THE ATTORNEYS OF CHILIVIS GRUBMAN

Featured Alert

Federal Trade Commission Issues Final Rule Deeming Nearly All Non-Compete Agreements Unenforceable

On April 23, 2024, the Federal Trade Commission (“FTC”) issued a Final Rule which bans noncompete clauses for all but a few employees. If the rule goes into effect, even existing noncompetes for the vast majority of American workers would be deemed unenforceable. 

The only exception is for “senior executives,” which is defined as an employee who was in a “policy-making position” and who received a total compensation of at least $151,164.  For senior executives, noncompetes already in effect at the time the Final Rule takes effect can remain in effect. However, once the rule goes into effect, all noncompetes, whether or not involving a senior executive, would be deemed unenforceable.

The Final Rule also requires employers to provide notice to employees other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

In issuing the rule, FTC Chair Lina Khan said: “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned. The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The Final Rule was published in the Federal Registrar on May 7, 2024, and will become effective on September 4, 2024, unless it is blocked by a court in the meantime. And that is certainly a possibility, as several lawsuits challenging the Final Rule have already been filed, including one by the United States Chamber of Commerce, in the Eastern District of Texas.



Healthcare Alerts

Governor Kemp Signs Several Healthcare-Related Bills into Law

March 28 marked "Sine Die," the last day of the Georgia General Assembly's 2024 session. While many pieces of proposed legislation died on the vine, several important pieces of legislation affecting Georgia's healthcare industry passed and were subsequently signed into law by Governor Kemp. These include:

• HB 82: Expands the Rural Physician Tax Credit for rural healthcare professionals, including physicians and now also dentists - allowing a qualifying person to receive a tax credit on a first-serve basis in the amount of $5,000 for each 12-month period of employment for up to 5 years.

• HB 872: Expands service cancelable loans for healthcare professionals to dental students who agree to practice in rural areas. Dental students must be actively enrolled as a fourth-year student in an accredited dental education program in the United States.

• HB 1339: Revises the State's Certificate of Need process - providing for several new exemptions including but not limited to: new or expanded psychiatric or substance abuse inpatient programs; new or expanded basic perinatal services in rural counties; new or expanded birthing centers; new general acute hospitals in rural counties; new acute care hospitals where a short stay hospital in a rural county has been closed for more than 12 months and a new replacement hospital has not been opened. It also raises the total limit on tax credits for donations to rural hospital organizations to $100 million.

• SB 293: Reorganizes the county boards of public health and opens the qualifications for the chief executive officer of each county board of health to include either being a physician licensed to practice medicine or possessing a masters degree in public health or a related field.

• SB 377: Defines qualified residential treatment programs (QRTP) to conform with federal law.

• SB 480: Establishes student loan repayments for mental health and substance use professionals serving underserved youth in the state or in unserved geographic areas and communities that are disproportionately impacted by social determinates of health.

Georgia Sues Feds Over Medicaid Expansion

Georgia Governor Brian Kemp’s alternative to the Affordable Care Act’s Medicaid expansion has proven to be a costly endeavor that has provided minimal medical care coverage to Georgia enrollees.

The Georgia Pathways to Coverage plan (“Pathways”) places a requirement that people earning up to the federal poverty level provide proof that they are working, in school, or performing other qualifying activities. The latter category excludes certain common activities, including being a full-time caregiver.

Merely 3,500 Georgians are currently enrolled in Pathways – that is less than one percent of the approximate 359,000 Georgians that would become eligible for Medicaid under the Affordable Care Act expansion. This enrollment number is a far cry from the 25,000 people the plan projected would enroll during the first year of the program. In contrast to its enrollment numbers, Georgia’s Department of Community Health reported $26.6 million in spending for Pathways from its launch in July 2023 through December 21, 2023.

