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What is Civil Fraud?

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What is Civil Fraud? How Does it Differ from "Criminal Fraud"?(Updated June 18, 2018):  According to the Association of Certified Fraud Examiners, money lost due to fraud costs businesses and private parties over $3.5 trillion per year. This information, coupled with their assertion that instances of fraud have been dramatically increasing within the last few years, offers an eye-opening revelation not only for business, but all citizens of the United States. Individuals, businesses, and health care providers alike must become more informed on what fraud constitutes. This article intends to help inform readers regarding the irregularity of definition, differences in governmental levels, and the distinguishing characteristics between civil and criminal fraud.

Civil fraud cases are complex and can have substantial effects on your business and on your personal assets. This, however, becomes concerning news upon learning that civil fraud does not have a strictly uniform definition. Generally, fraud is founded upon a willful misrepresentation of past or present fact. Courts have defined fraud as trickery, deceit, intentional misrepresentation, concealment, or nondisclosure for the purpose of inducing another to part with something of value. It also includes false representation of a matter of fact by words or conduct or by the concealment of what should have been disclosed that deceives or is intended to deceive another so he shall act upon it to his legal injury. See In re E.P., 185 S.W.3d 908 (Tex. App. Austin 2006).

I.  Common Elements of Civil Fraud:

These elements found in Texas legislation represent most legal definitions of fraud:

  1. There was a material representation made that was false;
  2. The person who made the representation knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth;
  3. The person who made the representation intended to induce another to act upon the representation; and
  4. The person to whom the material representation was made actually and justifiably relied on the representation, which caused the injury.

          See Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001).

Similarly, Virginia offers much of the same structure:

A party alleging fraud must prove by clear and convincing evidence(1) a false representation, (2) of a present, material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reasonable reliance by the party misled, and (6) resulting damage to him. See Thompson v. Bacon, 245 Va. 107, 111 (1993.)

II.  Civil Fraud at the State Level:

Nevertheless, courts have broadly defined the elements of civil fraud in various situations and there is no single definition that covers civil fraud entirely.  There are laws passed by the legislature that define fraud.  Courts of law have provided common law definitions of fraud. There are actions for negligent misrepresentation, a cause of action which is similar to fraud. It then becomes pertinent to mention that fraud by itself is not a fact, but rather a conclusion that is reached after the facts of the relationship or transaction complained of have been reviewed.

It is also important to note that fraud and legislation concerning fraud often vary from state to state. That is to say, certain jurisdictions give way to different interpretations regarding what exactly constitutes civil fraud, such as certain requisites that qualify committed acts as fraud or various burdens of proof needed in a given case. Texas and Virginia (both mentioned above), are both Common Law states, and share similarities in the make-up of their legislation. However, one might observe differences, for example, in Louisiana, where the governing body is guided by Napoleonic code. While certainly not vastly different in content and structure, less uniformity certainly can lead to more room for interpretation, as has been the status quo regarding civil fraud. Though most state legislatures can agree on the above elements of fraud as they apply specifically to the civil sphere, it is vital to recognize that state legislation can indeed vary.

III.  Civil Fraud at the Federal Level:

As previously discussed, civil suits regarding fraud centrally focus on restitution on behalf of the victim. At the federal level, the victim is the United States government, and one of the primary methods through which civil suits are filed is through the False Claims Act (FCA). The False Claims Act was enacted by Congress in 1863. Though concerned with the fraudulent practices of suppliers to the Union Army in the Civil War, the FCA is still heavily utilized today and provides relevant information regarding the definition of Civil Fraud holistically. The Department of Justice states:

A person does not violate the False Claims Act by submitting a false claim to the government; to violate the FCA a person must have submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity. In § 3729(b)(1), knowledge of false information is defined as being (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information (DOJ).

