On August 6, 2020, in Rose’s 1 LLC, et al. v. Erie Insurance Exchange, a District of Columbia trial court granted an insurer’s cross motion for summary judgment on the issue of whether COVID-19 closure orders constitute a “direct physical loss” under a commercial property policy. Plaintiff insureds (“Insureds”) own several restaurants in Washington D.C. that were forced to close and suffered serious revenue losses stemming from the Mayor’s orders to close non-essential businesses and ordering people to stay home. As a result, the Insureds made claims to Defendant Erie Insurance Exchange (the “Insurer”) under their policies that included coverage for “loss of ‘income’ and/or ‘rental income’” sustained “due to partial or total ‘interruption of business’ resulting directly from ‘loss’ or damage” to the property insured. The policy also stated that it “insures against direct physical ‘loss.’”

Dictionary Definitions Open to Interpretation

As the Court framed the issue, “[a]t the most basic level, the parties dispute whether the closure of the restaurants due to Mayor Bowser’s orders constituted a ‘direct physical loss’ under the policy.” To support their argument, the Insureds relied on dictionary definitions of “direct” as “[w]ithout intervening persons, conditions, or agencies; immediate;” and “physical” as pertaining to things “[o]f or pertaining to matter, or the world as perceived by the senses; material as [opposed] to mental or spiritual.” The policy defined “loss,” as “direct and accidental loss of or damage to covered property.”

The Insureds relied on these definitions to make three arguments. First, they argued that the loss of use of their restaurant properties was “direct” because the closures were the direct result of the Mayor’s orders without intervening action. The Court rejected that argument because those orders commanded individuals and businesses to take certain actions and “[s[tanding alone and absent intervening actions by individuals and businesses, the orders did not affect any direct changes to the properties.”

Second, the Insureds argued that their losses were “physical” because the COVID-19 virus is “material” and “tangible,” and because the harm they experienced was caused by the Mayor’s orders rather than diners being afraid to eat out. The Court also rejected that argument because the Insureds offered no evidence that COVID-19 was actually present on their properties at the time they were forced to close and the mayor’s orders did not impact the tangible structure of the properties.

Third, the Insureds argued that the policy’s definition of “loss” as encompassing either “loss” or “damage,” required the insurer to “treat the term ‘loss’ as distinct from ‘damage,’ which connotes physical damage to the property,” and thus “loss” incorporates “loss of use.” The Court rejected that argument and held that the words “direct” and “physical” modify the word “loss” and therefore any “loss of use” must be “caused, without the intervention of other persons or conditions, by something pertaining to matter—in other words, a direct physical intrusion [onto] the insured property.” The Court held that the Mayor’s orders did not constitute such a direct physical intrusion. Continue Reading D.C. Judge Rules COVID-19 Closure Orders Do Not Constitute “Direct Physical Loss”

While businesses and their employees continue to operate in the “new frontier” of working-from-home during the COVID-19 pandemic and the gradual reopening of the economy, a serious risk continues to present itself: the threat of cybercrime. The increased use of remote access to work systems and related applications has made businesses a prime target for those unscrupulous individuals seeking to encroach on companies’ cyber-landscape. Flaws in VPNs, firewalls, and videoconferencing, for example, have exposed many companies’ electronic infrastructures to these incursions. Similarly, the at-home workforce has increasingly been subjected to social engineering attacks often cloaked as communications purporting to provide information about pandemic-related issues.

In addition to the technical measures necessary to confront these threats, businesses would be well-advised to ensure that their cyber insurance is up to date and responds to this challenging new environment. Such coverage may be found in a variety of insurance, including property policies, commercial crime bonds or in stand-alone cyber risk policies. Regardless of where it resides, cyber insurance typically provides coverage for data breaches, ransomware attacks and employee wrongdoing, and for loss of business income occasioned by covered occurrences.

While the jurisprudence related to these issues continues to develop, some recent cases provide insight into how courts may decide cyber coverage questions in the current environment. 

Ransomware – Covered

Earlier this year the U.S. District Court for the District of Maryland considered the issue of how first-party “computer coverage” responded to data loss resulting from a ransomware attack. In National Ink & Stitch, LLC v. State Auto Property & Casualty Ins. Co., No. SAG-18-2138, 2020 WL 374460 (D. Md. Jan. 23, 2020), the insured was an embroidery and screen printing business that stored business-related art, logos, designs and graphics software on a server that became compromised by a ransomware attack. Id. at *1. As a result, the insured needed to recreate stored data that it was unable to access because of the incursion. Id. Further, after the software was replaced and reinstalled by experts, there remained a likelihood that remnants of the virus lingered on the system, leaving the insured with the unpalatable choice of either “wiping” the entire system or purchasing a new server. Id.

