Medical Marijuana and Hemp in Florida: A Hazy Landscape

In 1996 California passed the first “Compassionate Use” law in the nation legalizing marijuana use for medicinal purposes. Multiple states followed suit into the 2000s. In 2016, Florida voters overwhelmingly adopted the Florida Medical Marijuana Legalization Initiative, also known as Amendment 2, into the Florida Constitution. Since that time, Florida’s implementation of this constitutional amendment has led to numerous lawsuits, especially over the constitutionality of the caps on the number of providers and the requirement that providers be “vertically integrated.” Despite the legislative and regulatory obstacles to implementation, Florida is among the fastest growing Medical Marijuana markets in the country. This article details the history of the medical marijuana statutes and rules as they relate to licensing, the lawsuits that arose from them, and where licensing of medical marijuana providers stands now. It also explores Florida’s new statutes and rules related to legalization of the hemp industry and the growing market for CBD products. Finally, this article tries to gaze into the crystal ball to see where this is all heading.

Early History: 2014 Amendment 2 and Compassionate Use

The 2016 passage of Amendment 2 was not the first attempt to allow medical marijuana in Florida. In 2014, the first attempt to amend the constitution to allow for the use of medical marijuana was presented to the voters of Florida. The original Amendment 2 was substantially similar to the Amendment 2 that eventually passed two years later. As discussed in more detail below, with regards to the 2016 Amendment 2, the original Amendment 2 sought to allow patients with “debilitating medical conditions,” as defined by the amendment, to receive “certifications” from physicians to allow them to use and possess medical marijuana. Importantly, the original amendment set forth the first definition of Medical Marijuana Treatment Centers (“MMTC”), which was later adopted by the 2016 Amendment 2. The amendment provided that MMTCs are defined as:

“an entity that acquires, cultivates, possesses, processes (including development of related products such as food, tinctures, aerosols, oils, or ointments), transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials to qualifying patients or their personal caregivers and is registered by the Department.”

This broad definition in the 2016 Amendment 2 will become critical for later legal challenges. While the 2014 Amendment 2 garnered 57.6% of the vote, it did not reach the required supermajority of 60% of the vote to pass.

However, Florida lawmakers apparently sensed the shifting political wind with nearly 60% of the electorate supporting the legal use of marijuana for medicinal purposes. A conservative Republican legislature began taking steps to, in what many viewed as an effort to avoid another constitutional amendment broadly legalizing medical marijuana, allow for limited use of medical marijuana. The first of these steps was the “Compassionate Medical Cannabis Act.” This act allowed for physicians to prescribe certain “qualified patients” low-THC (less than .8% THC) marijuana. Importantly, this act set up “dispensing organizations.” These dispensing organizations were defined by statute as “an organization approved by the department to cultivate, process, and dispense low-THC cannabis” § 381.986, Fla. Stat. (2014) (emphasis added). This definition of dispensing organizations required that the organization be “vertically integrated,” meaning that a single organization needed to do all the steps – from growing to selling to consumers – of the medical marijuana process. An organization could not, for example, simply grow marijuana or just sell marijuana. It had to do everything.

Additionally, the Compassionate Medical Cannabis Act required that dispensing organizations be limited to five in the entire state and that they meet the following requirements:

  • Possesses a valid certificate of registration issued by the Department of Agriculture and Consumer Services for the cultivation of more than 400,000 plants;
  • Be operated by a nurseryman; and
  • Must have been operating as a registered nursery in Florida for at least 30 continuous years.

§ 381.986(5)(b), Fla. Stat. (2014).

Dispensing Organization Rulemaking and Legal Challenges

Pursuant to the Compassionate Medical Cannabis Act, the Department of Health (“DOH”) began drafting rules to implement the statute. In August and September of 2014, DOH published proposed rules that purported to implement the act. Importantly, these proposed rules:

  • Established a “lottery” system to determine which applicant would be selected for licensure as a dispensing organization per region;
  • Imposed a $150,000 application fee on the selected applicants; and
  • Set forth application criteria to determine which applicants were qualified to be placed in the “lottery” for a chance to be licensed.

These proposed rules were almost immediately challenged. Costa Farms, LLC, Plants of Ruskin, Inc., the Florida Medical Cannabis Association, and Tornello Landscape Corp. a/k/a 3 Boys Farm Company all filed a challenge to these proposed rules. These cases were consolidated and heard by the Florida Division of Administrative Hearings (“DOAH”).

In his Final Order, Administrative Law Judge W. David Watkins, invalidated these proposed rules. As to the lottery system, he held that it violated due process, Florida’s licensure laws, and “contravenes a basic expectation of law for reasoned agency decision-making.” Costa Farms, et al. v. DOH, DOAH Case No. 14-4296RP (DOAH 2014). As to the other challenged requirements, he found that they either violated the enabling statute or that DOH exceeded its statutory authority.

Given the failure of the first proposed rules, for its next attempt at rulemaking, DOH set up a “negotiated” rulemaking process and invited potential applicants to be a part of the new rulemaking process. Importantly, the new proposed rule 64-4.002(2) sets forth seven statutory criteria that an applicant must demonstrate to become a dispensing organization:

  • The technical and technological ability to cultivate and produce low-THC cannabis;
  • The ability to secure the premises, resources, and personnel necessary to operate as a dispensing organization;
  • The ability to maintain accountability of all raw materials, finished products, and any byproducts to prevent diversion or unlawful access to or possession of these substances;
  • An infrastructure reasonably located to dispense low-THC cannabis to registered patients statewide or regionally as determined by the department;
  • The financial ability to maintain operations for the duration of the two-year approval cycle;
  • That all owners and managers have been fingerprinted and have successfully passed a level 2 background screening pursuant to section 435.04, Florida Statutes; and
  • The employment of a medical director who is a physician licensed under chapter 458 or chapter 459, Florida Statutes, to supervise the dispensing organization’s activities.

Despite being subject to administrative challenges, these new rules were eventually upheld as valid. See Baywood Nurseries Co, Inc. v. DOH, DOAH Case No. 15-1694RP (DOAH 2015).

While the new administrative rules were upheld as valid, litigation over the implementation of the Compassionate Use Act would continue. With the new rules in place, and only limited “slots” available to fill for the coveted licenses, the unsuccessful applicants for “dispensing organization” licenses began challenging DOH’s selection of the five successful applicants. Ultimately, the unsuccessful applicants asserted their rights under the Administrative Procedures Act, and challenged the license decisions of DOH, arguing that the scoring was flawed, and the decisions to award were factually and legally incorrect.

Amendment 2 Passes

While these administrative challenges to DOH’s selection of dispensing organizations were taking place, Amendment 2 was back on the ballot in 2016 and passed by an overwhelming majority of the voters. Importantly, the amendment adopted the use of the broadly defined Medical Marijuana Treatment Centers, unlimited in number by the Constitutional Amendment, as opposed to the limit of only five “dispensing organizations.” The Constitutional Amendment further empowered DOH to create regulations regarding the licensing of MMTCs. See Art. X, § 29(b) and (d), Fla. Const. Importantly, a MMTC is defined in the Constitutional Amendment to be:

…an entity that acquires, cultivates, possesses, processes (including development of related products such as food, tinctures, aerosols, oils, or ointments), transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials to qualifying patients or their caregivers and is registered by the Department.

Art. X, § 29(b)(5), Fla. Const. (emphasis added).

Thus, a MMTC is not just a business that treats patients using medical marijuana, it is any business that is anywhere on the medical marijuana supply chain from growing, to transporting, to selling, to even providing educational materials. However, unlike dispensing organizations that were required by statute to be “vertically integrated,” Amendment 2 provided that a MMTC could perform any one of those steps in the medical marijuana process – that is, instead of providing that a MMTC was an entity that “cultivates, possesses, processes… transfers, transports, sells, distributes, dispenses, and administers marijuana,” the Constitution, as the supreme law of land, provided that a MMTC includes any entity that “cultivates, possesses, processes… transfers, transports, sells, distributes, dispenses, or administers marijuana.”