This definition sheds light on the similarities of civil fraud at all governmental levels with the unifying factor being the knowledge of the falsehood of an individual’s own statements, claims, etc. The FCA describes the seven types of conduct that result in liability and appear in the act as follows:

(a) LIABILITY FOR CERTAIN ACTS. (1) IN GENERAL.—Subject to paragraph (2), any person who—

 (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

 (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent;

 (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G)

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

 (E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

 (F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

 (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,

 is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 … plus 3 times the amount of damages which the Government sustains because of the act of that person

See 31 U.S.C. §§ 3729 – 3733

As previously mentioned, the False Claims Act is one of the most effective tools used by the government to combat fraud. It should come as no surprise then that the FCA is primarily targeted at health care providers. In fact, over 80% of the recoveries derived by the FCA come directly from the health care industry. Notably, the private right of action, or qui tam, provisions of the FCA make it one of the most widely used and accessible tools, because private individuals are, such as employees and patients, can bring suit on behalf of the government. FCA litigation is highly complex, with many technical and pleading requirements.  For a detailed discussion on the FCA, please see our page titled “Overview of the False Claims Act.”

IV.  Differences Between Civil Fraud and Criminal Fraud:

Perhaps the most confounding aspect of fraud, distinguishing between civil claims and criminal proceedings offers deeper understanding into how fraud cases are dealt in all variations of government. The following aspects help identify whether a fraud case is civil or criminal, and the accompanying actions that follow both activities.

  • Origins of Civil and Criminal Fraud Cases.

The first distinguishing aspects to notice are the manners in which civil and criminal cases are brought about. In Civil fraud cases, claims are often private party disputes. In other words, if an individual is suspected of committing fraud, the alleging party initiates and pursues the case. In the criminal realm, proceedings are brought about by regulatory authorities, the government or extensions of the government, and are tried criminally. Criminal cases can be tried by local, state, or federal prosecutors.

  • Level of Success Required for Conviction for Civil and Criminal Fraud.

One key difference between both types of fraud is that damage must actually occur to the victim in a civil fraud case. The alleging party must be able to demonstrate that they suffered damage as a result of their reliance upon the false representation. In contrast, criminal cases only require that fraudulent activity has occurred with the intent to harm another party. In other words, fraudsters need not succeed in damaging another party, prosecutors only need to establish their intent in doing so.

  • Differing Burdens of Proof for Civil and Criminal Fraud.

The most important difference between Civil and Criminal fraud contends primarily with the amount of proof needed to convict within each individual case. As we know, criminal proceedings require prosecutors to prove guilt “beyond a reasonable doubt”. Civil cases however, require a much lower standard to prove an individual’s guilt. In civil law, the burden of proof in trial is known as the “balance of probabilities” or the “preponderance of evidence”. In this scenario, one party’s case only needs to be stronger than the other side. In essence, the alleging party need only cross the fifty percent threshold in order to succeed in conviction.

  • Severity of Punishment for Civil and Criminal Fraud.

As one could guess, the outcome of civil and criminal cases produces significantly different results. Civil claims focus largely on recovering monetary compensation on behalf of the victim. Civil claims often do not reach completion within the litigation process due to negotiation from both parties’ counsel. As for criminal proceedings, prosecutors pursue alleged fraudsters on behalf of the state. In other words, those convicted of criminal fraud are subject to incarceration, fines paid to the state, as well as financial compensation to victims. Referencing our previous discussion regarding variations in legislation at the state level, citizens of different states may be subject to harsher penalties based upon where they live. That is to say, the punishment for both civil and criminal fraud offenses is subject to state statutes. The nature of the penalty will often depend on the severity of the crime committed.

V. Conclusion:

With the inherent costly and expensive nature of fraud, along with the continued growth of instances of fraud within the United States, it is important not to overlook where and when fraud can occur. State legislation can offer different judicial interpretations based upon the state in which you reside. Beyond the non-uniformity regarding the legal definition of fraud in the United States, fraud cases are complex and can result in significant penalties. This culminates in a difficult area of practice that requires a firm that understands the nuances of state laws concerning fraud and the role of the False Claims Act at the federal level.

Are you or your practice facing allegations of civil fraud or criminal fraud?  Call the experienced health care lawyers at Liles Parker for a free consultation.  1 (800) 475-1906. 

Peddling and Soliciting, Municipal Regulations These Issues Can be Complex. Is Your City Clear on These Points?

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(January 8, 2013):  As a general rule cities can regulate hawking, canvassing, peddling and soliciting within city limits. International Society for Krishna Consciousness, Inc. v. Lee, 505 U.S. 672, 112 S. Ct. 2711, 120 L. Ed. 2d 541 (1992) The public policy that allows cities to regulate peddlers or the solicitation of contributions is to prevent fraud upon the public and to protect privacy.  See Watchtower Bible and Tract Society of New York,Inc. v. Village of Stratton, 536 U.S. 150, 165 (2002). Most states will have statute (laws) that will provide a city with the authority to regulate peddlers or solicitors.  The regulation has to reasonably relate to the public policy to protect citizens, promote safety, prevent fraud, protect privacy, and other public concerns such as morals, welfare and convenience.  Municipal regulations of this types wil be balanced against the equal protection First Amendment rights of peddlers and solicitors.

