Attorneys General Continue to Scrutinize Merger of Food Distributors
- In a letter to the Federal Trade Commission (FTC) dated December 10, 2014, Minnesota AG Lori Swanson questioned the effectiveness of divestitures proposed by Sysco Corporation and US Foods, Inc., as they seek regulatory approval to merge.
- Earlier this year, a group of AGs began reviewing the proposed merger, identifying certain regional markets where the resulting entity, according to some estimates, would have greater than 70 percent market share.
- In order to provide greater competition in these regional markets, and thus secure FTC and State AG approval, the merging entities proposed selling $5 billion in assets to a smaller distributor, Performance Food Group, Inc. AG Swanson’s letter argues that these asset divestitures will not be enough to ensure competition.
Non-Profit Organization Tests California Disclosure Law on First Amendment Grounds
- The Americans for Prosperity Foundation (AFP), a non-profit organization founded by Charles and David Koch, filed a lawsuit to enjoin California AG Kamala Harris from enforcing certain disclosure provisions of the California Supervision of Trustees for Charitable Purposes Act (the Charities Act).
- The Charities Act requires organizations to register with the state and to submit the names and addresses of individuals who donate more than $5,000 in a tax year (information that organizations are also required to list on Schedule B of Form 990 to the IRS). In 2013, AG Harris requested that AFP submit a copy of its Schedule B for tax years 2011 and 2012. AFP resisted.
- In its lawsuit, AFP contends that requiring the disclosure of Schedule B to California would hinder citizens’ ability to freely and anonymously associate with AFP in violation of the First Amendment. AFP also argues that such disclosure is preempted by Section 501 of the Internal Revenue Code.
- AG Harris faced a similar challenge to the disclosure requirements in the Charities Act earlier this year, when the Center for Competitive Politics (CFCP) sued to enjoin the disclosure of its Schedule B. In that lawsuit, the District Court refused to grant the CFCP’s request for a preliminary injunction, and CFCP is currently appealing that decision to the 9th Circuit.
Six States Reach Settlement with Digital Advertising Firm Over Cookie Practices
- New Jersey Acting AG John Hoffman and six other AGs entered into a settlement with PointRoll, Inc., a digital advertising and tech services company owned by Gannett Co., Inc., for allegedly violating various state consumer protection laws.
- Following an investigation led by AG Hoffman, the AGs alleged that PointRoll engineered a process that allowed it to circumvent users’ privacy controls and place internet tracking cookies on web browsers—even where the user had adopted privacy settings specifically designed to block such cookies.
- The assurance of voluntary compliance requires PointRoll to pay $750,000 and prohibits PointRoll from overriding consumers’ browser settings without their consent. In addition, PointRoll must implement a privacy program, including: placing a conspicuously-displayed explanation of what cookies are and how PointRoll uses them on its website, conducting employee training on consumer privacy, requiring third-party service providers to operate under similar privacy protocols, and organizing an annual assessment of the effectiveness of PointRoll’s privacy-enhancing policies.
Maryland Attorney General Settles With Medicaid Supplier
- Maryland AG Doug Gansler reached a settlement with Americle Healthcare, Inc.—a supplier of medical equipment and adult incontinence supplies to Maryland Medicaid recipients—resolving allegations that, from 2005 to 2009, Americle submitted bills to Medicaid for goods it did not provide, or that were not properly documented as being medically necessary.
- The settlement requires Americle to pay $1 million in restitution and other recoveries to the state. The investigation was conducted with the Inspector General from the U.S. Department of Health and Human Services.
Massachusetts Attorney General Enforces Prevailing Wage Laws
- Massachusetts AG Martha Coakley ordered New Hampshire-based R&A Drywall, LLC, and owner Allan Vitale to pay $200,000 in restitution and penalties for allegedly violating Massachusetts prevailing wage and recordkeeping laws.
- AG Coakley alleged that R&A mislabeled certain employees as apprentices and underpaid other employees, according to standards set by Massachusetts law, which requires certain wages for companies completing public works projects. AG Coakley also found that R&A had failed to submit payroll records, in violation of state record keeping laws. In addition to restitution and penalties, R&A and Vitale were precluded from submitting bids for Massachusetts public works projects for one year.
New York State Bans Fracking Indefinitely
- New York Governor Andrew Cuomo announced a permanent ban on extracting natural gas and oil through a process called hydraulic fracturing (fracking), following the completion of a study that found “significant public health risks” associated with the practice.
- This ban comes shortly after New York AG Eric Schneiderman concluded agreements with oil and gas development companies to disclose to shareholders and the public the financial risks associated with the regulatory and environmental uncertainty associated with fracking. It also follows a ruling by the New York Court of Appeals affirming that towns have the authority to ban fracking through zoning laws.
Attorney General Settles With For-Profit College Over Alleged Deceptive Practices
- Massachusetts AG Martha Coakley reached an agreement with Premier Education Group, L.P. and Salter College: A Private Two-Year College, LLC (collectively, Salter), to settle allegations that Salter violated the Massachusetts Consumer Protection Act by using deceptive practices to market its educational programs to potential students.
- The complaint alleged that Salter made a number of misrepresentations to potential students, including overstating the rate at which it placed students in their career field, the level of job placement services provided, its success at finding externships for students, and the extent to which tuition included the costs of necessary post-graduation certification programs.
- The consent judgment requires Salter to pay $3.5 million to the state, and to forgive $200,000 in outstanding student debt held by former Salter students. In addition, Salter must provide full disclosure to prospective students that it is an open enrollment institution and does not guarantee employment in the student’s desired field.
New York Attorney General Resolves Investigation With Medical Clinic
- New York AG Eric Schneiderman entered into a settlement agreement with PATH Medical, P.C., to resolve claims that PATH provided false and misleading information to patients regarding the price of, and the extent to which insurance would cover, certain exotic and expensive medical services it recommended, such as “brain electrical activity mapping” and various psychological and cognitive assessments. AG Schneiderman also resolved claims that PATH improperly transmitted protected health information over unsecured personal email accounts, offered unlimited access to medical care for a fixed fee, and other violations of state and federal law.
