District Court Holds Withdrawal Liability Claim Not Barred by Employer’s Dissolution
In Central States, Southeast & Southwest Areas Pension Fund v. Sheets Enterprise, No. 24 cv 2277 (N.D. Ill.), a district court held that an employer could not avoid being held liable for withdrawal liability simply because it had been dissolved under state law. The decision is instructive because it shows the limits that state law dissolution proceedings may have in avoiding obligations like withdrawal liability that are created by federal law.
Background
Sheets Enterprises (“Sheets”) was a Kentucky corporation that contributed to the Central States Pension Fund (the “Fund”). In late-2016, Sheets ceased all operations for which contributions were required to the Fund, thereby effecting a complete withdrawal, and the next year, Sheets filed a notice of dissolution with the Kentucky Secretary of State. The Fund only learned of Sheets’ withdrawal and its subsequent dissolution in May 2023, nearly six years later. In November 2023, the Fund assessed Sheets with $675,000 in withdrawal liability and commenced suit when Sheets failed to pay.
Sheets did not commence arbitration to challenge the withdrawal liability and instead presented two principal arguments in the collection litigation. First, it argued that the court lacked personal jurisdiction to entertain suit against a dissolved corporation. Second, Sheets argued that the Fund’s claim had been extinguished as part of dissolution proceedings under Kentucky state law. Those laws provide that a dissolved corporation may dispose of claims against it if it publishes notice of its dissolution and no potential claimants sue within two years. Sheets argued that because it published its notice in 2017, and the Fund had failed to file suit to collect the withdrawal liability within the next two years, any further efforts by the Fund to collect the liability were time-barred.
The District Court’s Ruling
The district court rejected both defenses and entered judgment in favor of the Fund. The Court held that dissolved corporations retain the capacity to sue and be sued under Kentucky law, and thus there was no basis for Sheets’ contention that the Court lacked personal jurisdiction over it. The Court also held that ERISA preempted any limitations period under Kentucky’s dissolution statutes. Under ERISA, suits to collect withdrawal liability must be brought within six years after the cause of action arises or within three years of the date the plaintiff acquires knowledge of the cause of action. The Court held that the statutory limitations period could not be shortened by Kentucky state law.
Proskauer’s Perspective
The Court’s ruling is another example of the broad scope of ERISA’s preemptive reach. Employers that intend to dissolve and wind up their affairs should be especially mindful of the decision, as those proceedings may not be sufficient to dispose of claims for withdrawal liability owed to multiemployer pension plans.
ERISA in the Supreme Court: Implications of Cunningham v Cornell University
On April 17, 2025, the U.S. Supreme Court issued a unanimous opinion in Cunningham v Cornell University, addressing the pleading standard applicable to prohibited transaction claims under the Employee Retirement Income Security Act (ERISA).
Which Party Must Address Prohibitive Transaction Exemptions in a Motion to Dismiss?
Plan participants filed suit against plan fiduciaries, alleging that the fiduciaries had engaged in a prohibited transaction by retaining two of its recordkeepers and paying excessive recordkeeping fees to keep them. The question presented to the Supreme Court is an important procedural question: Who—at the motion to dismiss stage—had the burden of pleading and proving whether the service provider exemption applies?
The Supreme Court resolved a lower court split by ruling that it is not the participants’ responsibility to plead the absence of a prohibited transaction exemption. Instead, the plan sponsor must show that a prohibited transaction exemption applies as an affirmative defense. Exemptions are not—as the defense argued and the Second Circuit held—elements of the pleading, such that plaintiffs must demonstrate their absence to survive a motion to dismiss.
What are Prohibited Transactions and Why Are Exemptions Needed?
ERISA categorically bars certain “prohibited transactions” between a plan and a related party (a so-called “party-in-interest”) to prevent conflicts of interest subject to several detailed exemptions, which allow plans to interact or conduct business with a party-in-interest if certain requirements are met. Because of the extremely broad nature of the prohibited transaction rules, the retirement industry would have difficultly functioning without the prohibited transaction exemptions. For example, in the absence of the exemptions, virtually every payment of fees to a plan vendor for services would be a prohibited transaction. However, there is a commonly used statutory exemption for reasonable arrangements with service providers for the provision of necessary services as long as no more than reasonable compensation is paid.
Supreme Court Decision May Lead to More Litigation
As the concurring opinion noted, the motion to dismiss stage has become “the whole ball game” because the cost of discovery can often drive defendants to settle meritless suits based on purely financial considerations. The Supreme Court acknowledged that this lower standard for plaintiffs could open the floodgates to more litigation, and directed trial courts to use other methods and civil litigation rules to attempt to weed out meritless cases.