The policy at issue responded to “direct physical loss of damage to Covered Property at the premises…caused by…any Covered Cause of Loss.” Id. “Covered Property” included electronic data processing, recordings or storage media such as film, tapes, disks, etc. in addition to data stored on such media. Id. at *1-2. Software was included as “covered property” in the policy. Id. at *1. The insurer denied the claim on the basis that the insured had not experienced direct physical loss or damage to its computer system to justify reimbursement of the cost of replacing the entire system. Id. at *2. That is, because the insured “only lost data and could still use its computer system,” the insurer took the position that there was no “direct physical loss” and, therefore, no coverage. Id.

In finding that the insured should be reimbursed for its losses, the court determined that the plain language of the policy “contemplates that data and software are covered and can experience ‘direct physical loss or damage’” Id. at *3. The court refused to credit the insurer’s argument that a loss of software and its related functionality was not a direct loss to tangible property simply because the insured could still use the system albeit in a diminished fashion. Id. Instead, relying on relevant case law, the court it recognized that the insured’s computer system, while still functional, had been rendered inefficient and its storage capability was damaged in a way that its data and software could not be retrieved. Id. at *4. Accordingly, the court ruled that the policy did not require the computer system to be completely unable to function in order to constitute covered “physical loss or damage”. Id. at *5.

In granting summary judgment in favor of the insured, the court viewed the system’s loss of use and reliability and impaired function to be consistent with the “physical loss or damage to” language in the policy. Id. This was so because “not only did [insured] sustain a loss of its data and software, but [it] is left with a slower system which appears to be harboring a dormant virus, and is unable to access a significant portion of software and stored data.” Id. Continue Reading Cyber Coverage in the Age of COVID-19 Need Not Result in Pandemonium

In an important win for healthcare providers, on July 17, 2020, the Third Circuit determined in a published opinion that an out-of-network provider’s direct claims against an insurer for breach of contract and promissory estoppel are not pre-empted by ERISA.  In Surgery Ctr., P.A. v. Aetna Life Ins. Co.[1] In an issue of first impression, the Third Circuit addressed the question of what remedies are available to an out-of-network provider when an insurer initially agrees to pay for the provision of out-of-network services, and then breaches that agreement.

This case arose because two patients—identified as J.L. and D.W.—required medical procedures that were not available in-network through Aetna. J.L. needed bilateral breast reconstruction surgery following a double mastectomy and D.W. required “facial reanimation surgery,” which the Third Circuit describes as “a niche procedure performed by only a handful of surgeons in the United States.” Neither J.L. nor DW had out-of-network coverage for these procedures. D.W.’s plan also contained an “anti-assignment” clause, which would have prevented D.W. from assigning his or her rights under the plan to the Plastic Surgery Center, P.A. Continue Reading Third Circuit: Provider’s Out-of-Network Claims not Pre-empted by ERISA

Much ink has been spilled in recent weeks about how some recipients of Paycheck Protection Program (“PPP”) relief obtained their loans through mistakes or false pretenses. Now banks are coming under fire for their lending practices in connection with this hastily prepared and implemented program, which left them grappling with how to properly issue loans in the face of procedural and substantive gaps in the law. Many lenders tried to fill these gaps by supplementing the PPP application to address practical concerns not covered in the law. Two recent cases, however, demonstrate that banks may face legal exposure for supplementing the applicant eligibility requirements published by the Small Business Association (“SBA”). Prudent lenders would do well to consider with counsel the best ways to avoid becoming entangled in such matters.

Background on the PPP

As part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the SBA was authorized to establish a new loan program to assist small businesses adversely impacted by the COVID-19 emergency. P.L. 116-2. Section 1102 of the CARES Act amended the Small Business Act, 15 U.S.C. § 636, to establish the Paycheck Protection Program (“PPP”). The PPP authorizes participating lenders to make loans to eligible small businesses. See P.L. No. 11-136, § 1102(a)(2).

Initially, a pool of $349 billion was established to fund the program, but it was quickly depleted and replenished with an additional $310 billion on April 24, 2020. The amount of any one loan is capped at $10 million per applicant. The program is meant to provide funding on a first come, first served basis. 13 C.F.R. Part 120.

The legislation financially incentivizes banks’ participation in the PPP by providing participating lenders with processing fees of five percent on loans up to $350,000, three percent on loans in amounts between $350,000 and $2 million, and one percent on loan exceeding $2 million. See PPP Lenders Information Sheet, (last visited May 21, 2020).