Following the passage of Amendment 2, in June of 2017, the Florida Legislature passed amendments to the original Compassionate Use Act contained in § 381.986, Florida Statutes as enabling legislation purporting to codify the new constitutional amendment. Importantly, this new legislation:

  • Converted existing low-THC and medical cannabis dispensing organization licenses into MMTC licenses;
  • Provided for an addition 10 MMTC licenses;
  • Required that an MMTC shall cultivate, process, transport, and dispense marijuana (i.e., required that MMTCs be “vertically integrated”); and
  • Required that DOH create a procedure for issuing MMTC licenses.

§ 381.986, Fla. Stat. (2017).

With regards to the 10 new MMTC licenses, the amendments to the statute limited these additional licenses only to organizations that had applied for a dispensing organization license under the original statute and were either 1) denied the license and had a pending administrative challenge or 2) within one point of the highest final ranking in the particular region. § 381.986(a), Fla. Stat. (2017). Despite the adoption of the Amendment 2 and the new amendments to statute, DOH did not immediately adopt any rules regarding the registering of new MMTCs.

Almost immediately, litigation ensued.

Florigrown, LLC v. Florida Department of Health

Florigrown, LLC is a Tampa, Florida-based medical marijuana business. On January 17, 2017, days after Amendment 2 became effective and before DOH promulgated any rules regarding the licensing of MMTCs, Florigrown applied to DOH to become a MMTC. This application was denied. After the June 2017 legislative changes, Florigrown filed suit, challenging the constitutionality of the “vertical integration” requirement (i.e., the requirement that a MMTC must provide all aspects of the supply chain from growing to dispensing) and the limitation on the number of new licenses.

On August 2, 2018, Judge Charles Dodson issued an order that found that these requirements were unconstitutional as they violated the plain language of Amendment 2. However, Judge Dodson denied Florigrown’s request for a preliminary injunction, finding that DOH’s rulemaking process was still ongoing and that he would allow more time for that process to finish.

However, two months after that order, Judge Dodson found that DOH had made “no significant changes in [its] regulations or [its] action on the application of Florigrown. In other words, the court order was ignored by [DOH].” Based on this finding, Judge Dodson granted Florigrown’s temporary injunction:

(1) immediately enjoining the Department of Health from registering or licensing any MMTC pursuant to the unconstitutional legislative scheme set forth in Section 381.986, Florida Statutes, (2) requiring the Department by 5:00 PM Friday, October 19, 2018 to commence registering MMTCs in accordance with the plain language of the Medical Marijuana Amendment, and (3) requiring the Department to register Florigrown as an MMTC by 5:00 PM Friday, October 19, 2018, unless the Department can clearly demonstrate that such registration would result in unsafe use of medical marijuana by qualifying patients.

DOH appealed this injunction. On appeal, Florida’s First District Court of Appeal agreed that the new legislation was unconstitutional and that DOH should be prohibited from enforcing those unconstitutional provisions. Specifically, the Court found that:

Section 381.986(8)(e) thus creates a vertically integrated business model which amends the constitutional definition of MMTC by requiring an entity to undertake several of the activities described in the amendment before the Department can license it. Under the statute, an entity must conform to a more restricted definition than is provided in the amendment; therefore, all MMTCs under the statute would qualify as MMTCs under the constitutional amendment, but the reverse is not true.

We thus find the statutory language directly conflicts with the constitutional amendment, and appellee has demonstrated a substantial likelihood of success in procuring a judgment declaring section 381.986(8)(e) unconstitutional.

Florida Dep’t of Health v. Florigrown, LLC, 44 Fla. L. Weekly D1744 (Fla. 1st DCA July 9, 2019), review granted, SC19-1464, 2019 WL 5208142 (Fla. Oct. 16, 2019) (emphasis added).

Further, the appeal court certified the following question as one of great public importance to the Florida Supreme Court:

Whether the plaintiffs have demonstrated a substantial likelihood of success on the merits of their claims that the statutory requirements of vertical integration and caps on the number of medical marijuana treatment center licenses as set forth in section 381.986(8), Florida Statutes, are in direct conflict with article X, section 29, of the Florida Constitution?

Florida Dep’t of Health v. Florigrown, LLC, 44 Fla. L. Weekly D2182 (Fla. 1st DCA Aug. 27, 2019).

On October 16, 2019, the Florida Supreme Court accepted jurisdiction of this case and oral argument is set for April 22, 2020.

DOH’s Issuance of MMTC Licenses

While the Florigrown lawsuit challenging the constitutionality of the MMTC statute was pending, DOH was still moving forward with issuing MMTC licenses pursuant to the revised statute and rules that Judge Dodson had found to be unconstitutional. Thus, in addition to awarding the existing dispensing organizations with MMTC licenses, numerous entities that were currently challenging their entitlement to dispensing organization licenses settled their cases with DOH in exchange for MMTC licenses.

The process of litigation and settlement was convoluted and DOH’s response to the mounting legal challenges was chaotic. DOH implemented Emergency Rules to create criteria for determining which challengers would now be eligible, per the amended statute, for MMTC licenses. The key issue was the “One Point Condition” contained in the new statute that allowed an award of an MMTC license to an organization that applied for a dispensing organization license and was “within one point of the highest final ranking in the particular region.” § 381.986(a), Fla. Stat. (2017). The legal conundrum created by the “one point rule” was made clear by Administrative Law Judge John Van Laningham who stated:

The One Point Condition operates retroactively in that it establishes a previously nonexistent basis for licensure that depends upon pre-enactment events. This is analogous to the legislative creation of a new cause of action, involving as it does the imposition of a new duty (to issue licenses) on the Department and the bestowal of a new right (to become licensed) on former applicants based on their past actions.

Nature’s Way Nursery of Miami, Inc. v. DOH, DOAH Case No. 17-5801RE (DOAH 2018).

Nature’s Way challenged these emergency rules, claiming that it was entitled to a MMTC license pursuant to statue as it was within one point of the entity awarded a dispensing organization license, but the new emergency rules would fail to award it a MMTC license.

This challenge led to an in-depth review of DOH’s prior scoring of the dispensing organization license applications. While an entire article could be written on the numerous problems with DOH’s Emergency Rule and original scoring of applicants, ALJ Van Laningham aptly described the problem as a “colossal blunder that turned the scoring process into a dumpster fire.” Id. (emphasis added). Accordingly, he invalidated the emergency rules and found that the scoring methodology used to rank dispensing organization applications was not valid either.

Following this, Nature’s Way and DOH entered into a settlement agreement wherein Nature’s Way would be issued a MMTC license. With this, other challengers appeared and, based on ALJ Van Laningham’s order, DOH quickly settled with them as well, granting eight new MMTC licenses to Spring Oaks Greenhouses, Inc., Redland Nursery, Inc., Dewar Nurseries, Inc, Tree King-Tree Farm, Inc., Perkins Nursery, Inc., Bill’s Nursery, Inc., DeLeon’s Bromeliads, Inc., and Hart’s Plant Nursery Inc., all under one joint settlement agreement.

The hard-fought battle for these MMTC licenses may well be worth the effort, as shortly after receiving MMTC licenses, many entities put them up for sale, including one that was reportedly sold for $53 million.

While the constitutional challenge is still ongoing, DOH has now issued 22 MMTC licenses. If Florigrown’s lawsuit is successful at the Florida Supreme Court, expect those numbers to increase significantly.

Hemp/CBD Statutes and Rules

In 2018, the Federal Hemp Farming Act was signed into law. This act removed hemp (which is defined a cannabis with less than 0.3% THC – compare this to the 0.8% THC content allowed under Florida’s Compassionate Use statute) from the schedule 1 controlled substances list. Further, it enabled states to enact “plans” to regulate the cultivation and sale of hemp. Hemp and CBD are contained in numerous types of products ranging from oils, vapes, pills, skin products, drinks, all the way to “gummy bear” candies.