The city regulation may include the requirement for peddlers or solicitors to register with the city government, apply for a license or permit and set fees to be paid before being allowed to sell or solicit within the city limits.    A city may deny or revoke a licensed based on the city’s investigation or other factors.  The city may regulate what hours a peddler may approach a private residence or work in city streets or public areas, for example from sunrise to sunset. Regulations may reasonably restrict hours that a peddler may approach private residences or work in city streets or public areas (for example, from sunrise to sunset). See Houston Chronicle Publ’g Co. v. City of League City, 488 F.3d 613 (5th Cir. 2007).  Additionally municipal regulations may restrict what city streets and public property vendors and solicitors may or may not use for their business, so long as there are adequate alternate places for solicitation.

However, a city may not completely prohibit peddlers from approaching private residences.  A city may compile a “no solicitations” list that residents may sign, and the city can give this list to potential peddlers. The peddlers and solicitors can be required to comply with “no solicitor” signs, and if they are licensed, they could have their license revoked if they fail to comply with “no solicitation” signs.

The laws and factors concerning peddling and soliciting, and what can and cannot be done by cities, will vary from situation to situation and from state to state.  Whether you are a city that wishes to regulate peddlers or solicitors or a private individual or company that wants to engage is peddling or soliciting, it is recommended that you contact an attorney with experience in this area for proper advice.

Leonard Schneider, Esq,, has extensive experience representing Texas cities, towns and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact us at: 1 (800) 475-1906.

Liquidated Damages – Don’t Take a Bath When You Cancel a Contract

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Liquidated Damages Can be a Significant Concern When Cancelling a Contract.(April 5, 2012): Your business may often enter into contracts for services, or a lease contract for machinery or for space. These contracts are usually for a certain term or length of time.  Halfway through the term, you decide that you are not receiving what you were promised when you initially entered into the contract.  Unfortunately, your complaints fall on deaf ears.  Finally you are fed up and cancel the contract.

Before canceling (or really, entering into) a contract, beware of any “liquidated damages” provisions that may apply.  You may be liable for damages for canceling the contract and your company could take a bath, or in other words suffer a serious monetary loss, because of a “liquidated damages” clause.

Leasing and service contracts often contain a liquidated damages clause that takes effect if you terminate the contract without what the other party considers a valid reason. Liquidated damages are a set amount of payment for damages to the other party for your action of terminating the contract before it ends.  Such a clause may state that you agree it is impracticable and difficult to determine the damages the other party will suffer if you terminate the lease or contract before it ends. The clause may also provide factors to determine the damages.  Factors may include expenses relating trying to lease the equipment or premises to another person, potential loss of income, and expenses incurred to provide the services to you or to provide services to another person.

Are Liquidated Damages Enforceable in Court?  If the monetary figure is too large, courts may rule the liquidated damage clause is simply punitive – a penalty provision – and therefore unenforceable.  Many times, you may be able to negotiate the figure down or eliminate the clause through negotiation before signing the contract. It is important, however, to carefully read each provision of a contract before entering into it.

As always, if you want to cancel a contract before it ends, consult with your attorney to determine your obligations, potential adverse effects and the best ways to end the contract.

Leonard Schneider Healthcare AttorneyLeonard Schneider and other Liles Parker attorneys have extensive experience in business litigation, contract review and drafting. Call 1 (800) 475-1906 today for a free consultation.

Beware of Small Print – It Can be Bad for Your Wallet

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(February 6Beware of the small print in contracts and applications. , 2012): You consult with an attorney, do all the necessary due diligence, start a company or corporation, and finally begin doing business.  You execute many contracts for services or supplies, signing as the “president” or “manager’ of your corporation.  You assume that each contract is between the corporation and the service provider.

Later on, there is a dispute on whether or not the corporation owes for certain services or supplies.  You get a demand letter from an attorney.  You are unconcerned about the letter, however, because if the corporation is sued, you will have an attorney file an answer on behalf of the corporation.