PPP Eligibility Requirements

PPP borrower eligibility requirements are comparatively less stringent than those of typical business loans. To qualify for a PPP loan, an applicant need only show that it has 500 or fewer employees (or is a small business concern as defined in section 3 of the Small Business Act (15 U.S.C § 632)); was in operation on February 15, 2020 and either had employees for whom salaries and payroll taxes were paid, or independent contractors. Applicants also must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant, [and] the funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments…” SBA Form 2484, (last visited May 21, 2020). Finally, at least currently, applicants must also certify that they have not received another PPP loan. Id.

Lenders Add Criteria

A number of lenders added additional eligibility criteria typical of other commercial loans that they process. For example, in addition to the SBA mandated requirements, some banks have required applicants to have a business checking account in that bank as of a previous date certain. Similarly, other lenders have required applicants to have had as of a previous date certain either a small business checking or credit relationship with the bank, or a small business checking account and no business credit or borrowing relationship with another lender. Criticism of these additional criteria has emerged because of concerns that it gives unfair priority to the banks’ customer over non-customers and thereby, among other things, disproportionally makes loans less available to otherwise qualified minority and women owned businesses.

Senators Assail Banks’ Augmented Eligibility Requirements

Sen. Marco Rubio (R. Fla.) chairs the Senate’s Committee on Small Business and Entrepreneurship, which oversees all legislation and issues relating to the SBA. On April 3, 2020, he tweeted the following:

The requirement that a #Small Business not just have a business account but also a loan or credit card is NOT in the law we wrote and passed or in the regulations.

He went on, stating that the condition is bank-added “not a govt one,” and asserted that banks “should drop it” because “[t]his money is 100% guaranteed by the fed govt.” Marco Rubio (@MarcoRubio), Twitter (Apr. 3, 2020), url here.

Sen. Ben Cardin (D-Md.), the ranking member of the committee also released a statement about the PPP that day:

I am deeply troubled by reports of financial institutions turning away small businesses that desperately need capital through the Paycheck Protection Program. The small business provisions in the CARES Act were written to get funds into the hands of American small business owners as quickly as possible so they can keep employees on payroll and avoid financial ruin while we work to combat COVID-19. Creating artificial barriers that block businesses from much-needed capital is redlining by another name.

See Cardin Statement on Launch of Paycheck Protection Program (Apr. 3, 2020).

In the same vein, on April 9, 2020, Senators Kaine, King and Coons wrote to the President and CEO of the American Bankers Association, advising:

We have heard from many constituents that because they do not have a preexisting account or because their lender is not accepting applications, that they are unable to apply for relief through this vital program. Unfortunately, many of these same customers that do not have preexisting relationships are those most likely to be already struggling to pay their bills and keep their businesses afloat. We are calling for your member banks with the resources to do so to open up applications for new customers urgently.

See Letter from Senators Kaine, King, and Coons to Rob Nichols (Apr. 9, 2020).

Banks are Sued By Loan Applicants

On the heels of these developments, two recent lawsuits challenge banks’ augmenting statutorily-express PPP eligibility requirements, as summarized below.

Profiles, Inc. v. Bank of America Corp.

In Profiles, Inc. v. Bank of America Corp., 1:20-cv-00894-SAG (D. Md.), a group of small businesses took Bank of America (“BoA”) to task for allegedly implementing, “a loan process that unlawfully prioritized their existing borrowing clients by barring their depository clients and other small businesses from even applying for funds from the governmental loan programs.” Second Amended Compl., ¶ 4, Apr. 7, 2020, ECF No. 5. Plaintiffs further allege that after their lawsuit was filed, BoA “revised its policy on April 4, 2020, by allowing depository-only clients to apply for PPP loans but imposed an additional illegal requirement – that depository-only clients must have no credit card or loan with any other bank.” Id. at ¶ 5.

Plaintiffs’ legal claims are premised on alleged breaches of the CARES Act and the SBA’s 7(a) loan program (meant to help startup and existing small businesses obtain loans when they might not otherwise be able to obtain funding), specifically that BoA illegally created “unlawful requirements to apply for a PPP loan from it…” Id. at ¶¶ 101, 111. They also allege unjust enrichment based upon the allegation that by prioritizing BoA clients with BoA debt or no other bank debt, BoA enhanced its credit risk profile.