Deloitte, the program’s primary consultant, was paid $2.4M to prepare and submit the program’s application to the federal government, while just $2M was paid to insurers for medical care coverage. Despite the low enrollment and high cost to taxpayers, Georgia filed a suit against the federal government on February 2, 2024, requesting that the Pathways program be allowed to continue through 2028, rather than the originally scheduled 2025 end date. The requested extension is to reclaim time lost due to CMS allegedly improperly delaying the program for over two years. 

Georgia has one of the highest uninsured rates in the nation and is currently the only state Medicaid expansion plan requiring that people show proof of work or other qualifying activities to be eligible to receive health coverage.

Chilivis Grubman Attorneys Secure Win in Candidate Qualifications Challenge

As part of Chilivis Grubman’s election law practice, firm partner Jeremy Berry represented a Fulton County resident who challenged the qualifications of a candidate seeking to run for the Superior Court of Fulton County. The basis for the challenge is that the candidate lived and voted in DeKalb County – not Fulton County – at the time that she sought to qualify to run for the Fulton County judgeship. The challenged candidate is one of two contenders who sought to run against current Fulton County Superior Court Judge Scott McAfee.  

Candidate qualification challenges like these are initially heard by an administrative law judge, who issues an initial decision, followed by the Secretary of State, who issues a final decision based on the administrative law judge’s initial factual and legal findings. As the Atlanta Journal-Constitution recently reported about the case, “Administrative Law Judge Ronit Walker had disqualified Johnson from standing for Fulton Superior Court judge after her residency was challenged and she failed to appear at an April 2 hearing. Walker’s decision was then finalized by the Secretary of State’s office.”

The DeKalb Superior Court judge, who heard the case on appeal because all Fulton County judges were recused from hearing the case, affirmed the Secretary of State’s decision that held that the candidate failed to carry her burden at the initial hearing. As explained in another article about the case, “Jeremy Berry, who represents [the resident who brought the case], argued that Judge Hydrick should affirm Johnson’s disqualification because she was not a Fulton County resident when she filed to run in March. Under Georgia law, he said candidates must be able to vote for themselves when they enter a race. And regardless, he said, Judge Walker got it right when she held that Johnson’s failure to appear at the April hearing meant she hadn’t met her burden of proving she could, in fact, run for the judgeship.”  

Following the court’s ruling that the candidate failed to carry her burden after receiving notice of the initial administrative law judge hearing, Berry further stated that “We appreciate Judge Hydrick hearing the parties on an expedited basis. We are pleased that she affirmed the decision of the secretary of state that the Office of State Administrative Hearings sent, and Ms. Johnson received, notice of the hearing and failed to carry her burden as to whether she was properly qualified to run for Fulton Superior Court.”

Former Financial Technology Company to Pay $120 Million to Resolve FCA Allegations Related to Processing PPP Loans

While the COVID-19 pandemic may be over, enforcement related to COVID-era financial relief programs is not.

On May 13, the U.S. Department of Justice (DOJ) announced that now-bankrupt financial technology company Kabbage Inc. (d/b/a KServicing) has agreed to pay $120 million to resolve allegations that it violated the federal False Claims Act (FCA) by “knowingly submitting thousands of false claims for loan forgiveness, loan guarantees, and processing fees to the U.S. Small Business Administration (SBA) in connection with the Paycheck Protection Program (PPP), a COVID-19 pandemic-related financial relief program.

The settlement resolved two different FCA violations. First, the DOJ alleges that Kabbage systematically inflated tens of thousands of PPP loans, causing the SBA to guarantee and forgive loans in amounts that exceeded what borrowers were entitled to under program rules. As part of the settlement, Kabbage’s successor company in bankruptcy admitted that Kabbage (1) double-counted state and local taxes paid by employees in the calculation of gross wages; (2) failed to exclude annual compensation in excess of $100,000 per employee and (3) improperly calculated payments made by employers for leave and severance.