You are then served with a lawsuit – not to the corporation – but to you, individually.  The lawsuit alleges that “you” agreed to pay any debts or past due amounts.

You ask “How can this be?”

Beware of the small print – it can be bad for your wallet.   Read the small print at the bottom of an account application or agreement with a service company, such as a print shop, or supply store, such as office supplies or production materials.  Many times the small print contains a provision that states something like: “The party signing this agreement acknowledges he/she will be individually liable on this account and that he/she has the full authority to act as agent for the party in whose name this order is placed.”

By signing the agreement, you have not only agreed that you had the authority to enter into the agreement on behalf of the corporation, but also that you would be individually liable for any debts or past due amounts.

So, if you are an officer, president, or manager of a corporation, always read the fine print before you sign a contract. Better yet, call your attorney and have him/her review the contract.  Many times the other party will agree to strike that provision, or the corporation can agree to indemnify you individually. As always, an ounce of prevention is worth a pound of cure.

Healthcare LawyerLeonard Schneider and other Liles Parker attorneys have extensive experience in business litigation, contract review and drafting. Call Leonard  today at: 1 (800) 475-1906 for a free consultation.

“There is a Fiduciary Duty Here. It’s Really Inconceivable to Us.”

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(February 3, 2012): Many folks or businesses agree to manage another person’s interests, money or business. When this happens there is a fiduciary duty that attaches to the person or entity managing the other person’s interests, money or business matters.

The acceptance of a fiduciary duty can occur, for example, by being a General Partner in a Limited Liability Partnership, a Finance Adviser to an individual, or by managing the funds, property or affairs of another.

When you handle the money or manage the assets of another person or entity, you assume a higher duty to that person or entity than is normal – this duty is called a “fiduciary duty”. The basic definition of “fiduciary duty” is to put the interests of others you are representing or assisting above your own interests. For example, you cannot steal or double-dip from the funds you are managing, grossly mismanage another’s assets or fail to keep adequate records.

However, many times the person or entity that takes on the management of another’s money, business or assets does not understand this fiduciary duty, becomes complacent or just doesn’t care about his duties.  Thus, as Henry Silverman, former CEO of Cendant Corporation, famously said when uncovering accounting improprieties of a business recently acquired by Cendant: There is a fiduciary duty here. It’s really inconceivable to us.”

What he was saying is that it was inconceivable that proper care was not used to manage the funds or affairs of others, even in spite of the fiduciary duty owed. The failure to exercise proper care in handling the money and affairs of others can not only place you or your business in great danger of incurring civil liability, but also opens a serious threat of possible criminal charges against you.

So, if you are about to manage, oversee, or care for the money or assets of another,  be sure to call your attorney, explain what you want to do, determine if there is a fiduciary duty and what type of risk management control you need to have to make sure you do not violate that fiduciary duty. As always, an ounce of prevention is worth a pound of cure.

Healthcare LawyerLeonard Schneider and other Liles Parker attorneys have extensive experience in business litigation, contract review and drafting. Call 1 (800) 475-1906 today for a free consultation.

“A Verbal Contract Isn’t Worth the Paper on Which it is Written.”

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Healthcare Attorney

(November 21, 2011): After twenty years of practicing law, I still receive many calls from folks who have had a deal gone bad, money taken, partnerships that defrauded them, et cetera; of course, the first thing I ask is what did the contract say? The response I most often hear is, “there is no written agreement” or “we had a verbal contract” or perhaps “we made some notes”.  As Sam Goldwyn, the noted Hollywood mogul observed:  Let’s be clear — A verbal contract isn’t worth the paper it is written on.

While after extensive litigation and attorney fees, I may be able to help the client without a contract by arguing in good faith there is evidence to assert there was an enforceable contract, it usually would have been a lot easier and less expensive to have had a written contract at the beginning.

Many times you hear “my word is my bond”, or “we can shake hands, that is the way it used to be done in the good old days”.  However, as I was told by a professor at law school, a contract is not bad, or negative, or shows a lack of trust, it just is a written memorandum of what was agreed on at the beginning.  In other words, a written contract helps parties remember what they agreed to when they started to do business.  It helps the memory of the parties that do business together.

So, if you are about to embark on an expensive endeavor, or a project that may reap financial benefits, be sure to call your attorney, explain what you want to do, and have a contract written.  An ounce of prevention is worth a pound of cure.

