Commercial Litigation Update

The New York County Commercial Division rules differ materially from rules in New York County generally and, over time, have come to mirror the more stringent federal demands. One such key difference is with respect to expert disclosures, specifically Rule 13(c), which can be a disastrous trap for those unfamiliar with its requirements.

Most practitioners are familiar with CPLR § 3101(d), governing expert disclosure in New York generally, which does not require a written report but only that the expert disclosure—traditionally drafted by counsel—state “in reasonable detail the subject matter on which each expert is expected to testify, the substance of the facts and opinions on which each expert is expected to testify, the qualifications of each expert witness and a summary of the grounds for each expert’s opinion.” In contrast, New York County’s Commercial Rule 13(c) requires that, “[u]nless otherwise stipulated or ordered by the court, expert disclosure must be accompanied by a written report, prepared and signed by the witness, if either (1) the witness is retained or specially employed to provide expert testimony in the case, or (2) the witness is a party’s employee whose duties regularly involve giving expert testimony.” Rule 13(c) also sets forth certain requirements for the content of the report. Specifically, “[t]he report must contain:

(A) a complete statement of all opinions the witness will express and the basis and the reasons for them;

(B) the data or other information considered by the witness in forming the opinion(s);

(C) any exhibits that will be used to summarize or support the opinion(s);

(D) the witness’s qualifications, including a list of all publications authored in the previous 10 years;

(E) a list of all other cases at which the witness testified as an expert at trial or by deposition during the previous four years; and

(F) a statement of the compensation to be paid to the witness for the study and testimony in the case.”

Drawing from established precepts of Massachusetts law that a judge may fill in an omitted contractual term consistent with the intent of the parties, a Massachusetts Appeals Court recently affirmed a trial court’s conclusion that the parties had agreed to commission payments for an indefinite period of time and as a result, the payments would continue for as long as the Defendant continued receiving revenue from the underlying customer.

In Prism Group, Inc. v. Slingshot Technologies Corporation, a dispute arose between Slingshot  Technologies Corp. (“Slingshot”) and Prism Group (“Prism”), a one-person sales company Slingshot engaged to procure customers for Slingshot’s business of providing secure facsimile services in the healthcare industry. In email correspondence from the establishment of two customer accounts in question, the parties agreed that Prism would receive a commission of a percentage of the revenue Slingshot received from customers Prism brought in. At issue in this dispute were two lucrative client relationships that generated $9 million and $29 million for Slingshot, respectively. Despite Prism undisputedly completing its performance under the contracts, and Slingshot originally agreeing in email correspondence to pay Prism a set percentage of the revenues generated from these clients, Slingshot reduced and ultimately stopped paying Prism any commission, despite the ongoing nature of the underlying customer relationships.

In a major win for healthcare providers, on September 20th a Louisiana state court jury awarded $421 million in favor of an out-of-network provider in its long dispute with Blue Cross Blue Shield of Louisiana (“BCBS of Louisiana”). BCBS of Louisiana is the largest insurer in the State of Louisiana.

Payors have developed a reputation for underpaying or denying payment to providers altogether. This is especially true for providers who do not have contracts with insurance companies and, as a result, are out-of-network. Meanwhile providers who have contracts with  insurance companies, i.e., in-network providers, are subject to preferential contract rates and in exchange are supposed to be paid in a timely manner. However, many providers have learned this is not what happens. Out-of-network providers, in particular, face an uphill battle to get reimbursed for the medically necessary services rendered to patients. The out-of-network provider in this case experienced just that.

Since there is no contract between the provider and payor in an out-of-network context, the provider submits its billed charges to the payor. Many states have balance billing laws that preclude the provider from seeking payment from the insured directly. Knowing that the provider has limited recourse, insurance companies will often either not pay or pay slowly. St. Charles Surgical Hospital and Center for Restorative Breast Surgery (“St. Charles”) is well-known for its treatment of cancer patients. After not being appropriately reimbursed for the services rendered to patients, St. Charles filed its lawsuit in Louisiana state court in 2017. According to St. Charles, BCBS of Louisiana would authorize surgeries, the providers would perform those surgeries pursuant to the authorizations, and then the insurer would not render the appropriate payment. The case involved about 7,000 procedures that were performed on an out-of-network basis. St. Charles claimed that BCBS of Louisiana only paid approximately 9% of the total amount billed for these services. St. Charles’s claims against the insurance company were for fraud and abuse of rights. The insurance company’s defense included arguments that authorizing medical treatment did not guarantee payment at those rates. Rather, BCBS of Louisiana negotiated individual deals for out-of-network reimbursement with brokers or employers.