Shortly after filing their Second Amended Complaint, the Profile plaintiffs moved for a temporary restraining order and preliminary injunction, seeking to enjoin the aforementioned conduct. See Motion for Temporary Restraining Order, 1:20-cv-00894-SAG (D. Md.), Apr. 7, 2020, ECF No. 7. In denying the application, the Court focused primarily on the likelihood of success prong of the TRO analysis, finding that based on its plain language there was no implied private right of action under the CARES Act. See Memorandum Opinion, Apr. 13, 2020, ECF No. 17. The Court further held that even if the Act provided applicants with some statutory right to apply for a PPP loan through a lender of choice, nothing in the Act evidenced Congress’s intent to enable PPP loan applicants to bring civil suits against PPP lenders to enforce those rights. Id. at 13. Moreover, assuming there was an implied private right of action, the court found that the CARES Act does not prohibit banks from considering other information or dictate the order in which a bank must process the applications it accepts. Id.

Scherer v. Wells Fargo

A similar lawsuit was filed against Wells Fargo in the U.S. District Court for the Southern District of Texas. In Scherer v. Wells Fargo, 4:20-cv-01295 (S.D. Tex.), a self-employed small business owner and a sole proprietor alleged that the bank was “refusing to accept PPP loan applications unless the small business applicant had an established business checking account with Wells Fargo as of February 15, 2020” and as a consequence was “unlawfully prioritizing these existing customers who had a ‘Wells Fargo business checking account as of February 15, 2020.’, and shutting out other businesses who qualify equally under the PPP and CARES Act.” Second Amended Compl., ¶ 6., May 12, 2020, ECF No. 25.

The Scherer action asserts broader legal claims than those advanced in Profile. In addition, to violations of the CARES Act and the SBA’s 7(a) loan program (15 U.S.C. 636(a)), the Scherer plaintiffs allege negligence, common law fraud, unjust enrichment, and violation of twenty-four states consumer protection statutes.

Like the plaintiffs in the Profile matter, the Scherer plaintiffs moved for a temporary restraining order. See Motion for Temporary Restraining Order, Scherer v. Wells Fargo, 4:20-cv-01295 (S.D. Tex.), Apr. 22, 2020, ECF No. 9. On April 29, 2020, the court denied the motion on the grounds that the TRO was unjustified because plaintiffs had not experienced a substantial threat of irreparable injury since there were 4,975 other lenders to whom they could have applied for a PPP loan. Id. at 3. The court, unlike the judge in the Profile case, did not opine on the legal merits of plaintiffs’ claims.

Neither bank is out of the woods yet, however, as both cases now proceed to discovery.

New Jersey May Be Fertile Ground For Lawsuits Against Lenders

New Jersey is home to scores of banks that participate or have participated in the PPP. See Lenders Participating in PPP by State (available here). Further, notwithstanding the Profiles court’s finding that the CARES Act appears to not have an implied private right of action, lenders should not ignore that New Jersey is also home to a very broad and powerful consumer rights statute.

The New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. (“CFA”), makes it unlawful for a “person” to use “unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with the intent” that someone else rely on the foregoing, “in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby.” N.J.S.A. 56:8-2. The term “advertisement” includes “the attempt…to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise or to increase the consumption thereof or to make any loan.” N.J.S.A. 56:8-1(a)(emphasis added). Among other things, the CFA entitles prevailing plaintiffs to triple damages and attorneys’ fees.

Of importance, the CFA is not limited to righting wrongs against individuals. Under certain circumstances, a business may be considered a “person” under the act and may sue to enforce their rights under this statute. Coastal Group, Inc. v. Dryvit Systems, Inc., 274 N.J. Super. 171, 179-180 (App. Div. 1994). Moreover, lending is one of the activities that falls within the CFA’s broad purview. Gonzalez v. Wilshire Credit Corporation, 207 N.J. 557, 564 (2011); Lemelledo v. Beneficial Management Corp. of America, et al., 150 N.J. 255, 266 (1997).

Consequently, to avoid the risk of liability under the CFA, banks should be sure to carefully word all advertising and loan application documents to assure that they cannot arguably be said to misrepresent or inaccurately represent eligibility requirements of the PPP to applicants and potential applicants. Such measures are important in addition, because as demonstrated by the Scherer lawsuit, CFA claims are often accompanied by state common law claims.


Irrespective of the business reasons for banks wishing to require PPP applicants to have a loan/banking relationship to be eligible for a PPP loan and the legal arguments that may permit them to impose such additional requirements, there are enough cross-winds stirring for banks to be concerned and to take steps to reduce the risk of suit and potential exposure.

Similarly, as plaintiffs and politicians argue that the rationale for the PPP is to get needed money into the hands of as many impacted small businesses as possible as quickly as possible, the practice of requiring additional eligibility requirements will be further called into question. Such conduct will be argued to violate some “first come, first served” element of the program, placing it squarely in the cross-hairs of the CFA and other State’s consumer protection statutes. It is clear that there is currently a taste to sue lenders for how they process PPP loans. Until more cases wind their way through the pipeline and the parameters of liability becomes more defined or Congress immunizes lenders for participating in the PPP, banks certainly will face litigation risk related to these issues, as well as the burden of lost time and expense that goes with it.

