State AG Monitor

State AGs in the News

Posted in 2014 Election, Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Environment, False Claims Act, Health Care, State AGs in the News

Hot News

U.S. Supreme Court Bars State Suit Against Indian Community for Operating a Casino Outside Indian Lands

  • The U.S. Supreme Court ruled, in a 5-4 decision in the case of Michigan v. Bay Mills Indian Community, that tribal sovereign immunity bars Michigan’s suit against the Bay Mills Indian Community for opening a casino outside Indian lands. Justice Sotomayor filed a concurring opinion. Justices Scalia, Ginsburg, and Thomas joined by Scalia, Ginsburg, and Alito filed dissenting opinions.
  • We had listed this as a case to watch in an October 2013 blog post. Sixteen AGs had filed a brief in support of the petitioner, Michigan. Oklahoma had submitted a separate brief supporting the petitioner.
  • The decision affirmed a judgment of the U.S. Court of Appeals for the Sixth Circuit. The Supreme Court stated, “We hold that immunity protects Bay Mills from this legal action. Congress has not abrogated tribal sovereign immunity from a State’s suit to enjoin gaming off a reservation or other Indian lands. And we decline to revisit our prior decisions holding that, absent such an abrogation (or a waiver), Indian tribes have immunity even when a suit arises from off-reservation commercial activity. Michigan must therefore resort to other mechanisms, including legal actions against the responsible individuals, to resolve this dispute.”
  • In addition to civil or criminal actions against tribal officials, the court also mentioned that states can use their leverage in negotiating a compact to bargain for waiver of the tribe’s immunity. Michigan AG Bill Schuette said he would follow the court’s advice and target individual tribal members for civil and criminal penalties.

State False Claims Act Enforcement Explodes in 2014

  • Over the last decade, False Claims Act (“FCA”) litigation has exploded, and actions asserting new theories of liability are resulting in increasingly large recoveries. Last year the U.S. Department of Justice (DOJ) announced that it had recovered $3.8 billion under the federal FCA in FY 2013. From all appearances FY 2014 promises to be another “banner year for civil fraud recoveries,” and the DOJ has already put up impressive numbers.
  • While the DOJ continues to vigorously pursue FCA cases against companies in the health care and other sectors, cash-strapped states are now following suit. State Attorneys General (AGs) have increasingly pursued novel and creative FCA actions, as have private plaintiffs, who are authorized by qui tam provisions to stand in the shoes of states to sue and receive part of any recovery.
  • A driver of this action was the Deficit Reduction Act (DRA) of 2005, which authorized states to receive, in addition to their own recoveries, 10 percent of the federal government’s share of recovered Medicaid funds if their FCAs are at least as robust as the federal FCA. As a result, since 2005 nearly a dozen states have either enacted false claims statutes or have amended existing statutes to make them equally or more robust than the federal FCA, including incorporating qui tam provisions and broadening the circumstances under which companies can be found liable for violations.
  • Because many states are facing substantial budget pressure, FCA activity, in particular Medicaid fraud cases, are likely to substantially increase in 2014 and beyond. Plaintiff’s lawyers have also taken notice of the potential for large automatic recoveries in qui tam suits. This upward trend is likely to continue as plaintiffs increasingly assert multiple state FCA claims alongside federal claims and attempt to work alongside AGs in pursuing such cases.
  • There are steps companies can take to reduce their potential exposure to FCA actions brought by the federal government, AGs, and/or qui tam plaintiffs. To read more about those steps, read our recent blog post on this topic.

2014 Election

Texas Primary Runoff Election Results

  • Texas held its primary runoff elections following its March 4 primary. Ken Paxton defeated Dan Branch for the Republican AG nomination by a margin of 63.4% to 36.6%, with 38% of precincts reporting. Paxton will face Democrat Sam Houston in November’s general election.

Arizona Primary Election Candidates

We will continue to provide updates on AG-related elections. For breaking news, please follow us on Twitter @StateAGMonitor.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Issues Supervisory Report on Payday Lender, Debt Collection, and Consumer Reporting Markets

  • The Consumer Financial Protection Bureau (CFPB) issued a supervisory report regarding consumer problems discovered by the CFPB while supervising the three nonbank financial markets of payday lenders, debt collectors, and consumer reporting agencies.
  • Issues reported by the CFPB examiners in the payday lender market included lenders allegedly deceiving consumers to collect debt, illegally harassing borrowers, and hiring third-party collectors that illegally deceive and harass borrowers.
  • Issues reported by the CFPB examiners in the debt collection market included debt collectors allegedly illegally misleading consumers about litigation, making excessive and illegal calls to consumers, and failing to investigate consumer credit report disputes.
  • Finally, issues reported by the CFPB examiners in the consumer reporting market included consumer reporting agencies allegedly improperly handling consumer credit report dispute documents, and encouraging consumers to file disputes online or by telephone and then refusing to accept these consumer disputes.

Consumer Financial Protection Bureau Announces Development of Proposed Auto Lending “Larger Participant” Rule in Its Rulemaking Agenda

  • The Dodd-Frank Act authorizes the Consumer Financial Protection Bureau (CFPB) to supervise certain nonbank entities providing consumer financial products and services, including mortgage companies, private student lenders, payday lenders, and nonbanks the Bureau defines through rulemaking as “larger participants.” So far, the CFPB has issued rules to supervise the larger participants in the debt collection, consumer reporting, and student loan servicing markets.
  • The CFPB announced in its spring 2014 rulemaking agenda that it is finalizing a rule that will define larger participants in the international money transfer market. It also announced in its agenda that it is developing a proposal to identify larger participants in the auto lending market.
  • The CFPB’s agenda also lists payday loans and deposit advance products, overdrafts, and debt collection in the pre-rule stage. In the proposed rule stage, along with defining larger participants in the auto lending market, the CFPB lists requirements for prepaid cards.

Data Privacy

Three Attorneys General Will Investigate Alleged eBay Data Breach

  • Connecticut AG George Jepsen, Florida AG Pam Bondi, and Illinois AG Lisa Madigan  have announced investigations of an alleged data breach of eBay user passwords.
  • According to a news report, AG Jepsen’s office stated that the investigations by the states would focus on eBay’s measures for securing data, circumstances that led to the breach, and the company’s response. AG Bondi is saying that the breach may have a magnitude of historic proportions.
  • As we posted last month, AG Jepsen and AG Madigan, along with other AGs, also investigated Experian plc’s alleged data breach, which may have exposed millions of social security numbers.

California Attorney General Releases Privacy Policy Recommendations for Businesses

  • California AG Kamala Harris issued recommendations to businesses that may collect personally identifiable information from state residents regarding how to craft effective, transparent, and compliant privacy policies for consumers.
  • The recommendations include: prominently labeling the section of the policy that addresses online tracking and “do not track” disclosures; describing how consumers may respond to an Internet browser’s “do not track” signal; stating whether third parties are or may be collecting personally identifiable information; making the policy readable; and using plain, straightforward language rather than jargon.
  • The recommendations, which follow the release of a cybersecurity guide by the AG to small businesses in March, are a “tool for businesses to create clear and transparent privacy policies that reflect the state’s privacy laws and allow consumers to make informed decisions,” stated AG Harris.

Environment

Massachusetts Attorney General Settles Hazardous Air Emissions Allegations With Laboratory Companies for $1.75 Million

  • Massachusetts AG Martha Coakley settled with Alpha Analytical, Inc., Accutest Laboratories of New England, Inc., Spectrum Analytical, Inc., and Con-Test Analytical Laboratory, four laboratory companies that perform commercial-scale environmental testing, to resolve allegations that they failed to obtain required state permits and control hazardous air pollutant emissions.
  • Pursuant to the consent judgments Alpha will pay $700,000 and Accutest, Spectrum, and Con-Test will each pay $350,000. The companies must also comply with state air permitting requirements and install emission control equipment for sample analyses that will reduce hazardous air pollutant emissions.

Wisconsin Attorney General Settles Air Pollution Allegations With Electric Power Company

  • Wisconsin AG J.B. Van Hollen obtained a stipulated judgment against Wisconsin Electric Power Company for alleged air pollution violations.
  • Wisconsin Electric Power allegedly replaced blades on two of its turbine units, which AG Van Hollen argued constituted a major modification under state air pollution regulations and thus became subject to stricter nitrogen oxide emission limits. Testing indicated that the company’s emissions allegedly did not comply with the legal limits for nitrogen oxide emissions that applied after the modifications were made to the turbines.
  • The judgment requires the company to pay $50,000 in forfeitures, statutory surcharges, and costs.

Health Care

Twenty Attorneys General Challenge Affordable Care Act

  • Twenty attorneys general led by Texas AG Greg Abbott filed an amicus brief in the U.S. Court of Appeals for the Fifth Circuit, in the case of Hotze v. Sebelius, challenging the Affordable Care Act (ACA).
  • The AGs argue that the ACA is unconstitutional because it does not comply with the U.S. Constitution’s Origination Clause, which provides that all bills for raising revenue shall originate in the U.S. House of Representatives. They state that the U.S. Supreme Court, in National Federation of Independent Business v. Sebelius, upheld the ACA under Congress’s power to tax. The AGs conclude that because the U.S. Senate was the first to craft the ACA, it is not constitutional because it does not comply with all the constitutional requirements for tax statutes.
  • “The federal government cannot have it both ways,” states Kansas AG Derek Schmidt who joined the brief. “If the individual mandate is constitutional because it is a tax, then the bill that created it must comply with all the constitutional requirements for a tax bill.”
  • For more on the AGs involvement with the ACA, including their evolving consumer protection role under this act, see our recent blog post.

State AGs in the News

New York Attorney General and Airbnb Enter Into Agreement Regarding Compliance With Subpoena

  • New York AG Eric Schneiderman and Airbnb entered into an agreement regarding Airbnb’s compliance with a subpoena that requested information on Airbnb hosts as part of an investigation into potential violations of state tax and hotel laws.
  • Pursuant to the agreement Airbnb will provide the New York AG with the requested information about its hosts, but the information will be redacted of personal information, including names, email addresses, social security numbers, and tax identification numbers. Airbnb will only provide the redacted information upon request and only for those hosts that become subject to an investigation or an enforcement action by the state.
  • Airbnb will also require all new hosts that list properties within the state to view and click through a notice regarding the state multiple dwelling, tax, rent regulation, zoning, and business licensing laws. Airbnb will also send this notice in a separate email to all hosts that currently list properties in the state.
  • According to a joint statement by AG Schneiderman and Airbnb, the agreement “appropriately balances [AG] Schneiderman’s commitment to protecting [state] residents and tourists from illegal hotels with Airbnb’s concerns about the privacy of thousands of other hosts.”

