As we have previously reported, Delaware is in the midst of reforming its unclaimed property audit rules, a move that will inevitably affect the myriad businesses headquartered or incorporated there. Recently, Delaware Governor Jack Markell signed into law Senate Bill 11, “An Act to Amend Title 12 of the Delaware Code Relating to Escheats.” The law aims to increase competition among outside, independent auditing firms and to slow the revolving door between government and the private sector. However, it does not address the entirety of concerns that have been expressed by companies holding unclaimed property. Auditors currently use potentially unconstitutional methods to estimate the amounts owed by holders when records are unavailable. The new law does not address this practice, nor does it limit the time frame for which a company can be audited, which currently extends back to 1981. Thus, until the state can pass future amendments, and pending the promulgation of a detailed procedure manual by the Delaware Secretary of Finance, comprehensive reform in this area remains yet unclaimed.
Hospital Backs Away From Acquisition After New Massachusetts Attorney General Voices Concern
- Partners HealthCare System, Inc. decided not to move forward with its proposed acquisition of South Shore Health and Educational Corporation. The parties filed a stipulation of voluntary dismissal with the Suffolk County Superior Court, where a consent judgment detailing the terms and conditions of the merger was pending approval.
- Partners had reached a preliminary agreement to acquire South Shore with former Massachusetts AG Martha Coakley. After taking office, AG Maura Healey expressed her concerns about the merger and indicated that if the court declined to approve the consent judgment, she would seek to enjoin the merger.
- AG Healey stated that she “appreciate[d] the thoughtful process that Partners engaged in while making this important decision, and believe[d] it is the right choice for Partners and the Commonwealth…” Partners’ planned acquisition of Hallmark Health Corporation remains under consideration.
Judge Grants Preliminary Injunction to Prevent Disclosure of Nonprofit’s Donors
- A federal judge for the Central District of California granted a preliminary injunction preventing California AG Kamala Harris from obtaining a list of donors to the Americans for Prosperity Foundation (AFP), a nonprofit group founded by Charles and David Koch. AFP’s lawsuit against AG Harris will now proceed on the merits, and AG Harris has 21 days to file her response to AFP’s complaint.
- The dispute originated when AG Harris informed AFP that in order to comply with the California Supervision of Trustees for Charitable Purposes Act, AFP was required to submit the names and addresses of all individuals who had donated more than $5,000 to the group for tax years 2011 and 2012. AFP resisted and brought this lawsuit seeking permanent injunctive relief, claiming that such information would “hinder citizens’ ability to freely and anonymously associate with AFP in violation of the First Amendment” and subject donors to potentially harmful actions by individuals opposed to AFP.
- AG Harris asserted that acquiring donor information is necessary to ensure that the charity or nonprofit is not being used to evade taxes, or for other fraudulent purposes. AG Harris also indicated that the information would only be used within the AG’s office and would remain confidential.
Consumer Financial Protection Bureau
CFPB Takes Action Against Mortgage Companies for Allegedly Deceptive Ads
- The Consumer Financial Protection Bureau (CFPB) filed suit against All Financial Services, LLC, and settled with Flagship Financial Group, LLC and American Preferred Lending, Inc., over alleged violations of the 2011 Mortgage Acts and Practices Advertising Rule. The Rule prohibits the use of misleading claims in mortgage advertising, including among other things, creating the implication of government affiliation or endorsement of a mortgage product.
- The CFPB alleged that the mortgage companies mislead consumers through the use of terms like “FHA-insured” or “HUD-approved,” or otherwise misrepresented that they were selling mortgage products affiliated with a government entity in the course of conducting direct mail promotion activities.
- The CFPB’s lawsuit against All Financial is pending in U.S. District Court for the District of Maryland. The CFPB entered into administrative consent orders with the other two lenders, requiring Flagship Financial to pay $225,000 in civil penalties, and American Preferred to pay $85,000. In addition, both settling companies must implement compliance monitoring and reporting programs.
Ohio Sues Debt-Recovery Company Said to be “Spoofing” as Government
- Ohio AG Mike DeWine filed a lawsuit against debt collector Nationwide Recovery Group, LLC and its owner Michael McCarthy (Nationwide) for violating the Ohio Consumer Sales Practices Act and the Fair Debt Collection Practices Act.
- The AG’s complaint alleges that Nationwide impersonated local government and law enforcement—including various court clerks, sheriffs, and investigators—in its attempts to collect debts from Ohio consumers. In some cases, Nationwide is alleged to have “spoofed” consumers’ caller IDs to display a government phone number and threatened consumers with arrest or legal action if they did not repay the alleged debt immediately.
- The lawsuit is pending in the Montgomery County Court of Common Pleas, and seeks restitution as well as civil penalties.
President Obama Issues Executive Order on Private Sector Information Sharing
- President Obama signed an executive order designed to increase information sharing among private companies, nonprofit organizations and government agencies regarding threats, vulnerabilities, and attacks occurring over the internet.
- The Order specifically directs the Department of Homeland Security to foster the creation of Information Sharing and Analysis Organizations (ISAOs). It also seeks to establish mechanisms that maintain and improve the functions of ISAOs and facilitate information dissemination and private sector partnership with the federal government—specifically through the National Cybersecurity and Communications Integration Center.
Indiana Attorney General Proposes Stronger Data Privacy Legislation
- Data privacy legislation proposed by Indiana AG Greg Zoeller passed a key hurdle as it was approved by the Indiana Senate Committee on Homeland Security and Transportation and will now be considered by the entire Senate.
- Indiana Senate Bill 413 would expand data breach notification obligations to breaches involving non-computerized data, and would apply to data collectors and users. The current law applies only to data owners.