Second, the DOJ alleges that Kabbage knowingly failed to implement appropriate fraud controls to comply with its PPP and other obligations, including removing underwriting steps from its pre-PPP procedures to process a greater number of PPP loan application and maximize processing fees. The DOJ further alleged that Kabbage knowingly set substandard fraud check thresholds despite knowledge of SBA’s concerns that fraudulent borrowers might seek to benefit from the PPP, relied on automated tools that were inadequate in identifying fraud, devoted insufficient personnel to conduct fraud reviews, discouraged its fraud reviewers from requesting information from borrowers to substantiate their loan requests and submitted to the SBA thousands of PPP loan applications that were fraudulent or highly suspicious for fraud.

The settlement resolved two separate whistleblower qui tam actions, one brought by an accountant who submitted PPP loan applications to Kabbage and the other brought by a former analyst in Kabbage’s collection department. Both will receive a portion of the DOJ’s recovery.

DOJ Announces Highest Number of False Claims Act Settlements and Judgments Ever

On February 22, the DOJ released its annual False Claims Act (FCA) statistics for Fiscal Year 2023. The DOJ’s press release announced the “highest number of settlements and judgments in history,” at 543 total settlements and judgments.



Overall, the DOJ boasted $2.69 billion in FCA judgments and settlements, up nearly 20% from the year before. Out of that total, $2.33 billion (just below 87%) were the result of qui tam whistleblower lawsuits. Within the qui tam category, 81.1% of the recoveries were in cases where the government intervened. (This was a reversal of the year before, where the majority of the qui tam recovery was from non-intervened cases, for the first time in the history of the FCA). FCA whistleblowers recovered a total of just under $350 million, which was actually down from nearly $500 million in 2022. (The FCA permits a whistleblower to receive between 15 and 30% of the government’s total recovery).

In addition to the total monetary recoveries, 712 new qui tam matters were filed in 2023, which was the highest number of new qui tam matters since 2014, and the third highest number on record. There were also 500 new non­-qui tam matters initiated in 2023, the highest number ever.

Healthcare-Specific Statistics

Out of the $2.69 billion in total recoveries, over two-thirds ($1.82 billion) were from individuals and entities in the healthcare industry. 87% of that was the result of qui tam actions, and healthcare whistleblowers received a total of just over $200 million in Relator’s share.

Interestingly, out of the 712 new qui tams filed in 2023, less than half (348) were against individuals and businesses within the healthcare industry. Despite the fact that there was a nearly-record number of new qui tams filed in 2023, this represents the lowest number of new healthcare-specific qui tams since 2009.

Defense-Related FCA Matters

The DOJ announced a record $552 million in recoveries in cases dealing with the Department of Defense. This is the second highest amount in history for DOD-related FCA cases. The majority of that total came from Booz Allen Hamilton’s $377 million settlement from July 2023, which was one of the largest single procurement fraud settlement in DOJ history.

DOJ Focus Areas 

As part of its press release, the DOJ highlighted some of its enforcement priorities, both historically and moving forward. Within the healthcare industry, the DOJ highlighted its work investigating Medicare Advantage fraud, as well as cases involving unnecessary services and substandard care, opioid overprescribing, and kickbacks.

The DOJ also highlighted its focus on COVID-19 pandemic fraud, particularly cases involving false or fraudulent PPP loans.



In announcing the total recoveries, Principal Deputy Assistant Attorney General Boynton, who heads the DOJ’s Civil Division stated: “As the record-breaking number of recoveries reflects, those who seek to defraud the government will pay a high price . . . The American taxpayers deserve to know that their hard-earned dollars will be used to support the important government programs and operations for which they were intended.”

Voluntary Self-Disclosure Results in $1.5 Million FCA Settlement

On May 6, the DOJ announced that Baptist Health System, a Florida-based hospital system, agreed to pay $1.5 million to resolve allegations that it violated the FCA by offering improper discounts to federal health care program beneficiaries in order to induce them to use the hospital’s services.