Twenty-Three Attorneys General File Amicus Brief Opposing Connecticut Gun Law

  • A group of 23 AGs led by Alabama AG Luther Strange filed an amicus brief in the U.S. Court of Appeals for the Second Circuit against a Connecticut gun law that bans certain kinds of semiautomatic firearms.
  • A group of 22 AGs led by AG Strange recently filed an amicus brief in the same court opposing a similar New York law. The groups filing the two amicus briefs consist of the same 22 AGs, with the addition of New Mexico AG Gary King on the amicus brief opposing the Connecticut law.
  • The briefs argue that the New York and Connecticut bans are unconstitutional because those states failed to show that the bans would increase public safety or decrease gun violence.

State False Claims Act Enforcement Explodes in 2014

Posted in False Claims Act, Medicaid Fraud, States v. Federal Government

Over the last decade, False Claims Act (“FCA”) litigation has exploded, and actions asserting new theories of liability are resulting in increasingly large recoveries. Last year the U.S. Department of Justice (DOJ) announced that it had recovered $3.8 billion under the federal FCA in FY 2013. From all appearances FY 2014 promises to be another “banner year for civil fraud recoveries,” and the DOJ has already put up impressive numbers, particularly against pharmaceutical and medical device companies, including a massive $2.2 billion settlement with Johnson & Johnson, as well as settlements with Endo Health Solutions Inc. ($192.7 million), Halifax Hospital Medical Center ($85 million), and Amedisys, Inc. ($150 million).

While the DOJ continues to vigorously pursue FCA cases against companies in the health care and other sectors, cash-strapped states are now following suit. State Attorneys General (AGs) have increasingly pursued novel and creative FCA actions, as have private plaintiffs, who are authorized by qui tam provisions to stand in the shoes of states to sue and receive part of any recovery. A driver of this action was the Deficit Reduction Act (DRA) of 2005, which authorized states to receive, in addition to their own recoveries, 10 percent of the federal government’s share of recovered Medicaid funds if their FCAs are at least as robust as the federal FCA. As a result, since 2005 nearly a dozen states have either enacted false claims statutes or have amended existing statutes to make them equally or more robust than the federal FCA, including incorporating qui tam provisions and broadening the circumstances under which companies can be found liable for violations.

For example, late last year, in response to the DRA, New York state amended its FCA (New York State Finance Law § 187, et seq. (NY FCA)), to bring its false claims law more in line with the federal FCA. The New York statute now includes a “reverse false claims” provision that imposes liability as broadly as the federal FCA, providing that a person may be held liable for violating the NY FCA if that person “[k]nowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the state or a local government, or conspires to do the same….” (NY FCA § 189(1)(h)). The New York amendments also allow the state, as intervenor in a qui tam case, to relate back to the qui tam plaintiff’s filing date for statute of limitations purposes, expanding the period for which the state can seek recoveries. In addition, the law provides attorneys’ fees for successful qui tam plaintiffs, incentivizing the plaintiff’s bar to partner with the state or pursue their own cases under the NY FCA.

Recent developments in California also have made California False Claims Act (CFCA) cases more likely. In October of last year, California Governor (and former AG) Jerry Brown signed into law amendments to California’s general whistleblower statute (Cal. Labor Code § 1102.5) extending already existing whistleblower protections to employees who report illegal behavior internally to supervisors or those responsible for compliance. The amendments also imposed liability on any person working on an employer’s behalf who retaliates against an employee who engages in protected whistleblowing activity. In addition, a California appellate court, in San Francisco United School District ex. rel. Contreras v. First Student, Inc., No. A136986, Cal. Court App. (1st Dist. Mar. 11, 2014), recently expanded liability under the CFCA by approving the “implied certification” theory, holding that “a vendor impliedly certifies compliance with express contractual requirements when it bills a public agency for providing goods or services.” As a result, government contractors that do business with the state of California are now exposed to CFCA liability if they knowingly submit an invoice while in breach of a material contract term, whether or not they expressly certified compliance with material contract terms.

California and New York are just two high-profile examples of a national trend. Florida AG Pam Bondi worked with the legislature to significantly amend the Florida FCA last year to expand its scope and provide new subpoena powers and penalties. In Vermont, AG Bill Sorrell worked with several state senators to introduce a new FCA patterned on the federal act, after the state collected more than $23.5 million since 2010 through cooperative work with the DOJ on Medicaid fraud cases.

Because many states are facing substantial budget pressure, FCA activity, in particular Medicaid fraud cases, are likely to substantially increase in 2014 and beyond. In January Texas AG Greg Abbott announced that Hi-Tech Pharmacal Co. will pay $25 million to settle claims that it submitted inflated pricing information for certain prescription drugs from 1995 to 2013. In April Texas settled a state FCA lawsuit against HEB Grocery Co. for $12 million, settling claims that HEB overcharged the Texas Medicaid program for prescription drugs. Florida also reached a $7 million agreement recently with All Children’s Health System to settle allegations that the hospital violated the federal and Florida’s FCA by submitting illegal Medicaid claims.

FCA cases are not limited to health care. New York AG Eric Schneiderman, who as a state legislator sponsored a substantial 2010 expansion of the NY FCA, has pursued a ground-breaking FCA reverse false claims case against Sprint Nextel Corporation for allegedly under-collecting and underpaying more than $100 million in New York state and local sales taxes. In late February a New York appellate court upheld a lower court’s decision denying Sprint’s motion to dismiss the case. FCA cases have also recently been brought against or settled with technology providers and construction firms for providing allegedly defective products and services or inflating their billing, energy companies for underpaying royalties, and mortgage lenders for alleged false applications for HUD-sponsored insurance and federal loan financing.

State FCAs have also become fertile ground for creative plaintiff’s attorneys. Prominent plaintiff’s firms have long cultivated relationships with AGs as they sought to represent the states in civil lawsuits such as the tobacco litigations of the 1990s and more recent consumer protection and public nuisance suits against the pharmaceutical and other industries. Plaintiff’s lawyers have also taken notice of the potential for large automatic recoveries in qui tam suits. 647 federal qui tam suits were filed by private plaintiffs in 2012 alone, compared to only 30 in 1987. This upward trend is likely to continue as plaintiffs increasingly assert multiple state FCA claims alongside federal claims and attempt to work alongside AGs in pursuing such cases.

There are steps companies can take to reduce their potential exposure to FCA actions brought by the federal government, AGs, and/or qui tam plaintiffs. Any company that provides goods or services to the government, or even subcontracts to do so, should do the following:

(1) Create and update its compliance program to ensure current compliance with all applicable legal requirements and to flag potential problems early before they give rise to an FCA claim.

(2) Establish appropriate and continuous training programs that inform employees of key legal obligations, and encourage employees to bring problems to the attention of supervisors and compliance officers.

(3) Periodically audit business activities to ensure those activities conform to the company’s compliance program by conducting interviews, surveying employees, and providing employees with opportunities to provide feedback regarding potential wrongdoing.

(4) Fully and seriously investigate all allegations of impropriety, no matter how unlikely, and regardless of the whistleblower’s credibility or motivations.

(5) Carefully consider the ramifications of strategies that impact taxes or royalties remitted to the government and whether such plans might become the basis for reverse FCA claims.

More broadly, companies involved in supplying goods or services paid for by the government should familiarize themselves with, and even develop relationships with the DOJ authorities and AGs who are authorized to bring FCA cases or oversee qui tam litigations. Given the increasingly innovative ways FCA claims are asserted, companies cannot risk hiding their heads in the sand regarding their potential exposure. Knowing the government authorities responsible for such cases can provide critical insight to understanding their priorities, their complex relationships with qui tam plaintiffs, and the future directions and likely developments in this increasingly important area of the law.

Guest Authors: Merle DeLancey is a partner at Dickstein Shapiro in the firm’s Government Contracts Practice, where he has represented major health care companies in connection with False Claims Act investigations conducted by the Department of Justice (DOJ), U.S. Attorneys offices, Department of Health and Human Services, Department of Veterans Affairs, and multiple State Attorneys General. Andrew E. Smith is an associate in the firm’s Government Contracts Practice.

 

State AGs in the News

Posted in 2014 Election, Antitrust, Campaign Finance, Consumer Protection, Energy, For-Profit Colleges, Health Care, Mortgages/Foreclosures, State AGs in the News, States v. Federal Government

Hot News

Blog Post: Checkups for the Healthcare System—AGs’ Consumer Protection Role Under the Affordable Care Act

  • The American healthcare market is in the process of an unprecedented transformation, driven largely by the enactment in 2010 of the Patient Protection and Affordable Care Act (“ACA”, also sometimes called “Obamacare”). Now that the ACA has been implemented, and open enrollment is over, millions of people now have health insurance who previously did not. Health insurance has always been confusing and is likely to be even more confusing for consumers who have never been insured. AGs are recognizing that their duty as chief consumer advocates for their citizens gives them a key role in ensuring that the evolution of the healthcare market does not come at the expense of consumers.
  • AGs have already been engaged on the ACA. Some through constitutional challenges of the law and its implementation and some by supporting the law through an amicus brief in the Supreme Court. After the Supreme Court upheld the law in 2012, the states turned to the herculean tasks of implementation—i.e., setting up exchanges (or relying on the federal exchange), deciding whether to expand Medicaid, approving plans, and later dealing with roll-out problems—in which state insurance commissioners, exchange offices, governors, and legislatures assumed leading roles.
  • AGs are again coming to the forefront, this time in their capacity as consumer protection advocates for the millions of new consumers on health insurers’ rolls. Signs of consumer issues related to increased access to healthcare are already starting to appear. Read our recent blog post to find out more about the evolving role of AGs in this area.

2014 Election

Arkansas Primary Election Results

  • In an open seat primary in Arkansas, Republicans Leslie Rutledge and David Sterling will participate in a runoff election on June 10 after neither candidate reached the majority needed to advance to November’s general election, according to the Associated Press. Rutledge leads Sterling by a margin of 47% to 39%, with nearly all precincts reporting. A third candidate, Patricia Nation, received the remaining 14% of the vote. The winner will face Democrat Nate Steel, who ran unopposed, in November’s general election. Incumbent Democrat Attorney General Dustin McDaniel was term limited.

Georgia Primary Election Results

  • In Georgia, incumbent Republican Attorney General Sam Olens and Democrat Greg Hecht received their respective party’s nomination for November’s General Election after both ran unopposed in the primary. AG Olens is widely expected to be reelected.