- In an assurance of discontinuance, PATH agreed to refund former patients for overcharges and to provide increased price transparency, better payment options for lower-income patients, staff training programs, and HIPAA-compliant email policies. PATH also agreed to pay $15,000 in civil penalties.
Attorneys General Investigate Mortgage Servicer, Again
- A group of State AGs on the National Mortgage Settlement Monitoring Committee are investigating whether Ocwen Financial Corporation provided false or misleading information when it reported compliance with a 2012 national settlement agreement.
- The investigation centers on determining if Ocwen has properly implemented an independent internal audit process to determine whether it was meeting standards for dealing with struggling borrowers as required by the settlement. In addition to the AGs’ investigation, National Mortgage Settlement Monitor Joseph A. Smith Jr. has indicated that he will also take a close look at Ocwen’s compliance.
- In response to the investigation, Ocwen issued a statement that “[it] will continue to support the monitor’s efforts to ensure that [Ocwen is] fully compliant with all aspects of the national mortgage settlement.”
Join Us for a Webcast on Antitrust Scrutiny: Ways to Plan, Prepare and Respond
- Dickstein Shapiro is partnering with the National Constitution Center to provide a 90-minute webcast on December 17th at 1:00 PM ET discussing recent developments in antitrust laws.
- Jim Martin and Jennifer Hackett, both partners in Dickstein Shapiro’s Antitrust & Financial Services Practice, will provide analysis on the evolving governmental framework for antitrust scrutiny and advice for designing customized compliance programs.
- If you are interested in participating in this webcast, please contact Natalia Senatore at firstname.lastname@example.org. Participants may be eligible for CLE credit and will receive a proprietary workbook.
More States Join Texas Lawsuit Against President’s Immigration Order
- Seven additional states have joined Texas AG Greg Abbott’s lawsuit challenging President Obama’s Executive Order on immigration as unconstitutional and in violation of the U.S. Administrative Procedures Act.
- The amended complaint now lists a total of 25 plaintiffs, including 19 State AGs.
Idaho Attorney General Settles With Physician Group
- Idaho AG Lawrence Wasden settled with four doctors who allegedly violated the Idaho Competition Act. During negotiations with Madison Memorial Hospital in Rexburg, the doctors allegedly collectively sought compensation, in addition to hospital privileges, in return for providing on-call coverage.
- AG Wasden clarified that the focus of his investigation was on whether the doctors formed an agreement to cease providing on-call coverage that constituted an unreasonable restraint of commerce in violation of state antitrust law, and not whether the doctors had a right to negotiate increased compensation.
- The settlement requires that the physicians refrain from conspiring with other physicians in future negotiations with the hospital over compensation. It also requires them to certify their compliance with Idaho Competition Act to AG Wasden for each of the next five years.
Forty-Five Attorneys General Settle With Satellite Radio Provider
- Led by Ohio AG Mike DeWine, 45 states reached a settlement with Sirius XM Radio Inc. for $3.8 million following an investigation of the company’s advertising and billing practices. In addition to the payment to the states, Sirius will also provide restitution to consumers who have eligible claims based on the problems identified in the investigation.
- The settlement resolves allegations that Sirius violated numerous state consumer protection laws through deceptive advertising and billing practices, including: automatically renewing subscriptions without customer consent, making it difficult for customers to cancel service and failing to honor customer requests to cancel once made, failing to provide timely refunds, and refusing to refund unapproved charges.
- Sirius signed a detailed Assurance of Voluntary Compliance in which it agreed to increase customer disclosure and transparency through a wide range of compliance procedures. Sirius denied any wrongdoing, and stated that it had disclosed all relevant features of its billing practices and had obtained the proper consumer consent at the time of initial purchase.
Massachusetts Settles With Bank Over Lost Data
- Massachusetts AG Martha Coakley settled with TD Bank, N.A., to resolve an investigation into a 2012 incident where TD Bank lost unencrypted server backup tapes that contained information, including names, addresses, Social Security numbers, account numbers, and date of birth for approximately 90,000 Massachusetts residents, and failed to comply with state data breach notification requirements.
- The settlement requires TD Bank to pay $325,000 in civil penalties and $75,000 in attorney’s fees and costs. It also requires TD Bank to provide $225,000 to a fund administered by the AG’s Office to promote data breach education and fund local programs aimed to increase consumer protection. TD Bank further agreed to encrypt personal information stored on backup tapes, to require third-party service providers to adopt stricter security practices, and to monitor service providers for compliance.
- Earlier this year, nine states, led by Florida AG Pam Bondi, also reached a settlement with TD Bank for $850,000 to resolve their investigations into the 2012 data breach.
Attorneys General Pair With Nonprofit Organizations to Challenge EPA Rule at DC Circuit
- Kansas AG Derek Schmidt, together with Nebraska AG Jon Bruning, filed a petition to the U.S. Circuit Court of Appeals for the District of Columbia challenging the Environmental Protection Agency’s Rule requiring states to use a new air pollution estimating model as they create their State Implementation Plans under the U.S. Clean Air Act.
- AG Schmidt contends that the EPA Rule was promulgated without notice and an opportunity for states to comment. AG Schmidt also contends that the MOVES2014 methodology required by the Rule produces false conclusions regarding the use of ethanol as an additive to gasoline, ultimately harming Kansas’s and Nebraska’s ethanol industries.
- The AGs joined as petitioners with Urban Air Initiative Inc. and the Energy Future Coalition. The petition identifies the Energy Future Coalition as “an unincorporated initiative of the Better World Fund, which is in turn a nonprofit publicly supported endowment incorporated in a manner consistent with Section 501(c)(3) of the Internal Revenue Code.” It identifies Urban Air Initiative as a “social welfare organization incorporated in a manner consistent with Section 501(c)(4) of the Internal Revenue Code.”
False Claims Act
Florida and the U.S. Intervene in False Claims Suit Against For-Profit College
- Florida AG Pam Bondi joined with the U.S. Attorney for the Southern District of Florida to intervene in a two-yearold lawsuit against FastTrain II Corporation d/b/a FastTrain College, and its owner Alejandro Amor, alleging violations of both the federal and state False Claims Acts.