- The bill would also require companies to employ reasonable procedures to ensure that no personal information is retained “beyond what is necessary for business purposes or compliance with applicable law.” It would also require online entities that collect personal or financial information from Indiana residents to conspicuously post their privacy policies, identifying the types of personal information collected from site visitors, and to whom the information is shared or sold.
Missouri Collects $43.9 Million for Environmental Remediation in National Settlement
- Missouri AG Chris Koster announced that the state will receive $43.9 million from Anadarko Petroleum Corporation as part of a nationwide $5.15 billion settlement regarding the 2006 acquisition of Kerr-McGee Corporation.
- The environmental claims settled by Anadarko stem from the 2009 bankruptcy of Tronox Ltd. Tronox’s creditors together with the U.S. Department of Justice claimed that Kerr-McGee fraudulently saddled Tronox with most of its environmental liabilities and then divested the company to make Kerr-McGee a more attractive acquisition for Anadarko.
- The majority of Missouri’s portion of the settlement—$38.2 million—will go toward remediating two sites formerly owned by Kerr-McGee, and used for creosote wood treatment. The remaining $5.7 million will be applied to the state’s Natural Resource Damages program to remediate contaminated sites for public use.
States vs Federal Government
Round One Goes to Texas in Lawsuit Challenging President’s Executive Action on Immigration
- Andrew Hanen, a federal judge for the Southern District of Texas, ruled in favor of Texas and 25 other state plaintiffs, enjoining the implementation of certain aspects of President Obama’s executive action on immigration. The U.S. Department of Justice has indicated it will appeal the decision.
- Judge Hanen’s decision turned on his interpretation of the requirements of the Administrative Procedure Act (APA). Judge Hanen found that the proposed executive action, effectuated through changes in Department of Homeland Security operations, created a “substantive change to immigration policy” and thus was properly classified as a rule or regulation that must comply with the APA’s requirement of being first published in the Federal Register for a period of notice and comment.
- Texas AG Ken Paxton, who is lead plaintiff along with 25 other states, called the decision “a victory for the rule of law in America.” In contrast, Washington AG Bob Ferguson, who led a group of AGs from twelve states and the District of Columbia in filing an amici brief in support of the President’s actions, indicated that this ruling was only the beginning.
Eleven Attorneys General Argue Mississippi Has Authority to Investigate Google
- Eleven AGs, led by Kentucky AG Jack Conway, filed an amici brief in federal court in support of Mississippi AG Jim Hood’s attempt to investigate Google, Inc. for alleged violations of the Mississippi Consumer Protection Act through the issuance of an administrative subpoena. Kentucky AG Jack Conway was lead AG on the brief.
- The subpoena demanded that Google produce information related to AG Hood’s allegations that the company does not take appropriate measures to limit illegal activity on the internet, and derives revenue from such activities, including the exchange of pirated materials and the promotion of illegal drugs. Google objected to the subpoena and filed a lawsuit in federal court seeking an injunction to block the subpoena and the investigation.
- Google argued that the 1996 Communications Decency Act shields online companies like Google from liability arising out of materials posted by third parties, essentially providing immunity from the AG’s investigation. In their brief, the eleven amici AGs respond that even if Google is ultimately immune, that would be a defense to a lawsuit, and not to an AG investigation. Moreover, the AGs argue that the proper response when objecting to an administrative subpoena is through the state court system, not a federal lawsuit.
- The case is Google, Inc. v. Hood, 3:14-CV-00981. The parties are scheduled to argue their positions on AG Hood’s Motion to Dismiss on February 20 in front of Judge Henry T. Wingate for the Southern District of Mississippi.
Louisiana Attorney General Sues Drug Maker for Allegedly Delaying Generics
- Louisiana AG Buddy Caldwell filed a lawsuit alleging that GlaxoSmithKline LLC (GSK) violated the Louisiana Monopolies Act and Unfair Trade Practices Act by preventing or delaying Federal Drug Administration (FDA) approval of generic versions of Flonase (fluticasone propionate) to keep them from entering the market.
- The complaint is based on a novel theory of liability, alleging that GSK used a “brand maturation” scheme, described as a combination of the following four actions: influencing the FDA bioequivalence guidance process; filing “baseless” citizen petitions with the FDA; drafting a new set of procedures and acceptance criteria in order to set standards for quality, purity, strength and consistency; and supplementing its original New Drug Application in an attempt to delay the FDA from approving applications from generic producers.
- The case was originally filed in state court, but has been noticed for removal to the Middle District of Louisiana. In its Notice of Removal, GSK asserts that its actions were done in compliance with standard FDA procedures. The AG is seeking restitution for “unlawfully inflated prices” paid by the state and treble damages.
Consumer Financial Protection Bureau
CFPB Secures $2 Million in Civil Penalties From Nonbank Mortgage Lender
- The Consumer Financial Protection Bureau (CFPB) reached an agreement with New Day Financial, LLC, to resolve claims that the non-bank lender engaged in deceptive advertising in violation of the Dodd-Frank Act and paid illegal kickbacks in violation of the Real Estate Settlement Procedures Act.
- New Day’s primary business was to originate refinance mortgage loans guaranteed by the Veterans Benefits Administration. The CFPB alleged that New Day agreed to pay “lead generation” fees to a veterans’ organization and a broker that facilitated the arrangement, in addition to a monthly licensing fee to the broker. In exchange, the veterans’ organization named New Day its exclusive lender and referred veterans to New Day. New Day also allegedly advertised its exclusive endorsement to the members of the veteran’s organization without disclosing the financial relationship between them.