(This post originally appeared on the Workforce Bulletin Blog)

Just a few months ago, the idea of a virtual jury trial probably seemed inconceivable to most judges and lawyers.  Now, with the COVID-19 pandemic shuttering courthouses throughout the nation and most in-person proceedings suspended, many judges and attorneys are left wondering when and how civil jury trials will be able to safely resume.  We suspect that most prospective jurors will not be enthralled with the idea of sitting shoulder to shoulder in a jury box while the outbreak is still raging.  As litigators and the courts become comfortable with Zoom and other videoconferencing tools, it is apparent that we have the technology to hold virtual trials – the questions is should we?

The prospect of remote jury trials raises a host of serious issues ranging from how to overcome the constitutional hurdles to ensuring that witnesses, parties and jurors have access to high-speed internet so that they can participate in the first place.  Some potential solutions for accessibility concerns are having pre-wired government offices for those who lack access or distributing common technology (such as an iPad, with a cellular connection).  In addition to technology access, there will also be questions of whether a potential juror has access to a room where they can be alone and deliberate in private. Continue Reading Will Virtual Jury Trials Be Part of the “New Normal” Ushered in by the COVID-19 Pandemic?

The Paycheck Protection Program (“PPP”) provided forgivable loans to assist small businesses with expenses during the COVID-19 shutdown, seemingly creating a lifeline for many of these enterprises.  As explained here, a borrower could obtain a loan equal to the lesser of $10 million or the sum of its average monthly payroll costs for 2.5 months, (reduced to the extent that any individual was paid more than $100,000 per year) plus the balance of any Economic Injury Disaster Loan received between January 31, 2020 and April 3, 2020.  Like many federal programs, however, participation in the PPP program requires an extensive series of certifications that could expose borrowers to liability under the under the False Claims Act (“FCA”), a Civil War era statute, that the government has continued to use to combat both government contract and health care fraud.  Borrowers must, therefore, remain mindful of the key aspects of the FCA as they use PPP funds and as they apply for loan forgiveness.

Briefly, the FCA creates liability for anyone who knowingly submits a false claim, or causes another to submit a false claim, for money to the federal government.   The FCA broadly defines the term “knowingly” to include actions taken with “deliberate ignorance” or “reckless disregard” of the truth of a claim.  The cost of an FCA violation is substantial.  The government can recover: (1) a civil penalty between $5,000 and $10,000 for each false claim, (2) three times the amount of damages actually suffered and (3) the costs of any civil action the government brings to recover a penalty or damages.  In addition, the FCA’s “qui tam” provision allows private persons to bring whistleblower actions on behalf of the government, and lows such private persons to recover between 15 and 30 percent of any recovery, depending upon whether the government intervenes in the case and the quality of the whistleblower’s assistance. Qui tam actions are frequently brought by disgruntled employees, and hence, the qui tam provision is a particular risk for PPP borrowers with displaced employees.

The PPP loan and loan forgiveness applications include several certifications which could trigger FCA liability.  The loan application requires the borrower to certify that:  (1) it was in operation on February 15, 2020 and had employees to whom it paid salaries and payroll taxes; (2) it needs the loan “to support ongoing operations” due to uncertainty of current economic conditions; (3) it will use the funds to retain workers and maintain payroll, or make mortgage interest, lease, and utility payments, and that not more than 25% of the forgiven amount would be for non-payroll costs; (4) it will provide the lender with documentation verifying the number of its full-time employees, and the amount of its payroll, mortgage interest, rent and utility payments during the eight week period following the loan; (5) it has not and will not receive another loan under the PPP between February 15, 2020 and December 31, 2020; and (6) the information in the loan application and supporting documents is true and accurate.

The PPP loan forgiveness application requires the borrower to (1) report the dollar value of its payroll and non-payroll costs (e.g., mortgage interest, rent or lease, and business utility payments) and (2) data concerning any reductions it made to the number of its full time equivalent employees and the salary and wages paid to employees.  In addition, the loan forgiveness application requires borrowers to certify that the “dollar amount of the forgiveness” requested: (1) was used to pay authorized costs; (2) includes all applicable reductions due to decreases in the number of and/or compensation paid to full time employees; (3) does not include non-payroll costs in excess of 25%; and (4) does not exceed eight weeks of 2019 compensation, capped at $15,385 per individual.  The borrower must also certify that (1) it has “accurately verified” the eligible payroll and non-payroll costs for which it seeks forgiveness, (2) it has provided required documentation to its lender, and (3) the forgiveness application is “true and correct in all material respects.”