Recommended Actions
This is a procedural ruling steeped in technical principles of statutory construction and interpretation of civil litigation rules. Nonetheless, there is a simple takeaway for plan sponsors. The hurdle for participants to survive a motion to dismiss in a suit against plan fiduciaries just got easier, so it is more important than ever for plan sponsors to manage litigation risk by making themselves unattractive targets. This means plan sponsors and fiduciaries should focus on engaging in prudent, compliant and well-documented actions and plan administration processes, particularly in the areas of vendor selection and management and investment selection.
Federal Circuit Upholds Major Trade Secrets and Contract Damages Award in Dispute Stemming from Failed Merger Talks
The recent Federal Circuit decision in AMS-OSRAM USA Inc. v. Renesas Electronics America, Inc. offers valuable lessons related to failed merger attempts, specifically the vast exposure that can result from a party breaching its confidentiality obligations. This protracted case—lasting more than 15 years and involving multiple trials and appeals—also highlights important principles about trade secret and contract remedies for the unauthorized use of proprietary technology.
After multiple trials and appeals, the Federal Circuit substantially affirmed an Eastern District of Texas judgment against the defendant, fka “Intersil,” for misappropriation the trade secrets of the plaintiff, fka “TAOS.” The dispute arose out of failed merger talks between the parties in 2004. The merger discussions were covered by a confidentiality agreement signed in June of 2004, and that agreement expired in June 2007. During the merger discussions, TAOS gave Intersil confidential business information regarding its ambient light sensor technology (the “CBI”). Shortly after the discussions ended in August of 2004, TOAS launched a product embodying the CBI and, contrary to the confidentiality agreement, Intersil began using the CBI to develop competing products, denoted “Primary Products” and “Derivative Products.” Intersil later sold sensor chips to Apple based on the CBI, after being approved as a vendor for specific products between September 2006 and March 2008. TAOS sued Intersil in November 2008 for patent infringement (a claim later dropped), for trade secret misappropriation, and for breach of the confidentiality agreement.
In the first trial in 2015, the jury found Intersil liable for misappropriation of trade secrets under Texas law and breach of the confidentiality agreement under California law, the choice of law in the agreement. The jury awarded disgorgement of TAOS profits of $48M and exemplary damages of $10M for the misappropriation, and a reasonable royalty of $12M for the breach. On appeal, the Federal Circuit in 2018 affirmed the bases of both liability and exemplary damages for misappropriation, but it remanded the case to the district court to determine the amount of damages. The Federal Circuit held, in part, that disgorgement is an equitable remedy for the district judge to decide, and that certain facts needed to be found, notably “the length of any head start period” Intersil gained by its misappropriation.
In the second remand trial in 2021, the jury provided an advisory verdict on disgorgement of profits of $8.5M for the Primary Products, finding the trade secret was not properly accessible to Intersil until January 2006, and that the head-start period was 26 months. In addition, the jury awarded exemplary damages of $64M and reasonable royalty damages of $6.7M for breach of the confidentiality agreement with respect to the Derivative Products. Post trial, in its findings of facts and conclusions of law, the district court agreed with the jury that the proper disgorgement award was $8.5M for the Primary Product but found that Texas law capped exemplary damages at twice the disgorgement sum, or $17.0M. The final judgment reflected this $25.5M trade secret award and $7.3M in reasonable royalty damages, along with $15M in prejudgment interest award and $3.9M in attorneys’ fees from work on the contract claim.
On the second appeal, the Federal Circuit substantially affirmed the monetary awards, except the prejudgment interest calculation. The court reversed the finding that the trade secret was not properly accessible until January 2006. It held that the lower court was wrong in concluding that proper accessibility should be based on when Intersil reverse-engineered TAOS’s trade secrets. Instead, the court concluded under Texas law that proper accessibility is based on when Intersil could have reverse-engineered the trade secrets, which was in February 2005, shortly after TAOS released its product embodying the trade secret. It observed that the lower court must “ensure that a trade secret remedy is tailored to preventing or negating the unfair advantage derived from improper acquisition.” Still, the court upheld the disgorgement award. First, it affirmed the 26-month head-start period finding, though measured from February 2005 (instead of January 2006) to April 2007. Second, it agreed that sales of the Primary Products after April 2007 were recoverable because Apple had approved the designs in September 2006, within the head-start period, and that the sales followed directly from the approval. Third, the court agreed that the entirety of the Primary Products profits were attributable to the misappropriation occurring during the head-start period.