Moreover, the statutes and rulemaking process for allowing hemp and CBD in Florida appears to be running much more smoothly. The statute and rulemaking process, from the beginning, has been a much more cooperative process, as opposed to the confrontational process that medical marijuana has been. While some disputes and issues have emerged, at this point, the hemp and CBD process has stood in stark contrast to the medical marijuana approval process.

With the passage of the Federal Hemp Farming Act, the Florida Legislature issued wide-sweeping statutes regarding hemp and hemp extracts (“CBD”). In 2019, Florida’s Governor signed into law Senate Bill 1020. This law, codified at Section 581.217, Florida Statutes, sets forth the general guidelines for hemp cultivation and the distribution and sale of hemp extracts. Importantly, these guidelines empower Florida’s Department of Agriculture to implement rules in these areas. These new rules, located at 5K-4.034, Florida Administrative Code, took effect January 1, 2020.

The biggest change is that anyone who cultivates hemp or manufactures or sells CBD for human or animal consumption must be licensed. Guidance from the Department of Agriculture states that this licensing requirement applies to everyone in the distribution and retail chain – including manufactures, middlemen, and the individual stores that sell CBD products.

Further, the statute requires that CBD may only be sold in Florida if it has a certificate of analysis prepared by an independent testing laboratory proving:

      The hemp extract is the product of a batch tested by the independent testing laboratory;
      The batch contained a total delta-9-tetrahydrocannabinol concentration that did not exceed 0.3 percent on a dry-weight basis pursuant to the testing of a random sample of the batch; and
      The batch does not contain contaminants unsafe for human consumption.

Fla. Stat. § 581.217(7)(a).

The statute also mandates labeling requirements that include:

  • A scannable barcode or quick response code linked to the certificate of analysis of the hemp extract by an independent testing laboratory;
  • The batch number;
  • The internet address of a website where batch information may be obtained;
  • The expiration date;
  • The number of milligrams of hemp extract; and
  • A statement that the product contains a total delta-9-tetrahydrocannabinol concentration that does not exceed 0.3 percent on a dry-weight basis.

Fla. Stat. § 581.217(7)(a).

The Florida Department of Agriculture has already started sending out enforcement teams to inspect cultivation and retail establishments for compliance with these new laws and regulations.

While the federal government does issue hemp growing licenses, states like Florida can submit hemp production plans to the USDA and, once approved, become the sole licensing authority in that state. Florida has chosen this option. Florida has submitted plans for seed, cultivation, food safety and animal feed. Unfortunately, the cultivation plan had was not approved by the USDA. While the other plans have been approved, cultivation is still at issue.

Due to concerns raised by the USDA, on March 6, 2020, Florida published new proposed rules on hemp cultivation, located at Rule 5B-57.014, F.A.C., that Florida believes will bring its cultivation plan into compliance with USDA rules. These rules include numerous changes, including a requirement that state agents collect a representative sample at least 15 days prior to harvest for sampling to ensure that the THC content does not exceed the regulatory maximum. Assuming there are no challenges to these rules, 21 days after publication, they will be adopted and become effective 20 days after that. After these rules become effective, they will need to be approved by the USDA. Assuming this process goes smoothly, cultivation licenses should start becoming available by the middle or end of summer 2020.

Looking into the Crystal Ball

So, what does the future hold for marijuana and hemp-related industries in Florida? One sure bet is that the industry will be highly regulated. Regardless of the Florida Supreme Court’s ultimate decision in the Florigrown case, Florida’s Legislature and DOH seem intent on making the process as difficult and limited as possible. Even assuming caps on the number of licenses and the vertical integration requirements are stricken down as unconstitutional, it is unlikely that Florida lawmakers will allow a MMTC free-for-all.

While no one can predict what a Court will do, Judge Dodson and Florida’s First District Court of Appeal set forth detailed, well-reasoned positions as to why the statute was unconstitutional. It is likely the Florida Supreme Court will agree. If this happens, the Florida Legislature will need to consider a new regulatory scheme to handle the licensing of MMTCs. Whether the Legislature will allow for the issuance of a MMTC license to any entity that meets a certain set of minimum criteria (unlikely) or set up an new regime that requires DOH to determine the need for new MMTC licenses in a particular area for a particular time period and only issue the “needed” number of license (much more likely), new requirements are likely to be forthcoming.

Regardless of the new rules, one thing that has been consistent throughout this process is that incumbents and entities challenging the current regime have been given a statutory leg-up over their competitors. Any entity thinking about entering the Florida Medical Marijuana market should seriously consider attempting to get in now, even if the current system would prohibit them from getting a MMTC license. As the recent past has shown, even entities that were denied a dispensing organization license but challenged the denial were given MMTC licenses. Challenging the current MMTC licensure system may end up being a good foot in the door for whatever the Florida Legislature comes up with next.

Additionally, recreational marijuana is on Florida’s horizon. While a proposed constitutional amendment for recreational marijuana did not garner enough signatures in time to appear on the 2020 ballot, by 2022 the amendment is expected to have enough votes to appear. That is, of course, unless the Legislature listens to the will of the people and makes it legal before then. In any case, the question of recreational marijuana in Florida is a question of when – not if.

Like medical marijuana, it is expected that incumbent providers will have a regulatory leg-up on recreational marijuana licensing when it finally occurs. Entities that wait for the legal dust to settle on all these issues may end up being too late.
Meanwhile, hemp cultivation licenses are on the horizon. Entities looking to apply for these licensed can review the proposed rules and began preparing to submit applications once they become effective and approved by the USDA. Anyone looking to get in on this process, should start working on their applications now, if they haven’t already.

Conclusion

Florida’s Medical Marijuana statutes are currently up in the air. If the Florida Supreme Court upholds the unconstitutionality of the existing statutes, all new licensing statutes and regulations will be coming. Further, even non-THC hemp and CBD products are coming under increasing regulations. In addition, when recreational marijuana becomes legal in Florida, new statutes and regulations will be added for that.

If you are a business entity thinking of breaking into Florida’s massive medical marijuana market, now may be your time to act. As history has shown, Florida’s Legislature has tipped the scales in favor of incumbents and that is not likely to change. Getting in now, while medical marijuana is in its infancy, may be your only chance (though thorough consideration of its illegality under federal law should be considered as well).

If you have questions about establishing a Medical Marijuana Treatment Center in Florida, please contact an attorney at Smith & Associates for a free consultation.

Have You Been Contacted by the BSA? Don’t Wait to Contact an Attorney.

In past articles, we have discussed what to do if you have been contacted by the Business Software Alliance (“BSA”) regarding potentially unlicensed software. See Driving Your Computer without a License: Beware the Wrath of the BSA and Software Audit Demand from the BSA.

This article, however, will focus on the importance of getting an attorney involved early in the process. Recently, a potential client contacted the firm who was in the middle of negotiations with the BSA over alleged unlicensed software. By the time we were contacted, the company had already conducted an audit, without any limitations, and provided the results to the BSA. The company had subsequently received a settlement offer from the BSA and was looking for legal advice regarding the offer.

While it is smart to seek out legal representation, by this point almost all the leverage the company had to negotiate was gone. The company had given the BSA everything they had asked for and provided the BSA with evidence, evidence the company itself created, of the infringing software.

Had the company sought legal representation as soon as it received the first demand from the BSA, it would have had significantly more leverage to negotiate and would have likely not sent the BSA evidence that incriminated itself.

The BSA conducts fishing expeditions. The BSA takes some evidence of infringing software (e.g., a former employee reports a company to the BSA for having unlicensed copies of Microsoft Office) and attempts to use that information to “fish” for other potentially unlicensed software belonging to any of their member companies, which include Adobe, ANSYS, Apple, Autodesk, Bentley Systems, CA Technologies, CNC/Mastercam, DataStax, Dell, IBM, Intuit, Microsoft, Minitab, Oracle, salesforce.com, SAS, Siemens PLM, Splunk, Symantec, The MathWorks, Trend Micro, Trimble and Workday.