- The lawsuit alleges that from at least January 1, 2009 through June 22, 2012, FastTrain and Amor submitted numerous false claims for payment to the U.S. Department of Education by fabricating false documents, such as high school diplomas, and by inducing otherwise ineligible students to falsify applications for federal student aid programs. The lawsuit also alleges that FastTrain kept students on its financial aid recipient list long after those students were no longer attending. In total, FastTrain students received over $6.5 million in Federal Pell Grants and other federally-provided financial aid. FastTrain administered for-profit college programs across seven campuses in southern Florida, but is now defunct.
- The lawsuit was originally filed on April 17, 2012 by Juan Pena, a former admissions employee of FastTrain. The case, U.S. ex rel Pena v. FastTrain II Corp. 1:12-cv-21431, is pending in U.S. District Court for the Southern District of Florida.
Nebraska Ordered to Pay Attorneys’ Fees in Failed Attempt to Limit Alleged Patent Trolls
- The U.S. District Court for the District of Nebraska has ordered the state to pay $725,000 in legal fees to MPHJ Technology Investments, LLC, and ActiveLight, Inc. (formerly known as Activision TV Inc.). MPHJ and ActiveLight were awarded attorneys’ fees for prevailing in their action to preempt an investigation by Nebraska AG Jon Bruning.
- AG Bruning had sought to use state consumer protection and deceptive trade practices laws to prevent MPHJ and ActiveLight from asserting their patent rights, allegedly in bad faith or in a deceptive manner.
- We have followed this story from the outset, and reported on the court’s decision to grant summary judgment to MPHJ and ActiveLight and to enjoin AG Bruning from conducting further investigations or enforcement actions.
States v. Federal Government
Attorneys General Argue Against Preemption by Natural Gas Act
- Twenty-one State AGs, led by Kansas AG Derek Schmidt, submitted an amici brief in a U.S. Supreme Court case involving natural gas prices and state law. The AGs’ brief supports the respondents—manufacturers, public schools, hospitals, and other direct purchasers of natural gas—in arguing that the U.S. Natural Gas Act (NGA) does not preempt state antitrust laws that apply to retail transactions for the sale of natural gas.
- The core of the AGs’ argument is that although the federal government has had a long-standing role in regulating the wholesale markets and interstate transportation of natural gas, it “disavowed any intent to preempt state regulation of retail sales of natural gas.”
- This dispute emerged from multiple lawsuits, some of which were brought individually by the respondents under various state antitrust laws, claiming that the petitioners—mostly energy companies—conspired to fix higher-than-market prices for natural gas sold at the retail level. The petitioners, who were defendants in the state lawsuits, removed the cases to federal court, where they were consolidated in the District of Nevada. The district court ultimately found that the NGA preempted state law. However, on appeal, the 9th Circuit unanimously reversed, and held that the NGA cannot preempt state antitrust in the area of retail sales.
- The case, Oneok, Inc. v Learjet, Inc., No. 13-271, is scheduled for oral argument on January 12, 2015.
States Bring Lawsuit Challenging White House Immigration Order
- Led by Texas, 14 State AGs and three governors have filed a lawsuit in federal court in the Southern District of Texas, alleging that President Obama’s 2014 Executive Order granting relief from deportation to approximately 4.4 million undocumented immigrants violates the U.S. Constitution’s Take Care Clause (Art. II, Sec 3 Cl. 5) and the U.S. Administrative Procedures Act, Sections 553 and 706.
- The lawsuit names as defendants the United States of America plus officials in the U.S. Department of Homeland Security, including Customs and Border Protection, Immigration and Customs Enforcement, and Citizenship and Immigration Services.
- The case is Texas v United States 1:14-cv-00254 (S.D. Tex. Dec. 3, 2014). We will follow this lawsuit as it unfolds in future editions of State AGs in the News.
Consumer Financial Protection Bureau
Sixteen Attorneys General Urge the CFPB to Regulate Pre-Dispute Arbitration Clauses
- Delaware AG Beau Biden, along with Massachusetts AG Martha Coakley and Kentucky AG Jack Conway, led a group of AGs urging the Consumer Financial Protection Bureau (CFPB) to exercise its statutory authority to regulate the use of mandatory pre-dispute arbitration clauses in connection with contracts for financial services.
- In their letter to CFPB Director Richard Cordray, the AGs argued that the inclusion of mandatory arbitration clauses in consumer contracts for financial services is counter to the public interest because consumers rarely understand the ramifications and lack the bargaining power to negotiate. The AGs also stated that arbitration can be procedurally unfair to consumers because arbitrators are likely to be biased in favor of the financial services company, as they will be the “repeat players” in arbitration.
- Before the CFPB can create regulations in this area, the Dodd-Frank Act requires it to conduct a study and issue a report to Congress. The CFPB initiated this process with a public inquiry in April 2012 and published its preliminary results in December 2013.
Maryland Attorney General Settles Claims With Verizon
- Maryland AG Douglas Gansler announced a settlement with Verizon Communications Inc. to resolve allegations that it misrepresented the actual costs of its television, internet, and phone services to consumers through promotional activities.
- Under the terms of the settlement, Verizon will pay restitution to current and former customers who were charged termination or equipment fees that were not adequately disclosed. In addition to the estimated $1.375 million restitution, Verizon will pay a civil penalty of $250,000 and $75,000 for costs.
- Verizon also agreed to change its advertising practices and will provide written disclosures of the terms of customers’ orders and broader cancellation rights if the first bills do not accurately reflect those orders.
Arizona Attorney General Sues General Motors for $3 Billion
- Arizona AG Tom Horne filed a lawsuit in Maricopa County Superior Court against General Motors LLC (GM), alleging that it violated the Arizona Consumer Fraud Act by selling automobiles that it knew were unsafe. The complaint asks for injunctive relief, along with disgorgement, civil penalties up to $10,000 for each violation, attorneys’ fees, and investigation costs.
- The lawsuit alleges that GM promoted its vehicles as “safe, reliable and high quality” while deliberately concealing defects to ignition, airbags, seatbelts, brakes, and electronic stability control systems. It also alleges that GM failed to timely recall certain models, even though such defects had become apparent. Finally, the lawsuit seeks to address losses in the resale value of certain models based on their record for defects. Although the lawsuit seeks only to account for GM’s conduct post-2009 bankruptcy, many of the defects occurred in models produced by GM pre-bankruptcy.
