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Third Circuit Ruling Highlights Burden With Statistical Sampling Banner Image

Third Circuit Ruling Highlights Burden With Statistical Sampling

Month: September 2023

Third Circuit Ruling Highlights Burden With Statistical Sampling

Posted on by Christie Bowness

Legal proceedings questioning the medical judgment of a healthcare provider generally entail the production and review of voluminous amounts of data, such as medical and billing records. Government agencies and/or prosecutors often extrapolate the total incidence of alleged misconduct based on a smaller data set.

For example, prosecutors often use statistical sampling and extrapolation in matters involving unlawful prescriptions. In these cases, the Third Circuit permits prosecutors to extrapolate for such purposes, but "the government must show, and the court must find, that there is an adequate basis in fact for the extrapolation and that the quantity was determined in a manner consistent with accepted standards of reliability." United States v. McCutchen, 992 F.2d 22, 25-26 (3d Cir. 1993).

A recent decision by the United States Court of Appeals for the Third Circuit demonstrates the high threshold prosecutors must satisfy to demonstrate that their expert’s extrapolation was consistent with accepted standards of reliability. In United States v. Patrick Titus, the United States Department of Justice (“DOJ”) sought to extrapolate the total converted drug weight (“TCDW”) of illegal prescriptions issued by the physician-defendant, Patrick Titus (“Titus”). Titus had been convicted of thirteen counts of unlawfully dispensing and distributing controlled substances and one count of maintaining drug-involved premises. The calculation of the TCDW of Titus’s illegal prescriptions was required at sentencing to determine the length of his incarceration. The United States District Court for the District of New Jersey accepted the DOJ’s extrapolation of 30,000 kilos, sentencing Titus to 240 months of imprisonment. Titus filed an appeal, challenging the DOJ’s extrapolation and his conviction.

The Third Circuit found that the DOJ’s use of extrapolation had not been performed in a manner consistent with accepted standards of reliability. The Third Circuit held that it was an error for the District Court to rely on the DOJ’s medical expert even though the District Court acknowledged that the medical expert’s sample size was not "statistically valid.” United States v. Titus, 2023 U.S. App. LEXIS 22009, *7. Moreover, the Third Circuit found that the District Court had based its decision on an extrapolation it deemed invalid “without much explanation and without giving Titus [a] chance to ‘respond meaningfully, or for that matter, at all’.” Id.

The Third Circuit further highlighted that the DOJ had (1) “never showed that [its] sample was large enough to be reliably representative of the remaining thousands of prescriptions”; (2) failed to document proper extrapolation methods; and (3) “never explained how extrapolating from [its] sample could prove the huge [TCDW] by a preponderance of the evidence.” Id. At *7-8. The Third Circuit concluded that “[t]he government may not use a small sample size to justify a much larger criminal punishment without explaining how that evidence satisfies its burden of proof…[and] [a]t a minimum, any extrapolation must be shown to be reliable, and defendants must have a fair chance to challenge its reliability.” Id. at *12.

As stated succinctly by the Third Circuit, “[t]hough the prosecution bears a heavy burden of proof, [the Court] will not let it cut corners.” Titus, 2023 U.S. App. LEXIS 22009 at *1.

Florida Appellate Court Holds Bank Does Not Owe a Duty to Refrain From Negligent Lending

Posted on by Christie Bowness

On August 30, 2023, the Florida Third District Court of Appeal (“the Court”) issued its opinion in the matter of Suzmar v. First National Bank of South Miami, No. 3D22-1839, LEXIS 6065 (Dist. Ct. App. Aug. 30, 2023), affirming the dismissal of a negligence claim brought against a bank on the basis that the bank had breached an alleged duty to refrain from negligent lending.

Background

The matter arose out of a dispute between First National Bank of South Miami (“First National”) and Suzanne DeWitt (“DeWitt”), who claimed to be the manager and owner of a group of entities consisting of Plaintiff Suzmar, LLC and sixteen other associated corporations (“the LLCs”).  Based on DeWitt’s ownership representations, First National issued her a $5.5 million dollar loan, with DeWitt using the LLCs as security for the loan.  However, DeWitt’s ownership claims were subsequently disputed by the Belgian corporation Agorive NV and found to be false, which caused First National to declare the loan in default.  DeWitt was unable to return the full value of the loan funds or personally cover the shortfall, leading First National to assess the LLCs’ various accounts for repayment.