The Federal Circuit also affirmed the reasonable royalty damages award. It first rejected Intersil’s argument that the award resulted in an impermissible double recovery, holding that the disgorgement remedy related solely to the Primary Products sales and the reasonable royalty remedy related solely to the Derivative Products sales. The court held that TAOS had a reasonable expectation of compensation in the form of a reasonable royalty for breach, and it rejected Intersil’s argument that the royalty award was unjustified because it was undisputed that the Derivative Products did not actually embody the trade secrets. It held that it was sufficient that there was substantial evidence that Intersil used TAOS’s confidential information to develop the Derivative Products. “Under California law, a plaintiff may recover for the defendant’s breach of a confidentiality agreement not only if the defendant wholly incorporated the plaintiff’s contractually protected information into its own products but also if the defendant used the plaintiff’s confidential information in the development or implementation of its own products.”
Notable takeaways from AMS-OSRAM USA are as follows. First, in drafting agreements covering proposed mergers or other types of business transactions involving a sharing of technical information, consider negotiating terms designed to limit exposure in the event of a breach, including short confidentiality periods, limitations on liability, choice of law, and forum selection. Business lawyers may want to consult their brethren IP litigators in considering hypothetical scenarios and would be wise to avoid so-called “standard agreements.” Second, in evaluating risk, legal advisors should consider that a bona fide claim of breach of a confidentiality agreement protecting technology is likely to be accompanied by a trade secret misappropriation claim, thus significantly increasing the risk of exposure because of the enhanced remedies available for misappropriation. Moreover, it is the author’s belief that juries persuaded that a breach has occurred are likely to also include that misappropriation has occurred, particularly when the breach is egregious and economic harm or unjust enrichment can be traced to the breach.
RUSSIA DISCOVERS THE TCPA?: Russian Appellate Court Allows Consumer to Sue Bank for $61.00 Over Unwanted Calls
While the idea of suing over unwanted phone calls is nothing new for litigious Americans its quite novel elsewhere in the world–and a man in Russia might be the first to have invented the claim across the pond.
Apparently a Russian appellate court has recognized a constitutional right to privacy that can be invaded when a bank sends unwanted marketing messages after being asked to stop.
In the case a Russian guy asked the bank to stop calling but it ignored him. He sued for “moral damage” of 5,000 rubles– about $61.00. The lower court through out the case but the appellate court found the claim to have merit and ordered a trial on the issue of the calls.
Here in America, of course, consumers can–and often do– sue for unwanted phone calls under the Telephone Consumer Protection Act (TCPA). And unlike the limited damages recognized in Russia, the TCPA allows consumers to collect $500-$1,500.00 per unwanted call or text.
But there are limits in America as there are in Russia.
As one Russian authority stated in response to the ruling:
“Unfortunately, people themselves often forget that they gave consent to the processing of their data and to receive advertising information. In such cases, advertising is distributed legally. And consent has no statute of limitations if the contract did not specify its term, even if you signed it 20 years ago.”
True in Russia as it is in America.
Many websites collect consent for advertising and contact and then sell those consents far and wide as permitted in the fine print. As a result many companies will buy these “leads” and make totally legal phone calls that the consumer had forgotten–or perhaps never really understood– they requested.
While this is fascinating we will have to wait and see whether the idea of suing over unwanted calls catches on anywhere else.
Source : https://m.realnoevremya.com/articles/8741-russians-allowed-to-punish-banks-for-spam?_url=%2Farticles%2F8741-russians-allowed-to-punish-banks-for-spam#from_desktop
Happy Elephant Child Care Center Abuse Lawsuits
Our Michigan child day care lawyers are investigating cases against Happy Elephant Child Care Center in Michigan. Parents of children who attended that daycare center have hired us to pursue civil damage claims against Happy Elephant for their children.
Happy Elephant Child Care Centers is an assumed name for Genesee Christian Day Care Services, Inc. Thomas Case is listed as the organization president. The corporation has several day care centers throughout the State of Michigan.
Rebecca Kenney, the director of the day care facility in Lansing, Michigan, was recently charged with child abuse by the Eaton County Prosecutor’s Office. Allegations include slapping a child and pulling the hair of another child at the facility. Other evidence may arise.
The original charge is Child Abuse-4th Degree, which is a misdemeanor criminal offense in Michigan. She was arraigned on August 2, 2024, and is free on bond.
Ms. Kenney was charged under Michigan Child Abuse Statute is MCL Section 750.136b. Under the statute, child abuse in the fourth degree is a crime punishable as follows:
(a) For a first offense, a misdemeanor punishable by imprisonment for not more than 1 year.
(b) For an offense following a prior conviction, a felony punishable by imprisonment for not more than 2 years.
She is presumed innocent until proven guilty. Her jury trial is set for May 30, 2025.