- GM responded in a statement, saying the lawsuit “misrepresents the facts, the performance of our vehicles and our work to ensure the safety of our customers.”
- A group of 47 State AGs is also investigating GM’s recalls and safety procedures, but have not yet filed lawsuits.
Illinois and Ohio Attorneys General Pair With the FTC to Enjoin Credit Monitor
- Illinois AG Lisa Madigan and Ohio AG Mike DeWine, together with the Federal Trade Commission (FTC), settled claims against defendants One Technologies, LP; One Technologies Management, LLC; and One Technologies Capital, LLP, for selling online credit monitoring services to consumers allegedly in violation of the Restore Online Shoppers Confidence Act (ROSCA), Section 5(a) of the FTC Act, the Ohio Consumer Sales Practices Act, and the Illinois Consumer Fraud Act.
- The complaint alleged that defendants deceptively marketed their credit monitoring services by offering consumers “free” access to their credit scores without adequately disclosing that such access automatically enrolled them in defendants’ credit monitoring program for which they were charged a monthly fee of $29.95. The complaint also claimed that consumers were not adequately informed how to cancel the service, and often had to request cancellation numerous times.
- The consent order requires defendants to pay $22 million in compensation to the FTC and State AGs, and to cease making misrepresentations, express or implied, as to the price of goods and services. It also requires defendants to provide reports on their compliance with the terms of the order and to maintain records related to any goods or services sold with a negative option feature for 10 years.
Florida Also Joins With FTC to Enjoin Computer Services Companies
- Florida AG Pam Bondi and the FTC filed complaints against multiple companies to prevent them from inducing consumers to purchase unnecessary computer repair services in violation of Section 5 of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act.
- The lawsuits allege that Inbound Call Experts, LLC; Vast Tech Support, LLC; and a host of related companies provide “free” diagnostic computer scans, offered through deceptive online advertisements and telemarketing efforts. The companies, whose diagnostic scans falsely detect viruses and malware, proceed to sell unnecessary repairs to fix the nonexistent problems. As a whole, defendants have allegedly collected over $120 million in revenues from these practices.
- On November 12, 2014, U.S. District Court Judge Kenneth Marra, for the Southern District of Florida, entered temporary restraining orders against the defendants, freezing related assets and placing business operations under a court-appointed receiver.
Vermont Settles Claims Against Discount Club
- Vermont AG William Sorrell settled claims against Stonebridge Benefit Services, Inc., and J.C. Penney Corporation, Inc., in connection with the sale of discount membership programs to consumers allegedly in violation of Vermont’s 2012 Discount Membership Program Act (DMPA).
- The DMPA prohibits selling memberships to discount clubs unless the consumer provides complete credit card information at the time of purchase. It also requires sellers to periodically remind consumers that they are being charged and precludes clubs from charging members for more than 18 consecutive months without completing the initial sign-up process again.
- AG Sorrell alleged that J.C. Penney provided Stonebridge with customer credit card information and Stonebridge used this information to sign up and bill consumers for discount club memberships.
- Pursuant to the Assurance of Discontinuance, Stonebridge will send refund checks totaling $227,651 to all consumers who were billed unlawfully after May 2012, and is required to make refunds to any consumers who were billed prior to May 2012 and submit a complaint. Stonebridge will also pay $175,000 to the state and agreed to strictly comply with Vermont law. In addition, J.C. Penney is enjoined from providing credit card information to Stonebridge.
Thirty-Eight Attorneys General Request Update to FTC Telemarketing Rule
- Through a letter from the National Association of Attorneys General, a group of 38 State AGs recommended that the Federal Trade Commission (FTC) update its Telemarketing Sales Rule to reflect the realities of the current marketplace, and to better protect consumers from telemarketing fraud and abuse.
- The AGs note in their letter that there has been a marked increase in the number of consumer fraud claims originating from telemarketing activities in recent years and ask the FTC to amend the Telemarketing Sales Rule to prohibit the use of pre-acquired account information to better address the use of negative option sales techniques in telemarketing, and to require telemarketers to create and maintain call records.
Massachusetts Enters Consent Judgment With Hospital Over Data Breach
- Massachusetts AG Martha Coakley entered into a Consent Judgment with Beth Israel Deaconess Medical Center, Inc. over allegations that the hospital failed to safeguard personal data and protected health information of 3,990 patients and employees.
- The information was compromised by the theft of an unencrypted personal computer from a physician’s office. Although the hospital had a policy in place that required all computers containing personal health information to be secured and encrypted, AG Coakley alleged that it was poorly enforced and that the hospital waited too long to notify affected persons.
- The hospital agreed to pay $70,000 in civil penalties, $15,000 in costs and attorneys’ fees, and $15,000 for future educational programs concerning the protection of personal and protected health information. The hospital also agreed to audit overall security measures and to better secure, encrypt, and track laptops containing personal and protected health information.
California Reaches Settlement With AT&T Over Electronic Waste
- California AG Kamala Harris settled claims that Pacific Bell Telephone Company d/b/a AT&T California, AT&T Corp., and AT&T Services, Inc., (collectively AT&T) allegedly failed to prevent electronic equipment, batteries, aerosol cans, and certain gels and liquids from being sent to landfills as regular trash. The consent judgment requires AT&T to pay the state a total of $23.8 million and to implement enhanced environmental compliance measures including the use of “staging bins” prior to placing waste in dumpsters, as well as hundreds of unscheduled annual inspections.
- In response to the settlement, AT&T issued the following statement: “We take environmental stewardship seriously, and we’ve cooperated closely with the state and Alameda County to resolve this issue in a way that is in the best interests of the environment, our customers and all Californians. The settlement recognizes the company for taking prompt action, dedicating significant additional resources toward environmental compliance, and improving our hazardous and universal waste management compliance programs.”
States v. Federal Government
Supreme Court Grants Cert to Review States’ Objections to EPA Mercury Rule
- The U.S. Supreme Court granted certiorari to Michigan AG Bill Schuette and 22 other states requesting review of the D.C. Circuit’s decision to uphold the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Standards (MATS) Rule.