The LLCs subsequently brought suit against First National for negligence and unjust enrichment, based upon the contention that First National had “improvidently grant[ed] the loan” to DeWitt.  More specifically, they claimed that First National had failed to adequately investigate DeWitt prior to issuing the loan, with the LLCs describing DeWitt as “a Miami attorney who claimed to own the LLCs, and used their accounts as collateral [and] security[,] despite inconsistencies in her loan application.”  The LLCs contended that this alleged inadequate investigation of DeWitt constituted a violation of the “know-your-customer” requirements imposed by the Bank Secrecy Act.[1]

In response, First National moved to dismiss these claims, asserting that the LLCs were unable to state a valid cause of action because: (1) Florida law does not recognize a claim for negligent lending absent a fiduciary relationship; and (2) a claim for unjust enrichment cannot lie without a windfall benefit.  The trial court granted this motion to dismiss, leading the LLCs to appeal the dismissal before the Court.

The Appeal

In addressing the appeal the Court began with the LLCs’ negligence claim, which it observed was premised upon the allegation that First National had owed the LLCs a duty to act in good faith.  This duty was allegedly breached when First National failed to comply with the “know-your-customer” requirements and issued the loan to DeWitt despite her having made false representations in support of her application.  The Court next noted that to successfully state a negligence claim, it is incumbent upon the plaintiff to establish the existence of a legally recognized duty – however, citing Florida case law, the Court held that “banks have no duty to customers to prevent negligent lending absent a fiduciary relationship.”

The Court then proceeded to find that no fiduciary relationship existed between First National and the LLCs, as the Florida general rule holds that the relationship between a bank and its borrowers is “that of a creditor-debtor” and, accordingly, a “bank does not owe a borrower a fiduciary duty.”  Thus, the Court affirmed that the trial court had properly dismissed the negligence claim against First National, as absent the existence of a fiduciary relationship between the parties, First National did “not owe the LLCs a duty to refrain from negligent lending.”  Additionally, the Court held that the “know-your-customer” requirements relied upon by the LLCs could not create or impose a duty upon First National, as based upon Eleventh Circuit precedent, bank consumers “do not have a private right of action to enforce these rules.”

As to the LLCs' remaining unjust enrichment claim, the Court held that it was “similarly insufficient,” as unjust enrichment cannot exist where payment or other adequate consideration has been made for a benefit conferred.  Accordingly, the Court held that the LLCs had failed to state a sufficient cause of action for unjust enrichment, as the loan to DeWitt “was adequate consideration to someone related to the LLCs for the benefit conferred.”

Therefore, based upon the above, the Court affirmed the trial court’s dismissal of the LLCs' claims.

Takeaways

This opinion demonstrates that absent an additional agreement voluntarily entered into between the parties, a bank will not owe its consumers a fiduciary duty, nor will such a duty be imposed despite a bank having clearly erred.  It also demonstrates that even where a violation of the Bank Secrecy Act has seemingly occurred, an action for this violation will only be permissible if brought by the proper officials possessing enforcement authority under the statute.

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

[1] The “know-your-customer” requirements of the Bank Secrecy Act – found at 31 31 U.S.C. § 5318 – impose a set of guidelines to which financial institutions and businesses are required to adhere in order to prevent money laundering and other financial improprieties, requiring that a lender verify the identity, suitability, and risks of all current or potential customers.  The goal of these obligations is to preemptively identify suspicious behavior such as money laundering or financial terrorism.

New York Appellate Court Reaffirms Fraudulent Concealment Pleading Standards

Posted on by Christie Bowness

On August 23, 2023, the New York Appellate Division, Second Department (“the Court”) issued its opinion – currently pending publication – in the matter of Hillary Dev., LLC v Sec. Tit. Guar. Corp. of Baltimore, ___A.D.3d___, 2023 NY Slip Op 04370 [2023], in which the Court reaffirmed the pleading requirements of fraudulent concealment and prima facie tort claims in the title insurance and property sale context.

Background

On November 18, 2014, Defendant Naomi Cohen-Tsedek (“Defendant”) obtained a $269,145 judgment (“the Judgment”) against Steven Browd (“Browd”).  Defendant docketed the Judgment with the Queens County Clerk on the same date it was obtained, as Browd owned real property (“the Property”) in Queens, New York.  Years later, in 2019, Browd – utilizing the alternate name Shraga Browd as opposed to Steven Browd – sold the Property to Plaintiff Hillary Developer, LLC (“Hillary”), with Security Title Guarantee Corporation (“Security Title”) issuing Hillary a title insurance policy in connection with this sale.  The Judgment was never satisfied from the sale proceeds.