- In accordance with the consent order, without admitting any of the allegations, New Day will implement a compliance plan to ensure its marketing of mortgage products complies with the law and must pay $2 million to the CFPB’s Civil Penalty Fund.
Stealth Solar’s Alleged Violations Detected by Arizona Attorney General
- Arizona AG Mark Brnovich settled with Stealth Solar, LLC, and its owners, resolving a lawsuit alleging that Stealth’s sales force violated the Arizona Consumer Fraud Act by making false and deceptive statements to consumers in order to sell photovoltaic electricity generation (PV) systems.
- The consent judgment outlines a series of allegedly false or deceptive statements made by Stealth, including claims that utility bills will increase 10 to 12 percent per year without a PV system, or that 70 percent of the costs of a PV system are covered by government incentives.
- Pursuant to the terms of the consent judgment, Stealth is enjoined from making unsubstantiated claims and will pay $72,000 in restitution to consumers, as well as additional restitution based on consumer complaints received by the AG until July 1, 2015.
West Virginia Cracks Down on Pool Company Allegedly Violating Mortgage Laws
- West Virginia AG Patrick Morrisey settled with Blue World Pools, Inc., regarding allegations that the company violated the West Virginia Consumer Credit and Protection Act in connection with the sale and financing of swimming pools in West Virginia.
- AG Morrisey alleged that Blue World used deceptive sales practices to secure finance agreements by filing a deed of trust against the consumer’s property in which it was named as trustee, a practice the AG alleged was tantamount to making mortgage loans without a license. In addition, Blue World allegedly failed to make necessary financial disclosures and, in some cases, charged annual percentage rates that exceeded limits allowed in the state.
- Blue World did not admit to the allegations, but agreed to resolve the AG’s claims through an assurance of discontinuance, in which it agreed to pay $1 million to the state with $500,000 designated for consumer restitution. Blue World also agreed to cancel almost $650,000 in consumer debt, and to request that credit reporting agencies delete any adverse information it may have reported.
Attorneys General Take Action in Health Insurer’s Data Breach
- Massachusetts AG Maura Healey formally announced that her office is investigating the data breach at Anthem, Inc., through which hackers were able to gain access to information pertaining to Anthem’s current and former customers and employees, including names, birthdates, social security numbers, addresses, email addresses, and employment and salary information.
- In addition, at least ten other AGs sent a letter demanding that Anthem provide better information as to who might be affected and to reimburse consumers who suffer losses during the delay between the breach and the notification and provision of credit monitoring.
- Anthem has created a website to provide information and guidance on this issue, on which it indicates that it will contact affected consumers directly. In addition, Anthem has posted answers to frequently asked questions and will be offering credit monitoring services for affected consumers.
Illinois Attorney General Asks Congress for Strong Data Breach Law, but Not Preemption
- Illinois AG Lisa Madigan testified before a U.S. Senate subcommittee, urging Congress to enact a strong federal law to address data protection, but to do so without preempting state efforts. AG Madigan stated, “A weak national law that restricts what most state laws have long provided will not meet Americans’ increasing and rightful expectation that they be informed when their information has been stolen.”
- As we have previously reported, data security has become a vibrant issue in state legislatures, and State AGs have been very active in investigating data breaches and pushing for stronger state laws.
False Claims Act
Attorneys General Look to Strengthen State False Claims Acts
- Maryland AG Brian Frosh urged the Maryland General Assembly to adopt a broader version of the state’s False Claims Act, calling it his “top priority for the 2015 legislative session.” Currently, the Maryland law only applies to Medicaid and health-related fraud.
- Under the bill submitted to the Senate and House of Delegates, which would apply to both state and local government, individuals would be able to report fraud committed by state contractors to the AG or local State’s Attorney, who would review and pursue those claims with the most merit. If a case is successful, the state may receive triple damages, while the whistleblower would collect a reward and also receive protection against on-the-job retaliation.
- Other AGs are also pushing for more potent legislation to address false claims. In addition, states that enact federally compliant laws are able to keep a larger percentage of the money recovered from national lawsuits and settlements based in part on the federal False Claims Act.
Iowa Settles With Home Medicaid Services Provider
- Iowa AG Tom Miller, together with the U.S. Department of Justice (DOJ), settled with ResCare Iowa, Inc., resolving claims that, from 2009 to 2014, the medical services provider violated the False Claims Act by submitting false home healthcare billings to Medicare and Medicaid programs.
- AG Miller and the DOJ accused ResCare of failing to provide proper documentation demonstrating that an independent physician performed a face-to-face assessment of each patient and that the physician certified that home care was medically necessary.
- ResCare agreed to pay $5.63 million to resolve both state and federal claims, with $2.32 million going to Iowa.
Attorney General Counsels Council That It Lacks Authorization to Enact Marijuana Law
- The District of Columbia Council canceled a hearing to debate Bill 21-23, the “Marijuana Legalization and Regulation Act of 2015” (Bill) after being advised by District AG Karl Racine that to do so would be unlawful.
- In a letter to various Council members, AG Racine advised that the Federal Appropriations Act for 2015 expressly prohibited the D.C. government from using 2015 funds to “enact any law, rule, or regulation to legalize or otherwise reduce penalties” for the use of marijuana for recreational purposes. AG Racine iterated this would apply to even a preliminary hearing, and thus Council members and District employees could be liable under the Anti-Deficiency Act, which prohibits the expenditure of funds that have not been appropriated. Among other things, AG Racine also highlighted that the Bill in current form goes beyond simply decriminalizing small amounts of marijuana, and thus expands the measure approved by voters in last year’s Ballot Initiative 71.