Leonard Schneider, J.D., and other Liles Parker attorneys have extensive experience in contract review and drafting. Call Leonard at: 1 (800) 475-1906 today for a free consultation.

Arbitration Provisions in City Contracts

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Arbitration Provisions(September 6, 2011):  When is the last time you examined the contractual provisions set out in contracts entered into by your city or municipality? Arbitration provisions can be very problematic and a city or municipality should think twice before voluntarily agreeing to arbitration or including such provisions in a contract with an outside party. Why are arbitration provisions discouraged? First, agreeing to arbitration or including such a requirement in a contract may result in the loss of certain protections provided by state law being waived the city or municipality. Second, an arbitrator may not have experience in municipal law, and may apply equitable principles that would not apply in a court of law.

I. Background — Arbitration Provisions in City Contracts:

State law will often provide cities extra protection against damages and lawsuits, such as immunity from liability, which protects a city from judgment even if the legislature has agreed to allow it to be sued; alternatively, there may be immunity from suit which means a city cannot be sued unless it consents to be sued. Tex. Dep’t of  Transp. v. Jones, 8 S.W.3d 636, 638 (Tex.1999).  This is a general statement and many times an actual determination of privileges is fact-intensive.

II.  Arbitration Provisions Can Result in the Waiver of Immunity by a Texas City or Municipality:

However, in Texas, whenever a city contracts with a person or entity, then its immunity from suit is waived. See Texas Local Government Code Chapter 271.152. But damages are limited to factors such as the balance owed for services provided, possible increases for costs to perform as a result of city-caused delays; amounts for change orders authorized by the city, reasonable or necessary attorney fees and interest.  Consequential damages are often limited and exemplary damages are not allowed.  An arbitrator may not follow these limitations, whereas a court by law has to apply these limitations. As always it is recommended that both a city or private party contracting with a city consult with an attorney regarding contracts and the provisions therein. For more information, please contact Leonard Schneider in our Houston office.

Leonard Schneider, J.D., Healthcare Attorney serves for multiple Texas cities and municipalities. Leonard Schneider, J.D., is highly experienced in the legal representation of Texas cities and municipalities.  He serves as outside legal counsel and “City Attorney” for a number of Texas cities and towns.  For a free consultation regarding the inclusion of arbitration provisions in your contracts, call: 1 (800) 475-1906.

Liles Parker Welcomes Paul Weidenfeld to the Firm

June 21, 2011 by  
Filed under Firm News

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Paul Weidenfeld Healthcare Attorney(June 15, 2011):   Liles Parker is pleased to announce that attorney Paul Weidenfeld has joined the Firm as “Counsel” at the Firm.  In joining the Firm, Mr. Weidenfeld has further broadened the scope of Liles Parker’s litigation expertise. Prior to entering private practice, Mr. Weidenfeld served as “National Health Care Fraud Coordinator” at the Executive Office for U.S. Attorneys (EOUSA), an agency of the U.S. Department of Justice.  Notably, Robert W. Liles, Managing Partner at the Firm had previously served as the very first “Health Care Fraud Coordinator” at EOUSA.  Mr. Liles was appointed to this position shortly after the passage of HIPAA.  With the recruitment of Mr. Weidenfeld, Liles Parker is the only law firm in the country with two senior attorneys who served in this prestigious position at the U.S. Department of Justice.  Mr. Weidenfeld has extensive experience representing health care providers in administrative, civil and criminal cases around the country.  Additionally, Mr. Weidenfeld has more than 15 years of experience working with False Claims Act cases.

Prior to being detailed to EOUSA, Mr. Weidenfeld served as an Assistant United States Attorney (AUSA) in the  Eastern District of Louisiana (EDLA).  While working as an AUSA, Mr. Weidenfeld served in a number of prestigious positions at the EDLA.  These positions included serving as Deputy Chief of the Civil Division,  Affirmative Civil Enforcement Coordinator and the office’s Health Care Fraud Coordinator.

Mr. Weidenfeld’s litigation experience is quite extensive.  He has tried more than 50 cases and handled more than 25 appellate arguments before virtually every Federal and State Court to include the United States Supreme Court.  Commenting on Mr. Weidenfeld’s anticipated contributions, the Firm’s “Litigation Practice Leader,” Leonard Schneider commented:

“We are thrilled to have Paul at our side.  His extensive litigation experience will greatly expand our litigation capabilities.  Paul has a stellar reputation as a litigator and as a tactician.  We are looking forward to working with him.”