Of particular note, the matter was the result of a voluntary self-disclosure by Baptist Health. According to the press release:

In connection with the settlement, the United States acknowledged that Baptist Health took significant steps entitling it to credit for cooperating with the government’s investigation . . .

Baptist Health voluntarily self-disclosed this conduct to the United States. In addition, Baptist Health cooperated with the government’s investigation and took remedial measures, including discontinuing its discount policy, conducting an internal compliance review and providing the United States with a detailed disclosure statement and other supplemental information to assist the United States in its investigation.

According to the DOJ’s press release, Baptist violated the Anti-Kickback Statute (AKS) and the FCA by offering discounts of up to 50% or more on patient cost sharing obligation balance for certain Medicare beneficiaries. The DOJ alleges that these discounts were given “in exchange for” the beneficiaries’ purchase or referral of services from Baptist Health.

This settlement offers two very important take-aways. First, it is improper for a healthcare provider to engage in the routine waiver of copays or coinsurance. That doesn’t mean that a provider cannot waive a copay or coinsurance, but may do so only after it has taken reasonable steps to ensure that such waiver is based on an individualized assessment of the patient’s financial need.

Second, providers who uncover regulatory or legal issues should work with counsel to determine whether voluntary self-disclosure might be appropriate. As this matter demonstrates, while the provider may still be required to enter into a monetary settlement, if done properly, such voluntary self-disclosure could result in a substantially lower damages multiplier and penalty calculation.

Atlanta-Based Radiology Company to Pay $3.1 Million to Resolve FCA Investigation

The DOJ also announced that Atlanta based teleradiology company, The Radiology Group, and its CEO Anand Lalaji, ( collectively “TRG”) have entered into an agreement with the United States to settle allegations of violating the False Claims Act (FCA). As part of the settlement agreement, TRG has agreed to pay $3.1 million to resolve allegations of submitting false claims to federal health care programs for radiology services conducted by contractors outside of the United States.

TRG provides diagnostic radiology services to referring providers at various hospitals, urgent care centers, and primary care physician offices across the country. Referring providers routinely transmitted imaging to TRG for review and interpretation reports. According to the complaint, from April 1, 2013 to July 2019, TRG sent images they received to contractors outside of the United States for initial review and to prepare the required interpretation reports. In turn, TRG’s U.S. based radiologists were supposed to conduct an independent review of the contractors’ findings and reports and make all necessary changes before transmitting to a referring physician. However, TRG radiologists allegedly spent less than 30 seconds to review the contractors’ reports and just “rubber stamped” their findings. As such, the government alleged that TRG knowingly submitted false claims for radiology services that were not rendered by U.S. based and credentialed radiologists to Medicare, Medicaid, TRICARE, and Veterans Health Administration Programs. TRG also listed their U.S. based radiologists as the rendering provider when they submitted claims for reimbursement.

TRG admitted and accepted responsibility for, among other things, approving interpretation reports prepared by non-licensed individuals in India without conducting meaningful reviews and submitting claims to federal health care programs where the provider listed on the claim was not who reviewed and interpreted the images. TRG also admitted to submitting claims for reimbursement performed by one of their United Kingdom based radiologists. 

This matter was initially filed by Allison Lynes, who was employed as TRG’s Director of Operations from approximately 2014 to 2018, under the qui tam provisions of the FCA. TRG will pay $2,678,387.21 to the United States and the remaining to various states. When the settlement was announced, U.S. Attorney Damian Williams commented that “The Radiology Group failed to put in place appropriate safeguards to ensure that their U.S.-licensed radiologists adequately reviewed non-credentialed contractors’ findings before transmitting the reports to physicians who relied on the findings to make patient care decisions. This Office is committed to holding healthcare providers accountable when they violate clear rules and regulations designed to ensure the integrity of taxpayer funded healthcare programs and protect patient quality of care.”