States v. Federal Government
Oklahoma Attorney General Voices Concerns to Congress Over EPA Rule, Threatens Legal Battle
- Oklahoma AG Scott Pruitt testified at a Senate-House committee hearing, and continued to voice objections shared by other AGs to a proposed rule that would expand Environmental Protection Agency (EPA) jurisdiction under the U.S. Clean Water Act.
- The EPA’s proposed rule seeks to broaden and clarify the definition of water that falls under the regulatory powers of the EPA to include seasonal and rain-dependent streams, as well as wetlands that are close to rivers.
- The AGs arguing against the rule highlighted the potential to disrupt small businesses ranging from farmers to home builders by requiring them to obtain EPA approval for any action that might affect surface water. However, other AGs and federal lawmakers indicated that the AGs’ concerns were not supported by the text and purpose of the rule. The EPA plans to make the rule final this spring, but according to EPA head Gina McCarthy, the final wording of the rule will “provide more clarity on the basis of the comments that we received.”
Nevada and Washington Attorneys General Approve Grocery Store Merger With Divestitures
- Nevada AG Adam Laxalt and Washington AG Bob Ferguson entered into consent decrees resolving separate lawsuits that challenged a proposed $9.2 billion merger between rival grocery chains AB Acquisition LLC (Albertsons) and Safeway Inc.
- The Nevada and Washington consent decrees expressly adopt the terms and conditions of a Federal Trade Commission (FTC) proposed consent order, giving the State AGs the power to enforce the terms and conditions in the FTC order.
- The FTC’s analysis found that the merger as initially proposed would lead to anticompetitive results in 130 local markets across western states. In some markets there would be only one remaining grocer. Thus, the FTC conditioned merger approval upon the divestiture of 168 stores from the merged entity to smaller regional grocery chains. As part of this divestiture, the largest ever requested by the FTC in the grocery sector, 146 stores will be acquired by Haggen Holdings, LLC, a grocer that operated only 18 stores in Washington and Oregon prior to the merger.
Consumer Financial Protection Bureau
CFPB Secures Debt Forgiveness for Students as For-Profit Colleges Are Acquired by Nonprofit
- The Consumer Financial Protection Bureau (CFPB) reached an agreement with ECMC Group, Inc., and newly created nonprofit Zenith Education Group, Inc., (together ECMC) in connection with ECMC’s purchase of more than 50 Everest and WyoTech campuses from Corinthian Colleges, Inc.
- Under the agreement, ECMC will provide $480 million in debt forgiveness to former Everest and WyoTech students in exchange for the CFPB releasing ECMC from any liability for prior violations of the Consumer Financial Protection Act or the Fair Credit Reporting Act during the period the colleges were owned by Corinthian.
- In addition to debt forgiveness, ECMC agreed not to engage in improper debt collection practices and will instruct credit reporting agencies to delete any related negative information on former students’ credit reports. ECMC will also provide additional information on post-graduation employment, offer flexible withdrawal policies, and refrain from offering its own private loans to students for seven years, among other measures to improve accountability and transparency.
CFPB Prepares Rule to Regulate Payday Lending
- According to news sources, the CFPB is preparing federal rules to regulate payday lending, a practice it defines as “a short-term loan, generally for $500 or less, that is typically due on your next payday.”
- The CFPB has authority to promulgate rules to regulate payday lending under the 2010 Dodd-Frank Act. However, unlike state laws that address the issue (if at all) through maximum allowable interest rates, Dodd-Frank does not authorize rate caps. Instead, the CFPB will address the issue by declaring certain industry practices to be unfair, deceptive, or abusive to consumers. Because State AGs have authority to enforce CFPB regulations under Section 1042 of Dodd Frank, this and any other rule promulgated by the CFPB can also be enforced by State AGs.
New Jersey Brings Lawsuit to Shut Down Auto Warranty Seller
- Acting New Jersey AG John Hoffman settled with Direct Buy Associates, Inc., d/b/a Direct Buy Auto Warranty, for allegedly selling “comprehensive,” or “bumper-to-bumper” auto warranties that limited coverage for repairs above the Manufacturer’s Suggested Retail Price for parts or for labor that exceeded the current national flat rate.
- The lawsuit alleged multiple violations of the New Jersey Consumer Fraud Act, the Plain Language Act, the Business Corporations Act, and regulations governing advertising.
- The final consent judgment requires Direct Buy to pay $199,560 in restitution to consumers who purchased the policies in question and submitted complaints to the AG’s Consumer Division, in addition to a $500,000 civil penalty, of which $400,000 will be suspended subject to Direct Buy’s compliance with the agreement. Direct Buy must also pay $111,009 to reimburse the state for attorneys’ fees and investigative costs.
New York Attorney General Uncovers Herbal Supplements Allegedly Lacking Advertised Ingredients
- New York AG Eric Schneiderman announced this week that his office has issued cease and desist letters to four major retailers—GNC Holdings, Inc.; Target Corporation; Walgreen Co.; and Wal-Mart Stores, Inc.— for allegedly selling store brand herbal supplements that did not contain the claimed ingredients as determined by the AG office’s testing methodologies, and/or were found to contain ingredients not listed on the labels.
- The investigation focused on supplements claiming to contain echinacea, garlic, gingko biloba, ginseng, St. John’s wort, saw palmetto, or valerian root. Through the use of a process called “DNA barcoding,” the AG’s investigation concluded that 79 percent of the supplements did not contain any amount of the herb claimed. In addition, 35 percent of the supplements tested allegedly contained ingredients not listed on the label, including allergens like gluten or nuts.