Mr. Weindenfeld holds a B.A. from Tulane University and J.D. from Loyola University in New Orleans. He is admitted to practice in the State of Louisiana.  His application for admission in the District of Columbia is pending.

Please join us in welcoming Paul to the Firm.  He can be reached at: pweidenfeld@lilesparker.com His cell phone number is: (703) 258-5075.

Liles Parker attorneys represent health care providers around the country in connection with audits and investigations by Medicare contractors and law enforcement.  Need assistance?  Please give us a call for a complimentary initial consultation.  Paul Weidenfeld can be reached by cell at: (703) 285-5075 or at the office: (202) 298-8750.


What You Need to Know Before Signing a Physician Employment Agreement.

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Take Care Before Signing an Physician Employment Agreement (June 9, 2011):  After 20 years of practicing law I can say that most phone calls I receive from a potential client are after a contract has been signed. Unfortunately, today’s physician employment agreements are multiple pages long with small print and certainly not written for easy reading or common sense applicability.  Contracts are certainly a pain to read.  However, one or two hours of legal advice before signing a contract can often save a doctor significant money, time and stress.  This is also true if an employer has violated its promises.

Many issues in employment litigation can be avoided by reviewing provisions that are common in most employment agreements for most professions.  There are also concerns and rules applicable only to doctors and that is why consultation with an attorney is always advised to protect your assets, income and career.

The purpose of this article is to address the primary “contractual” issues to consider prior to entering into a physician employment agreement.  To be clear, this article is not meant to cover possible Stark and / or Anti-Kickback considerations, both of which may require a separate analysis, depending on the facts presented.  The following seven issues are discussed in this article:

  • What are the length and terms of the employment? 
  • What reasons are listed in the employment agreement for termination?
  • Is there any language that addresses compensation, bonuses or liquidated damages?
  • Review the Employment Agreement for non-compete and confidentiality clauses.
  • What are the choice of law and location of enforcement of the agreement?
  • What are the provisions as to mandatory mediation or arbitration?
  • Always consult with an attorney before you decide to terminate your employment.

 I.  What are the Length and Terms of the Employment?

In many states employees are considered at-will which means the employer can fire you for a good reason, bad reason or no reason at all.  There are exceptions but at-will employment definitely favors the employer.  Consequently, the contract should be examined to see whether or not the agreement states you are hired for a specific length of time or if it is silent as to length of term.

Even if the agreement states you are to be employed for three years it may also state that you agree that you may be terminated at-will.  An attorney can help you determine if a court will enforce the at-will provision.  Arguments can be made, depending on the agreement language, whether or not the at-will provision is enforceable.  This is a critical determination because if the at-will provision is enforced this may eliminate your right to any compensation that you have not been paid.

II.  What Reasons are Listed in the Physician Employment Agreement for Termination?

If the agreement is for a specific term, such as five years, and is not at-will, then it needs to be determined if there are any provisions that outline how the employment may be terminated before the five-year term expires.

Most employment agreements will have a termination for cause paragraph.  Causes for termination range from failure to follow employer polices to the commission of crimes involving moral turpitude (theft) or any felonies.  If you are terminated for cause and the employer can prove the cause, then normally your compensation is limited to what salary you have earned through date of termination and any bonus or incentive pay usually will not be paid.  If you are terminated without cause, then most state laws and courts will require that you be paid any compensation that has been earned including bonus or incentive pay.

It would be prudent to have an attorney review the employment agreement as many times courts or statutory law may have interpreted the language in the agreement regarding causes for termination.  This is important to you in your decision whether to sign the contract or to try to negotiate the language regarding reasons for termination.  Many times you can convince an employer to add additional provisions to protect you from termination for cause or without cause.  For example, you may have a provision added that if the employer terminates you without cause then you are entitled to a severance package tied to length of time employed.  Additionally you may have language added that you receive written notice from the employer regarding violations and you be allowed a reasonable time to cure any violations before you are terminated for cause.

III.  Is There Any Language that Addresses Compensation, Bonuses or Liquidated Damages? 

The employment agreement should be reviewed regarding compensation, billing practices, bonuses, and operating expenses.  Are there performance incentives?  Are you allowed to earn income for services you provide outside the Hospital facilities?  What type of insurance does the employer provide, whether liability or other? Is there mention of deferred compensation, stock options, or severance packages?