An inaccurate certification on either application could lead to FCA litigation exposure because the PPP has been subjected to intense scrutiny by the government and the media.  Attorney General William Barr asked the public to report any COVID-19 related fraud and directed the Department of Justice (“DOJ”) to “prioritize the investigation and prosecution” of any COVID-19 related fraud schemes.  Shortly after the first round of PPP funding was exhausted, and reports indicated that many publicly traded companies received PPP loans, Treasury Secretary Steven Mnuchin reminded borrowers of their obligation to make truthful certifications about their need for loans, and the government demanded that certain borrowers return the loans.

To further complicate matters, the Treasury and Small Business Administration (“SBA”) have made conflicting statements about the PPP.  Between April 29, 2020 and May 13, 2020, the Treasury Department  issued Frequently Asked Questions (“FAQs”), indicating that the SBA will audit any loan over $2 million (FAQ 39), following the submission of a forgiveness application, but will deem any borrower who sought a loan of less than $2 million “to have made the required certification in good faith.”  (FAQ 46).  However,  in a May 22, 2020 Interim Rule, the SBA stated that it may review loans “of any size” to evaluate whether the borrower:  (1) was eligible for a PPP loan; (2) calculated the loan amount correctly; (3) used the proceeds for allowable expenses; and (4) is entitled to loan forgiveness. The SBA also reminded borrowers that they must keep documentation related to loan forgiveness for six years after the loan is forgiven or repaid.  Further, these FAQs will not prevent qui tam actions by individual plaintiffs nor prevent DOJ investigations into loans under $2 million.  The media continues to scrutinize PPP and several news organizations recently filed a lawsuit under the Freedom of Information seeking the identity of all PPP borrowers and the amounts of approved loans. Indeed, DOJ reportedly subpoenaed records from several large banks concerning PPP loans.

In short, the PPP is likely to be the subject of continuing scrutiny by the government, the media and plaintiffs’ lawyers.  Given the amount of money disbursed through the PPP, the haste with which many borrowers sought PPP loans, and the confusion over some PPP requirements, the PPP will likely provide fertile ground for FCA litigation.  Accordingly, PPP borrowers should review their applications and document the basis for any loan request, the uses for any loan proceeds, and the basis for any forgiveness request.  Borrowers who have had difficulty retaining employees as planned, should consult counsel to ensure that they document their efforts to rehire or retain employees.  Further, any borrower who sought a loan despite having substantial cash on hand, or which exceeded the statutory calculation, should consult counsel.  In addition, borrowers who will not use loan proceeds for authorized purposes should consult counsel, especially before submitting an application for forgiveness.  Finally, any borrower that receives audit requests from the SBA, which is administering the PPP, or any inquiries from the DOJ should consult counsel before responding.

EBG lawyers have extensive experience defending clients during both government investigations and qui tam actions brought under the FCA, and stand ready to assist PPP borrowers who may have questions about the PPP, the certifications, or who face potential FCA exposure.

(This post originally appeared on the Workforce Bulletin Blog)

The Supreme Court of New Jersey unanimously held in Linda Cowley v. Virtua Health System (A-47-18) (081891) that the “common knowledge” exception of the Affidavit of Merit Statute applies only when a simple negligence standard is at issue, and does not apply when a specific standard of care must be evaluated.  In this case involving if and how to reinsert a removed nasogastric tube, the Court reversed the judgement of the Appellate Division and dismissed the plaintiff’s complaint with prejudice because she failed to submit an affidavit of merit within the time required by the Affidavit of Merit Statute.

Enacted in 1995, the Affidavit of Merit Statute requires that plaintiffs in medical malpractice cases “provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the treatment, practice or work that is the subject of the complaint, fell outside acceptable professional or occupational standards or treatment practices.” N.J.S.A. 2A:53A-27. The statute’s primary purpose “to require plaintiffs in malpractice cases to make a threshold showing that their claim is meritorious, in order that meritless lawsuits readily [can] be identified at an early stage of litigation.” Cornblatt v. Barow, 153 N.J. 218, 242 (1998). Failure to provide an affidavit or its legal equivalent is “deemed a failure to state a cause of action,” N.J.S.A. 2A:53A-29, requiring dismissal with prejudice.