Idaho Primary Election Results

  • In Idaho, incumbent Attorney General Lawrence Wasden defeated C.T. “Chris” Troupis for the Republican nomination by a margin of 59% to 41%. AG Wasden, who will face Democrat Bruce Bistline in November’s general election, is widely expected to be reelected as AG of Idaho.

We will continue to provide updates on AG-related elections. For breaking news, please follow us on Twitter @StateAGMonitor.

Antitrust

Massachusetts Attorney General Reaches Agreement in Principle on Approval of Proposed Merger

  • Massachusetts AG Martha Coakley has reached an agreement in principal with Partners HealthCare regarding Partners’ proposed acquisition of South Shore Hospital and Hallmark Health Systems. Under the agreement, Partners agreed to allow payors to contract with its component providers separately for ten years, to limit price increases across its network, to place limits on expansions of its physician network and other hospital acquisitions, and to make changes in its contracting practices.
  • The agreement follows an investigation by AG Coakley and the U.S. Department of Justice into Partners’ contracting practices and the proposed merger.
  • The AG said in a statement that the agreement must be finalized between the parties by June 16 and then approved by a court.

Campaign Finance

Vermont Attorney General Issues Formal Opinion on Whether Campaign Finance Contribution Limits Remain in Effect

  • In response to a question from the Vermont Secretary of State, Vermont AG Bill Sorrell issued a formal opinion that the state’s campaign finance contribution limits remain in effect through the 2014 election cycle.
  • The limits are set by a state statute that was repealed and replaced by legislation referred to as Act 90. That act repealed the statute effective January 23, 2014, but its new campaign finance contribution limit provisions will not go into effect until January 1, 2015.
  • The current limits provide that:
    • No candidate for election to a state office shall accept contributions totaling more than $1,000 from a single source or more than $3,000 from a political action committee (PAC) for any election; and
    • No PAC or political party shall accept contributions totaling more than $2,000 from single source, PAC, or political party in any two-year general election cycle.
  • Act 90 generally raises these limits.

Consumer Protection

North Carolina Attorney General Sues Debt Settlement Company for Allegedly Improper Fees

  • North Carolina AG Roy Cooper has filed suit against Legal Helpers Debt Resolution, PLLC, and certain of its officers. The suit alleges violations of North Carolina’s Debt Adjusting Act and Unfair and Deceptive Trade Practices Act and seeks a preliminary and permanent injunction, customer refunds, civil penalties, and other relief.
  • The complaint alleges that the defendants improperly collected advance fees for debt settlement services, failed to help consumers reduce their debts, and failed to provide legal assistance as promised.
  • AG Cooper noted, “We pushed for a strong law in North Carolina that makes it illegal to collect money upfront for debt relief work and we’ll keep enforcing the law against violators.”

Ohio and Washington Attorneys General Each Settle With Change of Address Service for Allegedly Deceptive Business Practices

  • Ohio AG Mike DeWine and Washington AG Bob Ferguson each settled with Change-My-Address.com, Change-of-Address.us, parent company Form Giant LLC, and its president (collectively Change-My-Address.com) to resolve allegations that they used deceptive business practices to convince consumers to pay more for change of address services than the consumer intended to pay and that they denied refunds when consumers complained.
  • Change-My-Address.com allegedly led consumers to believe that they were using the U.S. Postal Service’s address change service, which costs $1, when they were using Change-My-Address.com services that cost $19.95 or $29.95. The AGs alleged that the disclosure of the price of the services was obscured and that when consumers complained, Change-My-Address.com refused to provide refunds.
  • Under both the Ohio settlement and the Washington settlement, Change-My-Address.com must pay $3 million in restitution into a nationwide settlement fund for consumers, disclose all service charges, disclose that they are not affiliated with the U.S. Postal Service, and pay attorney costs and fees.

Energy

Michigan Attorney General Investigates Propane Supplier’s Pricing and Business Practices

  • Attorney General Bill Schuette of Michigan announced that he has requested additional civil subpoenas from the Marquette County Circuit Court in his ongoing investigation of last winter’s unusually high propane prices. The AG seeks information from AmeriGas, a supplier of residential propane services, relevant to consumer complaints alleging excessive prices and alleged misrepresentations that may have violated the Michigan Consumer Protection Act.
  • AG Schuette previously subpoenaed another propane supplier, Ferrellgas, Inc., regarding similar consumer allegations. The investigation of that supplier continues, according to the AG.

For-Profit Colleges

Iowa Attorney General Settles Consumer Fraud Claims Against For-Profit Online College for $7.25 Million

  • Iowa Attorney General Tom Miller announced a settlement in his investigation of Ashford University and its parent entity, Bridgepoint Education, Inc., involving alleged improper sales tactics, alleged misrepresentations to students, and alleged improper charging of certain nonrefundable fees.
  • Under the settlement, the companies will pay $7.25 million to the state and will avoid certain practices in their disclosures to potential and current students. AG Miller anticipates that the payment will be used primarily to reimburse current and former Ashford students from Iowa and to administer the reimbursement program.
  • The companies expressly denied wrongdoing and liability.

Mortgages and Foreclosures

Washington Attorney General Obtains TRO Against Foreclosure Trustee

  • The King County Superior Court has issued a temporary restraining order against a foreclosure trustee, Cal-Western, in Washington AG Bob Ferguson’s suit against the company. The TRO imposes a moratorium on foreclosures by Cal-Western through May 29, 2014, and requires Cal-Western to stop certain allegedly unfair business practices.
  • The AG’s suit alleges that Cal-Western failed to provide an accurate phone number to borrowers. According to AG Ferguson, that failure made it difficult or impossible for some consumers to contact the company to discuss their mortgage and foreclosure proceedings. The AG asserts that Cal-Western’s conduct violated the Deed of Trust Act and the Consumer Protection Act.
  • As we reported in a previous blog post, AG Ferguson recently entered into a consent decree with another foreclosure trustee, Quality Loan Service.

States v. Federal Government

Massachusetts Attorney General Advises Federal Agency to Permit Buybacks of Homes by Non-Profits

  • Massachusetts AG Martha Coakley submitted a letter to the new director of the Federal Housing Finance Agency encouraging the agency to direct Fannie Mae and Freddie Mac to permit non-profit entities to buy homes from lending banks at market value and finance their resale to former homeowners.
  • According to the Attorney General, the agency’s refusal to change its policy against such buybacks violates Massachusetts’s Act to Prevent Unnecessary and Unreasonable Foreclosures. The Massachusetts law prohibits creditors from conditioning a sale to a legitimate buyback program on the program agreeing not to resell or rent the property to the former owner.
  • AG Coakley noted in the letter that the state is considering “all available legal avenues, including litigation” to enforce Massachusetts’s law.
  • AG Coakley’s letter also continued to advocate for principal reduction programs. The AG noted that a net present value analysis that determines an appropriate principal reduction may be used with other tools to create sustainable loan modifications.

Checkups for the Healthcare System: AGs’ Consumer Protection Role Under the Affordable Care Act

Posted in Health Care, States v. Federal Government

The American healthcare market is in the process of an unprecedented transformation, driven largely by the enactment in 2010 of the Patient Protection and Affordable Care Act (“ACA”, also sometimes called “Obamacare”). Now that the ACA has been implemented, and open enrollment is over, millions of people now have health insurance who previously did not. Health insurance has always been confusing, from the terminology used to the benefits provided; it is likely to be even more confusing for consumers who have never been insured. AGs are recognizing that their duty as chief consumer advocates for their citizens gives them a key role in ensuring that the evolution of the healthcare market does not come at the expense of consumers.

AGs have already been engaged on the ACA. Twenty-eight states, most represented by their AGs, challenged the constitutionality of the law and its implementation, while 12 AGs filed an amicus brief in the Supreme Court supporting the law. After the Supreme Court upheld the law in 2012, the states turned to the herculean tasks of implementation—i.e., setting up exchanges (or relying on the federal exchange), deciding whether to expand Medicaid, approving plans, and later dealing with roll-out problems—in which state insurance commissioners, exchange offices, governors, and legislatures assumed leading roles.

AGs are again coming to the forefront, this time in their capacity as consumer protection advocates for the millions of new consumers on health insurers’ rolls. Signs of consumer issues related to increased access to healthcare are already starting to appear. For example, as we noted in our review of the top ten consumer complaints received by AG offices in 2013, problems related to healthcare appeared on the top ten lists of several states.

A timely panel hosted by the Democratic Attorneys General Association (DAGA) on May 8 in Seattle explored the challenges and responsibilities AGs will face with respect to the ACA. The discussion, moderated by Arkansas AG Dustin McDaniel, featured Brenda Gleason, a healthcare consultant to the Rhode Island health insurance exchange; Myrl Weinburg, CEO of the National Health Council, an umbrella group of patient advocacy organizations; and Joe Miller, General Counsel of America’s Health Insurance Plans, which represents health insurance companies.

AG McDaniel framed the discussion by stressing that all AGs have consumer protection responsibilities and a duty to make sure constituents receive the best services with minimal complications. Gleason and Weinberg agreed and noted that AGs’ primary consumer priorities at this point should be to ensure transparency so that consumers are able to find information about health plans before they purchase them, and ensure that consumers are able to appeal and resolve disputes quickly and effectively. They noted that:

  • AGs will both receive consumer complaints directly and are responsible for counseling other state agencies, such as the Insurance Commissioner or Insurance Exchange Office, in handling such issues.
  • Information regarding many aspects of health plans—including who is in a provider network, what medicines are covered on formularies, and what consumers’ co-pay responsibilities are—is often difficult to find, a problem exacerbated by the concern that 12 million new consumers of healthcare policies may be unfamiliar with how health insurance works.
  • The sheer scale of so many new consumers and the structure of new exchanges already have resulted in patients’ difficulties contacting insurers. For example, Blue Cross Blue Shield received over one million calls in early January alone, a dramatic increase that required it to entirely restructure how it receives consumer complaints.
  • The panelists analogized AGs ACA role to their enforcement of state “lemon laws,” which empower AGs to ensure retailers make adequate disclosures and to ensure that consumers have recourse for their complaints against businesses in other industries. AGs have a similar role to play in ensuring that consumers who purchase insurance know whether their providers will be covered, what formularies will apply to their medicines, how much they will co-pay, and what rights they have to appeal or dispute issues that arise.

Speaking for health insurers, Miller recognized the validity of such concerns but urged AGs to view the implementation of the ACA as an evolving process. He noted:

  • These first years will require cooperation and good faith, as the complexity of the new system will certainly result in stumbling blocks and learning curves, and there is a natural tension between coverage and costs that will require complex efforts to balance.
  • Beyond their regulatory and enforcement responsibilities, AGs also will continue to play a role in advocating state authority over healthcare against federal preemption. For example, the federal government is considering a national standard for the sufficiency of provider networks, a province traditionally of state insurance regulations.
  • AGs generally know their local health markets much better than the federal government and have a critical opportunity to ensure that competition in health services remains fair, such as scrutinizing hospital and other provider mergers and acquisitions.

