Month: November 2019

Another Type of Quid Pro Quo

As the political news is dominated by discussion of quid pro quo and bribery, there has been another ongoing series of allegations about improper payments for things of value. The other quid pro quo relates to the pharmaceutical industry, which has been the subject of a seemingly never-ending scandals about financial inducements given to healthcare professionals.

The most significant recent case involves a company called Avanir Pharmaceuticals, which had to pay more than $115 million to resolve allegations that it paid kickbacks to physicians to get them to prescribe its drug Nuedexta for uses not approved as safe by the Food and Drug Administration.

Among those uses were the treatment of behaviors associated with dementia among residents of long-term care facilities. Nuedexta was tested and approved for patients exhibiting what is known as pseudobulbar affect (PBA) — involuntary, sudden, and frequent episodes of laughing or crying that occur secondary to a neurologic disease or brain injury.

The case against Avanir included allegations that physicians receiving its payments ended up putting large numbers of patients on Nuedexta who showed no symptoms of PBA, exposing them to unknown risks.

The Justice Department regarded Avanir’s behavior to be serious enough to warrant criminal charges, but like in so many other cases, the company was offered a deferred prosecution agreement that allowed it to buy its way out of full legal jeopardy by paying criminal penalties of nearly $13 million. The company agreed to cooperate in the prosecution of several individuals who received the kickbacks and whose liability may end up being more than financial in nature.

In addition to the criminal matter, Avanir agreed to pay $103 million to settle a related civil False Claims Act case based on the fact that federal and state healthcare programs ended up paying claims stemming from the improper prescribing of Nuedexta.

Avanir’s alleged behavior is especially troublesome because of the involvement of elderly dementia patients, but the use of kickbacks is far from unknown in the pharmaceutical industry. In Violation Tracker we document about 50 drug industry cases in which kickbacks were the primary or secondary offense.

These cases, which have resulted in more than $7 billion in fines and settlements, have implicated pretty much every large pharmaceutical producer and numerous smaller ones as well. Some companies show up on the list several times. These include Abbott Laboratories, which along with its subsidiaries has been involved in six cases between 2003 and 2017 that resulted in $630 million in penalties, and Pfizer, which together with its subsidiaries has paid $531 million in five cases between 2004 and 2018.

The extent of the recidivism in drug industry kickback cases suggests that the industry is not taking the problem very seriously and that the Justice Department’s approach has not had the necessary deterrent effect. Perhaps there is a lesson here for the political world as well.

Being Mindful of Paycheck Abuses

It turns out that yoga instructors are mindful about more than poses and breathing. They also make sure they are paid properly for their work. A group of instructors in Illinois who sued CorePower Yoga for violating federal labor law recently reached a final settlement of $1.5 million to resolve allegations that the chain failed to pay them for mandatory out-of-studio work such as class preparation and communicating with students.

The yoga instructors’ case is just one of a remarkable series of settlements that continue to emerge from the courts despite the efforts by employers to thwart collective action against workplace abuses. I keep an eye on these developments as part of my work on Violation Tracker and am amazed at the quantity and variety of wage theft litigation. Here are some other examples I have been collecting to include in the next update of the database.

PetSmart agreed to pay $2.4 million to a group of dog groomers in California who alleged they were shortchanged on overtime and mandatory rest breaks and meal periods.

Zocdoc, an online medical appointment booking service, agreed to pay $1.4 million to resolve a lawsuit filed in New York alleging that the company mistakenly classified sales personnel as exempt from overtime pay.

Safelite agreed to pay $8.2 million to windshield replacement technicians in California who claimed they were not properly paid for administrative duties and time spent traveling to jobs.

Great American Financial Resources agreed to pay $1.25 million in Ohio to settle a dispute involving commissions for insurance agents.

Here are some other cases in which the parties have reached a settlement that is awaiting final court approval:

Morgan Stanley agreed to pay more than $10 million to resolve a lawsuit alleging it improperly refused to reimburse its financial advisers for work-related expenses such as client entertainment.

Pongsri Thai Restaurant in New York agreed to pay $3.7 million to a group of workers to resolve allegations that the company violated overtime and minimum wage regulations.  

FedEx agreed to pay $3.1 million to settle a suit brought by a group of drivers in western New York claiming they were misclassified as independent contractors and subject to improper pay deductions.

Not all these cases are resolved through a settlement. For example, a federal jury in Florida recently awarded $1.2 million to a group of forepersons employed by the tree service company Asplundh who alleged they were improperly denied overtime pay. It is not yet clear whether the company will appeal.  

A federal appeals court recently upheld a $4.6 million verdict won by a group of exotic dancers who had alleged that the Penthouse Club in Philadelphia misclassified them as independent contractors and thus denied them minimum wage and overtime protections.

Two things are made clear by this list. The first is that the problem of wage theft is pervasive. It is present in both old economy and new economy companies and in both highly paid and low-wage occupations. The culprits are both large employers and small ones, and the problem can be found all over the country.

The second conclusion is that, despite adverse rulings from the U.S. Supreme Court and efforts by employers to make it as difficult as possible for workers to sue, there is no sign yet that the flow of successful collective action wage and hour lawsuits is receding.

This is vital at a time when the Trump Labor Department has been seeking to replace federal enforcement with a dubious program promoting voluntary compliance by employers. For now, workers are holding their own in the ongoing battle over paycheck abuses.

Corporations and Economic Sanctions

Large corporations like to claim rights, such as freedom of speech and even freedom of religion, originally intended to apply to individuals. Yet they don’t like it when they are accused of crimes customarily brought against human persons.

That is the situation facing the Swiss cement company LafargeHolcim, whose French operation just escaped prosecution for crimes against humanity but is still facing serious terrorism-related allegations.

The case stems from actions taken by Lafarge half a dozen years ago in Syria, where in an effort to continue doing business in the war-torn country it made substantial payments to jihadi groups such as ISIS.

In 2017 the Paris Public Prosecutor opened an investigation of the company for financing terrorism, and the following year Lafarge and several executives were indicted for complicity in crimes against humanity and other offenses. The most serious allegation was just dismissed by an appeals court, but two NGOs that brought the original complaint – Sherpa and the European Center for Constitutional and Human Rights – are seeking to have the charge reinstated. Whether or not that happens, Lafarge will still face charges of financing terrorism and violating a trade embargo.

In the United States there have been numerous cases accusing large corporations of violating economic sanctions imposed on countries such as Iran, North Korea and Cuba. We have more than 400 such entries in Violation Tracker with total penalties of more than $16 billion. These were mostly brought by the U.S. Justice Department or Treasury’s Office of Foreign Assets Control.

Our next Violation Tracker update will include another two dozen such cases brought by the Manhattan District Attorney and the New York State Department of Financial Services that will add billions more to the penalty total.

The largest of these cases involved the French bank BNP Paribas, which in 2015 was penalized more than $8 billion after being convicted of conspiring to violate the International Emergency Economic Powers Act and the Trading with the Enemy Act by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions.

BNP was sentenced to a five-year term of probation and ordered to forfeit $8.8 billion to the United States and pay a $140 million fine.  This was the first time a financial institution had been convicted and sentenced for violations of U.S. economic sanctions, and the total financial penalty was the largest ever imposed in a criminal case.

One difference between the U.S. cases and the French one involving Lafarge is that individual executives at large corporations are usually not targeted by American authorities. This allows the companies to buy their way out of the legal jeopardy, and no one ends up behind bars.

That’s also true, of course, for other kinds of business misconduct and is one of the key reasons the corporate crime wave never seems to end.