the Supreme Court–which ultimately affirmed, agreeing that Defendants were “bona fide purchasers” as they lacked notice of the lien at the time they purchased the property.

First, the Court addressed the issue of the lien having been incorrectly recorded on a mechanic’s lien form–an issue which the lower court had bypassed–holding that the lien should be construed as an “equitable mortgage,” which it explained is any instrument that had the “intent but not the form of a mortgage,” and thus treated as if effectively recorded.  The “determinative question” therefore became whether Defendants “lacked the requisite notice of the equitable mortgage and were therefore bona fide purchasers.”

The Court discussed the three potential categories of notice–actual, constructive, and inquiry.  Actual notice did not exist as the Hunzikers admitted they never provided Defendants with notice the lien existed, it was undisputed that the title company never identified its existence, and Plaintiff made no showing to rebut these claims.

The Court further found that Defendants lacked constructive notice of the instrument because the document failed to include any specific timeframe or duration.  Specifically, the Court explained that the “contents of the document” failed to give constructive notice because it was “at most, evidence of an equitable mortgage, the existence, duration, and other terms of which had to be determined [] by reference to extrinsic evidence of [Plaintiff]’s and the Hunzikers’ intent”–thus, without containing all specific terms necessary to understanding the full scope of the lien, it could not provide effective constructive notice.

Finally,  the Court found Defendants did not possess awareness of any “facts that would lead a reasonably prudent person” to investigate the potential existence of a lien, as they lacked any direct knowledge of the lien’s existence, and none of the various documents executed during the property sale indicated or referenced the lien itself.  Therefore, the Defendants were considered bona fide purchasers for value and Plaintiff’s claims dismissed.

Takeaways

This Opinion makes clear that in jurisdictions utilizing the “equitable mortgage” doctrine or an analogous facsimile, even if improperly recorded, a lien can still be effective and enforceable provided it contains all terms necessary to understanding its full scope, is executed by the parties to the instrument, and appears to further the signing parties’ original intent.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

NY Holds CEMA Defense Waiver Enforceable & Effective to Waive Statute of Limitations Defense

Posted on by Christie Bowness

In the matter of Bank of N.Y. Mellon v. Vogt, LEXIS 2178 (N.Y.L.J. Nov. 3, 2022), on November 3, 2022, the New York Supreme Court, Rockland County (“the Court”), issued a decision holding that broadly-worded defense waiver provisions were not only generally enforceable, but constituted a sufficient basis to waive potentially viable affirmative statutory defenses.

In February 2006, husband and wife Margaret Vogt and Defendant Michael Vogt (“Defendant”) obtained a $450,000 loan from America’s Wholesale Lender (“AWL”), jointly executing a note in favor of AWL promising to repay the loan.  This note was secured by a mortgage on their residence in Pomona, New York (“the Property”).  In January 2007, Margaret Vogt obtained a $44,872 loan from Countrywide Home Loans (“CHL”), in return executing a second note which was also secured by a mortgage on the Property.  This second note was only executed by Mrs. Vogt, but the accompanying mortgage was executed by both Mrs. Vogt and Defendant.

Later in January 2007, Mrs. Vogt executed a consolidated note in favor of CHL for $492,000 consolidating both prior notes.  This consolidation was accompanied by a consolidation, extension, and modification agreement (“CEMA”) executed by both Mrs. Vogt and Defendant, containing a provision stating:

I agree that I have no right of set-off or counterclaim, or any defense to the obligations of the Consolidated Note or the Consolidated Mortgage.

In September 2010, Mrs. Vogt executed a Home Affordable Modification Agreement (“HAMA”) which modified the consolidated note and CEMA, created a new $544,861.89 lien, and contained a provision stating:

[A]ll terms and provisions of the [consolidated note and CEMA], except as expressly modified by [the HAMA], remain in full force and effect.

Mrs. Vogt passed away in September 2014.  On February 15, 2019, Plaintiff the Bank of New York Mellon (“Plaintiff”), which was the holder of the underlying note and mortgage, brought a foreclosure action against Defendant alleging that as of November 1, 2016, Defendant had defaulted on payment of the mortgage.  In response, Defendant asserted the affirmative defenses that: (1) Plaintiff’s action was outside the controlling statute of limitations; and (2) Plaintiff had failed to comply with the written prior notice requirements of New York Real Property Actions and Proceedings Law (“RPAPL”) §1304.

Plaintiff subsequently moved for summary judgment, adducing payment records and loan documents demonstrating that, as alleged, Defendant was in default and had indeed ceased remitting payments owed.  Importantly, Plaintiff also contended that Defendant’s affirmative defenses had been waived by the above-quoted CEMA provision which was later adopted into the HAMA.