- The AGs asserted in the Michigan petition that the use of the term “appropriate” in Section 112 of the Clean Air Act required the EPA to consider potential compliance costs when it made a decision to promulgate the MATS Rule—or any rule to regulate hazardous air pollutants from electricity utilities. In its brief in opposition, the EPA argued that it had reasonably construed the Clean Air Act as only requiring the consideration of compliance costs when establishing the appropriate level of regulation, not for the determination of whether to regulate power plants’ mercury emissions.
- The Supreme Court consolidated Michigan’s appeal with two other appeals involving the MATS Rule. If affirmed, the MATS Rule will go into effect in 2015 and coal-fired power plants will be required to cut mercury emissions by more than 90% over four years.
New Alaska Governor Bill Walker (I), who was sworn in Monday, has appointed his former law partner Craig Richards to be the next Alaska AG. In Hawaii, David Louie’s term as AG ended when new Governor David Ige (D) took office Monday, although Governor Ige has yet to appoint a replacement. Alaska and Hawaii are two of five states in which the governor appoints the AG (along with New Hampshire, New Jersey, and Wyoming).
Craig Richards, a Republican, has been a partner with Governor Walker in the Anchorage law firm Walker & Richards LLC, which Governor Walker founded in 1995. A prominent oil and gas attorney, Richards’s law practice has centered on natural gas project development, finance, taxation, and oil and gas leasing. He holds a J.D. from Washington and Lee University, an M.B.A. from Duke University, and a finance degree from the University of Virginia. Richards is originally from Fairbanks, Alaska. He is expected to be confirmed by the legislature and will replace AG Michael Geraghty (R), an appointee of former Governor Sean Parnell (R), who Governor Walker narrowly defeated in November.
Hawaii Governor Ige is still considering candidates to appoint. In the meantime, Deputy AG Russell Suzuki will run the Hawaii AG office until a successor is named.
Consumer Financial Protection Bureau
CFPB Proposes New Regulations for Prepaid Accounts
- The Consumer Financial Protection Bureau (CFPB) issued proposed regulations pertaining to prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act.
- The proposed regulations require companies issuing prepaid accounts to disclose applicable fees using an industry-wide, standardized format. The regulations also require that issuers provide free access to account balances, investigate and resolve errors efficiently, and limit consumer losses for stolen funds or lost cards.
- The proposed regulations call for credit-style protections if the prepaid account is combined with a credit product. Issuers must determine a consumer’s ability to make payments prior to offering credit, provide a monthly billing statement, and limit late fees and interest charges. The credit protections also prohibit issuers from automatically using funds loaded on a prepaid account to repay the credit account.
- The proposed regulations are open for public comment for 90 days following publication in the Federal Register.
CFPB Takes Action Against Mortgage Lender
- The CFPB and Franklin Loan Corporation agreed to entry of a Stipulated Final Judgment and Order in federal court in California to resolve allegations by the CFPB that Franklin violated the Federal Reserve Board’s Loan Originator Compensation Rule and the Consumer Financial Protection Act.
- The CFPB’s complaint alleged that Franklin improperly paid loan officers quarterly bonuses for steering borrowers into mortgages with higher interest rates.
- Franklin has agreed to pay $730,000 to the CFPB to redress affected consumers and to be permanently enjoined from making unlawful compensation payments to its loan officers.
Pennsylvania Attorney General Sues Payday Lending Operation
- Pennsylvania AG Kathleen Kane filed a lawsuit against Think Finance Inc., Selling Source, LLC, and associated companies and individuals for making illegal pay-day loans to consumers using the internet. The lawsuit alleges violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Corrupt Organizations Act, and the Fair Credit Extension Uniformity Act.
- The lawsuit is based, in part, on defendants’ alleged use of a complex scheme to evade state laws prohibiting payday lending, including partnerships with Native American tribes and the use of “rent-a-bank” facilities as cover for illegal lending activity.
- The attempted use of tribal immunity to avoid state lending laws has been a recurring theme in other operations targeted by the CFPB, the Federal Trade Commission, and various AGs.
- The lawsuit is pending in the Court of Common Pleas of Philadelphia County and seeks injunctive relief, restitution, and civil penalties. It also asks that defendants notify the relevant credit bureaus and request that they remove all negative information related to the lending operation.
Massachusetts Shuts Down Vacation Club
- Massachusetts AG Martha Coakley reached a settlement with C&S Marketing, Inc., d/b/a Fantasia Travel Group and Only Way 2 Go Travel, Travel Services Inc. d/b/a Outrigger Vacation Club, and Charles Caliri and other related individuals, for alleged violations of the Massachusetts Consumer Protection Act.
- The lawsuit alleged that consumers were sold memberships that were essentially worthless and that defendants induced consumers to purchase vacation club memberships using high pressure sales tactics and falsely promising deep discounts on vacation packages, cruises, accommodations, and other travel services.
- The consent order requires the defendants to pay over $200,000 in restitution and prohibits defendants from selling travel or vacation services in Massachusetts.
Florida Leads Multistate Effort Against Life Insurance Practices
- Florida AG Pam Bondi, along with the Department of Financial Services and the Office of Insurance Regulation (FLOIR), led a multistate effort that culminated in a $3.2 million settlement with Sun Life Assurance Company of Canada and related companies (Sun Life) over allegations of unfair insurance trade practices.
- The investigation and settlement with Sun Life is part of a larger multistate examination process initiated in 2011 in coordination with the National Association of Insurance Commissioners’ Life/Annuities Claim Settlement Practices Task Force.
- The multistate process grew out of an initial investigation by FLOIR that allegedly revealed that life insurance companies used the Social Security Administration’s Death Master File to cease payments of annuities to decedents, but did not use that same information to initiate payments to beneficiaries under the decedents’ life insurance plans.
- In addition to the payment, Sun Life will be required to undertake modifications of its business practices, provide quarterly reporting to state officials, and be subject to compliance monitoring for more than 3 years.
States v. Federal Government
Attorneys General From Twenty-One States Argue Against Maryland Gun Law
- A group of AGs from 21 states filed an amici brief in the U.S. Court of Appeals for the Fourth Circuit, arguing that the Maryland Firearm Safety Act of 2013 violates the Second Amendment of the U.S. Constitution.