An exception to this rule is the judicially-created “common knowledge” exception which provides that an expert is not needed to demonstrate that a defendant professional breached some duty of care “where the carelessness of the defendant is readily apparent to anyone of average intelligence.” Rosenberg v. Cahill, 99 N.J. 318, 325 (1985). In those exceptional circumstances, the “jurors’ common knowledge as lay persons is sufficient to enable them, using ordinary understanding and experience, to determine a defendant’s negligence without the benefit of the specialized knowledge of experts.” Hubbard v.  Reed, 168 N.J. 387, 394 (2001). Thus, a plaintiff in a malpractice case is exempt, under the common knowledge exception, from compliance with the affidavit of merit requirement where it is apparent that “the issue of negligence is not related to technical matters peculiarly within the knowledge of [the licensed] practitioner[].” Sanzari v.  Rosenfeld, 34 N.J. 128, 142 (1961).

Continue Reading New Jersey Affidavit of Merit Statute Applied to Nursing Case Despite “Common Knowledge” Claim

On March 23, 2020, Governor Phil Murphy signed Executive Order 109, which “limit[ed] non-essential adult elective surgery and invasive procedures, whether medical or dental, [in order to] assist in the management of vital healthcare resources during this public health emergency.” The purpose of EO 109 was to “limit[] exposure of healthcare providers, patients, and staff to COVID-19 and conserve[] critical resources such as ventilators, respirators, anesthesia machines, and Personal Protective Equipment (‘PPE’) [that] are essential to combatting the spread of the virus.” At the time EO 109 was executed, coronavirus cases were rapidly increasing within the State. On March 23rd, New Jersey had 2,844 coronavirus cases in all 21 counties, an increase of 935 over the previous day, and at least 27 people had died.

In the weeks that followed, New Jersey saw the surge in cases for which it was preparing. On April 4, the three-day average of new confirmed positive COVID-19 cases peaked at 4,064 cases, and by April 14th, there were 8,084 of COVID-related hospitalizations and a staggering 1,705 patients on ventilators. But since that time, thanks to social distancing and New Jersey’s ability to flatten the curve, these numbers have fallen drastically. By May 11th, the three-day average of new, positive cases had fallen to 1,572 new cases—a 61 percent decrease. Likewise, the three-day average of new hospitalizations had fallen to 4,277 patients—a 48 percent decrease.

In light of this decreased burden on the healthcare system, Governor Murphy signed Executive Order 145, which allows for elective surgeries to resume as of 5 am on May 26, 2020. EO 145 provides that elective surgeries and invasive procedures may proceed at both licensed healthcare facilities and in outpatient settings not licensed by the Department of Health (e.g., health care professional offices, clinics, and urgent care centers), subject to limitations and precautions set forth in policies to be issued by the Division of Consumer Affairs, in consultation with the Department of Health, by Monday, May 18, 2020. EO 145 further states that the Department of Health and/or the Division of Consumer Affairs may issue supplemental or amended policies concerning elective surgeries and elective invasive procedures on or after Monday, May 18, 2020.

Continue Reading Guidance Issued on Resuming Elective Surgeries in New Jersey

Consumer complaints regarding alleged price gouging have been increasing as the COVID-19 pandemic continues. Generally, price gouging occurs when there unreasonable increase the price of a consumer good (or service) during a public emergency. Although we are facing a national emergency, except for a March 23, 2020, executive order issued by President Trump prohibiting hoarding and price gouging of certain critical supplies, there is no federal price gouging law. Although there are proposal pending in Congress to more broadly prohibit price gouging, currently, the issue is primarily governed by state law. Most, but not all, states affected by the pandemic have price gouging laws or orders, which typically provide that a consumer may file a complaint with the state’s consumer affairs department that then may be prosecuted (or otherwise resolved) by the state’s Office of the Attorney General.

While price gouging certainly has occurred during the pandemic, many complaints of alleged impermissible price gouging are based consumer misperception or misunderstanding about what is occurring in the market place, rather than profiteering. In other words, things aren’t always as they seem.

Supply and Demand

Before the outbreak, retailers would typically have had available a variety of options for a particular product or item, allowing the consumer to choose from a wide variety of quality, color, size and price options to select the product or item they wished to purchase .  With so many people sheltering at home, basic retail goods, such as toilet paper, paper towels, cleaning supplies and eggs, are in high demand and short supply.  Thus, consumers may no longer be able to find their preferred option available and that instead may have to choose a different, and sometimes more expensive, option. .Thus, for example, a consumer who may be accustomed to purchasing generic toilet paper that has sold out, may be constrained to buy a more expensive name brand. This is not price gouging; this is supply and demand.