Essentially, the BSA will request that an audit of all software belonging to any of its member companies be conducted and a report furnished to it, despite only having information to support infringement of one product belonging to only one member company. If a company blindly follows this request, it could be turning over evidence to the BSA that the BSA will turn around and use against it for significant monetary damages (up to $150,000 per infringing work).

Involving an attorney early in the process will help ensure that any audit is limited only to the software for which the BSA has credible evidence of infringement and that any incriminating evidence is not disclosed to the BSA.

By doing this, the company can limit its exposure and keep significant leverage in negotiating any settlement. Once the cat is out of the bag, however, it is too late and the BSA will hold all the cards.

If you have received a demand letter from the BSA, you should contact an attorney at Smith & Associates to discuss your rights.

HIPAA Violations – What are Your Remedies?

Health care providers have a duty under both federal and Florida law to protect your medical information. But what happens when they don’t?

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides a way for people who have had their private medical records unlawfully disclosed by a covered health care provider. Complaints can be filed here: https://ocrportal.hhs.gov/ocr/smartscreen/main.jsf. Once a complaint is received, the Office of Civil Rights will review the HIPAA claim and attempt to resolve it with the provider. If the HIPAA claim is proven, the provider may even be assessed a civil money penalty.

Unfortunately, any penalties collected stay with the government – the person who was damaged by the breach does not recover anything at all. What can you do if you have been monetarily damaged by this breach?

Florida Courts have held that a patient has a right to privacy in their medical records. If a health care provider fails to adequately take steps to protect them, they have breached a duty owed to the patient and the patient can recover damages See e.g. Florida Dept. of Corr. V. Abril, 969 So. 2d 201, 206 (Fla. 2007) (“[T]his Court has consistently and rigorously enforced the rights of patients to confidentiality in their medical records. In view of these multiple sources of a duty of confidentiality and privacy,” a health care facility has a duty to maintain their confidentiality.).

Thus, if you have suffered damages due to a breach of your private medical records, you may be entitled to damages.

If you have had your private, confidential medical records disclosed by a health care provider, you should contact an attorney at Smith & Associates to discuss your rights and remedies.

Do You Manufacture or Sell CBD Products? New Rules Could Affect You.

CBD is one of the fastest growing markets in the United States and is expected to be a $20 billion dollar industry within the next few years. Despite the size and growth of this industry, until recently the manufacturing of hemp and the sale of CBD (a hemp extract) were largely unregulated in Florida.

In 2019, however, Florida’s Governor signed into law Senate Bill 1020. This law, codified at Section 581.217, Florida Statutes, sets forth the general guidelines for Hemp Cultivation and the Distribution and Sale of Hemp Extracts (“CBD”). Importantly, these guidelines empower Florida’s Department of Agriculture to implement rules in these areas. These new rules, located at 5K-4.034, Florida Administrative Code, took effect January 1, 2020.

The biggest change is that anyone who cultivates hemp or manufactures or sells CBD for human or animal consumption must be licensed. Guidance from the Department of Agriculture state that this licensing requirement applies to everyone in the distribution and retail chain – including manufactures, middlemen, and the individual stores that sell CBD products.

Further, the statute requires that CBD may only be sold in Florida if it has a certificate of analysis prepared by an independent testing laboratory proving:

  1. The hemp extract is the product of a batch tested by the independent testing laboratory;
  2. The batch contained a total delta-9-tetrahydrocannabinol concentration that did not exceed 0.3 percent on a dry-weight basis pursuant to the testing of a random sample of the batch; and
  3. The batch does not contain contaminants unsafe for human consumption.

Fla. Stat. § 581.217(7)(a).

The statute also mandates labeling requirements that include:

  1. A scannable barcode or quick response code linked to the certificate of analysis of the hemp extract by an independent testing laboratory;
  2. The batch number;
  3. The Internet address of a website where batch information may be obtained;
  4. The expiration date;
  5. The number of milligrams of hemp extract; and
  6. A statement that the product contains a total delta-9-tetrahydrocannabinol concentration that does not exceed 0.3 percent on a dry-weight basis.

Fla. Stat. § 581.217(7)(a).

The Florida Department of Agriculture has already started sending out enforcement teams to inspect cultivation and retail establishments for compliance with these new laws and regulations.

While the rules related to penalties (Rule 5K-4.035, Florida Administrative Code) have not yet been adopted, it appears that, once they are, penalties for violations can range from orders prohibiting the sale of CBD to fines up to $10,000.00 (or both).

If you have been cited by the Department of Agriculture or if you are concerned as to how these new statues and rules may affect your Hemp or CBD business, you should contact an attorney at Smith & Associates to help evaluate your rights.

BID PROTEST LAW CASE NOTE: THE CLOCK IS STILL TICKING; WAIVER OF RIGHTS FOR FAILURE TO FILE TIMELY NOTICE OF PROTEST

In a reminder that Florida Bid Protest law can be unforgiving with regard to a late-filed Notice of Protest, a recent decision by the Florida Division of Administrative Hearings found that even though a bid protest was meritorious, it was rejected because the protestor failed to file the required Notice of Intent to Protest within 72 hours of the Agency posting its decision.  See prior Article: Bid Protest Law: Know Your Rights- The Clock is Ticking (http://smithlawtlh.com/category/bid-protest-law/).

Cady Studios, LLC v. School Board of Seminole County, Case No. 18-0134BID (DOAH, 2019) involved a bid protest concerning a Request for Proposals for school yearbook and photography services for the school district.  The RFP required that the proposals include a paper copy as well as 10 USB “thumb drives.”  A total of 13 vendors submitted proposals, including Cady Studios.  During the evaluation process, two evaluators tried to open Cady Studios’ “thumb drive” copy of the proposal but found that the USB was blank.  During an evaluation meeting, the other evaluators stated that their copies of the USB worked and could be opened.  Nevertheless, one of the evaluators who could not open the file refused to review a paper copy or another USB thumb drive, instead awarding “0” points to Cady Studios for all scoring categories.  The other evaluator agreed to review a paper copy of the proposal and scored the proposal.

Upon scoring of all proposals, a “Short List” notice was sent to the top seven vendors based upon a “natural break” in the scores at that point.  Cady Studios was the eighth ranked vendor.  It was shown that had the proposal been scored, it would have closed the gap creating the “natural break” in scores, although Cady Studios would still have been eighth in scoring.  The RFP did not specify any number of vendors to be awarded and Cady Studios may have been a selected vendor based upon improved scoring.

After posting of the Notice of Intent to Award, Cady Studios’ representatives contacted the School Board to ask for clarification as to why it did not make the “Short List.”  The School Board agreed to hold a meeting, but it was scheduled for after the time a Notice of Intent to Protest would have been due (within 72 hours of the posting).

Ultimately, Cady Studios learned at the meeting that one evaluator had refused to score the proposal.  Upon learning of this failure to score its proposal, Cady Studios filed a protest.  It was referred to DOAH for a hearing on whether they had waived the right to hearing by failing to file a timely protest; whether there was “equitable tolling” because they had been lulled into the belief that there was no need to file a protest because there was a meeting scheduled to discuss the issues, and they only learned of the problem at that meeting; and whether the School Board acted arbitrarily and capriciously in failing to score the proposal.

The Administrative Law Judge (ALJ) found that the failure to file a Notice of Protest within 72 hours resulted in a waiver of the right to protest.  The ALJ noted that the language in Section 120.57(3) is clear, and that the RFP and other solicitation documents specifically advised that waiver is the penalty for failure to timely file a Notice of Protest.  The ALJ also found that there was no equitable tolling of the time period, even though the challenger was informed of a meeting to discuss the reasons for not making the short list, and even though the challenger only learned of the problem at the meeting.

The ALJ also agreed with Cady Studios’ claim that the School Board’s actions in failing to score the proposal were arbitrary and capricious.  Thus, had a timely protest been filed, there were grounds to set aside the proposed award without Cady Studios as an awarded vendor.

This case shows that an affected party must timely assert its rights.  Even though a vendor may not be certain of the reason for denial of its bid, the safe course of action is to file the Notice of Protest to allow time to evaluate the situation and determine whether to proceed with a formal bid protest.