Six Health Plans Sued for Violating FCA

As a reminder that FCA enforcement is not limited to healthcare providers, the DOJ also recently filed a complaint against the six health plans participating in the Uniformed Services Family Health Plan (USFHP), which offers health services to the military community, for violating the FCA.

According to the Complaint, Brighton Marine Health Center, CHRISTUS Health Services, Johns Hopkins Medical Services Corporation, Martin’s Point Health Care, Pacific Medical Center, and St. Vincent’s Catholic Medical Centers of New York (Plans) contracted with the Department of Defense (DOD) to provide medical coverage to military families. The DOD pays the Plans a flat fee for enrolled beneficiaries. At some time prior to 2012, the Plans began receiving improperly inflated payments stemming from two errors made by an actuarial firm when calculating the statutory payment limitation for USFHP beneficiaries over the age of 65. In 2012, the DOD’s actuarial firm and the Plans recognized the errors and improper payments. However, neither took steps to report the overpayments. Instead, they allegedly concealed the overpayments which led to the Plans being collectively overpaid by more than $300 million between 2008 and 2012.

The actuarial firm, Kennell & Associates Inc., entered a settlement with the DOD in 2023. Kennell & Associates agreed to pay $779,951 plus interest and contingent payments to resolve the False Claims Act allegations. The complaint related to the foregoing was originally brought by Jane Rollinson and Daniel Gregorie in the District of Maine under the qui tam provisions of the False Claims Act. Both Rollinson and Gregorie previously worked to Martin’s Point Health Care. 

When the United States announced the allegations, Acting Special Agent in Charge Brian J. Solecki of the DCIS Northeast Field Office commented that “[t]he DOD expects companies to adhere to contract requirements and DCIS will continue to work with our law enforcement partners and the Justice Department to hold DOD contractors who engage in fraudulent activity at the expense of the U.S. military accountable for their actions.”

U.S. Sentencing Commission Votes to Amend Federal Sentencing Guidelines to Limit Consideration of Acquitted Conduct

In 1997, the Supreme Court of the United States decided the case of United States v. Watts. The police in Watts discovered cocaine and guns in the defendant’s house. At trial, Watts was convicted of possessing cocaine, but acquitted of using a firearm in relation to a drug offense.

Despite his acquittal on the gun charges, at sentencing, the court increased his offense level under the federal Sentencing Guidelines after finding, by a preponderance of the evidence, that he possessed the guns in connection with the gun offense.

The Ninth Circuit Court of Appeals vacated Watts’ sentence, holding that a sentencing court may not rely on facts of which the defendant was acquitted. The Supreme Court reversed in a per curiam opinion, holding that the sentencing court may consider conduct of which the defendant was acquitted, so long as the conduct has been proved by a preponderance of evidence.

Both Justice Stevens and Justice Kennedy dissented, with the latter noting that “to increase a sentence based on conduct underlying a charge for which the defendant was acquitted does raise concerns about undercutting the verdict of acquittal.”

Since the Supreme Court’s decision in Watts, district courts around the country regularly take into account acquitted conduct when sentencing defendants.

That may change soon. On April 17, 2024, the United States Sentencing Commission voted unanimously to pass certain amendments to the federal Sentencing Guidelines, including limiting the use of acquitted conduct. Specifically, the proposed amendment would amend the Guidelines to provide that relevant conduct does not include conduct for which the defendant was criminally charged and acquitted in federal court, “unless such conduct also establishes, in whole or in part, the instant offense of conviction.”

In passing the proposed amendment, Sentencing Commission Chair Judge Carlton Reeves stated: “Not guilty means not guilty. By enshrining this basic fact within the federal sentencing guidelines, the Commission is taking an important step to protect the credibility of our courts and criminal justice system.”

The proposed amendment will take effect on November 1, 2024, unless Congress disapproves of the changes.

Opioid Manufacturer Ordered to Pay Nearly $1.5 Billion in Criminal FDCA Case

On May 2nd, the DOJ announced that an opioid manufacturer was ordered to pay $1.086 billion in criminal fines and an additional $450 million in criminal forfeiture for violations of the Federal Food, Drug, and Cosmetic Act. This marks the second-largest set of criminal financial penalties ever imposed on a pharmaceutical company.