Increased Wholesale Costs

Additionally, with so many goods in short supply and high demand, wholesale costs are rising, which in turn lead to increased retail costs. Take a commodity like eggs. The Washington Post  The Washington Post recently reported that the demand for eggs had increased 44% since a year ago, and that wholesale price of eggs had risen 180% since March 2020 for a variety of reasons.  Higher wholesale costs naturally lead to higher retail costs. Generally, speaking it is permissible for a retailer to reflect its cost of goods in the price that it charges consumers.  Consequently, it is not surprising that many consumers are finding that the retail cost for eggs has increased.

Scaled Back Promotions

Finally, faced with inventory shortages and personnel shortages, retailers are also having to scale back on promotions, such as reduced price sales. While consumers may be accustomed to regular or weekly sales, discontinuing a regular practice does not translate to being price gouging. The promotions make no sense if the retailer cannot be certain it can obtain the promotional items or obtain the items in sufficient quantities to satisfy consumer demand.  Indeed, running such a promotion would only increase consumer frustration or lead to a complaint when the consumer arrives at the store and sees that the limited supply of sale items is not on the shelves.


Price gouging and profiteering are fairly obvious: unreasonably increasing prices to take advantage of consumers during a state of emergency. But not every price increase constitutes price gouging.

(This post originally appeared on the Workforce Bulletin Blog)

Recently, the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert to provide broker-dealers with guidance on examinations regarding regulation Best Interest (“Reg BI”).  Reg BI requires that when broker-dealers make a recommendation regarding securities to a retail customer it must act in the best interest of the customer, without placing its own financial or other interest ahead of the retail customer’s interest.  The Financial Industry Regulatory Authority (“FINRA”) also stated that it would take the same approach in its examinations of broker-dealers and their associated persons for compliance with Reg BI.

The SEC stated that the initial examinations are designed primarily to evaluate whether firms have made “a good faith effort to implement policies and procedures reasonably designed to comply” with Reg BI and it provided guidance on the four obligations under Reg BI:

Disclosure obligation:  Broker-dealers are required to provide retail customers written disclosure regarding the scope and terms of the relationship and any conflicts of interest that are associated with the recommendation.  To assess compliance with this obligation, staff may review documents such as: (i) schedules of fees and charges assessed against retail customers and the disclosures regarding such fees and charges; (ii) the broker-dealer’s compensation methods for registered personnel; (iii) disclosures related to monitoring of retail customers’ accounts; (iv) disclosures on material limitations on accounts or services recommended to retail customers; and (v) lists of proprietary products sold to retail customers.

Care obligation:  Broker-dealers are required to exercise reasonable diligence, care and skill when making a recommendation to a retail customer.  To assess compliance with this obligation, staff may review documents such as:  (i) information collected from retail customers to develop their investment profiles; (ii) the broker-dealer’s process for having a reasonable basis to believe that a recommendation is in the customers’ best interest; and (iii) how the broker-dealer makes recommendations related to significant investment decisions or more complex, risky or expensive investments and how it has a reasonable basis to believe they are in the retail customers’ best interest.

Conflict of interest obligation:  Broker-dealers are required to establish, maintain and enforce written policies and procedures reasonably designed to address conflicts of interest associated with its recommendations.  To assess compliance with this obligation, staff may review a broker-dealers’ policies and procedures to determine how they address the requirement of Reg BI and how they provide for mitigation or elimination of conflicts.

Compliance obligation:  Broker-dealers are required to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.  To assess compliance with this obligation, staff may review the broker-dealer’s policies and procedures and evaluate any controls, training and testing.  Also, to the extent the broker-dealer remediated any non-compliance with Reg BI, the staff may review documentation around such issues.

In its Risk Alert, the SEC recognized that not every document is applicable to all broker-dealers and stated that it will review broker-dealers based on the profile of each broker-dealer.  The Risk Alert and the types of documents the staff may review, however, provide guidance to broker-dealers regarding the steps they should take prior to an examination to ensure compliance with Reg BI.  Beyond having documents reflecting disclosures to clients, broker-dealers should make sure that they have sufficient policies and procedures to reasonably comply with Reg BI, their registered representatives received training on Reg BI, and such training is documented.  Broker-dealers should also maintain evidence of supervision for compliance with Reg BI, including ensuring that customers receive consistent, timely and accurate information.

Lastly, the SEC also stated that the June 30, 2020 deadline for complying with Reg BI will not be changed in light of COVID-19.  Consequently, firms should be prepared for examinations on Reg BI as early as this summer.

Epstein Becker Green will continually monitor how Reg BI is impacting firms.  In the meantime, should you have any questions or wish further guidance on this or any COVID-19 issue during the current crises, please contact Brian L. Friedman or your Epstein Becker Green attorney.

(This post originally appeared on the Workforce Bulletin Blog)