- The Maryland law, which prohibits ownership of certain models of semiautomatic rifles and high capacity magazines, was upheld on summary judgment at the U.S. District Court for the District of Maryland on August 12, 2014.
- The lawsuit is Steven V. Kolbe et al v. Martin J. O’Malley, No. 1:13-cv-02841 (D. Md. 09/27/2013), Appeal No. 14-1945 (4th Cir.).
Maryland AG Doug Gansler, who fell short in his 2014 gubernatorial bid after Lt. Governor Anthony Brown prevailed over him in the Democratic primary, announced that he will join the Washington, DC-based law firm BuckleySandler LLP when he leaves office in January. Gansler has said that he will be joining the firm’s Government Enforcement and Complex Litigation practices, focusing particularly on cybersecurity and privacy compliance.
This marks a return to private practice for Gansler after years of public service. He began his career at the law firm Coburn & Schertler, and later joined Howrey & Simon, before becoming an Assistant U.S. Attorney in 1992. After six years, in 1998, he was elected State’s Attorney for Montgomery County, where, among other cases, he prosecuted the Beltway Snipers. In 2006, he was elected AG of Maryland and was reelected in 2010. Gansler’s replacement, AG-elect Brian Frosh (D), takes office on January 5, 2015.
New York Attorney General Opposes Taxi and Limousine Commission Rule
- In a letter to the New York City Taxi and Limousine Commission, New York AG Eric Schneiderman urged the Commission to revise its proposed rule that would require for-hire vehicle companies to agree in writing before allowing their drivers to accept dispatches from rival companies.
- The proposed rule would prohibit for-hire vehicle drivers – many of whom operate as independent contractors – from accepting fares outside of their primary dispatching company, a practice that allows drivers to reduce downtime between dispatches, increasing driver efficiency and shortening customer waiting time.
- AG Schneiderman indicated that the proposed rule raised serious antitrust concerns by encouraging agreements between competitors, ultimately leading to higher fares and lower-quality service.
Florida Attorney General Claims Fraud Recovery Scheme is Deceptive
- Florida AG Pam Bondi filed a lawsuit against Consumer Collection Advocates Corp. (CCA) and its principal, Michael Robert Ettus, for allegedly violating the Florida Deceptive and Unfair Practices Act and the Florida Telemarketing Act.
- The lawsuit alleges that CCA targeted previous fraud or scam victims by promising to recover their lost funds in exchange for upfront payments and a percentage of any recovery. The lawsuit further alleges that CCA rarely succeeded in recovering victims’ lost funds.
- The Federal Trade Commission (FTC) filed a similar lawsuit against CCA and Ettus in federal court in the Southern District of Florida. In that suit, the FTC seeks injunctive relief, restitution, disgorgement, and costs.
Nevada Attorney General Settles with Hormone Therapy Provider
- Nevada AG Catherine Cortez Masto reached a $9.5 million settlement to resolve claims that Wyeth Pharmaceuticals Inc. and Wyeth LLC (both acquired by Pfizer Inc. in 2009), and Pharmacia & Upjohn Company LLC (acquired by Pfizer in 2003) allegedly mislead consumers about the safety and efficacy of certain hormone treatments for postmenopausal women in violation of the Nevada Deceptive Trade Practices Act.
- As part of the settlement, Pfizer agreed to donate $8 million to fund women’s health care programs at the University of Nevada School of Medicine and University Medical Center. In addition, Pfizer will pay $1.5 million to offset investigation costs.
Missouri Attorney General Secures $7.3 Million From Lead Mining Companies
- Missouri AG Chris Koster announced a $7.3 million settlement with Cyprus Amax Minerals Company and Missouri Lead Smelting Company for alleged violations of the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, the U.S. Clean Water Act, and the Missouri Clean Water Law.
- The claimed environmental damages at the core of the settlement stem from lead mining and smelting operations at the Buick Mine during the period 1968 to 1986.
- The settlement included the U.S. Department of Interior, Fish and Wildlife Service and the U.S. Department of Agriculture, Forest Service, and has been lodged as a consent decree in U.S. District Court for the Eastern District of Missouri.
Vermont Attorney General Sues Landfill for Failure to Control Odors
- Vermont AG William Sorrell filed a lawsuit against Moretown Landfill Inc. for alleged violations of the Vermont Solid Waste Management Rules, Air Pollution Control Regulations, Water Pollution Control statute, and other violations relating to facility certifications and permits.
- The AG’s lawsuit alleges that Moretown failed to capture and control certain landfill gases, maintain safe leachate levels, prevent windblown debris, and conduct random load inspections. The lawsuit seeks civil penalties and costs.
False Claims Act
Oklahoma Attorney General Settles With Dental Practice
- Ocean Dental, P.C., has agreed to pay $5,050,000 to settle claims brought by Oklahoma AG Scott Pruitt, working together with the U.S. Attorney for the Western District of Oklahoma, based on alleged violations of the U.S. False Claims Act.
- AG Pruitt and the U.S. Attorney alleged that during the period 2005 to 2010, dentists working for Ocean Dental submitted false claims to the Oklahoma Medicaid program by billing for more dental work than was actually performed.
- In 2012, in a related criminal case, one of the dentists associated with Ocean Dental’s conduct pled guilty to health care fraud, and was ordered to pay $375,672 in restitution to Medicaid and to serve 18 months in federal prison.
Colorado Attorney General Settles With Foreclosure Firms
- Colorado AG John Suthers settled with three law firms alleged to have violated the Colorado Consumer Protection Act and the Colorado Fair Debt Collection Practices Act by charging improper and inflated fees for foreclosure-related services.
- The firms Janeway Law Firm, Medved Dale Decker & Deere, LLC, and the Law Office of Michael P. Medved, and their principals, agreed to pay $1.8 million, collectively, in restitution, costs, and fees, along with an additional $1.1 million of suspended fees if they fail to comply with the consent judgment. The consent judgment requires the firms, among other things, to avoid the use of affiliated third-party vendors and to charge only the actual amount incurred for the services of third-party vendors.
- AG Suthers previously settled with the firm Aronowitz & Mecklenburg, LLP, for $13 million and has filed suit against Castle Law Group based on similar claims. According to AG Suthers, these two firms handle the majority of foreclosures in Colorado.