The case is now on appeal to the Fifth District Court of Appeal.

If you have a Bid Protest Law question, please contact Geoffrey D. Smith: geoff@smithlawtlh.com.

FLORIDA REAL ESTATE EXPERT WITNESS TESTIMONY. JOHNSON VS DAVIS. BY JASON STEELE

Quite often real estate licensees violate Florida Standards of Practice for real estate practitioners. These actions can lead to civil lawsuits where both buyers and sellers can suffer significant losses. Chapter 475, Florida Statutes, regulates the real estate industry and is the primary law upon which court decisions are made on monetary damages. Courts also look to prior case law decisions and the testimony of expert witnesses.  That is where you may need assistance from a qualified expert witness.  Jason Steele is a licensed real estate broker with the expertise to assist in such matters (see link below).

www.floridarealestateexpertwitness.com

One of the most common violations by real estate licensees deals with the ruling in Johnson vs. Davis concerning defects in the purchased residential property.  Many courts have interpreted and refined the application of this rule of law. From these cases one can conclude that in a home buyer’s nondisclosure claim against the seller, there are four elements: (1) the seller must have knowledge of a defect in the property; (2) the defect must materially affect the value of the property; (3) the defect must not be readily observable and must be unknown to the buyer; and (4) the buyer must establish that the seller failed to disclose the defect to the buyer.

The key to this legal trend has been to establish that a seller has a duty to disclose known defects. The standard makes this an affirmative obligation to disclose – not just if asked but in any instance where known defects exist. Failure to disclose could result in legal action against the seller.  In essence, this turns the tide and makes the duty one of “seller beware” or perhaps “seller disclose.”  Where does disclosure begin? Who is responsible for disclosure?  What is the agent’s responsibility?  Anyone buying a house faces hidden unknowns. The seller is responsible for disclosing those defects if they materially affect the value. There are many types of defects, including Chinese drywall, mold, lawsuits, sinking slabs, unpermitted electrical, plumbing, etc. The best thing for a real estate agent to do is advise the seller to disclose the material defects that are known, and go one step further by getting a certified building contractor to do an in-depth inspection of their home and provide it to the realtor before the property is listed. This report should not be relied on by the realtor or buyer.  It should be viewed as just an opinion of conditions. The realtor’s buyer should always get their own report (this report is not required by law and is used as a precaution).

There is an old saying that I used as a former Florida Realtor GRI instructor:  “When in danger, when in doubt, write it out, write it out.”  Meticulous record-keeping is a must for any real estate agent. Agents have the responsibility to disclose any defects that are known to them. Most real estate agents deliver a material defect disclosure form that the sellers fill out and sign, which become part of the licensee’s records. I have testified in Johnson vs. Davis lawsuits.  They can be extremely expensive for the seller, the real estate agent, and the buyer if defects are not disclosed.  I have also testified in civil cases involving issues of undisclosed defects.  I recently was retained as an expert witness in a major million dollar plus lawsuit that settled prior to trial.  This case involved real estate agents as the sellers, and their son and daughter (also agents), who listed the property. The facts of that case present a good example of what not to do as a real estate agent.  It all boils down to following the requirements of Chapter 475, Florida Statutes, and the rules of the Agency, including:

1. Dealing honestly and fairly.

2. Accounting for all funds.

3. Using skill, care, and diligence in the transaction.

4. Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the BUYER.

5. Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing.

6. Limited confidentiality, unless waived in writing by a party, will prevent disclosure that the SELLER will accept a price less than the asking or listed price; that the BUYER will pay a price greater than the price submitted in a written offer; the motivation of any party for selling or buying the property; that a SELLER or BUYER will agree to financing terms other than those offered; or any other information requested by party to remain confidential.

7. Any additional duties that are entered into by the original agreement or by separate written agreement.

8. Limited representation means that a BUYER or SELLER is not responsible for the acts of the licensee. Additionally, parties are giving up their rights to the undivided loyalty of the licensee. This aspect of limited representation allows a licensee to facilitate a real estate transaction by assisting both the BUYER and the SELLER, but a licensee will not work to represent one party to the detriment of the other party when acting as a transaction broker to both parties.

For more information on expert witness arrangements please contact me at jason@smithlawtlh.com.

False, Fraudulent, and Bad Faith DMCA Take Down Claims

Picture this.  You’re are a YouTube personality who happened to hit it big and before you know it you are relying on income from your YouTube channel as your sole source of income.  Your videos consist mainly of criticizing or commenting on issues that are important to you.  However, with this rise in fame also comes a rise in detractors – people who are not happy that you are criticizing them.  These detractors want nothing more than to hurt you and prevent others from hearing your criticisms.  So, what do these detractors do? They file a DMCA takedown notice claiming that your video (or videos) are infringing on their copyright.  You are now in the position of defending yourself or risking copyright strikes by YouTube.  Worse, even if you file a counter-notice, the video will still have been offline for some time, causing a serious interruption in your source of income.  Do you have any recourse against these bad-faith, fraudulent takedown notices?  The answer is yes, and this article discusses what those options are.

Congress passed the Digital Millennium Copyright Act (the “DMCA”) in 1998 to address the changing world of copyrights in lieu of the rise of the internet.  Over two decades later, the DMCA still provides an efficient mechanism to allow copyright holders to easily have infringing content removed from an internet service provider like YouTube without the need to file expensive lawsuits.

The DMCA, among other things, created a notice-takedown process that, if followed by service providers (like YouTube), insulates them from copyright liability for any infringing content posted on their site.  In general, the way that the takedown-notice procedure works is as follows:

  • A copyright holder files a takedown notice, under penalty of perjury, with a service provider claiming that the site is hosting infringing content owned by the copyright holder;
  • The service provider then removes the allegedly infringing content and notifies the person who posted the content;
  • The posting party then has the right to file a counter-notification, informing the service provider that the content is not infringing; and
  • If a counter-notice is filed, the service provider must re-host the content unless the original copyright holder files a lawsuit.

In most cases, this process works well and allows content creators, especially small content creators, the ability to police their works without needing to resort to expensive, federal copyright litigation.

However, people have been able to abuse this process to attack enemies and competitors, and to censor critics.  Critics often use small portions of video or text from the person they are criticizing to put the criticism in context.  This use, as discussed below, would clearly be fair use and allowable.  However, the person being criticized will then file a DMCA takedown notice claiming that, because snippets of his videos or text are used, the video infringes on his copyright.  These takedowns are not valid and are nothing more than attempts to censor perfectly acceptable speech and shield the person from criticism.

The DMCA provides a remedy for these bad-faith takedowns, specifically:

Any person who knowingly materially misrepresents under this section—

(1) that material or activity is infringing, or
(2) that material or activity was removed or disabled by mistake or misidentification, shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer, by any copyright owner or copyright owner’s authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it.

17 U.S.C.A. § 512

Thus, if someone files a fraudulent DMCA takedown notice, they can be sued for the damages caused, along with the costs and attorneys’ fees that were incurred in pursuing those damages.  In many cases, the costs of attorneys’ fees can far outweigh the actual damages.

The big issue that arises in these types of cases is “fair use.”  Fair use is defined as follows:

[T]he fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright.

17 U.S.C. § 107

One of the most important things to remember about fair us is that “fair use is not just excused by the law, it is wholly authorized by the law.” Lenz v. Universal Music Corp., 815 F.3d 1145, 1151 (9th Cir. 2016).  Thus, even if someone is using a copyrighted work, if it is being used as authorized by 17 U.S.C. § 107, the use is not infringing.

What many of these fraudulent takedown requests hang their hat on is that their copyrighted content was included in some way in the video in question.  However, they fail to undertake any sort of good-faith analysis as to whether fair use is applicable or not.  Most often, uses of a copyrighted work, especially snippets of that work, to criticize the work or the author are protected by fair use.  However, the sender of the notice doesn’t actually have a legitimate concern about copyright infringement, but instead is concerned with attempting to censor critics or punish people the sender does not like.