Looking to the future, the panelists agreed “where the states lead, the federal government will follow.” Because the federal government has no central authority tasked with receiving and reviewing consumer complaints, the states by default will play the role in consumer protection and enforcement for the foreseeable future. In addition, the influx of new health insurance consumers is merely the beginning. In addition to new consumers, those who until now have received health insurance chosen by their employers may avail themselves of the opportunity to choose their own plans through the exchanges. These consumers will demand even more transparency from insurers, and their participation will likely bring future complaints to state authorities, especially AGs.

State AGs in the News

Posted in 2014 Election, Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Employment, Energy, False Claims Act, Financial Industry, Insurance, Medicaid Fraud, State AGs in the News

Hot News

Blog Post: Think You’re Not a Holder of Unclaimed Property? Think Again!

  • All 50 states have unclaimed property laws that require companies that possess abandoned property (a “holder”) to transfer that property to the state or potentially face investigations resulting in interest and penalties. Many companies limit their unclaimed property due diligence to traditional types of unclaimed property like wages and accounts payable. This may no longer be enough.
  • States consider unclaimed property an important revenue stream, accounting for nearly $41.7 billion in property currently held on behalf of individuals and businesses according to the National Association of Unclaimed Property Administrators. State administrators are beginning to focus on potential new types of unclaimed property, such as life insurance proceeds, health savings accounts, securities, gift and stored value cards, and promotional programs.
  • Read our recent blog post to find out more about these changes and how companies can respond.

Nebraska Primary Election Results

  • Nebraska Primary Elections took place on May 13. Janet Stewart (D) and Doug Peterson (R) won the nominations for state attorney general.
  • Pete Ricketts won the Republican nomination for Governor, beating Attorney General Jon Bruning by a narrow margin. In the general election, Ricketts will face Chuck Hassebrook, who was unopposed for the Democrat nomination.
    • We will continue to provide updates on AG-related elections. For breaking news, please follow us on Twitter @StateAGMonitor.

Consumer Protection

New York Attorney General Settles With Debt Buyers to Resolve Allegations of Unlawful Collection of Time-Barred Debt

  • New York AG Eric Schneiderman settled with Portfolio Recovery Associates, LLC and Sherman Financial Group, LLC, two companies that purchase consumer debt, to resolve allegations that they brought time-barred debt collection actions against consumers.
  • The AG alleged that Portfolio and Sherman filed debt collection actions and obtained judgments without ensuring that the claims were timely under the statute of limitations of the state where the action accrued, which generally requires shorter periods than New York.
  • The settlement requires the companies to have approximately 3,000 judgments totaling about $16 million vacated by the court, cease any further collection activities on those judgments, and enhance their debt collection practices. The settlement also requires Portfolio to pay $300,000 and Sherman to pay $175,000 in penalties and costs. Neither company admitted any of the allegations.

Illinois, Kentucky, and North Carolina Attorneys General Settle Allegations Against Marketing Company That It Operated a Pyramid Scheme

  • Illinois AG Lisa Madigan, Kentucky AG Jack Conway, North Carolina AG Roy Cooper, and the Federal Trade Commission settled claims with Fortune Hi-Tech Marketing, Inc. to resolve a lawsuit alleging that it operated a pyramid scheme.
  • Fortune Hi-Tech allegedly claimed that program participants could earn significant income by selling consumer products and services, including satellite television service, home security systems, and beauty products. Participants were allegedly required to pay substantial start-up costs and monthly fees to maintain their position in the company. Allegedly the company’s main business, however, was to recruit members and most of these members lost money by participating in this program.
  • The settlement requires the company to pay at least $7.75 million in restitution to participants. The court’s order imposes a judgment of approximately $169 million, which will be partially suspended when the company surrenders certain assets to pay the restitution. The full judgment will become due immediately if the company misrepresented its financial condition. The settlement also prohibits the company from further misrepresentations, bans it from selling or otherwise benefitting from customers’ personal information, and bans it from collecting any additional money from customers.
  • According to AG Conway, North Dakota and Texas had previously settled similar allegations with the company.

Data Privacy

CFPB Proposes Rule Allowing Financial Institutions to Post Online Annual Privacy Notices

  • The Consumer Financial Protection Bureau proposed a rule that would allow financial institutions to use a model disclosure form and post annual privacy notices online rather than delivering paper copies separately and individually to customers. The CFPB claims that this will make the disclosures more effective because customers could more easily see how these institutions use their personal information.
  • The Gramm-Leach-Bliley Act generally requires financial institutions to send customers annual privacy notices describing whether and how the institutions shares the consumers’ nonpublic personal information and information on opt-out rights and procedures. The proposal would not allow use of online posting if the institution were sharing data in a way that would trigger consumer opt-out rights.
  • In an unrelated matter regarding the CFPB’s involvement in privacy issues, the Online Interest-Based Advertising Accountability Program, an accountability program developed by the Council of Better Business Bureaus (BBB) and other advertising and self-regulatory industry associations, referred SunTrust Bank Inc. to the CFPB for refusing to participate in the program’s self-regulatory process. According to a BBB press release, the program had sent an inquiry to SunTrust regarding how it was using third parties to collect user web-browsing habits and whether it was using that information to deliver interest-based ads. SunTrust allegedly responded that complying with the demands would consume all of its allocated resources. The CFPB has not yet commented.

Employment

Airline Industry Contractor Settles Allegations of Minimum Wage Violations With New York Attorney General

  • New York AG Eric Schneiderman settled with commercial airline industry contractor Air Serv Corporation for almost $20,000 to resolve allegations that it underpaid wheelchair attendants by improperly classifying them as tipped employees and paying them less than the state minimum wage.
  • Under New York law, employers may pay tipped employees less than minimum wage, but the tipped employee must earn weekly average tips exceeding a certain threshold particular to each industry—the applicable threshold for these wheelchair attendants is $1.20 per hour. AG Schneiderman alleges that the wheelchair attendants employed by Air Serv did not earn a weekly average of at least $1.20 per hour in tips.
  • The settlement requires Air Serv to pay restitution to the attendants of almost $16,000, pay the state $4,000 in penalties, designate a compliance officer responsible for ensuring the proper use of the tip credit, and file quarterly reports with the AG’s office.

Energy

Sixteen Attorneys General File Comments With EPA on Proposed Carbon Regulations

  • West Virginia AG Patrick Morrisey and Nebraska AG Jon Bruning led a group of 16 AGs in filing comments with the Environmental Protection Agency (EPA) opposing proposed regulations that would require all new coal-fired power plants to use carbon capture and storage technology.
  • The AGs argue that this technology has not been adequately demonstrated on a commercial scale and therefore violates the Energy Policy Act of 2005. The Energy Policy Act prohibits the setting of omissions standards based on government subsidized technologies that are not the best “adequately demonstrated” technology within the meaning of the Clean Air Act.
  • These comments follow a letter AG Morrisey sent to the EPA asking the EPA to delay these regulations.

False Claims Act

New York Attorney General Settles Allegations of Overcharging With Office Supply Company for $475,000

  • New York AG Eric Schneiderman settled with Office Depot, the state’s contracted office supply provider, for $475,000 to resolve allegations that it overcharged state entities for office supplies.
  • AG Schneiderman investigated the matter pursuant to the state False Claims Act and the state Fraud Enforcement and Recovery Act, which amends the False Claims Act and allows the state to collect treble damages and between $6,000 and $12,000 per violation from companies that defraud the state government.

Financial Industry

New York Attorney General Continues Probe Into “Insider Trading 2.0” by Requesting Information From Banks

  • New York AG Eric Schneiderman continued his probe into what he calls “Insider Trading 2.0,” the allegedly unfair advantages obtained by high-frequency traders using high-speed technology to gain early access to market information, by requesting information from Goldman Sachs.
  • AG Schneiderman sent a letter to Goldman requesting information about its high-speed trading operations. According to a news report, AG Schneiderman is also seeking information from Barclays and Credit Suisse.

Insurance

Vehicle Service Contract Provider Allegedly Not Covered by Required Insurance Settles With Idaho Attorney General

  • Idaho AG Lawrence Wasden settled with Gold Standard Automotive Network, Inc. to resolve allegations that it violated the state consumer protection act by operating without required liability insurance.
  • State law requires that motor vehicle service providers obtain liability insurance to protect consumers if the provider goes out of business or cannot otherwise meet its contractual obligations. Gold Standard allegedly sold motor vehicle service contracts that were not covered by insurance and failed to make mandatory disclosures in its contracts.
  • Pursuant to the settlement, Gold Standard must cancel those contracts and refund the consumers.

Medicaid Fraud

Texas Attorney General Sues Company for Approving Allegedly Fraudulent Medicaid Payments for Unlawful Dental Services

  • Texas AG Greg Abbott sued Xerox Corporation and its wholly owned subsidiary, ACS State Healthcare, LLC (Xerox) for allegedly improperly approving Medicaid payments for orthodontic and dental services.
  • Xerox bid for, and won, contracts with the state Health and Human Services Commission to perform Medicaid program administration, including evaluation of authorization requests for orthodontic treatment. State law generally excludes orthodontic services from Medicaid coverage, unless the orthodontic condition poses a health risk to the patient. According to the complaint, Xerox approved orthodontic services that were not medically necessary and therefore not authorized under state law.
  • AG Abbott seeks injunctive relief, civil penalties, restitution of overpayments made by Medicaid because of Xerox’s allegedly unlawful conduct, interest, expenses, fees, and costs.
  • Xerox described the lawsuit as “misdirected” and said it “will defend itself vigorously.”

State AGs in the News

Twenty-Two Attorneys General File Amicus Brief Opposing New York Gun Law

  • A group of 22 AGs, led by Alabama AG Luther Strange, filed an amicus brief in the U.S. Court of Appeals for the Second Circuit against a New York gun law that bans certain kinds of semiautomatic firearms.
  • A group of organizations and individual gun-owners challenging the gun ban filed the lawsuit. In December, a lower court opinion held that because the law related to achieving an important governmental interest in public safety, the law did not violate the U.S. Constitution’s Second Amendment.
  • The brief to the Second Circuit argues that New York failed to show that the ban would increase public safety or decrease gun violence and is therefore unconstitutional.