The Court agreed with Plaintiff’s arguments and granted summary judgment, holding that by executing the CEMA Defendant’s “affirmative defenses and counterclaims were validly waived, . . . namely, Defendant’s agreement that he ha[d] no right of counterclaim or any defense to the obligations under the consolidated note or mortgage.”  The Court explained that under current New York precedent, defense waivers like the one contained in the CEMA are interpreted and enforced “broadly,” with the Court only able to identify one instance–a claim of fraud in procuring a loan–that had been deemed exempt from a validly executed defense waiver.  As Defendant “d[id] not assert fraud, which appears to be the only recognized exception to the kind of broad waiver of defenses and counterclaims such as that agreed to by Defendant in the CEMA,” Defendant's affirmative defenses thus failed and summary judgment was warranted as there remained “no available defense to ward off” its entry.

Takeaways

This case demonstrates the strength that New York courts will accord to defense waiver provisions, even where the provisions are broadly worded and included as a standard form clause.  It also reinforces that, once executed, these provisions can successfully migrate from agreement to agreement, and thus are enforceable provided they are continually explicitly adopted between agreements.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

Extension of Waivers, Including Telehealth, and Proposed OPIOID Treatment Rules

Posted on by Christie Bowness

Takeaways From the 2023 Omnibus Appropriations Bill

The federal government’s 2023 Omnibus Appropriations Bill was signed by President Biden shortly before the New Year, appropriating a massive $1.7 trillion to fund government programs and initiatives for the coming year. Relevant to healthcare, the bill contains several provisions which will have varying effects on healthcare providers and entities through 2024.

Overall, the bill offers a mixed bag of assistance and drawbacks in 2023 and 2024. For providers, the bill extends both Medicare’s relaxed telehealth policies and the incentive for alternative payment models through 2024. The telehealth extension gives providers greater security in rendering telehealth services by decoupling the deadline for the relaxed telehealth standards from the end date of the federal COVID-19 Public Health Emergency (“PHE”) to the end of 2024. Similarly, although the extension of the alternative payment model incentives will benefit providers, the bill reduced the incentive from 5% to 3.5%. Similarly, the funding package extended the home waivers for acute hospital care to the end of 2024 as opposed to the end of the PHE.

The bill does alleviate the initially proposed reduction to the Medicare Physician Fee Schedule (“PFS”). The initial reduction was 4.5%, but the bill modifies the reduction to 2%. However, the bill sets up a further 3.25% PFS rate reduction for 2024.

A breakdown of the entire 2023 Omnibus Appropriations Bill may be accessed here. An HHS-specific fact sheet regarding the impact of the 2023 Omnibus Appropriations Bill may be accessed here.

HHS Extends COVID Emergency Powers to Other Viruses

The United States Department of Health and Human Services ("HHS") has issued a guidance letter to state governors clarifying that states and healthcare organizations may use regulatory flexibilities permitted under the COVID-19 public health emergency to address capacity challenges stemming from the present severe respiratory virus season.

Such flexibilities include a blanket waiver that allows hospitals to screen patients off-site, render telehealth services, provide care in temporary expansion sites, and easily transfer patients between facilities. Moreover, HHS has outlined further supportive actions it is undertaking to assist healthcare providers amid the “tripledemic,” including additional public health funding, monitoring the supply chain for drug and device shortages, and quickly responding to requests for federal medical assistance.

HHS Proposes Permanent Relaxation of Rules for Take-home Opioid Addiction Treatment

HHS has issued a proposed rule (87 FR 77330) seeking to codify regulatory relaxations regarding the prescription of take-home drugs in treating opioid addiction that were implemented during the COVID-19 pandemic. If implemented, HHS estimates that nearly 2,000 opioid treatment programs will be affected by the resulting rule changes.

The proposed rule would maintain certain “regulatory flexibilities” for programs treating opioid addiction. Such flexibilities would likely make permanent the pandemic rule modifications implemented by the Substance Abuse and Mental Health Services Administration (SAMHSA), including relaxed patient eligibility requirements for take-home drugs, including methadone, and waiver of the requirement that doctors prescribe buprenorphine instead of methadone for take-home opioid addiction treatment.

The proposed rule also seeks to remove barriers to accessing treatment drugs by waiving the requirement that a treatment program only admit people with at least one year of an opioid addiction. Additional proposed changes include updating definitions “to expand access to evidence-based practices such as split dosing, telehealth and harm reduction activities,” updating “outdated terms such as ‘detoxification’” to “remove stigmatizing language,” and expanding the definition of a “qualified practitioner” to include “a provider who is appropriately licensed by the state to prescribe (including dispense) covered medications and who possesses a waiver” to do so. Additionally, SAMHSA is proposing to eliminate the requirement that practitioners who have a waiver to prescribe buprenorphine for up to 275 patients provide reports to SAMHSA on an annual basis.

The public comment period for this proposed rule is currently open through February 14, 2023.