Local news outlets have reported that Rebecca Kenney was charged with two separate incidents of abuse, and as of April 18, 2025, she was still working at the daycare facility.
In addition to the criminal charges against Rebecca Kenney, a separate count for violations of MCL 722.112(6) was filed against the organization. This statute applies to Child Care Organizations and specifically defines “physical abuse” as causing harm to a child, including injury or death. The statute outlines the elements that must be proven to establish a violation, and each instance of a child being harmed in a way that meets those elements can be charged as a separate count. The results of a conviction can include licensure penalties, 90 days in jail, and potential fines.
DENIED!!: Eleventh Circuit Refuses to Permit Intervention in IMC Case– IS This The End For One-to-One? (Probably)
So big news today.
This morning the Eleventh Circuit Court of Appeals entered an order denying the efforts of several parties– including the National Consumers League–to intervene and defend the FCC’s TCPA one-to-one consent ruling.
This development comes after the Eleventh Circuit had previously struck down the ruling and the FCC stated it would not pursue it further.
With this latest denial the fate of the TCPA one-to-one rule appears sealed. Theoretically the proposed intervenors could seek Supreme Court review of the Eleventh Circuit’s denial but the chances of success on such an effort are too low to merit discussion.
So, unless something insane happens (and these days- who knows!) the FCC’s TCPA one-to-one consent rule is officially dead!
Yay.
R.E.A.C.H. will be updating its standards in light of this change so be on the lookout for that.
Although the FCC’s TCPA one-to-one consent rule is dead the FCC’s TCPA revocation rule is not– in fact it is very much alive and in effect RIGHT NOW.
Over the weekend I saw on LinkedIn some folks suggesting the “reasonable means” provision of the ruling was stayed– ABSOLUTELY FALSE. The ONLY part of the rule that was stayed was the scope provisions– so be sure to get it right!
Speaking of getting it right, Telnyx CEO Dave Casem is now set to speak at LCOC III, along with Quote Velocity, Tree, Everquote and a ton of other big names. You CANNOT miss this show folks. Ticket prices jump soon so get in now.
Chat soon.
Speaking of Litigation – Episode 16: Aligning Business Goals with Legal Strategies Amid Regulatory Change [Video, Podcast]
When businesses face regulatory uncertainty, how can they effectively adapt, respond, and, if necessary, challenge government action?
In this episode of Speaking of Litigation, Epstein Becker Green attorneys Mike Brodlieb, Jim Flynn, Jimmy Oh, and Jack Wenik navigate the complexities of regulatory action and inaction. The conversation dives into the changing administrative landscape and covers how businesses can strategize to challenge regulations, the pros and cons of litigation, and the critical importance of aligning legal goals with practical business objectives.
The panelists also explore how agencies’ evolving processes create both challenges and opportunities, including how internal agency relationships and unexpected legal arguments can shape outcomes. From assembling the right legal team to balancing risk and reward in high-stakes scenarios, they discuss real-world tactics for crafting solutions that address uncertainty while keeping business interests front and center.
Gain insight into how legal professionals are managing the intricate interplay between government regulation, litigation strategies, and client priorities in today’s dynamic environment.
Seventh Circuit Decision Clarifies Distinction Between Face-to-Face Sales and Advertising Under the Anti-Kickback Statute
Overview
In a significant decision, United States v. Sorensen, — F.4th —-, 2025 WL 1099080 (7th Cir. Apr. 14, 2025), the United States Court of Appeals for the Seventh Circuit reversed the conviction of Mark Sorensen, who was previously found guilty of conspiracy and kickbacks under the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). This ruling aligns with recent Fifth Circuit cases that draw a clear distinction between illegal kickbacks for face-to-face sales and lawful payments for advertising and marketing services.
Case Background
Mark Sorensen, owner of SyMed Inc., a Medicare-registered distributor of durable medical equipment, was convicted of conspiracy and offering kickbacks for payments made to advertising and marketing companies. These companies were involved in promoting orthopedic braces to Medicare patients. The government argued that these payments constituted illegal referrals under the Anti-Kickback Statute.
Business Model for Orthopedic Product Sales
The business model for selling orthopedic braces involved several steps:
Advertising Campaigns: Byte Success Marketing (“Byte”) and KPN, the marketing firms involved, published advertisements for orthopedic braces. These ads targeted potential patients who might benefit from the braces.
Patient Engagement: Interested patients responded to the advertisements by filling out electronic forms with their personal information, including names, addresses, and doctors’ contact details.
Sales Agent Interaction: The collected information was forwarded to call centers where sales agents from Byte or KPN contacted the patients to discuss ordering a brace. These agents also generated prescription forms for the braces.