New episode of our video podcast, Speaking of Litigation: In the legal world, the effectiveness of your writing can make or break your case.

In this episode of Speaking of Litigation, Epstein Becker Green attorneys Max Cadmus, Tom Kane, and Ed Yennock delve into the critical aspects of crafting compelling legal documents. They discuss the fine line between assertive and aggressive writing, emphasizing the importance of tone and style.

Discover how proficient legal writing can influence case outcomes, avoid public relations nightmares, and resonate with both judges and clients. Tune in for these insights and more from seasoned legal writers on improving your written advocacy in the legal arena.

On August 22, 2024, the United States Department of Justice (“DOJ”) filed a complaint-in-intervention in a whistleblower lawsuit brought against Georgia Institute of Technology (“Georgia Tech”) and Georgia Tech Research Corporation (“GTRC”) asserting claims under the False Claims Act (“FCA”) and federal common law based on allegations that Georgia Tech and GTRC failed to meet cybersecurity requirements mandated by U.S. Department of Defense (“DoD”) contracts and DoD regulations.

In United States ex rel. Craig v. Georgia Tech Research Corp, et al., which is pending in the United States District Court for the Northern District of Georgia, the DOJ alleges that, from as early as May 2019, Georgia Tech and GTRC, an affiliate of Georgia Tech that contracts with government agencies for work to be performed at Georgia Tech, failed to enforce cybersecurity regulations in order to allegedly “accommodate ‘researchers [who were] pushing back’ on cybersecurity compliance because they found it burdensome.” The complaint-in-intervention further alleges that, until at least February 2020, “Georgia Tech failed to enforce basic cybersecurity at the Astrolavos Lab” despite the lab possessing “nonpublic and sensitive DoD information.” It is also alleged that, even after Astrolavos Lab implemented a system security plan, Georgia Tech and GTRC “failed to: (1) assess the system on which the Astrolavos Lab processed, stored or transmitted sensitive DoD data using DoD’s prescribed assessment methodology; and (2) provide to DoD an accurate summary level score for Astrolavos Lab to demonstrate the state of the lab’s compliance with applicable cybersecurity regulations.” The submission of a summary level score is a “condition of contract” for most DoD contracts.

On September 23, 2024, Principal Deputy Assistant Attorney General Nicole M. Argentieri announced updates to the U.S. Department of Justice’s (“DOJ”) guidance relative to its Principles of Federal Prosecution of Business Organizations through the Evaluation of Corporate Compliance Programs (“ECCP”). The ECCP is “meant to assist prosecutors in making informed decisions as to whether, and to what extent, the corporation’s compliance program was effective at the time of [an offense under investigation], and is effective at the time of a charging decision or resolution, for purposes of determining the appropriate (1) form of any resolution or prosecution; (2) monetary penalty, if any; and (3) compliance obligations contained in any corporate criminal resolution (e.g., monitorship or reporting obligations)” with DOJ.

The ECCP was updated last year with new policies relating to a corporation’s access to and retention of employee electronic communications as well as a company’s compensation structure for executives and employees. This year’s updates focus on three new policies regarding evaluations of:

1. How companies are assessing and managing risk related to the use of new technology such as artificial intelligence (“AI”);
2. Companies’ “speak up” cultures; and
3. Compliance programs’ appropriate access to data, including to assess their own effectiveness.

The widespread availability of Artificial Intelligence (AI) tools has enabled the growing use of “deepfakes,” whereby the human voice and likeness can be replicated seamlessly such that impersonations are impossible to detect with the naked eye (or ear). These deepfakes pose substantial new risks for commercial organizations. For example, deepfakes can threaten an organization’s brand, impersonate leaders and financial officers, and enable access to networks, communications, and sensitive information.