States v. Federal Government
At Supreme Court, Maryland Fights for the Right to Tax Income Earned Outside the State
- On November 12, The U.S. Supreme Court heard oral argument in Comptroller of the Treasury of Maryland v. Wynne. The case centers on the scope of authority a state has to tax income earned in other states.
- Maryland AG Douglas Gansler argued that states have the authority to tax residents’ income earned in other states, even where the residents can demonstrate that they paid income taxes to another state on that quantum of income.
- The case is on appeal from a 2013 decision by the Maryland Court of Appeals, holding that Maryland’s tax scheme violated the Commerce Clause of the U.S. Constitution. Specifically, the court ruled that Maryland’s lack of a credit against Maryland taxes for income-related taxes paid in other states created a barrier to interstate commerce.
AG Election Results
- The results are in for the 2014 State AG elections. Incumbents running for re-election performed well, winning in all of their races. Overall, Republicans picked up two spots, bringing the balance of State AGs to 27 Republicans and 23 Democrats.
- For a complete list of results, please see our recent blog post.
Maryland Attorney General Finds Multiple Violations of Consumer Protection Laws
- Maryland AG Douglas Gansler issued a Final Order, finding that David Lee Mansel, Jr., doing business under various names including Maryland Appliance Repair Co., violated the Maryland Consumer Protection Act.
- The Consumer Protection Division alleged that Mansel operated without proper licenses, recommended unnecessary repairs, and failed to carry out work after receiving payment.
- The Order requires Mansel to make an initial restitution payment of $100,000 and any additional amount necessary to fully compensate affected consumers. The Order also requires Mansel to pay a civil penalty of $166,000.
Attorneys General Petition for Supreme Court Review of EPA Rule
- Michigan AG Bill Schuette led a group of 23 states in petitioning the U.S. Supreme Court to review a decision from the U.S. Court of Appeals for the District of Columbia Circuit on the legality of a recent Environmental Protection Agency (EPA) rule limiting mercury and other emissions from power plants.
- A group of sixteen states and the District of Columbia intervened in support of the EPA at the D.C. Circuit, and now oppose the petition together with the EPA.
- A divided D.C. Circuit found in favor of the EPA on the promulgation of its Mercury and Air Toxins Standards (MATS) rule for power plants. Specifically, the D.C. Circuit found that the EPA was not required to consider the industry compliance costs associated with the implementation of the MATS rule, which requires coal-fired power plants to cut mercury emissions by 90 percent in the next four years.
- The case, State of Michigan et al. v. EPA, case number 14-46, is being considered together with Utility Air Regulatory Group v. EPA and National Mining Association v. EPA.
State Attorneys General Argue in Support of Federal Assistance to Purchase Health Insurance
- Virginia AG Mark Herring and 17 other State AGs filed an amici brief in support of provisions in the U.S. Affordable Care Act (ACA) in a forthcoming decision by the U.S. Court of Appeals for the District of Columbia Circuit.
- The brief argues in favor of federal assistance credits for low- and moderate-income individuals who purchase health insurance through a federally-facilitated exchange. The AGs emphasize that without federal assistance the ACA would burden state insurance markets, and could be seen as unconstitutionally coercing states into building their own exchanges to comply with federal law.
- The case, Halbig v. Burwell, is on appeal before the full en banc United States Court of Appeals for the District of Columbia Circuit and is scheduled for argument December 17, 2014.
- In King v. Burwell, a similar case decided the same day, a three-judge panel at the U.S. Court of Appeals for the 4th Circuit found unanimously in favor of the federal assistance provisions of the ACA.
Vermont Attorney General Settles With Mortgage Servicer
- Vermont AG William Sorrel settled with a national mortgage servicer, Green Tree Servicing LLC, on claims of unfair trade practices associated with debt collecting and late payment of property taxes.
- AG Sorrel’s investigation alleged that Green Tree called consumers while at work or after 9:00 PM, and, in addition, indicated to third parties that the consumer had debt.
- The settlement agreement requires Green Tree to pay $55,250 to Vermont consumers and $176,750 to the state.
States v. Federal Government
States Argue in Support of Decision Barring Federal Court Jurisdiction Over State Tax Issues
- A group of 25 AGs, led by Illinois AG Lisa Madigan, submitted an amici brief to the U.S. Supreme Court arguing that the U.S. Tax Injunction Act (TIA) precludes lawsuits in federal court over state law tax issues.
- In 2010, Colorado passed a law that required out-of-state retailers to report information about Colorado consumer purchases to the Colorado Department of Revenue. The petitioner – a trade association of internet retailers and marketers – brought claims alleging that the Colorado law is unconstitutional under the Commerce Clause because it discriminates against out-of-state retailers and imposes an undue burden on interstate commerce.
- The U.S. District Court for the District of Colorado granted the petitioner’s request to enjoin the Colorado law on grounds that it violated the Commerce Clause. However, the Tenth Circuit vacated the injunction on appeal and ruled that the TIA precludes federal courts having jurisdiction to consider the petitioner’s claims.
- The case, Direct Marketing Association v. Brohl, is scheduled for oral argument on December 8, 2014.
State Attorney General Enforces Federal Statute: Something New or Déjà Vu?
- In a recent blog post, Dickstein Shapiro partner Maria Colsey Heard discusses the expanding authority of State AGs to enforce federal laws and provides insight and specific examples of federal statutes that “deputize” State AGs.
Live-Tweeting: Attorney General Election Results
- On Tuesday, November 4, Dickstein Shapiro Associate Chris Allen will be live-tweeting as AG election results are confirmed throughout the evening.
- Join the discussion at #2014StateAGElection.
ACC Webcast: Expert Post-Election Analysis of the New Attorney General Landscape
- Dickstein Shapiro and the Association of Corporate Counsel (ACC) are partnering for a webcast on Wednesday, November 5 at 3:00 PM EST for a post-election analysis of the new Attorney General landscape.
- Bernie Nash, head of Dickstein Shapiro’s State AG practice, will lead an interactive discussion about that new landscape and its implications for the business community.
- This webcast is free and open to the public. Register here.