Judge Rules on Airbnb Subpoena

  • A judge ruled to quash a subpoena issued by New York AG Eric Schneiderman to Airbnb because its demands for customer data was overbroad.
  • We recently posted a summary of oral arguments during which AG Schneiderman defended the subpoena, which was issued as part of an investigation into potential violations of state tax and hotel laws that generally prohibit apartments in New York City from being rented for less than 30 days in the absence of the permanent occupant.
  • The judge said that while a factual predicate had been established, the subpoena was overbroad because it was not limited to hosts in New York City, hosts that rented frequently and may be subject to the tax law, or to rentals of fewer than 30 days. The opinion reads that the subpoena as drafted, “seeks materials that are irrelevant to the inquiry at hand and accordingly, must be quashed.” The opinion also stated, however, that the subpoena was not unduly burdensome, did not seek impermissible confidential or private information, that the issue of whether the statutes the AG may try to apply are unconstitutional is not yet ripe, and that any remaining issues are unpersuasive or unnecessary.
  • AG Schneiderman’s office plans to issue a new subpoena that addresses the judge’s concerns. A representative stated, “The judge rejected all of Airbnb’s arguments except for a narrow technical issue, and we will reissue the subpoena to address it.”

Think You’re Not a Holder of Unclaimed Property? Think Again!

Posted in Consumer Protection

All 50 states have unclaimed property laws that require companies that possess abandoned property (a “holder”) to transfer that property to the state or potentially face investigations resulting in interest and penalties. Many companies limit their unclaimed property due diligence to traditional types of unclaimed property like wages and accounts payable. This is no longer enough. States consider unclaimed property an important revenue stream, accounting for nearly $41.7 billion in property currently held on behalf of individuals and businesses according to the National Association of Unclaimed Property Administrators (NAUPA). State administrators are beginning to focus on potential new types of unclaimed property, such as life insurance proceeds, health savings accounts, securities, gift and stored value cards, and promotional programs.

The Uniform Law Commission is considering revising the Uniform Unclaimed Property Act to include a variety of these property types. Approximately 40 states have enacted a version of the Uniform Act, with 16 states having adopted the most recent 1995 version.

Another proposed revision to the Uniform Act is an explicit recognition of private audit firms hired by state unclaimed property administrators and compensated via contingency fee arrangements based on the total amount of funds that the firms collect.

Recently, the U.S. Chamber Institute for Legal Reform argued against the contingency fee arrangement in its whitepaper, Best Practices for State Administrators and the Use of Private Audit Firms. Such an arrangement risks motivating the private audit firms to assert liberal interpretations of the laws to encompass new types of unclaimed property or new “holders” of unclaimed property. In the publication, the U.S. Chamber blamed the motivation structure for leading to an abuse of power and a lack of accountability by the audit firms and the state administrators. To fix these problems, the whitepaper advocates for transparency reforms in the audit bidding process; fee arrangements that compensate on an hourly basis as opposed to on the amount recovered; contract reforms to ensure transparency, oversight, and accountability by the state over the audit firms; and voluntary disclosure programs that incentivize companies to come forward when out of compliance with unclaimed property laws.

Companies should reassess their unclaimed property internal audit policies to ensure that they maintain compliance or risk investigation costs, interest, and penalties when audited by the state or their designees, the private audit firms.

State AGs in the News

Posted in 2014 Election, Antitrust, Consumer Protection, Energy, Environment, False Claims Act, Financial Industry, For-Profit Colleges, Insurance, State AGs in the News

Hot News

Ohio Primary Election Results

  • Ohio statewide primary elections took place on May 6. Incumbent Attorney General Mike DeWine (R) and challenger David Pepper (D) were nominated unopposed for the general election.
  • We will continue to provide updates on AG primary results. For breaking news, please follow us on Twitter @StateAGMonitor.

Kentucky Attorney General Announces Candidacy for Governor in 2015

  • In a recent blog post, we reported that Kentucky AG Jack Conway announced his candidacy for governor. Democratic State Representative Sannie Overly will serve as AG Conway’s running mate. For more information and a link to AG Conway’s video release, please visit here.

Antitrust

Michigan Attorney General Settles Allegations of Bid-Rigging with Energy Company for $5 Million

  • Michigan AG Bill Schuette settled with Encana Oil & Gas USA for $5 million to resolve allegations that the company conspired with Chesapeake Energy Corporation to avoid bidding wars against each other in Michigan public auctions and private negotiations for oil and gas leases, causing lease prices to decline.
  • According to the final consent judgment, the $5 million dollar settlement will be divided into a $2.5 million payment to funds managed by the Department of Natural Resources and the remaining $2.5 million will fund state anti-trust enforcement activities. In addition, the company will enter into a four-year corporate integrity agreement with the state to provide increased transparency of future oil and gas lease bidding activity.
  • In addition to agreeing to the civil settlement and to resolve criminal charges filed against it by the AG, representatives for Encana entered a no contest plea for the company to one count of misdemeanor criminal attempted antitrust violations. The state agreed to an 11 month delayed sentence on the attempted charge and dismissal of the high court misdemeanor charge of antitrust violations relating to a contract or conspiracy. If Encana abides by the terms of the plea agreement, the criminal case will be dismissed after 11 months.

Consumer Protection

First Consumer Protection Lawsuit Regarding “Crowdfunding” Filed by Washington Attorney General

  • Washington AG Bob Ferguson filed the first consumer protection lawsuit involving “crowdfunding,” which is a practice used to secure financing for initiatives from a large pool of backers who generally each provide small amounts of financial support.
  • AG Ferguson sued Edward J. Polchlepek III, also known as Ed Nash, and his company, Altius Management, for allegedly promising a deck of retro-horror theme playing cards, known as Asylum Playing Cards, and other similar items in exchange for a financial pledge to support a project to print and market a deck of cards and other items featuring artwork created by a Serbian artist.
  • According to AG Ferguson, crowdfunding campaigns have been used for a wide-range of initiatives from movie making to high-tech gadgets to charitable giving, but the practice is not without risk.
  • The complaint seeks declaratory and injunctive relief, restitution for consumers, penalties of up to $2,000 per violation of the state consumer protection act, costs, and fees.

Court Partially Vacates Tobacco Settlement Arbitration Decision in Favor of Missouri Attorney General

  • A Missouri circuit court partially vacated an arbitration panel ruling, holding that six states had not diligently enforced laws in 2003 requiring escrow payments from tobacco companies that did not participate in a 1998 master settlement agreement. The six states, including Missouri, had not settled their cases during the arbitration. The arbitration panel had ordered that those six states were responsible not only for their own share of the loss, but also for the shares of the states that had settled their cases.
  • Missouri AG Chris Koster filed a lawsuit in state court last fall, arguing that reallocating the liability of the settling states violated the terms of the master settlement agreement. The circuit court agreed with AG Koster, holding that the arbitration panel should not shift the share of loss of the settling states to Missouri.
  • The court found, however, that there was sufficient evidence to support the arbitration panel’s finding that Missouri failed to diligently enforce its escrow statute in 2003. The court also denied Missouri’s motion to compel a single-state arbitration instead of a nationwide arbitration to determine whether Missouri diligently enforced its escrow statute in 2004.
  • In a letter to the independent auditor of the master settlement agreement, AG Koster estimates that Missouri will be paid an additional $50 million as a result of this decision.

Delaware Attorney General Proposes Legislation for Consumer Protection of Servicemembers

  • Delaware AG Beau Biden developed legislation that creates a state level version of the federal Servicemembers Civil Relief Act. The proposed legislation will offer consumer protections to active members of the armed services who are serving in Delaware, including members of the National Guard who are not currently covered by the federal law.
  • Senate Bill 206, sponsored by State Senator Bryan Townsend and State Representative Earl Jacques, would:
    • Protect servicemembers against default judgment in civil actions or proceedings where they are unable to make an appearance;
    • Offer a stay of proceedings when the servicemember has notice;
    • Offer a stay or vacation of execution of certain judgments;
    • Prohibit certain contractual fines or penalties;
    • Not include the period of military service in computing a statute of limitation;
    • Cap the interest rate on debts incurred before military service; and
    • Provide anticipatory relief, including relief for tax liabilities or assessments and stays of enforcement for other contracts.
  • The law would be enforceable by the AG’s office.

New York Attorney General Settles Allegations of Predatory Lending with Medical Procedure Loan Providers

  • New York AG Eric Schneiderman settled with four companies that allegedly financed retail installment obligations (RIOs) at usurious interest rates and without a license for consumers seeking to finance elective medical and surgical procedures.
  • Under New York’s Banking Laws, a company that sells RIOs must obtain a license to operate as a sales finance company or lender. According to the AG, an RIO is similar to a loan because both involve an agreement to pay back borrowed sums of money, plus interest, over a period. A loan, however, is typically between a consumer and a bank while an RIO is between a purchaser (in this case, a patient) and seller (in this case, a medical provider) of a good or service, with the financing company offering the loan service.
  • The companies, MyMedicalloan.com (doing business as Surgeryloan.com), Duvera Billing Services, LLC, Highlands Premier Acceptance Corporation, and Paramount Capital Group, Inc., agreed to:
    • Recast the RIOs to the legal interest rate of no more than 16 percent;
    • Provide approximately $230,000 in repayments or credits to consumers;
    • Cease all conduct as unlicensed sales finance companies;
    • Notify any consumer reporting agencies to which they gave consumer information to delete all references to the transactions from customers’ credit records; and
    • Collectively pay $35,000 in penalties.

Energy

West Virginia Attorney General Sends Letter to EPA Asking to Delay Power Plant Regulations

  • West Virginia AG Patrick Morrisey sent a letter to the Environmental Protection Agency (EPA) asking that it delay plans to establish carbon dioxide emission regulations for existing power plants until it has resolved what AG Morrisey calls “substantial problems” with the proposed regulations for new power plants.
  • The letter states that the EPA withdrew the proposed performance standards for new power plants after the notice and comment process because of “numerous, well-documented problems.” The letter goes on to state that the re-proposed standards violate the Energy Policy Act of 2005 because they are based on technology (carbon capture and storage) used at government subsidized facilities and that this technology is not the best “adequately demonstrated” technology within the meaning of the Clean Air Act.
  • AG Morrisey believes that these regulations could cause “serious consequences” and have a negative impact on the economies of West Virginia and other coal-producing states.