While the general rule for contract enforcement is that the court will look to the language in the contract to determine rights, there are many exceptions and courts will not always uphold compensation plans that give an employer the power to modify or eliminate compensation.

Review the compensation provision for tax consequences.  A severance package may be subject to special taxes if the severance payments constitute a “golden parachute” payment.  Additionally the IRS has and will make changes or restrictions on certain deferred compensation plans.  It is advisable to consult with a tax professional before signing to determine what tax consequences may be triggered by the compensation plan and if tax consequences can be avoided by redrafting the applicable contract language.

Additionally, beware of any liquidated damage clauses.  Many times, if you receive a bonus and agree to work for a certain number of years, an employer will put in a liquidated damages clause stating that if you quit without notice and/or without what the employer considers a valid reason you will owe the employer money.   This ostensibly is a set monetary number for payment of damages to the employer for your action of quitting.  The clause will state that you agree it is impracticable and difficult to determine the damages the employer will suffer if you quit and then provide factors to determine the damages.  Factors may include expenses relating to securing a replacement or temporary physician for coverage, credentialing and recruiting expenses and potential loss of scheduled services.  If the figure is too large, then many times courts will state the liquidated damage clause is a penalty provision and therefore unenforceable.  Many times you may be able to negotiate the figure down or eliminate the provision through negotiation before signing the employment agreement.

Also beware of any requirement of repayment of a bonus.  For example if you receive a $100,000 signing bonus and sign an employment agreement for 5 years, the employer may require that you pay the unamortized portion of the bonus if you terminate the agreement without cause.  Conversely, you may want to check for language that you keep the entire bonus if the employer terminates you without cause.

IV.  Review the Physician Employment Agreement for Non-Compete and Confidentiality Clauses. 

A non-competition clause should be reasonable in time and scope and most states and courts have determined what is reasonable.  Important factors are the length of time restraining competition, the activity restrained, and the geographic area in which competition is restrained.  Many times this can be negotiated.

Confidentiality clauses should be reviewed as to enforceability and content.  Certainly there is information that is beneficial to the employer that is not known to competitors or easily ascertained by competitors and this is reasonably protected.  However, many times these clauses may be overreaching and can be renegotiated or clarified.

Additionally, many courts will enforce a common law duty of confidentiality against an employee.  This means some information is confidential by law, whether or not there is a confidentiality provision in the employment agreement.  It is prudent to have a general understanding of what information you can or cannot take or disseminate or use.  This is important to reduce the possibility of your former employer from filing a lawsuit to prohibit you from using certain information and to seek damages from you.

V.  What are the Choice of Law and Location of Enforcement of the Physician Employment Agreement?  

Most contracts will have a provision stating that the law of a particular state will govern the interpretation and enforcement of a contract.  There normally are provisions that provide that the venue (location) of a lawsuit is to be in a certain county, and in state or federal court.  This is important if you move from your former place of employment in California to Maine.  If there is litigation you may be forced to hire an attorney in California and litigate on your employer’s home turf.  Alternatively, if you remain in California, but the employer is national, the contract may state New York law governs and any litigation will be in New York.  Many times choice of law and venue clause can be negotiated and this can be important in terms of litigation expenses.

VI.  What are the Provisions as to Mandatory Mediation or Arbitration?

Mediation is normally a non-binding settlement conference whereby the employer and employee present their side of the case to an impartial trained mediator when are all present. Thereafter the parties are separated and the mediator goes between the parties to attempt to reach a settlement.  If a settlement is reached normally an agreement is signed and the signed agreement is enforceable in court.  If the parties do not reach a settlement they have the option to go to court or to arbitration.

Arbitration is a more formal process and incorporates many of the rules of formal litigation. Arbitration is usually binding, meaning that the arbitrator, after hearing formal presentations of evidence by both sides will make a written decision which is final absent some fraud or a significant erroneous application of law.  Basically, it is very hard to appeal or overturn an arbitration decision and the law favors finality of these arbitration decisions.  Arbitration should be less costly than litigation in a court and should be completed sooner than a court case.   Arbitration clauses or agreements may preempt an employee filing a discrimination case or wrongful termination case in court.  These clauses should be reviewed and pro’s and con’s weighed.  Many times these terms are negotiable.