Unfortunately for these senders, the Court has addressed this issue and concluded that “a copyright holder must consider the existence of fair use before sending a takedown notification” and “form a subjective good faith belief that a use is not authorized[.]” Id at 1153.

Therefore, if the sender did not conduct a good faith, fair use evaluation before sending the takedown notice, they can be subject to liability, including damages, attorneys’ fees, and costs.

If you have been the subject of a bad-faith DMCA takedown notice, you should contact an attorney at Smith & Associates for a free consultation to discuss your situation and your potential remedies.

Maximize Your Reimbursement for Patients Involved in Accidents from PIP Insurance Carriers

Hospitals, Physicians and other providers are eligible for reimbursements from PIP insurance carriers (under an assignment of benefits) for emergency and follow-up medical services to patients involved in automobile accidents. In Florida, there are statutory protections in place to ensure hospitals and other medical service providers are paid for their services before any other liens are satisfied from the injured patient’s PIP policy of an injured patient.  The attorneys at Smith & Associates can help maximize the reimbursements permitted by law.

What is PIP?

Personal Injury Protection.  PIP is a type of insurance coverage required by all Florida motorists.  Benefits of PIP insurance are used to pay medical bills and lost wages in the event a driver is injured in an accident.

PIP insurance benefits to hospitals and other providers are “primary,” meaning that the medical providers are reimbursed first before other payments can be made under the policy. Section 627.736(4), Florida Statutes.

How does PIP work for Hospitals, Physicians and other Providers?

Florida requires insurance policies to reserve at least $10,000 in PIP benefits for medical and disability payments.  Hospitals and other qualified health care providers can become lienholders of those benefits if certain services were provided to the injured insured.  Pursuant to section 627.736(1)(a), Florida Statutes, “medical benefits” includes payment of 80-percent of all reasonable expenses for medically necessary surgical, medical, x-ray ambulance, hospital and nursing services if the injured patient received initial services within 14 days after the motor vehicle accident.

What Factors Determine Reimbursement of Medical Services?

One of the first factors a hospital or physician should consider in determining PIP coverage eligibility is when the injured patient was initially treated in relation to the automobile accident.  The injured motorist must receive the initial medical services within 14 days after the accident in order to be covered by PIP insurance. If initial medical services were not provided within 14 days of the accident, then there is no PIP coverage eligibility for any medical services.

Medical reimbursements may also cover “follow-up” services and care so long as they are consistent with the underlying medical diagnosis rendered pursuant to the initial services (within 14 days of the accident) upon referral by a qualified provider (licensed physician, dentist, or chiropractor).

A. Requesting PIP Reimbursements

Once the health care provider determines that PIP coverage applies to the medical services rendered to an injured patient, the provider should immediately submit written notice to the PIP insurance carrier indicating the patient’s coverage and the amount of the medical services provided.  An insurer must pay the provider’s PIP benefits within 30 days after written notice is furnished. Written notice is to be made as soon as practicable after an accident involving a motor vehicle.

B. Amount of Reimbursement

Subject to certain exclusions, reimbursement for medically necessary services can be up to $10,000 if the injured person had an “emergency medical condition” pursuant to section 627.736(1)(a)3., Florida Statutes.  In order to qualify as an emergency medical condition, the patient’s condition must be determined as such by a physician licensed under chapter 458 or chapter 459, a dentist licensed under chapter 466, a physician assistant licensed under chapter 458 or chapter 459, or an advanced practice registered nurse licensed under chapter 464.  If the medical services were provided to an injured person who did not have an emergency medical condition, then reimbursement is limited to $2,500.

What kinds of medical services are reimbursable?

The law provides for the reimbursement of emergency services and care to an injured person insured under PIP.  “Emergency services and care” means medical screening, examination, and evaluation by a physician, or, to the extent permitted by applicable law, by other appropriate personnel under the supervision of a physician, to determine if an emergency medical condition exists and, if it does, the care, treatment, or surgery by a physician necessary to relieve or eliminate the emergency medical condition, within the service capability of the facility. Section 395.002(9), Florida Statutes.

Additionally, the services must be “medically necessary” pursuant to section 627.732(2), Florida Statutes, which is defined as a medical service or supply that a prudent physician would provide for the purpose of preventing, diagnosing, or treating an illness, injury, disease, or symptom in a manner that is:

(a) In accordance with generally accepted standards of medical practice;

(b) Clinically appropriate in terms of type, frequency, extent, site, and duration; and

(c) Not primarily for the convenience of the patient, physician, or other health care provider.

Section 627.732(2), Florida Statutes.

A physician, hospital or clinic rendering treatment to an injured person for a bodily injury covered by PIP benefits may charge the insurer (and injured party) a “reasonable” amount for the services and supplies rendered.  The insurer providing such coverage may pay for the charges directly to the provider if the insured receiving such treatment (or his or her guardian) has countersigned a properly completed invoice, bill, or claim form approved by the Florida Office of Insurance Regulation upon which such charges are to be paid for as having actually been rendered to the best knowledge of the patient or his or her guardian.

What are “reasonable charges” for the medical treatment of injured persons?

Under the PIP statutes, a reasonable charge may not exceed the amount the provider customarily charges for like services or supplies. In determining whether a charge for a particular service, treatment, or otherwise is “reasonable,” section 627.736(5)(a), Florida Statutes, provides that consideration may be given to evidence of usual and customary charges and payments accepted by the provider involved in the dispute, reimbursement levels in the community and various federal and state medical fee schedules applicable to motor vehicle and other insurance coverages, and other information relevant to the reasonableness of the reimbursement for the service, treatment, or supply.

The insurer may limit reimbursement to 80 percent of the following schedule of maximum charges:

a. For emergency transport and treatment by providers licensed under chapter 401, 200-         percent of Medicare.

b. For emergency services and care provided by a hospital licensed under chapter 395,    75-percent of the hospital’s usual and customary charges.

c. For emergency services and care as defined by s. 395.002 provided in a facility             licensed under chapter 395 rendered by a physician or dentist, and related hospital           inpatient services rendered by a physician or dentist, the usual and customary charges in the community.

d. For hospital inpatient services, other than emergency services and care, 200-percent            of the Medicare Part A prospective payment applicable to the specific hospital providing       the inpatient services.

e. For hospital outpatient services, other than emergency services and care, 200-percent            of the Medicare, Part A, Ambulatory Payment Classification for the specific hospital          providing the outpatient services.

f. For all other medical services, supplies, and care, 200 percent of the allowable             amount under:

(I) The participating physicians fee schedule of Medicare Part B, except as provided in sub-sub-subparagraphs (II) and (III).

(II) Medicare Part B, in the case of services, supplies, and care provided by ambulatory surgical centers and clinical laboratories.

(III) The Durable Medical Equipment Prosthetics/Orthotics and Supplies fee schedule of Medicare Part B, in the case of durable medical equipment.

For purposes of submitting written notification of a PIP claim, it is recommended that the hospital or other medical provider submit the full amount of services provided to the insurer.  The provider need not calculate the reductions that are allowable under the statute.

Be advised that carriers may calculate (or miscalculate) the provider’s reimbursement for medical treatment in a way that is self-serving and improper.  For example, in a recent case before the Florida Supreme Court, an insurance carrier deducted the insured’s deductible of $1,000 from a hospital’s benefits after making the statutory reductions pursuant to section 627.736(5)(a), Florida Statutes, above. Progressive Select Ins. Co. v. Florida Hospital Medical Center, 260 So. 3d 219 (Fla. 2018).  By taking the reductions first, the carrier saved $200 that it would have, otherwise, paid to the hospital.  The Court said this was a miscalculation that was not consistent with another provision (section 627.739(2), Florida Statutes) requiring the insurance carrier to apply the deductible to “100-percent of the expenses and losses” of the insured.  Thus, when read together, the Court determined that the deductible must be applied to the total losses (including an insured’s medical bills) prior to applying reductions afforded to emergency medical services in section 627.736(5)(a)1., Florida Statutes. Id.