Physician Approval: The sales agents, with the patients’ consent, faxed the prefilled but unsigned prescription forms to the patients’ physicians. These forms included SyMed’s name and corporate logo and listed the devices to be ordered. Physicians had the discretion to sign and return the forms or ignore them. Notably, physicians declined 80 percent of the orders sent by KPN and regularly ignored forms sent by Byte.
Order Fulfillment: If a physician signed and approved a prescription, SyMed directed PakMed, the manufacturer, to ship the braces to the patients. Dynamic Medical Management, a billing agency, then billed Medicare on behalf of SyMed.
Revenue Sharing: SyMed paid PakMed 79 percent of the funds collected from Medicare or other insurance, keeping 21 percent as a service fee. Out of its 79 percent share, PakMed paid the advertising firms, KPN and Byte, based on the number of leads generated.
Seventh Circuit’s Analysis
The Seventh Circuit found insufficient evidence to support the conviction, emphasizing that the payments made by Sorensen were for advertising services and not for referrals. The Court highlighted that the physicians retained ultimate control over patient prescriptions and decisions, which is a critical factor in determining whether a payment constitutes an illegal referral.
Key Points from the Decision
Advertising vs. Face-to-Face Sales: The Court distinguished between payments made for advertising services and those made to induce referrals through face-to-face sales interactions. Payments to advertising companies that promote medical products do not fall under the Anti-Kickback Statute if the physicians retain independent decision-making authority. In contrast, face-to-face sales interactions, where sales representatives may exert influence over healthcare decisions, are more likely to be scrutinized under the statute.
Physician Control: The Court noted that the physicians who received the prescription forms from the marketing companies had the discretion to approve or reject the prescriptions. This autonomy is crucial in differentiating lawful advertising from illegal kickbacks. In face-to-face sales scenarios, the potential for undue influence is higher, making it essential to ensure that physicians’ decisions remain independent.
Legal Precedents: The decision aligns with the Fifth Circuit’s rulings in cases such as United States v. Miles and United States v. Marchetti. In these cases, the Fifth Circuit also overturned convictions where payments were made for marketing and advertising services rather than for referrals. The courts emphasized the importance of distinguishing between general advertising activities and direct sales efforts that could influence healthcare decisions.
Implications for Healthcare Providers
This decision provides clarity for healthcare providers and marketers regarding the boundaries of the Anti-Kickback Statute. It underscores the legality of compensating advertising and marketing firms for their services, provided that the ultimate decision-making authority remains with the physicians. However, it also highlights the need for caution in face-to-face sales interactions, where the risk of violating the statute is higher.
Conclusion
The Seventh Circuit’s decision in United States v. Mark Sorensen reinforces the distinction between lawful marketing activities and illegal kickbacks, particularly differentiating between general advertising and face-to-face sales efforts. Healthcare providers should ensure that their marketing practices comply with this legal framework, maintaining clear boundaries to avoid potential violations of the Anti-Kickback Statute.
When Headless PAGAs Attack!
As we reported here, a split in authority has developed in the California Court of Appeal regarding what to do when an employer moves to compel arbitration of a Private Attorneys General Act (PAGA) that is “headless”—that is, a claim seeking penalties on behalf of all allegedly aggrieved employees except the named plaintiff. (This is the latest trick the plaintiff’s bar has come up with in an effort to thwart enforceable arbitration agreements, because if there’s one thing plaintiffs’ lawyers hate, it’s arbitration!)
In Leeper v. Shipt, Inc. the court held that a PAGA claim cannot be headless, so in this circumstance, the “individual” PAGA claim is implied, and can be compelled to arbitration. On the other hand, Parra Rodriguez v. Packers Sanitation, Inc. held that a court must take the complaint as it finds it and cannot “imply” an individual PAGA claim that was not pled.
The California Supreme Court has granted review of Leeper to answer two questions:
Does every PAGA action necessarily include both individual and non-individual PAGA claims, regardless of whether the complaint specifically alleges individual claims?
Can a plaintiff choose to bring only a non-individual PAGA action?
As we previously noted, Leeper held that a plaintiff could not bring a headless PAGA claim, while Parra Rodriguez simply avoided the question altogether. The California Supreme Court is now poised to answer that underlying question. The stakes are high, because if the California Supreme Court blesses the headless PAGA device, it will provide yet another avenue for arbitration-bound employees to avoid their arbitration agreements completely.
It is perhaps notable that the Supreme Court denied a motion to de-publish Leeper pending review—i.e., it can still be cited as authority to trial courts pending the Supreme Court’s ruling. Thus, Leeper remains persuasive authority, and litigants may continue to cite it in lower courts and may argue that courts should follow Leeper and not Parra Rodriguez (to the extent those decisions conflict).