VII.  Always Consult with an Attorney Before You Decide to Quit Your Employment.

The old saying is an ounce of prevention is worth a pound of cure.  As a doctor or health care professional you diagnose a patient’s symptoms or review test results, and then prescribe a plan of treatment and/or preventive measures.  The same reasoning applies to having an attorney review an employment agreement before you sign it. The same reasoning also applies if you want to terminate an employment agreement.  It is true that knowledge is power and without careful consideration, your plans or actions may cause legal headaches. There are many fair strategies you may take to protect your compensation and resources when you consider terminating your employment.

 Just as important is to realize that this article is not intended to be specific legal advice or to be acted upon as legal advice. This article is an overview of general areas of contract law and issues faced by employees. If you have any legal question(s), please contact an attorney.

Healthcare AttorneyMr. Schneider is a partner in Liles Parker and primarily works out of the Firm’s Houston, Texas office.  Jennifer Papapanagiotou assisted in this article and is of Counsel and also at the Houston office. The firm focuses on health care, health care audits, business contracts and acquisitions, and other general corporate and business litigation matters.  Should you need assistance with an employment contract, give us a call for a free consultation. Mr. Schneider and Ms. Papapanagiotou can be reached at: 1 (800) 475-1906.

Hotel Occupancy Tax Funds – Management and Duty – Part III of III

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Hotel Occupancy Tax Issues -- HOT Funds -- Can Be Complicated(March 30, 2011): In Part I, the Hotel Occupancy Tax (“HOT”) was defined and examples of how it can be used were given. Part II examined the two-part test to determine if a proposed expenditure of HOT funds meets the purpose of the HOT tax.

Many cities will hire a third-party firm or organization to manage and use HOT funds.  Texas law allows this. See Texas Tax Code at § 351.101(c). When approving a contract and funding to a third-party the City Council determines if the proposed uses by the third-party is a permissible use and will “directly enhance and promote” tourism and the hotel and convention industry. See Tex.Atty.Gen.Op. No GA-0124 (2003); Texas Tax Code at § 351.101(b).

A contract with a third-party should reference the statute authorizing the Hotel Tax and duties regarding the expenditures of the Tax. This is because the funds are given to the third-party.  The Contract should also specify that any HOT funds given to a third-party should be kept in a separate account by the third-party and the funds cannot be commingled with any other money. Texas Tax Code at § 351.101(c)

Since HOT funds are taxes paid by the public, a fiduciary duty is imposed on the third-party regarding the management of the HOT funds. Id. At the most basic level, fiduciary duty means the third-party would put the City’s interest above its own in the management and expenditure of HOT funds entrusted to it. Additionally, whether by case-law or statute, fiduciary duty also means the third-party needs to maintain complete and accurate financial records of each expenditure of HOT funds and upon request the records should be made available to the City. See Texas Tax Code at § 351.101(d). The level of financial records kept should be such that an independent party could examine the records and determine if the money was spent appropriately.

HOT funds are a public tax. A City that wishes to contract with a third-party to manage HOT funds should have an independent audit conducted every year or two to determine if the monies are being spent appropriately and accurate records are being kept.

A third-party that wishes to manage HOT funds for a city should put in procedures to make sure the HOT funds are maintained in a separate account and that financial records are kept that will show how, when and on what the HOT funds were spent.  Notably, an officer of a corporation is liable for any tort committed through him or her, regardless of whether the officer personally benefits from the tort committed. McCollum v. Dollar, 213 S.W. 259, 261 (Tex.Com.App.1919); Gardner Machinery Corp. v. U.C. Leas., 561 S.W.2d 897, 899 (Tex.Civ.App.1978, writ dism’d) This includes being individually liable for breaching a fiduciary duty owed by the corporation (third-party) to the City. Gardner, 561 S.W.2d at 900; Searle-Taylor Mach. Co., Inc. v. Brown Oil Tools, Inc., 512 S.W.2d 335, 338 (Tex.Civ.App.1974, writ ref’d n.r.e.).   Always, in the handling of HOT funds, whether a City or a third-party, an attorney should be consulted.

Leonard Schneider Healthcare LawyerLiles Parker attorneys and staff have extensive experience representing Texas cities and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact us at: 1 (800) 475-1906.         


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