Environment

Three Attorneys General File Amicus Brief in Support of EPA’s Chesapeake Bay Cleanup Plan

  • Maryland AG Douglas Gansler, joined by Delaware AG Beau Biden and District of Columbia AG Irvin Nathan, filed an amicus brief urging the U.S. Court of Appeals for the Third Circuit to uphold a lower court decision that the U.S. Environmental Protection Agency’s (EPA) plan to cleanup the Chesapeake Bay was not a violation of the Clean Water Act.
  • Virginia AG Mark Herring filed a similar amicus brief in early April in support of the EPA’s proposed plan. As we previously posted, 21 AGs filed an amicus brief in opposition to the plan in February, arguing that the plan is an overreach of the EPA’s authority under the Clean Water Act and an impermissible intrusion into state land-use decisions.
  • According to a news report, West Virginia consented to the plan in 2010, but joined the 21 AGs opposing the plan now, while Pennsylvania and New York, states with portions of the Chesapeake watershed, are remaining silent in the litigation.

Michigan Attorney General Requests Assurances on Great Lakes Pipelines

  • Michigan AG Bill Schuette and the director of the state Department of Environmental Quality sent a letter to Enbridge Inc. and Enbridge Pipelines Inc. formally requesting detailed information regarding its pipelines in the Great Lakes.
  • According to the letter, the 60-year-old pipelines pose a unique risk because of their location between Lakes Huron and Michigan. The letter states that a failure in the pipelines could have a catastrophic effect and therefore ask for a response to questions and requests for information regarding: the use of the pipelines; inspection and replacement plans; leak prevention, detection, and control plans; and spill remediation plans.

New York Passes First Legislation Banning Plastic Microbeads in Beauty and Cosmetic Products

  • The New York Assembly unanimously passed legislation proposed by New York AG Eric Schneiderman and sponsored by Assemblyman Robert Sweeney, which prohibits the distribution and sale of any personal cosmetic product containing microbeads. The legislation defines microbeads as plastic components of a personal cosmetic product that are 5 millimeters or less in size.
  • AG Schneiderman proposed the Microbead-Free Waters Act in February in response to the discovery of microbeads in the Great Lakes, including Lake Erie. Because of their small size, microbeads can allegedly escape treatment by sewage plants and be discharged into rivers, lakes, and oceans. The act will take effect January 1, 2016.

False Claims Act

Illinois Attorney General and the Federal Government Settle Allegations of Fraudulent Procurement of Contracts with Construction Company for $12 Million

  • Illinois AG Lisa Madigan and the U.S. Attorney’s Office settled a qui tam action with James McHugh Construction Company to resolve allegations that it used women-owned businesses to fraudulently secure multimillion dollar public projects funded by the state and federal governments for work on Chicago area roads, highways, and public transit.
  • McHugh allegedly falsely represented that its subcontractors were certified disadvantaged business enterprises that would meet the legal requirements, which required that a portion of the work be completed by women- or minority-owned businesses. According to AG Madigan, however, a joint investigation revealed that the subcontractors did not fulfill the requirements for disadvantaged business enterprises on seven public construction contracts obtained by McHugh and for which McHugh submitted false claims to the state and federal governments.
  • The $12 million settlement will be divided into a $4.8 million payment to Illinois and a $7.2 million payment to the federal government.

For-Profit Colleges

For-Profit College Seeks to Dismiss Consumer Financial Protection Bureau’s First Lawsuit Against a For-Profit College

  • ITT Educational Services, Inc., a for-profit college chain, moved to dismiss the Consumer Financial Protection Bureau’s (CFPB) first public enforcement action against a company in the for-profit college industry. The lawsuit, which was posted on our blog in March, alleged predatory student lending practices.
  • ITT filed a motion to dismiss stating that the lawsuit was unprecedented and unfounded and that while the CFPB had limited authority to regulate consumer finance, ITT does not provide consumer financial products and its conduct as described in the complaint filed by the CFPB falls outside of the CFPB’s jurisdiction.
  • The motion also alleged that the CFPB is unconstitutional because the Dodd-Frank Act insulates it from any significant checks by the executive or legislative branches, in violation of the U.S. Constitution’s requirement of separation of powers. Finally, it alleges that the CFPB’s actions violate the Constitution’s Due Process Clause because regulated parties lack fair notice of what conduct is prohibited.

Financial Industry

New York Attorney General Enters into Agreement with News Distribution Firm to Curb Alleged “Insider Trading 2.0”

  • New York AG Eric Schneiderman entered into an agreement with PR Newswire, a market news distribution and reporting firm, that required the company to obtain customer certification that those customers will not engage in high-frequency trading when using PR Newswire’s direct data feed and to counsel its customers that intend to release information upon the close of markets to wait until 4:01 pm to avoid influencing trading.
  • AG Schneiderman states that this agreement will help to curb what he calls “Insider Trading 2.0,” a practice of providing preferred, technologically sophisticated traders with early access to market-moving information.
  • A news report stated that AG Schneiderman is expected to issue subpoenas to the exchanges, which will likely focus on how high frequency traders may receive information before other market participants.
  • We discussed developments in this area in previous blog posts, published in October 2013, March 2014, and April 2014.

Insurance

Alleged Premature Cancellation of Auto Insurance Policies by Premium Financing Provider Leads to Recovery of $200,000 by Massachusetts Attorney General

  • Massachusetts AG Martha Coakley settled with FIRST Insurance Funding Company, a premium financing provider, for $200,000 to resolve allegations that that it illegally and prematurely cancelled certain financed auto insurance policies.
  • A premium finance company generally provides loans that enable people to pay their insurance premiums in installments. The unearned premium typically acts as collateral for the loan, so the premium financing provider may seek to cancel the policy if the customer misses a scheduled payment.
  • A state insurance statute requires premium financing providers to give at least 20-day notice to the insurance company that issues the policy before requesting cancellation of a policy, to allow customers adequate time to bring their accounts current before their policies lapse. FIRST Insurance allegedly issued cancellation requests to insurance companies with an effective date that was the same as the date of the notice.
  • Pursuant to the settlement, FIRST Insurance will pay $200,000, which will be divided into a $140,000 payment to customers whose policies were or were sought to be allegedly prematurely cancelled and a $60,000 payment to the state. It will also modify its auto insurance cancellation procedures and bring its notice practices into compliance with state statutes.

State AGs in the News

U.S. Supreme Court Upholds Town’s Right to Public Prayer

  • In Town of Greece, N.Y. v. Galloway at al., the U.S. Supreme Court ruled that the town did not violate the Establishment Clause of the U.S. Constitution’s First Amendment by allowing citizens to offer public prayer before the start of town legislative meetings. The Court also held that the town could continue its practice of inviting a predominantly Christian set of ministers to lead the prayer as long as it maintains a policy of nondiscrimination.
  • Texas AG Greg Abbott and Indiana AG Greg Zoeller, who co-authored and filed an amicus brief in August, which was joined by 21 other AGs supporting the town’s right to public prayer prior to town meetings, praised the Court’s decision.
  • The decision overturned a U.S. Second Circuit Court of Appeals ruling.

Alabama Attorney General Argues First Amendment and Qualified Immunity Issues in Front of U.S. Supreme Court

  • Alabama AG Luther Strange argued for the first time in front of the U.S. Supreme Court in Lane v. Franks on First Amendment and qualified immunity issues.
  • An employee of a public community college was subpoenaed to testify at the trial of a state legislator accused of corruption. The legislator was convicted and the employee was fired. The employee sued the president of the college seeking damages for alleged retaliation and violation of his First Amendment rights.
  • AG Strange argued that the First Amendment protected the employee’s testimony because he was speaking as a citizen on a matter of public concern, but the employee could not sue the president of the college over a right that was not yet clearly established.
  • “The ultimate goal that I had as the attorney general was to make sure that government employees have their First Amendment rights respected…[b]ecause we want them testifying against significant cases like public corruption,” said AG Strange.

Kentucky Attorney General Announces Candidacy for Governor in 2015

Posted in 2014 Election, State AGs in the News

Kentucky AG Jack Conway announced Tuesday his candidacy for governor in a video release on the Internet.

AG Conway has been Kentucky’s AG since 2007 and would be ineligible to run for AG in 2015 after serving two terms. State Representative Sannie Overly, a Democrat from Kentucky’s 72nd House district, will serve as Conway’s running mate.

AG Conway is the first Democrat to announce a campaign to replace current Governor and former AG Democrat Steve Beshear, who is also term-limited. Former Louisville Metro Council Republican Hal Heiner previously said he will be seeking the office.

State AGs in the News

Posted in Antitrust, Charities, Consumer Protection, Data Privacy, Energy, Environment, Financial Industry, State AGs in the News, States v. Federal Government

Hot News

U.S. Supreme Court Upholds Michigan Constitutional Amendment Banning Use of Affirmative Action in Admissions

  • The U.S. Supreme Court ruled, in a 6-2 decision in the case of Schuette v. Coalition to Defend Affirmative Action, that the Michigan constitutional amendment banning the use of racial preferences in school admission decisions did not violate the U.S. Constitution. Justices Roberts, Breyer, and Scalia joined by Thomas filed concurring opinions. Justice Ginsburg joined Justice Sotomayor in dissent. Justice Kagan took no part in consideration or decision of the case.
  • The petitioner, Michigan AG Bill Schuette, praised the Court’s decision that Michigan voters did not violate the Equal Protection Clause when they required equal treatment in university admissions. Arizona AG Tom Horne, who filed an amicus brief in support of Michigan joined by the AGs of Alabama, Georgia, Oklahoma, and West Virginia, also praised the decision.
  • The decision reversed a judgment of the U.S. Court of Appeals for the Sixth Circuit. The Supreme Court stated, “This case is not about how the debate about racial preferences should be resolved. It is about who may resolve it. There is no authority in the Constitution of the United States or in this Court’s precedents for the Judiciary to set aside Michigan laws that commit this policy determination to the voters.”
  • We had listed this as a case to watch in an October 2013 blog post. We also posted a summary of oral arguments and a copy of the transcript.

U.S. Supreme Court Reinstates EPA’s Cross-State Air Pollution Rule

  • In a 6-2 decision in the case of U.S Environmental Protection Agency (EPA) v. EME Homer City Generation, the U.S. Supreme Court reversed the D.C. Circuit and reinstated the EPA’s Cross-State Air Pollution Rule. The rule delineates the scope of the Clean Air Act’s Good Neighbor Provision by limiting the emission of pollutants in upwind states that significantly contribute to keeping downwind states from meeting federal air quality standards. Justice Thomas joined Justice Scalia in dissent. Justice Alito took no part in consideration or decision of the case.
  • The Court held that the Clean Air Act does not command that states be given a second opportunity to file a plan after the EPA has quantified the state’s interstate pollution obligations and that the EPA’s “cost-effective allocation of emission reductions among upwind States is a permissible, workable, and equitable interpretation of the Good Neighbor Provision.”
  • A coalition of 10 AG’s and five cities, led by New York AG Eric Schneiderman, filed briefs with the Court in support of the EPA’s rule. Nine other AGs filed an amicus opposing the EPA’s rule. We also listed this as a case to watch in the October 2013 blog post.