- In response to the allegations, Steve Mister, president and CEO of the Council for Responsible Nutrition, stated that “[p]rocessing during manufacturing of botanical supplements can remove or damage DNA,” and that DNA barcoding “has been roundly criticized by botanical scientists who question whether [it] is an appropriate or validated test for determining the presence of herbal ingredients in finished botanical products.”
Vermont Attorney Settles With Marketing Company Over Use of Personal Information
- Vermont AG William Sorrell reached a settlement with Main Street Power Mail, Inc., resolving allegations that it violated the Vermont Consumer Protection Act through attempts to generate leads for third-party insurance agents by soliciting consumers’ personal information through the mail without disclosing that the information would be used to make sales calls.
- The assurance of discontinuance requires Main Street, jointly and severally with owner Kyle Malott, to pay $90,000 to the state. In addition, it requires Main Street to refrain from contacting any Vermont consumer in order to generate business leads without properly disclosing that the consumer may be solicited to purchase a product or service.
New York Attorney General Obtains Judgment Against Pizza Franchisee
- New York AG Eric Schneiderman, with cooperation from the U.S. Department of Labor, obtained a judgment for $789,507 against Emstar Pizza, Inc. and its owner, Emmanuel Onuaguluchi, operating Papa John’s franchises, for violations of New York labor laws.
- AG Schneiderman’s lawsuit asserted that Emstar Pizza, over the course of six years, unlawfully reduced workers’ pay by under-reporting and rounding down hours worked to the nearest whole hour and failed to pay overtime.
- In addition, the judgment permanently enjoins Emstar from selling its assets unless the proceeds from such sale are held in escrow, which AG Schneiderman can use to distribute as restitution to underpaid employees.
False Claims Act
Massachusetts Settles With Neighborhood Pharmacy Over Auto Refill Practices
- Massachusetts AG Maura Healey settled with Neighborhood Diabetes, Inc., d/b/a Neighborhood Pharmacy, resolving claims that the pharmacy automatically refilled prescriptions in violation of MassHealth (Massachusetts’ Medicaid program) regulations that prohibit automated refilling and billing the state for prescriptions that were not explicitly requested by a MassHealth patient or caregiver.
- Under the settlement, Neighborhood Pharmacy will pay $1.5 million to the Commonwealth, and will cease providing automatic refills and/or dispensing drugs to MassHealth patients without the required authorizations and copayments.
Standard & Poor’s Settles With States and Federal Government for $1.37 Billion
- Standard & Poor’s Financial Services, LLC, (S&P) agreed to settle multiple lawsuits brought by 20 AGs and the U.S. Department of Justice alleging securities fraud and violations of state unfair and deceptive practices acts.
- According to Connecticut AG George Jepsen, the states’ lawsuits were based on conduct from 2001 to 2007, whereby S&P allegedly made repeated statements that its ratings were objective, independent, and uninfluenced by any conflicts of interest, but in reality S&P was influenced by its desire to earn lucrative fees from its investment bank clients and “assigned inflated credit ratings to toxic assets packaged and sold by Wall Street investment banks.”
- Pursuant to the settlement agreement, S&P will pay a total of $1.375 billion, of which $687.5 million will go to the states collectively, with individual states receiving from $22 million to $210 million. Although S&P did not admit that it violated any laws, it signed a statement of facts acknowledging that the company did not downgrade underperforming assets and delayed implementing new ratings models because it was worried that doing so would hurt the company’s profitability.
- Last month, S&P settled with New York, Massachusetts, and the U.S. Securities and Exchange Commission for $80 million, resolving similar claims based on S&P’s post-financial crisis ratings methodology.
States vs Federal Goverment
Dueling Amici Frame Arguments in Affordable Care Act Case
- Oklahoma AG Scott Pruitt, leading a group of six states, submitted an amici brief in support of petitioners in King v. Burwell, pending in the U.S. Supreme Court. Virginia AG Mark Herring, leading a group of 22 states and the District of Columbia, submitted an amici brief in support of respondents.
- The issue is whether the Internal Revenue Service is justified in drafting regulations that provide premium-assistance tax credits for individuals in states that did not establish their own exchanges under the Affordable Care Act (ACA), but instead participate in the federally-facilitated health insurance exchange. Oral argument in the case is scheduled for March 4,2015.
- AG Pruitt’s brief focuses on a textual interpretation of the ACA, arguing that the law conditioned the availability of tax credits on states’ participation in establishing exchanges. Moreover, it argues that states made their decisions to not establish exchanges, and thus to avoid certain mandates under the law, based on a reading of the plain text of the ACA.
- In contrast, AG Herring’s brief argues from a functional perspective, that without interpreting the law as providing tax credits regardless of whether the exchange was federally-established, the ACA becomes unworkable and would disrupt state insurance markets. It also argues that the principle of constitutional doubt instructs that when selecting between two plausible interpretations of the ACA, the Court should adopt the interpretation that is constitutional.
Delaware Senate Passes Reforms to State Unclaimed Property Audit Process
- In a recent blog post, Dickstein Shapiro partner Maria Colsey Heard and counsel Aaron Lancaster explain how the Delaware legislature is seeking to reform the state unclaimed property audit process.
New Massachusetts Attorney General Hints at Possible Action on Hospital Merger
- Massachusetts AG Maura Healey indicated to a Suffolk Superior Court judge that she would vigorously enforce the terms and conditions of a consent judgment reached between her predecessor, Martha Coakley, and two healthcare entities seeking merger approval, Partners HealthCare System, Inc. and South Shore Hospital, if the court decides to approve the consent judgment.