Endo Health Solutions Inc. (EHSI) pleaded guilty on April 18 to one misdemeanor count of introducing misbranded drugs into interstate commerce; specifically, Opana ER with INTAC (Opana ER). The government alleged that from April 2012 through May 2013, certain EHSI sales representatives marketed Opana ER by promoting its purported abuse deterrence, tamper resistance, and crush resistance, despite lacking clinical data to support these claims.

The government alleges that certain EHSI sales managers were aware of the unsupported claims made by sales representatives regarding Opana ER’s abuse deterrence, tamper resistance, and crush resistance when marketing the drug to prescribers. According to the DOJ, some sales representatives conducted demonstrations involving smashing non-medicated sample pills with a hammer to convey the message that Opana ER was crush-proof and tamper-resistant. According to the plea agreement, EHSI was responsible for misbranding Opana ER by marketing it with a label that failed to include adequate directions for its claimed abuse-deterrent use. EHSI withdrew Opana ER from the market in 2017.

EHSI’s affiliated corporate entities successfully emerged from bankruptcy proceedings on April 23. However, EHSI itself will not continue operations in its current form post-bankruptcy. The settlement addressing all monetary claims against these corporate entities includes provisions for paying the criminal fine imposed during sentencing.



Under the confirmed bankruptcy plan, the reorganized company has established voluntary trusts to settle claims related to opioids. Notably, public trusts will allocate over $450 million to state, municipal, and Tribal entities to support programs aimed at combating the opioid crisis. To account for these payments, the Department of Justice is offsetting up to $450 million against the agreed forfeiture amount. The EHSI affiliates that have emerged from bankruptcy are also now subject to an injunction prohibiting future sales and marketing of opioids. Additionally, they are mandated to disclose millions of documents pertaining to their involvement in the opioid crisis.



DEA Administrator Anne Milgram remarked, “The opioid crisis we continue to face today originated, in part, from companies like EHSI building their business on false claims and deceptive business practices.” She emphasized the DEA’s commitment to holding companies like EHSI accountable.

Doctors Sentenced to Prison for Fraudulent Drug Testing Scheme

The DOJ also announced that Dr. William Lawrence Siefert and Dr. Timothy Ehn were sentenced to prison for their roles in a fraudulent urine drug testing scheme. The two doctors were found guilty of health care fraud and conspiracy to commit health care fraud.



Dr. Ehn is a chiropractor who owned Northern Kentucky Center for Pain Relief, a pain clinic in Kentucky, and Dr. Siefert was employed by the clinic as a medical director. According to evidence presented at trial, Dr. Siefert and Dr. Ehn administered and billed for urine drug tests because of lucrative reimbursements. Dr. Siefert and Dr. Ehn continued billing for unnecessary urine tests even after their drug testing machine malfunctioned. As such, patients underwent medically unnecessary testing and received false positives for street drugs. The duo was found to have defrauded Medicare, Medicaid, and commercial insurance companies for over $4 million.



Chilivis attorneys previously wrote about Dr. Ehn and Dr. Siefert when they were initially convicted. The doctors were indicted on additional health care fraud charges and charges of illegally prescribing opioids. Dr. Ehn was sentenced to two years and six months in prison and Dr. Siefert was sentenced to one year and six months in prison. Dr. Ehn and Dr. Siefert were also ordered to pay $3,773,569.30 and $1,968,763.10 in restitution, respectively. 

Louisiana Woman Pleads Guilty to Covid-19 Relief Fund Fraud

In another matter related to a COVID-era financial relief program, on April 10, the DOJ announced that a Louisiana woman, Melissa J. Watson of Slidell, pleaded guilty to theft of public money in connection with an alleged scheme to misappropriate over $780,000 from the Provider Relief Fund (PRF), a COVID-19 relief program administered by the Health Resources and Services Administration.