After closing on the transaction with Browd, Hillary subsequently learned that the Property had also been sold to a different buyer at a prior sheriff’s sale held to satisfy the Judgment, with this discovery prompting Hillary to file suit against Browd, Defendant, and Security Title, alleging that it had never been informed of the Judgment’s existence.  In response, Defendant filed an Answer containing Third-Party claims against SSS Settlement Services, LLC (“SSS Settlement”) – the entity that had served as Security Title’s issuing agent – raising causes of action for fraudulent concealment, based upon SSS Settlement having allegedly concealed both the existence of the additional sale and Browd’s alternate name, as well as for prima facie tort.

SSS Settlement later moved before the trial court to dismiss Defendant’s Third-Party claims, with the trial court denying this motion.  SSS Settlement then appealed the denial before the Court.

The Appeal

In addressing SSS Settlement’s appeal, the Court first observed the elevated pleading standard applicable to fraud causes of action, identifying that a party pleading fraud must, with “requisite particularity,” allege that there existed a material misrepresentation or omission which the issuing party knew to be false, made for the purpose of inducing reliance, and which was actually relied upon.  Turning to Defendant’s claims, the Court found that she had failed to allege the existence of a material omission by SSS Settlement upon which she had relied, and had also failed to identify any duty under which SSS Settlement would have owed her an obligation to disclose the existence of the additional sale or name.  Accordingly, the Court held that the trial court had erred and that this cause of action should have been dismissed.

As to Defendant’s prima facie tort claim, the Court observed that sustaining such a cause of action requires a demonstration of the intentional infliction of harm motivated by a “malicious intent or disinterested malevolence.”  The Court found that Defendant had failed to allege the existence of such a state of mind, as she had claimed that SSS Settlement’s alleged conduct had been performed “for its own pecuniary benefit,” an allegation which could not satisfy the required standard.  The Court thus likewise held that this cause of action also should have been dismissed by the trial court.

Therefore, based on the above reasoning, the Court ultimately held that the trial court “should have granted SSS Settlement’s motion” to dismiss Defendant’s third-party causes of action, reversing the lower court’s ruling and ordering the dismissal of these claims.

Takeaways

This decision demonstrates that when pleading a fraudulent concealment claim premised upon a failure to disclose information, it is still necessary to identify the specific duty imposing the obligation for the subject disclosure.  It also reaffirms that where alleged fraudulent action is taken for the advancement of a party’s own pecuniary benefit, it will not be held to satisfy the intent requirements underlying a prima facie tort claim.

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

New Final DEA and CMS FY 2024 Payment Rules

Posted on by Christie Bowness

DEA Finalizes Rules on Electronic CDS Prescriptions and Seeks Public Input on Telemedicine

The United States Drug Enforcement Agency (“DEA”) recently published a final rule amending its regulations regarding the transfer of electronic prescriptions for schedules II–V controlled substances between registered retail pharmacies. Additionally, the DEA has announced a listening session for public input on controlled dangerous substance ("CDS") prescribing in telemedicine encounters.

The final rule (88 FR 48365) supplements the DEA’s March 31, 2010 interim final rule (“IFR”) regarding electronic prescribing of CDS. Specifically, this final rule amends DEA regulations to explicitly state that an electronic prescription for schedule II–V CDS may be transferred between retail pharmacies upon request from the patient. However, the transfer may only be made for the initial filling, on a one-time basis, and any authorized refills transfer with the original prescription. In addition, the final rule (i) establishes the information required for documenting such electronic CDS prescription transfers between pharmacies, (ii) clarifies the extent a pharmacy may use prescription processing software to capture information from an electronic prescription in lieu of manual data entry, and (iii) requires pharmacies to maintain records of the transfer for at least two years. The existing requirements for all prescriptions, as outlined in 21 CFR Part 1306, and for prescribing and pharmacy applications, as outlined in 21 CFR Part 1311, remain unchanged in this final rule.

The DEA also recently announced it will hold public listening sessions to receive public input concerning the prescribing of CDS via telemedicine. The focus of such sessions will be to discuss telemedicine safeguards for detecting and preventing diversion of CDS prescribed via telemedicine. The listening sessions will be held on September 12-13, 2023, from 9 a.m. to 5:30 p.m. at DEA Headquarters, 700 Army Navy Drive, Arlington, VA 22202.

Additional information regarding this final rule can be found here. Information regarding virtual attendance of the DEA’s public listening sessions can be found here.