- AG Healey also indicated, however, that she does not wholly endorse the settlement terms, and if the court declined to approve the consent judgment, her office would “exercise its right to void the agreement,” and would likely “litigate to enjoin Partners’ proposed acquisition of South Shore Hospital.”
- In her submission, which was requested by the court and informed by public and industry comments, AG Healey outlined her concerns for the efficacy of the consent judgment, which include: concerns for the market power of the merged entity after the constraints expire, skepticism over the utility of “component contracting,” and the preference that the merged entity demonstrate an ability to contain costs before it is allowed to expand.
Consumer Financial Protection Bureau
CFPB Creates Scorecard for University-Linked Debit and Prepaid Cards
- The Consumer Financial Protection Bureau (CFPB) is seeking public comments on a new “scorecard” it created to help minimize potential harm to students when their university enters into an agreement with a bank to offer university-linked debit and pre-paid card accounts on campus.
- The CFPB proposed the scorecard out of concern that banks and schools were not properly considering students’ interests in the negotiations for these debit cards. Because universities are often provided with a signing bonus and/or a portion of the revenues generated from card fees, and given that these cards are sold on campuses, linked to student accounts, and used to access student loan balances, the CFPB emphasized that it is important they are structured to minimize fees and to promote sound financial practices by students.
- The scorecard—which is a voluntary tool for universities to use—requires that a bank provide a clear description and annual summary of the fees charged to students, an explanation of the bank’s marketing practices, and an estimate of bank earnings from student debit card accounts. The goal is to establish a uniform and transparent format for making disclosures so that the universities can better evaluate and compare the various debit card offers, and select the offer that best protects its students.
False Claims Act
Wisconsin Settles Ten-Year Old Dispute With Drug Maker
- Wisconsin AG Brad Schimel has reached a settlement with Novartis Pharmaceuticals Corporation, resolving claims that Novartis charged artificially inflated prices to the State Medicaid program.
- AG Schimel’s lawsuit, originally filed in 2004, alleges that Novartis reported inflated average wholesale prices for certain drugs provided to the Medicaid program. The dispute was scheduled for trial starting on February 2, with the state claiming $22 million in damages.
- According to news reports, Novartis maintained that the state’s claims were unfounded but settled to avoid any additional costs of litigation. It also highlighted that it “provides millions of dollars every year to the state of Wisconsin, which enables Wisconsin to fairly pay its pharmacies and assure that Wisconsin Medicaid beneficiaries have access to Novartis’ innovative medicines.”
New York Attorney General Looks to Amend “Dark Pools” Complaint, Spotlighting Alleged Wrongdoing With Greater Specificity
- New York AG Eric Schneiderman has moved for leave to file an amended complaint against Barclays Capital Inc. and Barclays PLC, seeking to demonstrate that the alleged illegal conduct was not accidental or minimal, but rather part of “a broad course of conduct involving numerous Barclays employees.”
- The amended complaint—which is based on information gained through discovery of more than 100,000 documents—names specific executive level employees and provides greater detail to the allegations that Barclays misled customers to boost its own profits. The amended complaint identifies specific incidents in which Barclays assured investors they were protected from “toxic” high-frequency traders, while at the same time was inviting high-frequency traders to transact in the “dark pools.”
- Barclays responded that the amended complaint “merely repackages the same flawed arguments that were in the original complaint,” and that it will “continue to seek to cooperate with the New York Attorney General in this matter,” but will also “continue to defend vigorously against these allegations.”
Washington Attorney General Seeks Legislation to Curb “Patent Trolls”
- Washington AG Bob Ferguson is proposing legislation to prohibit the deceptive and fraudulent assertion of alleged patent rights. If passed, Washington would become the 18th state in the last two years to limit the actions of “patent trolls” through legislation.
- The proposed legislation, the “Patent Troll Prevention Act,” prohibits an entity from sending demand letters that contain false or deceptive information, requesting a licensing fee for a patent they do not possess, baselessly threatening litigation if a fee is not paid, and failing to identify the individual asserting the patent and explaining the alleged infringement.
Mortgages and Forclosures
Maryland Attorney General and CFPB Settle With Banks Over Alleged Mortgage Kickback Arrangement
- Maryland AG Brian Frosh, working together with the Consumer Financial Protection Bureau (CFPB), entered into consent judgments with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. to resolve allegations that the banks violated the Real Estate Settlement Procedures Act and the Maryland Consumer Protection Act through a “kickback” arrangement with now defunct Genuine Title, LLC.
- In the complaint, AG Frosh and the CFPB alleged that from September 2011 to early 2014, Genuine Title provided leads on potential mortgage clients to the banks in exchange for the banks’ referral of mortgage customers to Genuine for closing services.
- Under the terms of the consent judgments, Wells Fargo will provide $10.8 million and Chase will provide $300,000 in restitution to customers who used either a Wells Fargo or Chase loan officer and closed with Genuine Title. In addition, the banks will pay civil penalties totaling $21.5 million to the CFPB and $3.1 million to the Maryland Consumer Protection Division.
States v. Federal Government
Ohio Attorney General Sues Federal Government Over Affordable Care Act “Tax” on State Entities
- Ohio AG Mike DeWine, along with officials from Warren County and various Ohio public universities, filed a lawsuit in the Southern District of Ohio alleging that the application of the Affordable Care Act’s (ACA) Transitional Reinsurance Program requiring state entities to pay “contributions” to the U.S. Treasury for a three-year period beginning in 2014 is unconstitutional.
- At the heart of AG DeWine’s lawsuit is the application of U.S. Department of Health and Human Services (HHS) regulations purporting to require local and municipal governments and public universities that offer self-insured group health plans to their respective employees to make monetary contributions toward the establishment of a national reinsurance pool.