Connecticut Regulators Approve Frontier Communication’s Purchase of AT&T’s Wireline Business
- The Connecticut Public Utilities Regulatory Authority recently approved Frontier Communications Corporation’s purchase of AT&T Inc.’s wireline operations in Connecticut, after months of negotiations with Frontier, Connecticut AG George Jepsen, and Governor Malloy to address consumer protection issues.
- As part of the approval process, Frontier agreed to a three-year freeze on landline telephony rates, reduced broadband prices for veterans, assurances not to pass on costs to consumers, and an agreement to invest $63 million in capital improvements to bring faster Internet service to Connecticut residents.
- Frontier’s acquisition was approved by the Federal Communications Commission and the U.S. Department of Justice earlier this year, and the parties can now move forward with finalizing the $2 billion acquisition.
Consumer Financial Protection Bureau
CFPB Publishes Revised List of Rural and Underserved Counties
- The Consumer Financial Protection Bureau (CFPB) published its 2015 list of counties designated as rural or underserved for purposes of federal consumer financial regulation.
- The designation of rural or underserved determines how CFPB regulations and the Truth in Lending Act are applied in the designated counties, specifically affecting the types of mortgages available and the terms for lending.
Federal Court Approves LCD Flat Screen Settlements Reached by Eight AGs
- A federal court approved the distribution of the LCD Flat Screen Settlements reached by Missouri AG Chris Koster, as co-liaison counsel, seven other AGs, and class counsel for a nationwide class of consumers. The settlement, which was originally reached in 2012, will resolve claimed violations of state and federal antitrust laws, and state consumer protection laws.
- In 2010, AG Koster originally filed suit together with the AGs of Arkansas, Michigan, Wisconsin, and West Virginia against leading TFT LCD panel manufacturers, which was consolidated in federal court for the Northern District of California with a similar lawsuit filed by the AGs of Florida and New York, and a nationwide consumer class action.
- The settlement provides $1.1 billion in restitution nationwide, with $24 million designated for Missouri consumers. In addition, AG Koster secured $2.2 million in civil penalties, to be placed in the Missouri School Fund.
California Attorney General Issues Report Analyzing 2013 Data Breaches; Shows Malware and Hacking Dominant in Retail Breaches
- California AG Kamala Harris published her office’s second annual report regarding the 167 data breaches reported in 2013 (as compared to 131 in 2012), affecting potentially 18.5 million California residents.
- The report, which provides an analysis of the breaches by industry sector and breach type, indicates that approximately 53 percent of the breaches in 2013 were the result of either hacking or malware, with physical theft and loss of data (26 percent) and unintentional errors (18 percent) as the other main sources of data breaches.
- The report provides a variety of practical recommendations specific to the retail and health care sectors, as well as overall recommendations for business and consumers, including recommendations for the implementation of tokenization solutions to devalue payment card data and chip-enabling point-of-sale terminals.
Attorney General Triad Opposes NRC Rule, Again
- AGs from Connecticut, New York, and Vermont challenged the Nuclear Regulatory Commission’s (NRC) Final Rule on the Continued Storage of Spent Nuclear Fuel, issued September 19, 2014.
- In their Petition for Review to the U.S. Court of Appeals for the D.C. Circuit, the AGs argued that the NRC has not conducted a thorough analysis to support the conclusion underlying the revised rule – that spent nuclear fuel can be safely stored on site at decommissioned nuclear reactors. The AGs allege violations of the National Environmental Policy Act, the Administrative Procedures Act, and the Atomic Energy Act.
- These same three AGs previously collaborated on this issue in 2011, resulting in a finding by the D.C. Circuit that federal law required the NRC to conduct a review of environmental and public health concerns associated with long-term storage of the highly radioactive spent fuel. The AGs allege that instead of conducting a full environmental analysis as ordered by the D.C. Circuit, the NRC simply reissued the old rule.
False Claims Act
Federal Judge Rules Clean Hands Are Not a Prerequisite for FCA Whistleblowing
- A federal judge in the Southern District of Texas, ruling on a motion for partial summary judgment, stated that a relator’s unclean hands are not a bar to defendant’s liability, but only to the relator’s eventual award.
- The court reasoned that because the qui tam relator is representing the state’s interests, the relator’s “unclean hands” are not a barrier to litigation. Twenty-two AGs are parties to the case, Susan Ruscher et al. vs. Omnicare, Inc., 4:08-cv-03396 (S.D. Tex.).
Wisconsin Attorney General Sues For-Profit College Under Claims of Deceptive Marketing
- Wisconsin AG J.B. Van Hollen filed a lawsuit against Corinthian Colleges, Inc., alleging violations of state consumer protection laws relating to the marketing practices used by the school for its now-closed Everest College campus in Milwaukee.
- The Complaint, which was filed in Wisconsin State Circuit Court, seeks restitution, civil penalties, investigation costs and fees, and injunctive relief. In 2013, Corinthian closed its Everest College Milwaukee campus, and provided refunds to all students who failed to graduate.
Massachusetts Attorney General’s Lawsuit Against Federal Housing Agencies Dismissed
- A federal judge dismissed Massachusetts AG Martha Coakley’s lawsuit against the Federal Housing Finance Agency (FHFA) and government-sponsored entities (GSE) Fannie Mae and Freddie Mac, finding that the court did not have oversight over the dispute.
- The lawsuit alleged that the FHFA and the GSEs violated a 2012 Massachusetts state law by refusing to sell distressed mortgages to certain nonprofit organizations. The law was designed to help communities avoid the negative effects of foreclosures through a program that would allow homeowners to reacquire their houses.
States Probe Mortgage Servicer’s Alleged Backdating of Mortgage Assistance Rejection Letters
- Ocwen Financial Corporation is drawing scrutiny from state regulators for allegedly failing to comply with the terms of a December of 2013 Consent Order between 49 states and the CFPB.
- AGs from Florida, Illinois, and Iowa, and New York’s Department of Financial Services, are looking into Ocwen’s practice of allegedly backdating rejection letters to homeowners seeking to modify the terms of their mortgages.
- The Consent Order brought closure to claims that Ocwen had deceived borrowers and impeded homeowners from taking effective mitigation actions during the financial crisis. It specifically required Ocwen to provide $125 million to people who lost their homes to foreclosure.
- States are allowed to withdraw from the Consent Order if Ocwen fails to make the required payments.