We will monitor this case closely and report on further developments.
Professional Services Exclusion Leaves Pharmacy’s Coverage Order Unfilled
Coordinating various insurance products to avoid coverage gaps can be a complex undertaking as exposures are shifted from one policy to another across different insurers, policy forms, and coverages. One recent case, Singh, Rx, PLLC, et al. v. Selective Insurance Company of South Carolina, et al., No. 24-1678, left a pharmacy without coverage when a professional services exclusion barred coverage that was not covered under a separate professional liability policy geared at covering those risks. The case is a reminder of the importance of understanding insurance policy exclusions, particularly in the context of professional services, and especially where the excluded risks are not covered by other policies.
Factual Background
SRX’s coverage dispute arose when a pharmaceutical manufacturer sued a specialty care pharmacy for allegedly distributing counterfeit HIV medication. The lawsuit included multiple claims, including trademark infringement and unfair competition, which prompted the pharmacy to seek defense and indemnification from its general liability and professional liability insurers.
The general liability insurance policy covered business liabilities arising out of bodily injury, property damage, or personal and advertising injury. However, the policy explicitly excluded claims related to the performance of professional services, including the practice of pharmacy. The professional liability policy covered professional liability due to a medical incident and liability for personal injury claims. But coverage was limited to claims made by a natural person. The underlying claim involved professional services and was brought by a company (not an individual). Both insurers denied coverage based on the exclusions and limitations in their respective policies.
The Sixth Circuit
The Michigan district court and the United States Court of Appeals for the Sixth Circuit agreed with the insurers’ denials, granting summary judgment and affirming that the claims made by the pharmaceutical manufacturer fell outside the coverage of the policies. For their analysis under the general liability policy’s professional services exclusion, the courts relied on Michigan law, which defines professional services as acts “involving specialized skill of a predominately intellectual nature.” The Sixth Circuit explained that Michigan courts have interpreted professional services exclusions broadly to encompass “acts reasonably related to the overall provision of professional services.”
In this case, the Sixth Circuit determined that even routine tasks associated with pharmacy practice required a level of expertise that placed them under the umbrella of professional services. For example, according to the court, buying and selling medications constitute actions that “implicate a pharmacist’s specialized knowledge, because pharmacists need to select the right drugs to target specific conditions.” The court reasoned that the alleged injury was the pharmacy’s failure to perform its professional duty to prescribe the right medicine to treat HIV and, as a result, held that the general liability policy’s professional services exclusion barred coverage.
Unfortunately for the policyholder, the professional liability policy did not cover the lawsuit either. That policy contained a limiting endorsement modifying the definition of “claim” to mean only “a demand for money or services alleging injury or damage” brought “by a natural person.” Because the lawsuit was brought by a pharmaceutical manufacturer—a corporate entity and not a natural person—the “claim” definition was not met.
The Sixth Circuit rejected the policyholder’s arguments that the limited endorsement conflicted with definitions of “claim” elsewhere in the policy and that the endorsement rendered coverage illusory. Accordingly, the court held that the professional liability insurer had no duty to defend or indemnify the claims.
Conclusion
This case underscores the importance for all companies, especially those providing specialized services, to understand not only what kinds of liability policies they have but whether those policies are tailored appropriately to work together and avoid unexpected denials. It serves as a cautionary tale for businesses that may assume they are covered for a broader range of claims than their policies actually allow.
As the critical endorsement showed in the SRX dispute, liability policies are highly negotiable and customizable. Policyholders should ensure they are adequately protected against potential liabilities by conducting a holistic review of their insurance programs, as coordinating insurance coverage across various insurance products is often key to protecting a business against potential coverage gaps.
Eleventh Circuit Further Clarifies its “Reliable Indicia” Pleading Standard Under the False Claims Act
It has long been the law of the Eleventh Circuit that, under the False Claims Act (FCA) and Federal Rule of Civil Procedure 9(b), a relator must provide sufficient “indicia of reliability … to support the allegation of an actual false claim for payment being made to the government.” U.S. ex rel. Clausen v. Laboratory Corp., 290 F.3d 1301, 1311 (11th Cir. 2002). To do so, a relator may either allege details of specific false claims, see U.S. ex rel. Atkins v. McInteer, 470 F.3d 1350, 1358 (11th Cir. 2006), or direct knowledge based on the relator’s own experiences and on information gathered in the course of their employment, see United States v. HPC Healthcare, 723 F. App’x 783, 789 (11th Cir. 2018).