- In the complaint, AG DeWine argues that because local governments and public universities are essentially state entities, they cannot be mandated to make “contributions” under the ACA. DeWine further contends that such contributions amount to a direct revenue generating tax on the state that violates the Tenth Amendment and the doctrines of Intergovernmental Tax Immunity and Anti-Commandeering.
Kentucky Attorney General Secures $54 Million in Rate Reductions and Refunds
- Kentucky AG Jack Conway, together with Kentucky Industrial Utility Customers, Inc., an association of energy-consuming companies, intervened in a utility price dispute before the Kentucky Public Service Commission, ultimately saving ratepayers $54 million in fuel costs.
- The Kentucky Public Service Commission (PSC) found Kentucky Power Co.’s alleged failure to disclose $38.25 million in additional fuel costs stemming from a recent acquisition to be “incomprehensible”—especially in light of its finding that the Power Co. decided to operate two plants simultaneously, generating excess power that it sold on the open market while imposing the extra costs on its customers.
- The PSC directed Kentucky Power Co. to refund $13.2 million to ratepayers for overcharges already collected during the first four months of last year, and barred the company from collecting approximately $41 million in additional fuel costs through May 2015.
Delaware, like most states, requires that certain types of unclaimed property be reported and turned over to the State. Delaware’s unclaimed property administrator, as in other states, has the power to “examine the records” of businesses—either directly, or through the use of private-sector audit firms—to ensure compliance. This audit process has engendered controversy in recent years, and the Delaware Senate has been working on significant reforms. Although geographically small, Delaware is a heavyweight in forming policy in this area for one simple reason: Delaware is the state of incorporation for a large majority of American companies, and when the rightful owner’s address is unknown, unclaimed property must be reported to the state where the company holding it is incorporated.
In July 2014, the Delaware Senate created a task force to assess policy shortfalls and propose new legislative goals for identifying unclaimed and abandoned property. The task force met numerous times throughout 2014 and made its recommendations in a final report issued on December 23, 2014. The report identified both specific actions (e.g., amend the statute of limitations relating to unclaimed property audits so that businesses are not liable for unclaimed property after a reasonable period for record retention has expired) and general guidelines (e.g., maintain a broader base of contracted auditors) to be addressed in future legislation.
Last week, the Senate adopted some of those recommendations in Senate Bill 11. The proposed law would implement two key recommendations from the task force final report: it would limit a single private firm to securing no more than 50 percent of the contracts to audit for unclaimed property, and it would prohibit a firm awarded an auditing contract from employing persons who have served as supervisors in the Delaware Division of Revenue or Department of Finance during the prior two years. SB 11 also calls for the Secretary of Finance to create a detailed procedural manual by December 15, 2015, with further input from stakeholders and interested parties.
Passage of SB 11 likely will not resolve all controversy surrounding states’ use of outside auditors with a financial stake in the process, but it shows a recognition of businesses’ concerns about the fairness of the audit process. Other state unclaimed property offices, and state legislators, are certain to pay attention.
Hawaii Governor Appoints Doug Chin as New Attorney General
- For more on Hawaii’s new AG see our recent blog post.
Missouri Attorney General Settles With Credit Card Issuers Over Allegedly Misleading Payment Protection Services
- Missouri AG Chris Koster settled with Discover Financial Services, Inc., HSBC Finance Corp., and Capital One Financial Corp. over allegations that they deceptively enrolled credit card customers into “payment-protection plans” that provided little or no benefit to the customer.
- The investigation centered on allegations that consumers were unaware they had been signed up for the plans, were misleadingly upsold after calling on another matter, or were automatically enrolled if they failed to read and respond to a notice sent by mail. In addition, cardholders claimed that when they requested the suspension of payments due to injury or disability, a benefit to which they were entitled under the plan, the companies failed to comply.
- The settlement requires the three companies to pay a total of $2.235 million (Discover, $760,000; Capital One, $740,000; and HSBC, $825,000) to a specialized fund, previously established to provide consumer protection education and enforcement. The three companies also agreed to cease selling payment protection and other related add-on products (such as identity theft protection) in a way that misleads Missouri consumers.
Nineteen Attorneys General Investigate Data Breach at JPMorgan
- A group of 19 AGs is asking for more information about the October 2014 data breach of JPMorgan Chase & Co.
- The group of AGs, led by Illinois AG Lisa Madigan and Connecticut AG George Jepsen, has requested that JPMorgan clarify the number of customers in each of the states affected by the breach, whether there has been any fraudulent activity stemming from the breach, how JPMorgan discovered the breach, how it will protect against future breaches, and the evidence on which JPMorgan based its assertion that customer passwords and Social Security numbers were not compromised.
- According to the New York Times, JP Morgan has until January 23, 2015, to respond to the offices of the Illinois and Connecticut AGs.
New York Attorney General Seeks to Strengthen Data Protection Regime
- New York AG Schneiderman announced that he will propose legislation to the New York legislature to strengthen and expand state data privacy and breach notification laws.
- AG Schneiderman’s bill would make the following changes: expand the legal definition of private information to include email addresses and passwords, medical and biometric information, and health insurance information; require companies that store data to have physical, technical and administrative safeguards; provide a presumption of lawfulness when a company demonstrates compliance with third-party certification standards; create a safe harbor for companies employing heightened security measures like encryption; and establish incentives for breached companies to share information with law enforcement.