A. Collection of PIP Reimbursement

Once the medical provider provides written notice of the PIP claim to the insurer, the claim becomes overdue if not paid within 30 days.  An action to recover PIP benefits can be initiated pursuant to 627.736(4), Florida Statutes.  However, before any action to recover benefits can be initiated against an insurer, written notice of an “intent to initiate litigation” must be provided to the insurer. Such notice may not be sent until the claim is overdue (30 days after initial notice is provided), including any additional time the insurer has to pay the claim pursuant to law.

The notice of intent to litigate must state that it is a “demand letter under s. 627.736” and state, with specificity, the following:

1. The name of the insured upon which such benefits are being sought, including a copy of the assignment giving rights to the claimant if the claimant is not the insured.

2. The claim number or policy number upon which such claim was originally submitted to the insurer.

3. To the extent applicable, the name of any medical provider who rendered to an insured the treatment, services, accommodations, or supplies that form the basis of such claim; and an itemized statement specifying each exact amount, the date of treatment, service, or accommodation, and the type of benefit claimed to be due.

The demand notice must be delivered to the insurer (specifically addressed to the person designated by the insurer for the purposes of receiving notices) by certified or registered mail, return receipt requested.  Each licensed insurer is required to file with the Florida Office of Insurance Regulation the name and address of the designated person to whom notices must be sent which the office shall make available on its Internet website. The name and address on file with the office pursuant to section 624.422, Florida Statutes, is deemed the authorized representative to accept notice pursuant to this subsection if no other designation has been made.

No action may be brought if the insurer pays the overdue claim within 30 days after receipt of the demand notice, along with applicable interest and a penalty of 10-percent of the overdue amount paid by the insurer, subject to a maximum penalty of $250.  If the demand involves an insurer’s withdrawal of payment under paragraph (7)(a) for future treatment not yet rendered, no action may be brought against the insurer if, within 30 days after its receipt of the notice, the insurer mails to the person filing the notice a written statement of the insurer’s agreement to pay for such treatment in accordance with the notice and to pay a penalty of 10 percent, subject to a maximum penalty of $250, when it pays for such future treatment in accordance with the law.

B. Attorney’s Fees

In a dispute with an insurance carrier over PIP benefits, attorney’s fees may be awarded pursuant to the attorney’s fee provision in section 627.428, Florida Statutes (awarding a reasonable attorney’s fee to a prevailing named or omnibus insured), or section 768.79, Florida Statutes (offer of judgment and demand for judgement), provided the attorney’s fee:

(a) Complies with prevailing professional standards;

(b) Does not overstate or inflate the number of hours reasonably necessary for a case of comparable skill or complexity; and

(c) Represents legal services that are reasonable and necessary to achieve the result obtained.

Exceptions to the attorney’s fee recovery includes section 627.736(10), Florida Statutes (when the insurer pays 30 days after the demand letter or mails its agreement to pay for future treatment within the prescribed time), and section 627.736(15), Florida Statutes (requiring all claims be brought in a single action to recover PIP benefits).

Upon request by either party, a judge must make written findings, substantiated by evidence presented at trial or any hearings associated therewith, that any award of attorney fees complies with 627.736, Florida Statutes.

C. Other Remedies

An insurer that fails to pay a valid claim submitted by a hospital (or other qualified provider) is engaging in a prohibited unfair or deceptive practice and is subject to the penalties provided by in section 626.9521, Florida Statutes.  The Florida Office of Insurance Regulation has the power and duty to discipline the insurer if the insurer does the following with such frequency so as to indicate a “general business practice”:

1. Fails to pay valid claims for personal injury protection; or

2. Fails to pay valid claims until receipt of the demand notice required by section 627.736(10), Florida Statutes.

In addition, the Department of Legal Affairs may investigate and initiate actions for a violation of this subsection, including, but not limited to, the powers and duties specified in part II of chapter 501.

Case Law on Specific Issues Relating to Hospital Liens

Hospital liens take precedence in a judgement or settlement in favor of the patient.  The Third District Court of Appeals in Crowder v. Dade County, 415 So. 2d 732 (3rd DCA 1982), held that the lien of a hospital is intended to be effective for the “full amount” against the proceeds of a judgment or settlement in favor of the patient. Id., citing Dade County v. Perez, 237 So. 2d 781 (Fla. 3d DCA 1970) and Dade County v. Bodie, 237 So. 2d 553 (Fla. 3d DCA 1970).  Furthermore, the District Court in Crowder held that the amount of the lien could not be discounted or diminished by the amount of attorneys’ fees which may be due to the patient’s counsel. Crowder, supra, citing Public Health Trust of Dade County v. O’Neal, 348 So. 2d 377 (Fla. 3d DCA 1977).

Driving Your Computer without a License: Beware the Wrath of the BSA

Imagine this:  your company has grown from the original handful of employees to dozens or even hundreds of employees, all with their own workstations, home computers, and laptops with remote access to your company server.  You receive a letter one day from an organization called the “Business Software Alliance” (“BSA”) warning you that your company could be responsible for massive licensing fees and penalties because your employees are using unlicensed or mis-licensed software products.  When you begin to internally investigate this claim, you discover you have little or no documentation showing the licensing for the software installed on your company’s computers.  You just upgraded your computers and software and added what you needed as the company grew, never suspecting you would one day be called upon to “prove” that you properly purchased, installed and licensed the software at each workstation.   And now you are facing an ultimatum that failure to provide proof for each and every license will result in dire consequences.  What do you do?  This article discusses the steps you can take before ever being contacted by the BSA and what to do after the BSA has sent its demand letter.

The BSA describes itself as “the leading advocate for the global software industry before governments and in the international marketplace.” Businesses that have been on the receiving end of its compliance program, however, usually have less favorable words to describe the BSA. The BSA’s aggressive assertion of its members’ rights stretches the bounds of copyright law and the underlying software licenses at issue.  Once the BSA has a company in its sights that it believes has unlicensed or improperly licensed software, the BSA will seek to extract as much in fines from the company as possible and, if a settlement cannot be reached, it has a well-known reputation for taking companies to federal court to enforce its members’ rights.

To add insult to injury, if not handled properly, the BSA will publicly shame companies that have unlicensed software, naming them and the amounts paid.  For example, the BSA will publish articles like these naming the company and the amount of the settlement:

In the face of the aggressive tactics employed by the BSA, companies who are facing a demand from the BSA need someone just as aggressive to defend their rights.

What is the BSA?

The BSA is a trade organization representing software companies around the world.  Its members include such companies as Adobe, Apple, Autodesk, IBM, Oracle, Microsoft, and Siemens. The BSA lobbies governments around the world, seeking to advance their members’ interest.

Non-member companies, however, mainly know the BSA for its compliance and enforcement efforts.  The BSA aggressively seeks out companies who have unlicensed (or mis-licensed) copies of its members’ software.  This aggressive approach includes running television and radio commercials offering monetary rewards to workers if they report unlicensed copies of software on their employer’s computers.  In a recent case from Australia, the BSA paid its “informant” $10,000 for reporting unlicensed software on his company’s computers.  In short, the BSA is using cash rewards as incentives to get employees, especially disgruntled employees, to “rat” on their companies for unlicensed software use.

Once the BSA suspects a company of having unlicensed software, the BSA will send the potentially infringing company a letter demanding to audit the entire company’s software installations and accompanying licenses threatening fines up to $150,000 per violation.  The letter will advise that the company should contact them to resolve the issue otherwise litigation may occur. This threat is not an idle one.  BSA is well-known for aggressively enforcing its members’ rights and has a well-known reputation for following through with its threats to take an alleged violation to court.

Take Action Now to Avoid Any Encounter with the BSA

As described below, once the BSA is involved, the costs to remedy unlicensed or mis-licensed software increases dramatically.   Companies should take immediate action, prior to the BSA becoming involved, to ensure that the software they are using is properly licensed and installed.