Antitrust

Second Circuit Grants Apple Administrative Stay of Class Notification and Agrees to Hear Apple’s Request for Stay of Damages Trial in Attorneys General Antitrust Case

  • The U.S. Court of Appeals for the Second Circuit granted Apple Inc.’s emergency motion seeking an administrative stay of the class notification, scheduled to commence on April 28, while the court determines the request for a stay pending appeal. In its decision, the court also referred to a 3-judge panel Apple’s request for stays pending appeal of class notification and the damages trial scheduled to commence in July.
  • In this case, multiple AGs allege that the company conspired with publishers to fix prices for e-books. In 2013, the court ruled against Apple in the liability phase of the case and ordered further proceedings on damages.
  • The U.S. District Court for the Southern District of New York denied Apple’s motion for stay pending appeal and its request for an administrative stay two days before the Second Circuit issued its order. The Southern District’s decision followed its denial of Apple’s motion to dismiss that we recently posted on the blog.

Charities

Massachusetts Attorney General Sues Former President and CEO of Non-Profit School

  • Massachusetts AG Martha Coakley sued Dr. Robert Gee, the former president and chief executive officer of the non-profit National Graduate School for Quality Management, Inc., for allegedly breaching his fiduciary duty of loyalty by collecting an excessive compensation and other benefits from the school without the school board of directors’ knowledge or consent.
  • Dr. Gee allegedly collected excessive compensation through compensation agreements that the school board did not approve and gained other benefits without the board’s knowledge, including a vacation property, a private residence, and several personal luxury vehicles.
  • The complaint seeks declaratory relief, disgorgement of funds obtained, restitution to the school, and an order that Dr. Gee not be allowed to serve again as a fiduciary for any state public charity. The AG also entered into an agreement with the school and the school board that requires the board to be reconstituted and approved by the AG’s office and that the board provide regular reporting to the AG’s office. Pursuant to the agreement, if the terms of the agreement are not met, the board will dissolve the school.

New York Attorney General Settles with Fundraiser Already Subject to Lifetime Fundraising Ban

  • New York AG Eric Schneiderman settled allegations of violations of a prior agreement with Mark Gelvan, owner of Raising Money, Inc., for $50,000. Gelvan was previously banned for life from fundraising in New York pursuant to a settlement agreement arising out of AG allegations that Gelvan made fraudulent claims to potential contributors regarding how he would use donations.
  • Gelvan allegedly solicited charitable donations in violation of the prior agreement by acting as a broker for another fundraiser, who in return agreed to give Gelvan a portion of the charitable donations.
  • Under the settlement, Gelvan must pay $50,000, which includes disgorgement of allegedly ill-gotten gains and a penalty. He also remains banned from conducting or receiving any benefits from the solicitation of charitable donations in the state.

Massachusetts Attorney General Sues Veterans Charity for Allegedly Deceptive Fundraising

  • Massachusetts AG Martha Coakley sued Veterans Community Foundation, Inc., its chief executive officer, and two branch managers (Veterans Community Foundation), alleging that they illegally solicited charitable donations and used deceptive fundraising techniques in violation of state charitable solicitation laws.
  • Veterans Community Foundation allegedly solicited donations in storefronts without a valid certificate of solicitation from the AG’s office and allegedly used unfair and deceptive charitable solicitation practices during these fundraising campaigns.
  • The court issued a temporary restraining order preventing Veterans Community Foundation from any fundraising activities until it obtains a valid certificate. In addition to the temporary restraining order, the complaint requests a preliminary injunction barring Veterans Community Foundation from deceptive fundraising and ordering them to account for all money raised since 2012.

Consumer Protection

Florida Attorney General Confirms Multi-State Investigation Into Auto Manufacture Recall

  • Florida AG Pam Bondi’s office confirmed that it is a part of a multi-state group that is forming to investigate complaints related to General Motors Co.’s recent recall of vehicles with faulty ignition switches.
  • In a quarterly financial report filed with the Securities and Exchange Commission, General Motors disclosed an investigation by a state attorney general and other government entities, stating: “We are also the subject of various inquiries, investigations, subpoenas, and requests for information from the U.S. Attorney’s Office for the Southern District of New York, Congress, NHTSA, the SEC, and a state attorney general in connection with our recent recalls. We are investigating these matters internally and believe we are cooperating fully with all requests, notwithstanding NHTSA’s recent fines for failure to respond. Such investigations could in the future result in the imposition of damages, fines, or civil and criminal penalties.”

Vermont Attorney General Announces Illegal Lending Initiative

  • Vermont AG Bill Sorrell announced a sweeping effort to address illegal and predatory online lending, including actions against lenders under the state’s consumer protection act.
  • Vermont has predatory internet lending legislation enacted in 2012 that makes lenders who fail to comply with lending requirements and those who process their electronic loan payments directly liable under the state’s consumer protection act. The law also imposes direct liability on any person or business that knowingly and substantially assists illegal lenders.
  • “Online lenders are taking advantage of thousands of low and moderate income Vermonters. They offer illegal short-term, very high-interest loans via the internet. These predatory loans are designed to entrap consumers in long-term debt,” stated AG Sorrell.
  • According to a report issued by AG Sorrell, his office has settled with three lenders and a payment processor for approximately $1 million in potential refunds and loan forgiveness for consumers and $90,000 in payments to the state.

Data Privacy

Florida Attorney General Supports Passage of Florida Information Protection Act

  • Florida AG Pam Bondi supported the passage of the Florida Information Protection Act of 2014, sponsored by State Senator John Thrasher, which provides new protections for personal information and expedites notice of data breaches.
  • The state senate unanimously passed Senate Bill 1524. It repeals previous legislation governing the breach of confidential personal information.
  • The new law requires covered entities to take reasonable measures to protect, secure, and dispose of electronic data containing personal information. It also requires covered entities to provide notice within 30 days of a breach or a reasonable determination that a breach occurred to consumers and to the AG’s office if the breach affects more than 500 individuals. Entities must also provide notice to credit reporting agencies if they must notify more than 1,000 individuals of the breach. The law allows a 15-day extension for a good cause delay provided in writing within 30 days. Third-party agents of covered entities who maintain systems containing personal information must provide notice to the covered entity within 10 days.
  • The legislation also provides that: the AG must provide an annual report to the state legislature regarding any breaches reported by a government entity; the law does not allow private causes of action; and violations of the act shall be treated as an unfair or deceptive trade practice.

Energy

Amicus Brief Filed in U.S. Supreme Court by 21 Attorneys General Supporting Review of California Fuel Standards

  • Twenty-one AGs filed an amicus brief in the U.S. Supreme Court in the case of Rocky Mountain Farmers Union v. Corey asking the Court to review whether California’s low carbon fuel standard is unconstitutional because it allegedly discriminates against interstate and foreign commerce and regulates aspects of fuel production occurring wholly beyond the borders of California.
  • The U.S. Court of Appeals for the Ninth Circuit reversed a lower court decision in September 2013 that had held that the low carbon fuel standards program was constitutional.
  • The AGs argue that the standards unfairly restrict interstate commerce by effectively prohibiting the use of ethanol and crude oil produced outside of California by assigning these fuels higher carbon intensities.

Environment

Illinois Attorney General Announces Court Order Requiring Cleanup of Soybean Oil Spill

  • Illinois AG Lisa Madigan announced an interim court order that requires BN National Trail Biodiesel, LLC to cleanup waterways allegedly polluted by a soybean oil spill at the company’s facility.
  • The order requires the company to implement new operating procedures, install equipment designed to prevent overflows of contaminating substances, apply to the state environmental protection agency for required permits, and remediate the affected waterways by July 31.
  • A status hearing is set for August 12 regarding the interim order.

Financial Industry

New York Attorney General Settles Claims for $7.5 Million Related to Bank’s Acquisition

  • New York AG Eric T. Schneiderman announced that his office has settled claims against Bank of America Corporation’s former chief financial officer Joe L. Price related to the bank’s 2009 acquisition of Merrill Lynch.
  • The AG’s suit was filed under the state’s Martin Act and a section of the state’s executive law alleging that the defendants failed to disclose certain Merrill Lynch losses to shareholders and engaged in other activities related to the merger.
  • Under the settlement, Price will pay $7.5 million and is prohibited from serving as an officer or director of a public company for 18 months.
  • AG Schneiderman also recently settled claims against Bank of America and Bank of America’s former chief executive officer Kenneth D. Lewis for $25 million.

State AGs in the News

New York Attorney General Defends Subpoena Issued to Online Lodging Service

  • During oral arguments in the Albany County Supreme Court, New York AG Eric Schneiderman’s office defended a subpoena issued last fall to Airbnb, an online lodging service, for information related to over 15,000 of its hosts renting space in New York.
  • AG Schneiderman issued the subpoena as part of an investigation into possible non-payment of New York City hotel occupancy and state and city sales taxes and alleged violations of the state Illegal Hotel Law, which generally prohibits apartments from being rented in New York City for less than 30 days without the permanent occupant present.
  • Airbnb argues that there is no factual basis for the subpoena and that it is overbroad and burdensome. Airbnb also expressed concern for the privacy of guests whose confidential information may be revealed during the investigation of Airbnb hosts.
  • The AG’s office responded that it had sufficient evidence to support the subpoena, including analysis of data from Airbnb’s website, which revealed that nearly two-thirds of the listings were for less than 30 days and for the entire apartment. According to the AG’s office, this data meant that the permanent occupant would not be present during the rental as required by the state law.
  • Acting Supreme Court Justice Gerald Connolly, the judge presiding over the case, concluded the hearing without a ruling.

States v. Federal Government

Washington Attorney General and Governor Trigger Dispute Resolution With Federal Government Related to Radioactive and Chemical Waste Site

  • Washington AG Bob Ferguson and Washington Governor Jay Inslee sent a letter to the U.S. Department of Justice triggering dispute resolution pursuant to a clause in a 2010 consent decree (“Consent Decree”) governing the cleanup of a radioactive and chemical hazardous waste site in Hanford, Washington.
  • The Hanford site produced plutonium as part of the Manhattan Project during World War II. Both Washington state and the U.S. Department of Energy (DOE) had made proposals to amend the Consent Decree and later rejected each other’s proposal. AG Ferguson claimed that the DOE’s proposal lacked specificity, accountability, and enforceability and that the proposal did not go far enough. The DOE argued that the state’s proposal did “not adequately account for the realities of technical issue resolution, project management imperatives, and fiscal constraints, and that it exceeds the scope of the Consent Decree.”
  • The dispute resolution process is a 40-day process of good faith negotiation. If the state and federal government cannot reach an agreement during this process, then the state may ask a federal court to issue an order directing the DOE to implement the state’s plan.