But what if a relator alleges the details of a scheme to submit false claims rather than the details of any individual claim? Is that enough to satisfy the Eleventh Circuit’s “reliable indicia” standard? The Eleventh Circuit says no. In United States ex rel. Vargas v. Lincare, Inc. et al., — F.4th —-, No. 24-11080 (11th Cir. Apr. 16, 2025), the court reversed in part and affirmed in part a dismissal for failure to plead a false claim with particularity as required under the FCA and Federal Rule of Civil Procedure 9(b).
Vargas began several years ago in the Middle District of Florida. Two relators sued under the FCA based on the following purported schemes: (1) delivering CPAP supplies coded as more expensive ventilator supplies or upcoding of billing of CPAP batteries and battery accessories; (2) allowing patient financial hardship co-pay waivers without assessing patients’ true financial situations; (3) delivering and billing for unnecessary durable medical equipment, and (4) paying kickbacks in the form of setup fees.
The crux of the relators’ FCA claim was the allegedly “routine” practice of submitting waivers of copayments for alleged financial hardships. They contended that the defendants “never” required patients to actually establish their financial hardship and, consequently, that the Government paid more than it should have for the claims submitted. The defendants moved for dismissal, and the court dismissed the entire complaint—the fourth amended—with prejudice. The court concluded, in a somewhat cursory fashion, that the complaint “d[id] not comply” with Rule 9(b)’s requirement to “state with particularity the circumstances constituting fraud or mistake.”
The Eleventh Circuit reversed as to the battery upcoding scheme but affirmed as to the rest. With respect to the “upcoding” scheme, relators provided detailed accounts of upcoding, complete with identifying information as to individual patients, specific claim numbers, and examples. As to the alleged “co-pay” scheme, by contrast, relators identified neither specific claims submitted “in connection with a co-pay waiver” nor any “patient whose co-pay was improperly waived.” So too with the remaining alleged schemes; the relators identified no specific false claims. And the relators could not rely on allegations of direct knowledge to avoid the requirement to allege specific claims because, put simply, they did not “allege any direct knowledge of billing activity or access to claims data.” Ultimately, the court held that the relators were not excused from “pleading claims that were actually submitted to the government” merely by pleading a “reliable indicia that there was a scheme to submit false claims.”
In Vargas, the Eleventh Circuit provides much-needed clarity as to the “reliable indicia” standard under the FCA and Rule 9(b). That standard is not a crutch that a relator may use to prop up an otherwise deficient pleading. To the contrary, the Eleventh Circuit strictly demands that a relator allege either details of specific false claims or a basis for direct personal knowledge of the submission of individual false claims with particularity. If, as in Vargas, the relator does not meet this strict standard, their claims should be dismissed.
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Cannabis Day: Top 10 Weed Roundup of Budding Trends’ Trendiest Blog Posts of the Year 2025
As the hallowed cannabis holiday for stoners-turned-business-entrepreneurs falls upon us, we find ourselves in the shifting sands of change in the cannabis industry as usual. Not surprisingly, many states have seen legislation brought to the table, decisions made at the courts, and commentary presented by politicians that will directly impact cannabis businesses, medical marijuana dispensaries, hemp cultivators, and more. In our 2025 “Weed Roundup” of the top 10 most read Budding Trends blog posts, we visit North Carolina, California, Georgia, Alabama, Michigan, and federal marketplaces for updates (search our posts for updates from Mississippi, Tennessee, Colorado, Ohio, Arizona, Texas, South Carolina, Missouri, Kentucky, Virginia, among others). As we delve into each state’s unique legal journey in adapting or resisting new cannabis norms, trust our expert editors to provide you with the most comprehensive and timely analyses in the cannabis industry.
Don’t believe us? First, check out the editors’ Top Trends in 2024 and 2025 Predictions blog posts.
Now, to the countdown:
Does Kamala Harris Support Marijuana Legalization? Squaring Words with Actions in an Evolving Political Environment
As she did just prior to becoming the Democratic Party nominee for president, Vice President Kamala Harris has announced her support for legalizing adult-use marijuana use at the federal level. Just to remind you of the interesting times we are living in, the veep did so during a guest appearance on the sports podcast “All the Smoke.”
“I just think we have come to a point where we have to understand that we need to legalize it and stop criminalizing this behavior,” Harris said. Harris made a point to argue that her support of legalization was not new, saying that “I have felt for a long time we need to legalize it.”…read more.
Joint Effort: Why a New Crop of House Members, a New Speaker, and Continued Bipartisan Support Could Finally Light the Way for Medical Marijuana in N.C.
In November 2023, we pondered whether 2024 might be “the year” for medical marijuana legalization in North Carolina. Well, it wasn’t.