NY Court Holds Landmark Designation Triggers 1(A) Exclusion and Cannot Constitute Title Defect

Posted on by Christie Bowness

In Fawn Second Ave., LLC v. First American Title Insurance, LEXIS 122021 (S.D.N.Y. July 11, 2022), the United States District Court for the Southern District of New York (“the Court”) found a title insurer was not liable for coverage in connection with a failure to inform property purchasers that the subject property had been designated as a “landmark” prior to purchase, thus restricting its use.

The matter involved a group of corporate entities including Fawn Second Avenue, LLC (“Plaintiffs”), who held a title insurance policy issued by Defendant First American Title Insurance Company (“First American”) in connection with Plaintiffs' November 17, 2015 purchase of real property located at 82 Second Avenue in New York City (“the Property”).  In early October 2017, Plaintiffs commenced performing a series of improvements to the Property–however, shortly after beginning construction, they received formal warning letters from the New York City Landmarks Preservation Commission informing them that in October 2012, the Property had been formally designated as a “landmark,” and thus Plaintiffs were not legally permitted to modify or improve the building.

On October 12, 2017, Plaintiffs submitted a notice of claim to First American under their title policy, seeking coverage for the diminution in value inflicted upon the Property due to its “landmark” designation.  The claim was subsequently denied.  Plaintiffs then brought suit, alleging that First American had breached its coverage obligations owed under the title policy, and had been negligent in failing to disclose the Property’s landmark status.  First American responded by moving to dismiss the suit pursuant to Federal Rule 12(b)(6), alleging that Plaintiffs’ claims were barred from coverage.

In doing so, First American argued that a landmark designation did not create a “defect, lien, or encumbrance” on title sufficient to qualify as a covered risk on a title policy, contending that because such designation is “an exercise of governmental power” meant to “regulate [a] [p]roperty’s use or development,” it was wholly distinct from standard title impairments.  The Court agreed, holding that the operative New York case law “ma[de] plain that local regulations that restrict the use or development of real property do not give rise to a defect in or encumbrance on title,” and reaffirming the essential principle that title insurance is concerned only with marketability of title itself and not impairments to the value or use of a property.

The Court further explained that zoning regulations cannot be construed as “impact[ing] the marketability of title” nor as creating a “defect, lien, or encumbrance” on title regardless of their impact on a property’s value, as these restrictions have no impact on the marketability of the title–i.e. the ownership–itself.  As the Property’s landmark status restricted “the manner” in which the Property could be used, but “in no way” impacted Plaintiffs’ right to ownership and possession of the Property, no coverage under the title policy was possible and Plaintiffs’ claim necessarily failed.

First American additionally contended that Plaintiffs’ claims were barred by the title policy’s standard 1(a) exclusion, which provided that First American was not required to provide coverage for any:

law, ordinance, permit, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to ... the occupancy, use, or enjoyment of the Land; ... the character, dimensions, or location of any improvement erected on the Land; ... or the effect of any violation of these laws, ordinances, or governmental regulations.

The Court again agreed for the same “reasons just discussed,” holding that because the landmark designation was not a title defect, but instead an exercise of governmental power, the 1(a) exclusion was triggered and coverage was not owed.  In so holding the Court reaffirmed the general principle that when interpreting a title policy the “total scope of coverage . . . [is] the balance of the covered risks, less the exclusions”–i.e., there are no circumstances in which a covered risk within a policy can prevail over a triggered exclusion.

Finally, as to Plaintiffs’ negligence claim, the Court first observed that while it is “well-settled” that a “cause of action for negligence based on a deficient title search cannot be sustained under a title insurance policy,” such a claim is possible under “a certificate of title.”  However, when the certificate of title is provided prior to the issuance of the title policy itself, and subsequently merges with the policy at the time it is issued, “any action for damages arising out of the search–whether sounding in tort or contract–is foreclosed.”  Due to these settled principles Plaintiffs’ claim thus failed, as while First American did issue a pre-policy certificate of title, the language of the certificate clearly indicated that it was to merge with any later issued title policy.  Thus, “New York law clearly preclude[d] Plaintiffs from pursuing a claim for negligence under the Policy.”

Takeaways

This matter makes clear that policy coverage will not be triggered by a property’s designation as an official “landmark,” regardless of how restrictive such designation is upon the property’s use, unless the limitations imposed impact possession or ownership of the property itself.  It also clarifies that a policy’s 1(a) exclusion will serve to disclaim coverage wherever a restriction can be successfully characterized as an exercise of governmental regulatory authority, providing creative practitioners with a potentially broad basis to seek coverage denials.  Several essential title principles are also conveniently stated and reaffirmed, such as the inability of negligence to constitute a claim and the triggering of an exclusion always serving to bar coverage.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Kevin Hakansson at khakansson@riker.com, James Mazewski at jmazewski@riker.com or Kori Pruett at kpruett@riker.com.

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