Court documents suggest that Watson, who operated a primary care clinic, submitted false and fraudulent attestations to obtain PRF funds that the government claims she was not entitled to. The referenced attestations included affirming that the funds would be used solely for COVID-19-related purposes, such as preventing, preparing for, and responding to the pandemic, or reimbursing healthcare-related expenses and lost revenues. However, according to the government, Watson diverted the funds for personal use, including making cash withdrawals and purchasing luxury items such as real estate, a vehicle, and a time-share condominium.

As a result of the investigation, the government seized over $500,000 in bank accounts held by Watson, along with several assets including a boat and trailer, and a Range Rover Sport vehicle. Watson is scheduled for sentencing on July 16 and faces a maximum penalty of 10 years in prison. 

In response to apparent pandemic-related fraud, the Attorney General established the COVID-19 Fraud Enforcement Task Force on May 17, 2021. The task force collaborates with government agencies to investigate and prosecute domestic and international persons it deems responsible for fraudulent activities related to COVID-19 relief programs.

Florida Tax Preparer Sentenced to Two Years in Prison

In recent years, the government has been actively combating return preparer fraud. Chilivis Grubman Attorneys have analyzed various tax preparer cases, including a recent complaint filed by the United States aimed at barring nine Florida tax preparers and their associated businesses from aiding in the preparation of federal income tax returns. Now, new developments have emerged regarding a Florida tax preparer who is facing imprisonment.

On February 26, the DOJ announced the two-year prison sentence of Phedson Dore for his alleged involvement in a conspiracy to defraud the United States by submitting false tax returns. Operating Empire Tax Services from 2017 to 2020, Dore and his accomplice purportedly submitted hundreds of false returns each year.

Their alleged fraudulent scheme involved inflating federal income tax withholdings and fabricating itemized deductions to obtain unwarranted refunds for clients. The DOJ alleged that Dore, to conceal his actions, frequently omitted his name as the preparer on the returns and omitted Empire’s Electronic Filing Number (EFIN), instead using his employees’ names and the EFINS of other tax preparation businesses.

The IRS estimates a loss of approximately $970,000 due to Dore’s activities, which Dore has been ordered to pay back in restitution. In addition to the prison term and restitution, U.S. District Judge Roy B. Dalton Jr. ordered Dore to serve two years of supervised release.

Georgia Supreme Court Declines to Revisit Appeal by Medical Cannabis Companies Seeking a State License

Last October, the Georgia Court of Appeals denied or dismissed the appeals of various companies seeking state licenses for producing and selling medical cannabis in Georgia. That ruling by the Court of Appeals was further appealed to the Supreme Court of Georgia, and on May 14, 2024, the Supreme Court denied certiorari, meaning that the decision issued last fall by the Court of Appeals stands and is final.

The issue on appeal was a narrow procedural question regarding how companies could appeal the decisions denying them a license. An earlier CG blog post explains the particular issue in further detail. 

At least one of the companies that had sought (but not received) a state license for producing medical cannabis, Windflower Georgia, LLC, has already had its appeal heard on the merits. After briefing and a hearing, Windflower’s appeal was denied. Windflower then sought further appeal to the Georgia Court of Appeals, which, on April 29, 2024, denied Windflower’s request for review. Therefore, Windflower’s appeals have now concluded. 

Now that the Georgia Supreme Court has officially closed the alternative avenue for appealing these licensing decisions, the few remaining companies that have not yet had their appeals heard on the merits will likely have hearings set soon, at which time they will have an opportunity to explain why they think one of the state licenses for producing medical cannabis should have gone to them, rather than to the companies that were awarded such licenses.

CASA AZUL Tequila Maker Defeats Trademark Infringement Injunction Bid

A Texas trademark showdown between two tequila brands came to a likely end earlier this week, with the plaintiff’s bid for an injunction being shaken and the defendant’s brand unstirred. 