Why, you ask? How can a state whose population has expressed overwhelming bipartisan support for medical marijuana legalization still have nothing to show for it? How can a state whose Senate has shown overwhelming bipartisan support for medical marijuana legalization still have nothing to show for it? …read more.
California Bans Most Hemp Products and Illuminates Battle Between Hemp and Marijuana Businesses
What if I told you that California of all places – where virtually any adult can purchase marijuana on demand – was trying to harsh the mellow of citizens trying to access certain hemp-derived products? On the next 30 for 30, “California Schemin’.”
Welcome to the next front of the battle between marijuana and hemp.
California Gov. Gavin Newsom recently announced “emergency” regulations that would ban products derived from industrial hemp that contain any intoxicating cannabinoids and set an minimum age of 21 years old to purchase hemp products… read more.
Georgia Legislature Considering Substantial Overhaul to Medical Marijuana, Hemp Laws
I’ve had Georgia on my mind these days. I needed to get that out immediately because otherwise I would have been hearing that song in my head the entire time I was writing.
As is the case in many capitals around the country during legislative sessions, there’s cannabis reform afoot in Georgia. Before we dig into it, perhaps a brief vocabulary lesson is in order. “Cannabis” is essentially a scientific term that refers to the cannabis plant. “Marijuana” and “hemp” are legal terms distinguishing between strains of the cannabis plant. At the federal level, for example, “hemp” has been defined as a strain of the cannabis plant containing less than 0.3% delta-9 THC on a dry weight basis… read more.
Trump Expresses Support for Marijuana Reform, Coy on Psychedelics
Cannabis consumers can be forgiven for feeling the need for a more liberal cannabis policy as they weather this seemingly unending campaign cycle.
Republican presidential candidate Donald Trump recently made clear how he would be voting personally on the legalization of the recreational use of marijuana. Posting on Truth Social, Trump stated:
As a Floridian, I will be voting YES on Amendment 3 this November… read more.
Alabama Legislature Weighs Substantial Cannabis Reforms: Let’s All Take a Deep Breath
Well, it’s officially crazy season. An annual tradition in the Alabama statehouse since the inception of Alabama’s medical cannabis program, last week we saw a flurry of cannabis-related bills introduced with great fanfare and the accompanying panic amongst cannabis stakeholders in Alabama. I was inundated with a high volume of calls, texts, and emails unseen since the last Alabama legislative session.
And there was a little something for everyone involved in cannabis, both on the hemp and medical cannabis side. The good news? Things may be trending in the right direction… read more.
DEA Reschedules Rescheduling, and I’m Feeling a Little Like Charlie Brown Trying to Kick the Football
No, it’s not (just) a cruel play on words. Last week, the Drug Enforcement Administration announced that a much-anticipated public hearing on the proposal to reschedule marijuana would be moved from early December until the first quarter of 2025. I’m not sure I specifically predicted this, but it’s just about the most predictable thing ever. And it has a number of people thinking (wrongly in my opinion) that rescheduling may not even happen given the results of the recent elections… read more.
Michigan Court Prohibits Sale of Illegal Marijuana in a Ruling Straight Out of “Duh” Magazine
Believe it or not, I actually spend a lot of time deciding whether something is worth taking the time to write about. Cannabis news is developing as rapidly as any area of the law, and there are only so many hours in a day. I’ll admit up front that this was a close call.
There could be some angle that I’m not quite getting that would allow for unlicensed marijuana sales in states that have adopted marijuana licensing regimes, but I’m leaning towards thinking this may be one of the silliest, most obvious cases I’ve seen in years (and I see some wild cases in this line of work)… read more.
Federal Appeals Court: Pay That Man His Money, Unless That Money Is Illegal Marijuana Money
Good news, bad news if you’re a cannabis operator that owes money to a creditor. But probably bad news for the rule of law.
A federal appellate court has ruled that a cannabis operator is obligated to repay his debts to an ex-business partner, but it raised questions about whether the money used to repay the debt could violate federal marijuana laws.
What does this mean for a cannabis operator and potential investors? …read more.
How Will the Cannabis World Look When Marijuana Is Rescheduled?
A few weeks ago, someone at a holiday party asked “Whitt, why doesn’t Budding Trends take on the weighty legal issues of the day and instead resort to cheap pop culture references and puns?” I thought about responding with a quote from “Run Like an Antelope” but then it hit me: Maybe we should give some thought to a more high-minded discussion about the practical implications of marijuana rescheduling. (Editor’s note: This exchange did not actually happen.) So, I guess set the gear shift for the high gear of your soul, and let’s dive in… read more.
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