CMS Updates FY 2024 Prospective Payment System Changes

The United States Centers for Medicare & Medicaid Services (“CMS”) recently published final rules updating its Fiscal Year (“FY”) 2024 Prospective Payment System (“PPS”) for certain inpatient facilities and services. Specifically, CMS has updated the FY 2024 PPS for skilled nursing facilities, inpatient rehabilitation facilities, inpatient psychiatric facilities, and hospice services.

Skilled Nursing Facilities

CMS’s final rule (88 FR 53200) updating its FY 2024 Skilled Nursing Facility Prospective Payment System (“SNF-PPS”) (i) updates various reimbursement rates for FY 2024, (ii) implements new ICD-10 code mapping for the Patient Driven Payment Model, (iii) updates the SNF Quality Reporting Program and SNF Value-Based Purchasing Program, and (iv) finalizes a constructive waiver process related to the handling of civil monetary penalty appeals. CMS estimates that the aggregate impact of the payment policies in this final rule will result in a net increase of 4.0% in Medicare Part A payments to SNFs in FY 2024. Additionally, pursuant to Section 4121(a)(4) of the Consolidated Appropriations Act, 2023, this final rule clarifies that Medicare will exclude marriage and family therapist (“MFT”) services and mental health counselor services from SNF consolidated billing and instead allow these services to be billed separately by the performing clinician rather than being included in the Medicare Part A SNF payment.

The final rule becomes effective on October 1, 2023. A fact sheet summarizing this final rule can be found here.

Inpatient Rehabilitation Facilities

CMS’s final rule (88 FR 50956) updating its FY 2024 Inpatient Rehabilitation Facility Prospective Payment System (“IRF-PPS”) (i) updates the IRF-PPS payment rates, (ii) finalizes modifications to the IRF Quality Reporting Program “(IRF-QRP”), and (iii) modifies its IRF Excluded Unit Regulation. CMS estimates an overall 4.0% increase in FY 2024 IRF payments. Regarding the IRF-QRP, this rule readjusts the program’s quality reporting measures for FY 2024 in anticipation of enforcing the new quality metrics beginning in FY 2025. Moreover, under this rule, CMS is modifying regulations governing the exclusion of hospital units to allow hospitals to open a new IRF unit and begin being paid under the IRF-PPS at any time during the cost reporting period.

The final rule becomes effective on October 1, 2023. A fact sheet summarizing this final rule can be found here.

Inpatient Psychiatric Facilities

CMS’s final rule (88 FR 51054) updating its FY 2024 Inpatient Psychiatric Facility Prospective Payment System (“IPF-PPS”) (i) updates the IPF-PPS payment rates, (ii) finalizes modifications to the IPF Quality Reporting Program “(IPF-QRP”), and (iii) modifies its IPF Excluded Unit Regulation. CMS estimates an overall 2.3% increase in FY 2024 IPF payments. Regarding the IPF-QRP, this rule readjusts the program’s quality reporting measures for FY 2024 in anticipation of enforcing the new quality metrics beginning in FY 2025. Similar to the above rule on rehabilitation facilities, under this rule, CMS is modifying regulations governing the exclusion of hospital units to allow hospitals to open a new IPF unit and begin being paid under the IPF-PPS at any time during the cost reporting period.

The final rule becomes effective on October 1, 2023. A fact sheet summarizing this final rule can be found here.

Hospice Services

CMS recently published a final rule (88 FR 51164) updating its FY 2024 Medicare payments related to hospice services. Specifically, this rule (i) updates the FY 2024 Medicare payment rate for hospice services, (ii) updates various aspects of the hospice quality reporting program (HQRP), and (iii) updates regulations regarding enrollment for hospice-certifying physicians. CMS estimates an overall 3.1% increase in FY 2024 Medicare payments for hospice services. Regarding the HQRP, CMS has codified several updates regarding quality measures, including the HQRP data completion threshold policy, at 42 C.F.R. §418.312. Under this rule, CMS also implemented several updates aimed at developing future HQRP health equity measures.

Importantly, under this rule, CMS is updating its payment requirements for hospice-certifying physicians. In order for a patient to receive hospice services, Medicare requires a patient’s terminal condition to be certified by either (i) the hospice medical director or the physician member of the hospice interdisciplinary group or (ii) the patient’s attending physician. Under this rule, hospice-certifying physicians must either enroll in Medicare, or affirmatively opt out of Medicare, in order for hospice services to be paid by CMS.

The final rule becomes effective on October 1, 2023. A fact sheet summarizing this final rule can be found here.

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