This is not as simple a task as it may seem.  For example, most software licenses, especially on the server side, are conditioned upon the number of server cores, the number of users, a specific user, or some combination of those three.   However, as server virtualization becomes more popular and ubiquitous, determining the number of server cores and particular users on a virtualized server becomes more technical.  In addition to the technical issues, there is also the issue of well-meaning employees downloading software that is “free,” without realizing it is only free for personal or education uses and requires a paid license for commercial use.  As such, any internal audit needs to include not just legal professionals to review the licenses, but IT professionals to fully understand exactly where and how the software has been installed and is being accessed.

Moreover, a company may wish to enlist the help of legal counsel to conduct this audit through the help of a third-party IT service.  Should the company later become involved in copyright litigation resulting from unlicensed software, the use of legal counsel and third-party IT professionals can potentially keep the results of the audit confidential and prevent the right’s holder from using the results of the internal audit against the company.

Once the audit is conducted, the company should ensure that all of its software is properly licensed and, if not, purchase the appropriate licensing or uninstall the software from the company’s systems.

After the system is properly audited and licensed, the company should then create and implement policies and procedures regarding the installation and licensing of software to ensure that all future software installations are reviewed by legal counsel and only installed and accessed in accordance with the license.  IT professionals should also be involved in this process to ensure that rules are in place to enforce the terms of the license.

What If I’ve Already Been Contacted by the BSA?

Once the BSA has contacted a company and alleged copyright infringement, that company should seek immediate assistance from legal counsel.  The BSA, as stated before, is very aggressive in enforcing its members’ rights and failure to timely and properly act can end up costing the company significantly.

After retaining counsel, the first step in dealing with a BSA response letter is to discuss mitigating the issues and keeping the burden on the BSA to prove its case should the case end up in court.  For example, internal emails regarding potential infringement may be discoverable by the BSA in court.  While a manager’s first instinct may be to send an email to the IT department asking about unlicensed software, the IT department’s response may not be something that the company wants the BSA to read.  As such, the first communication after receiving the letter should be to an attorney.  Any communications with IT (or other) staff, should only be at the direction of that attorney.

Further, now that the company has been put on notice of potential copyright litigation, unless directed to by its attorney, no changes should be made to the underlying system.  If the case goes to court, uninstalling or deleting improperly licensed software could be seen as an attempt destroy or alter evidence if the case goes to trial.

Most letters from the BSA will state that they have information that the company is infringing on one of its members’ rights.  However, the letter will then demand that the company do an audit of all its computers related to all of the member companies, not just the one the BSA suspects as unlicensed.  After making sure that internal mitigation is occurring, the next step is to then limit the scope of the audit.  The goal is to limit the audit to only the software owned by the member company for which the BSA believes is having its rights infringed.  Otherwise, the company may be providing the BSA with information about unlicensed software that the BSA was unaware of, increasing the scope of the issue and the monetary amount of any settlement or eventual damages award. Thus, if the BSA has reason to believe a company is infringing on Microsoft’s copyrights, the audit should be limited to only Microsoft, and should not include the other member companies.

Once the scope has been limited, an internal audit needs to occur.  It is highly recommended that this internal audit be conducted by a third-party IT company at the direction of legal counsel.  Should the case be taken to court, these steps will minimize the likelihood that the BSA will be able to discover them.  Further, in the case that they do eventually get discovered, the audit should be limited to only the software or company at issue.  For example, if the BSA agrees to limit the scope to Autodesk products, the audit should only include Autodesk products.

When a listing of all of the installed products of the member company are complied, then licenses need to be gathered for each of these installations.  Moreover, especially as it relates to server-side software, an understanding of where the software is installed and who is accessing it needs to be determined.  Once all of this is compiled, the attorney should be able to make an internal determination as to what, if any, software is not properly licensed.

The BSA typically is willing to settle infringement issues for what amounts to four-times the licensing costs.  The BSA will usually demand that the infringer pay the BSA three-times the licensing cost as a fine and, if the company wishes to keep the software installed, also purchase a license for the software. So, if it was determined that there were four copies of Microsoft Office, which retails for $250.00, that were installed but not licensed, the BSA would demand that the company purchase a license for these copies ($250 x 4) and then pay a fine equal to three times the licensing amount for each of these copies ($250 x 4 x 3).  Thus, the likely cost to settle an infringement issue involving only four copies of Microsoft Office would be around $4,000.00.

Keeping the BSA’s likely settlement position in mind, once the internal audit is concluded, a discussion needs to be held to determine what, if anything, should be turned over to the BSA.  The Copyright Act allows a rights holder, assuming other conditions are met, to seek actual damages or statutory damages ranging from $750 to $30,000 per infringement.  If it can be shown that the infringement was intentional, those damages can rise to $150,000 per infringement.  Further, the court has the authority to award the prevailing party its attorneys’ fees, which, depending on the case, can eclipse the actual damages award.

In addition to damages, the BSA has its own take as to what constitutes infringement and what constitutes proof of a license.  Not surprisingly, that take is incredibly favorable to the BSA members and pushes the limit of what a judge or jury may consider infringement.  For example, in prior dealings with the BSA, it has taken the position that a 15 year old installation of Microsoft Server 2000 was infringing because the physical license could not be found, despite assurances from the IT department that the license was purchased when it was installed and, due to the timeframes, would have necessarily been physically purchased from a store as opposed to being downloaded as much of the software today is.   In any dealings with the BSA, an experienced attorney who is able to push back against these overreaching claims by the BSA is essential.

All of these factors need to be considered when determining how to respond to the BSA.  Clearly understanding your rights and the potential risks involved is crucial to making the proper decision on how to respond to the BSA.

Finally, if the decision to settle with the BSA is made, it is important that it be negotiated properly.  The BSA is known for publishing settlements and publicly highlighting the infringement and settlement amounts it has recovered for its members to  publicly shaming the infringing company.  In addition to any other terms, the settlement needs to explicitly make clear that the settlement is confidential and that the BSA will not disclose it or the allegations of infringement to anyone.

Conclusion

The BSA is aggressive defending the rights of its member companies.  You deserve attorneys who will be just as aggressive in defending your rights. Whether it is ensuring that your company is in compliance with the applicable licenses or pushing back against the BSA’s overreaching interpretations of copyright law, Smith & Associates can help your company against software copyright infringement claims.

Should you need any assistance or have any questions about these issues, please feel free to give us a call for a free consultation.

 

 

Agencies Are No Longer Afforded Deference to the Interpretation of Rules and Statutes

On November 6, 2018, the voters of Florida approved a Constitutional Amendment (“Amendment 6”) which, among other things, eliminates the deference given to administrative agencies in interpreting statutes or rules.  Judicial officers are now required to interpret such statutes and rules de novo.

By way of background, the U.S. Supreme Court had previously ruled in Chevron v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), that courts must defer to an agency’s interpretation of a statute, if based on a permissible construction, when the statute is silent or ambiguous on the issue at bar.  Id.  As such, wide deference was given to administrative agencies in statutory and rule interpretation.  The passage of Amendment 6 to the Florida Constitution, however, requires the state court or administrative law judge to interpret the statute or rule.

Specifically, the amendment creates Section 21 of Article V, Florida Constitution, which provides:

Judicial interpretation of statutes and rules. In interpreting a state statute or rule, a state court or an officer hearing an administrative action pursuant to general law may not defer to an administrative agency’s interpretation of such statute or rule and, instead, must interpret such statute or rule de novo.

What does this mean for cases involving the interpretation of agency rules and statutes? Agencies will be subjected to the most reasonable interpretation of a rule or statute when such rule or statute is at issue in a dispute before a judicial officer or administrative law judge.  As such, parties engaged in litigation with agencies will have the benefit of an unbiased interpretation in cases where their interests are at stake.

Amendment 6 also address two other issues: 1) the retirement age for judges, and 2) victim’s rights in criminal proceedings.  The age of mandatory retirement for the state’s judges will be raised from age 70 to age 75.  However, this will not go into effect until July 1, 2019.  The second issue is the extension of a “bill of rights” for victims of crimes, modeled after a California law.