In Casa Tradicion, S.A. de C.V. v. Casa Azul Spirits, the U.S. District Court for the Southern District of Texas determined, following a bench trial, that the CLASE AZUL and CASA AZUL trademarks have long coexisted without consumer confusion, and that as a result both plaintiff and defendant can continue to market their tequila products. The Casa Azul opinion presents a thorough review of the most contested likelihood-of-confusion factors in trademark infringement disputes.  

Plaintiff Casa Tradición is the maker of Clase Azul tequila, and defendant Casa Azul Spirits makes Casa Azul tequila. Plaintiff began selling its CLASE AZUL-marked tequila products in the United States in 2003 and obtained a federal trademark registration for CLASE AZUL in connection with distilled tequila in March 2008. Defendant obtained a federal registration for CASA AZUL in May 2008 in connection with “alcoholic beverages other than beer.” Plaintiff never opposed the CASA AZUL trademark application in the Trademark Trial & Appeal Board (“T.T.A.B.”), but filed suit in federal court for trademark infringement against Casa Azul in 2022.

A defendant is liable for trademark infringement under the Lanham Act if it uses “in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.”  Likelihood of confusion is assessed using the following factors:

(1) the type of mark allegedly infringed, (2) the similarity between the two marks, (3) the similarity of the products or services, (4) the identity of the retail outlets and purchasers, (5) the identity of the advertising media used, (6) the defendant’s intent, … (7) any evidence of actual confusion[,]’ … [and] (8) the degree of care exercised by potential purchasers.

In assessing these factors, the court first noted several real-world differences between the parties’ products. Defendant’s CASA AZUL product is a ready-to-drink canned fruit-flavored tequila soda. On the other hand, Plaintiff’s CLASE AZUL product is neither a canned product or a soda product, but rather a distilled tequila sold either in glass bottles or even more distinctive hand-painted ceramic containers. The plaintiff’s tequilas are much more expensive than the defendant’s tequila or tequila soda. The plaintiff’s tequilas are sold in different parts of retail stores than the defendant’s canned tequila sodas. 

The court also noted the different marketing aims of the companies. Unlike defendant’s canned products, Plaintiff’s CLASE AZUL products in elegant bottles were advertised to “older, more affluent individuals…who are willing and able to spend more for premium tequila and other products that appeal to more sophisticated purchasers.” In addition to the differences between the parties’ products, their appearances, their advertising, and their customer bases, Casa Azul successfully demonstrated how crowded the field is with similar marks. The defendant presented 30 bottles of tequilas with other brands, to show how crowded the market is and how many tequila brands use the words AZUL or CASA. The court found that “the large number of tequila brands, and the frequent use of the words ‘Casa’ and ‘Azul’ in those brand names, show that the names ‘Clase Azul’ and ‘Casa Azul’ are two in a large group of similar brand names for tequilas.” Furthermore, none of the plaintiff’s examples of actual confusion involved confused purchases of either party’s product by consumers. Given the above, the court held:

It is not reasonable to believe, and the evidence does not show a likelihood that, a consumer would confuse the defendant’s inexpensive canned tequila fruit-flavored soda with the plaintiff’s much more expensive and different bottled distilled premium tequila. Nor is it reasonable to find, and the evidence does not show a likelihood that, a consumer would believe that the defendant’s tequila soda is made by or affiliated with the plaintiff’s tequila. The nature of the defendant’s canned tequila soda compared to the plaintiff’s distilled premium tequila; the different trade dress; the gap between the defendant’s low-priced soda and the plaintiff’s expensive premium tequilas; and the different ways the two types of products are marketed all defeat a finding that there is a likelihood of consumer confusion.

The Casa Azul case shows that the factors for establishing trademark infringement go far beyond simply registration and first use. The opinion is an excellent read for understanding the interplay between the factors and also the importance of effective expert survey work.

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