In 2023, the National Security Agency (NSA), Federal Bureau of Investigations (FBI), and Cybersecurity and Infrastructure Security Agency (CISA) released a Cybersecurity Information Sheet (the “Joint CSI”) entitled “Contextualizing Deepfake Threats to Organizations,” which outlines the risks to organizations posed by deepfakes and recommends steps that organizations, including national critical infrastructure companies (such as financial services, energy, healthcare and manufacturing organizations), can take to protect themselves. Loosely defining deepfakes as “multimedia that have either been created (fully synthetic) or edited (partially synthetic) using some form of machine/deep learning (artificial intelligence),” the Joint CSI cautioned that the “market is now flooded with free, easily accessible tools” such that “fakes can be produced in a fraction of the time with limited or no technical expertise.” Thus, deepfake perpetrators could be mere amateur mischief makers or savvy, experienced cybercriminals. 

The Rules Governing the Courts of the State of New Jersey were amended effective September 1, 2024, after being approved by the Supreme Court of New Jersey earlier this year. Several of the amendments will be of particular interest to civil litigators.

Rule 1:5-2 – Manner of Service

Rule 1:5-2, which governs the service of papers upon attorneys of record, may now be made by email “to the email addresses listed on an approved electronic court system pursuant to Rule 1:32-2A(a).” While many practitioners have likely followed this practice in their cases and agreed amongst themselves to accept service of routine documents such as discovery requests and responses via email, the amendment to Rule 1:5-2 makes clear that no such agreement is necessary. As the Supreme Court Civil Practice Committee observed in its January 2024 report (the “Civil Practice Committee Report”), “[s]ince the COVID-19 pandemic, practitioners reported having experienced an increase in electronic service of motions and discovery demands, generating the need for a rule amendment to formalize the practice.” This new service-by-email rule applies to all papers referred to in Rule 1:5-1, namely “orders, judgments, pleadings subsequent to the original complaint, written motions (not made ex parte), briefs, appendices, petitions and other papers except a judgment signed by the clerk.”

Since the pandemic, COVID-19-related fraud has been a consistent target of the Department of Justice. The creation of the DOJ’s COVID-19 Enforcement Task Force in May 2021 marked the start of DOJ’s commitment to combatting COVID-19-related fraud. Since then, according to the Task Force’s 2024 Report, published in April of this year, the Task Force has charged over 3,500 defendants with federal crimes related to Covid-19 fraud, recovered more than $1.4 billion in stolen funds and reached over 400 civil settlements and judgments.

Most of these matters involved unemployment insurance (“UI”) benefits fraud, Paycheck Protection Program fraud (“PPP”), and Economic Injury Disaster Loan (“EIDL”) fraud , but other types of CARES Act fraud and health care fraud related to the COVID-19 pandemic were also charged. The quantum of fraud losses associated with these cases was reported to be over $2.1 billion.

Most recently, on August 8, 2024, the DOJ issued  a press release announcing that West Coast Dental Administrative Services LLC, operating a network of dental offices in Southern California, along with its founders and former owners, agreed to pay $6.3 million to resolve allegations that they knowingly violated the False Claims Act (“FCA”) in connection with seven improper loans that the company and its affiliated dental offices received under the PPP. Additionally, an unrelated real estate holdings company owned by one of the founders agreed to pay an additional $35,149.82 to resolve its potential liability under the FCA in connection with a separate PPP loan.

On August 14, 2024, the Federal Trade Commission (“FTC”) announced a new final rule aimed at regulating fake consumer reviews, testimonials, insider reviews, company-controlled websites, and fake indicators of social media influence (e.g., “likes”) (the “Final Rule”).  The Final Rule was promulgated pursuant to Section 18 of the FTC Act, which authorizes the FTC to issue rules that define acts or practices that are unfair or deceptive within the meaning of Section 5(a)(1) of the FTC Act, and it enables the FTC to seek civil monetary penalties for violations.

While it covers ground similar to the FTC’s recently updated endorsement guides (the “Guides”), which we wrote about last year, the Guides regulate the conduct of individuals who are paid or incentivized to endorse products, whereas the Final Rule applies directly to companies advertising through consumer reviews, testimonials, and social media.

The Final Rule has six primary subsections: (1) Fake or False Consumer Reviews, Consumer Testimonials, or Celebrity Testimonials (§ 465.2); (2) Buying Positive or Negative Consumer Reviews (§465.4); (3) Insider Consumer Reviews and Consumer Testimonials (§465.5); (4) Company-Controlled Review Websites or Entities (§465.6); (5) Review Suppression (§465.7); and (6) Misuse of Fake Indicators of Social Media Influence (§465.8).