State AGs in the News

Posted in Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Employment, Energy, Environment, Financial Industry, Health Care, Pharmaceuticals, State AGs in the News, States v. Federal Government

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau’s Mid-Year Report on Student Loan Complaints Reveals Reports of Auto-Default When Co-Signer Dies or Files Bankruptcy

  • The CFPB issued a mid-year report on student loan complaints and highlighted co-signer issues reported by borrowers. The complaints included lenders placing loans into auto-default when a co-signer dies or files for bankruptcy.
  • According to the report, over 90 percent of private student loans are co-signed and many of those contracts include an option for lenders to demand the full balance of a loan when a borrower’s co-signer dies or files for bankruptcy. Borrowers complained, however, that lenders automatically placed the loan in default, even when the borrower was paying the loan as agreed.
  • Co-signer releases are often available after a certain period of on-time payments. The report also discusses complaints that lenders do not make the option of obtaining a co-signer release known and that the criteria for a release are not clear and transparent.
  • The report proposes lender alternatives to auto-default, including assessing the borrower’s eligibility for co-signer release, providing the opportunity to provide a new co-signer, or providing time to refinance the loan.

Data Privacy

Michigan Attorney General Advocates for Data Privacy Standards for Affordable Care Act Navigators

  • Michigan AG Bill Schuette urged the state legislature to pass legislation that would create data privacy standards for navigators of the Patient Protection and Affordable Care Act, who are charged with collecting a variety of sensitive personal information, such as names of the insured, birth dates, social security numbers, and protected health records.
  • House Bill 4576, introduced by State Representative Hugh Crawford, would allow the state to regulate navigators and protect consumer privacy by amending the Michigan Insurance Code to require navigators to complete a comprehensive training program, submit to a criminal background check including fingerprinting, and be certified as a navigator prior to performing any duties.
  • In a related effort, AG Schuette and 10 other AGs sent a letter last December to the Secretary of the U.S. Department of Health and Human Services voicing concern over the lack of consumer privacy protections related to navigators and recommending similar protections to those proposed in the bill.
  • The Michigan House of Representatives passed the bill in December 2013 and the Michigan Senate Health Policy Committee voted favorably on the bill on March 18, 2014. The bill now faces a vote of the Senate as a whole.

Employment

New York Attorney General Settles Allegations With Internet Food-Delivery Company Regarding Tips Paid to Delivery Workers

  • New York AG Eric Schneiderman settled with GrubHub Inc., an Internet food-delivery company created when GrubHub merged with Seamless North America LLC, to resolve allegations that Seamless used a fee structure that created a potential incentive for restaurants to illegally retain a portion of tips meant for delivery employees.
  • New York labor laws prohibit an employer, the employer’s agent, or any person from retaining a portion of an employee’s tips. Seamless allegedly calculated and charged a fee to its restaurant partners based on a percentage of the total food, drink, taxes, and tips paid by customers. After withholding this fee, Seamless sent the remaining amount to the restaurant.
  • Pursuant to the agreement, GrubHub must:
    • Use a fee calculation in future contracts that excludes tips;
    • Make an effort to transition restaurants with old contracts to new contracts;
    • Notify all restaurant partners of their labor law obligations;
    • Include a requirement in all new contracts that restaurants must comply with all laws applicable to delivery workers; and
    • Include notice on all billing invoices that tips are the property of the employee.

Major Retailer Settles Allegations of Illegal Hiring Practices With New York Attorney General

  • New York AG Eric Schneiderman settled with Bed Bath & Beyond to resolve allegations that it automatically disqualified job applicants based solely on criminal history in violation of New York state law.
  • New York law requires employers to conduct an individualized assessment of candidates and consider a number of mitigating factors, including any evidence of rehabilitation. Bed Bath & Beyond allegedly disseminated information at a job fair stating that it did not hire convicted felons, regardless of any evidence of rehabilitation.
  • Pursuant to the settlement, Bed Bath & Beyond will:
    • Modify its policies to comply with state law;
    • Conduct employee training on those policies;
    • Preserve records of its hiring decisions;
    • Provide periodic reports to the AG; and
    • Pay $125,000, with $40,000 of that amount paid as restitution to individuals that were denied employment and $15,000 of that amount donated to organizations providing job training and placement services for individuals with criminal records.
  • AG Schneiderman recently settled similar allegations with background check agencies.

Energy

North Carolina Attorney General Appeals Objection to Electricity Rate Increase to State Supreme Court

  • North Carolina AG Roy Cooper filed a brief with the North Carolina Supreme Court asking it to intervene again to oppose Duke Energy’s proposed 7.2 percent rate increase and 10.5 percent return on equity for shareholders.
  • The North Carolina Supreme Court held in April 2013 that the state Utilities Commission (Commission) must determine the impact on consumers before setting an allowable profit margin and agreeing to raise rates. That order reversed the Commission’s decision to grant the rate increase and remanded the case back to the Commission.
  • After re-reviewing the proposed increase on remand, the Commission approved the rate increase again. AG Cooper objects because he believes that the approval does not appropriately consider consumers.

Environment

Federal Appeals Court Upholds EPA Mercury and Air Toxics Standards Supported by 17 State Attorneys General

  • The U.S. Court of Appeals for the District of Columbia upheld the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Standards (MATS) rule, which was supported by 17 intervening AGs, Erie County, Pennsylvania, and the cities of Baltimore, New York, and Chicago.
  • Several state, industry, labor, and environmental petitioners challenged the rule, which was issued in 2012 and provided emission standards for a number of listed hazardous air pollutants emitted by coal- and oil-fired electric utility steam generating units.
  • The 17 AGs, led by Massachusetts AG Martha Coakley and California AG Kamala Harris, joined by the cities and county, argued that toxic mercury emissions from power plants threatened public health and required national Clean Air Act controls.
  • The court held that the EPA’s determination that the regulation of hazardous air pollutant emissions from electric power plants under the Clean Air Act was “appropriate and necessary.”

Maryland Attorney General Sues for State Retirement and Pension System Losses Allegedly Resulting from Deepwater Horizon Oil Spill

  • Maryland AG Douglas Gansler filed a lawsuit against BP p.l.c., BP America, Inc., BP Exploration & Production, Inc., and three BP executives in the U.S. District Court for the Southern District of Texas alleging that BP made false and misleading statements regarding its commitment to safety reforms, oil spill prevention, and response capabilities that resulted in investment losses by the Maryland State Retirement and Pension System (SRPS) after the April 2010 Deepwater Horizon oil spill in the Gulf of Mexico.
  • The Maryland SRPS owned shares of BP stock acquired between November 2007 and April 2010 that fell in value after the spill and allegedly resulted in losses to the Maryland SRPS.
  • AG Gansler alleges violations of sections 10(b) and 20(a) of the Exchange Act, Rule 10b-5, and common law deceit. He requests compensatory and exemplary damages, equitable relief, and costs and expenses, including attorney fees.

Financial Industry

New York Attorney General Subpoenas High-Speed Trading Firms

  • New York AG Eric Schneiderman sent subpoenas to more than six high-speed trading firms seeking information on the access these firms have to the technology services of trading venues. The firms included Tower Research Capital LLC, Chopper Trading LLC, and Jump Trading LLC.
  • The subpoenas follow AG Schneiderman’s recent call for tougher regulations and market reforms to address what he calls the unfair advantages obtained by high-frequency traders using high-speed technology to allegedly gain early access to market information—a practice he calls “insider trading 2.0.”
  • According to a news report, a source at a trading firm stated that the subpoena was “exploratory in nature” and that the AG’s office seemed to be “casting a wide net involving the U.S. equity market.” The report also asserts that the U.S. Justice Department, U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, and Federal Bureau of Investigation are investigating high-speed and automated trading.

Health Care

Connecticut Attorney General Recommends Legislation Governing Hospital Facility Fees and Physician Practice Acquisitions

  • Connecticut AG George Jepsen issued a report on hospital facility fees and hospital acquisitions of independent physician practices. In the report, he recommends that the legislature pass pending legislation that he proposed, which is aimed at improving notification and increasing transparency.
  • Hospital facility fees are charges meant to cover the overhead costs of the hospital, but are in addition to the charges billed by the medical provider. AG Jepsen believes that these fees can be expensive and confusing for patients. House Bill 5337 proposes timely, written, plain language notice of these fees to patients.
  • AG Jepsen also highlights in the report that physician practices often charge higher fees after hospitals acquire them. Senate Bill 35 proposes mandatory written notification to the AG anytime merger, acquisition, or other information regarding market concentration is filed with the Federal Trade Commission or the U.S. Department of Justice where a hospital, hospital system, or other health care provider is a party to the merger or acquisition.

Pharmaceuticals

Ohio Attorney General Announces Rule to Ban New Synthetic Drugs and Seeks Legislation Allowing Attorney General Temporary Emergency Scheduling Authority to Ban Future Hazardous Drugs

  • Ohio AG Mike DeWine and the Ohio State Board of Pharmacy announced that an administrative rule banning two chemicals used as synthetic drugs is now in effect.
  • The Ohio State Board of Pharmacy, using its authority through an administrative rule process, classified the chemical compounds known as PB-22 and 5F-PB-22 as Schedule I controlled substances, making their sale and use illegal in Ohio.
  • AG DeWine has been working with State Representative Robert Sprague to develop legislation that would grant the AG temporary emergency scheduling authority to ban, for at least one year, any compound the AG believes to be an imminent hazard to public safety—allowing the administrative rule or legislative process to proceed at standard pace to determine if the ban should be permanent.

States v. Federal Government

Texas Attorney General Questions Federal Government’s Taking of Private Property

  • Texas AG Greg Abbott sent a letter to the director of the federal Bureau of Land Management (BLM) raising concern over reports that BLM planned to take privately held property located in Texas along the Red River.
  • According to the letter, BLM is in the early phases of developing a plan to regulate land along the Red River. As part of that plan, BLM is allegedly considering taking 90,000 acres that currently belong to Texas private landowners. AG Abbott argues that an interstate boundary compact, agreed to by Texas and Oklahoma and ratified by legislation enacted by Congress in 2000, is determinative of BLM’s land interest.
  • The letter asks BLM to:
    • Delineate the process for the plan;
    • Describe the procedural due process that will be afforded to state landowners whose land may be taken;
    • Confirm the current boundary and that the interstate boundary compact is determinative or provide legal analysis for BLM’s position; and
    • Delineate the amount of territory impacted.