Incoming Nebraska Attorney General Establishes Bureau for Environmental Issues
- Recently elected Nebraska AG Doug Peterson announced that he has established a special bureau within the AG’s office to focus on issues of agriculture, environment, and natural resources. The new bureau will be headed by Assistant Attorney General Justin Lavene, and will focus, among other things, on the state’s disputes over water issues and federal environmental regulations.
False Claims Act
Washington State Recovers $3.35 Million for Allegedly Overbilled Dental Treatments
- Washington AG Bob Ferguson settled with Sea Mar Community Health Centers (Sea Mar) over allegations that Sea Mar had submitted false claims to Medicaid in connection with patients receiving certain dental treatments between 2010 and 2014.
- The dispute arose out of Sea Mar’s alleged practice of billing fluoride treatments as a stand-alone appointment or “encounter” with a dentist or hygienist with a requisite fee of $180, when instead they should have been billed as an add-on service connected to the patient’s regular checkup.
- Sea Mar agreed to pay $3.35 million to resolve this dispute. As part of this settlement, Sea Mar also agreed to dismiss with prejudice a lawsuit it had filed in federal court naming AG Ferguson, the Director of the State Health Care Authority, and the Secretary of the Department of Social and Health Services as defendants. In its complaint, which came in response to a May 2014 letter from the AG seeking over $72 million in damages associated with the above-referenced billing practices, Sea Mar had requested reimbursement of all encounters since 2006 under the Medicaid Act and the Supremacy Clause.
Massachusetts Attorney General Settles With Hospital Over Alleged Kickbacks
- Massachusetts AG Martha Coakley, together with the U.S. Department of Justice and the Inspector General for the Department of Health and Human Services, entered into a consent judgment with South Shore Physician Hospital Organization, Inc. (SSPHO). The settlement resolves allegations that the hospital and its member organizations violated the False Claims Act.
- AG Coakley alleged that for a ten-year period starting in 2001, SSPHO provided cash grants to recruit new member physicians, who in return were required to make patient referrals to participating providers. As such conduct allegedly violates the federal anti-kickback statute, it thus forms the basis for a False Claims Act violation when SSPHO and member organizations submit invoices for Medicaid reimbursement.
- SSPHO, which initially disclosed the program in 2012, cooperated with the investigation and agreed to pay $1.77 million to resolve all allegations. Massachusetts will keep more than $620,000 of the settlement amount, with $310,625 going directly to Massachusetts’ Medicaid program.
Mortgages and Forclosures
Massachusetts Attorney General Secures $2.7 Million to Close Out Claims for Unlawful Foreclosures
- AG Coakley reached a settlement with Bank of America, N.A.; JPMorgan Chase Bank, N.A.; Citibank, N.A.; and Wells Fargo Bank, N.A. (collectively “banks”), resolving claims that the banks failed to adhere to statutory requirements while seeking to foreclose on Massachusetts residents during 2008 and 2009.
- The lawsuit alleged that the banks violated the Massachusetts Consumer Protection Act and as state foreclosure law by foreclosing upon residents’ homes without possessing the legal authority to do so, by misrepresenting to homeowners that the banks held the relevant mortgages when they did not, by omitting information regarding loan modification programs, and by engaging in false documentation to facilitate their foreclosure efforts.
- Under the terms of the settlement, the banks will assist consumers who indicate problems with legal title due to an unlawful foreclosure attempt, provide curative documents where necessary, release junior liens held by the banks, and pay reasonable costs associated with curing the title. In addition, the banks will pay $700,000 to the AG’s Consumer Aid Fund and $2 million to the Commonwealth’s General Fund.
Massachusetts and New York Settle With Standard & Poor’s Over Poorly-Disclosed Ratings Methodology
- Massachusetts AG Coakley and New York AG Schneiderman together with the U.S. Securities and Exchange Commission (SEC), reached a settlement with Standard & Poor’s Financial Services, LLC, (S&P) to resolve allegations that S&P made false and misleading public statements when describing its ratings methodology for commercial mortgage-backed securities (CMBS).
- The investigation centered on representations S&P allegedly made to investors in 2011—that it had tightened the standards it used to provide credit ratings for CMBS and had adopted strict analytical independence, free from commercial considerations. The AGs alleged, to the contrary, that by not providing proper disclosure S&P had actually departed from its published criteria in a manner that was less conservative, provided less investor protection, and made its ratings more attractive to fee-paying issuers.
- According to the settlement, S&P will pay $7 million in penalties to Massachusetts, $12 million to New York, and $35 million in penalties plus $7 million in disgorgement and interest to the SEC. In addition, S&P will refrain from rating any new CMBS conduit/fusion transaction for a period of twelve months.
Late last Friday, Hawaii Governor David Ige (D) appointed Doug Chin to be the next Hawaii AG. Chin will replace former AG David Louie (D), whose term ended when Governor Ige took office on December 1, 2014.
Chin, a Democrat, has been a partner in the Corporate, Administrative Law, and Litigation practice groups of Carlsmith Ball LLP and has served as a managing partner since October 2014. Prior to joining Carlsmith Ball, Chin served as Managing Director for the City and County of Honolulu from 2010 to 2013. Chin also served as a prosecutor at the City and County of Honolulu Prosecuting Attorney’s office for 12 years, during which time he held positions as Acting Prosecuting Attorney and First Deputy Prosecuting Attorney.
When announcing his appointment, Governor Ige called Chin “a man of integrity who has the skills and experience to perform his duties as the state’s attorney general at the highest level. He is able to defend the state in court, facilitate and negotiate agreements, manage a large department and communicate well. It’s rare to find someone who can do all those things.”
California Attorney General Announces Candidacy for 2016 Senate Race
- California AG Kamala Harris announced that she will run for the U.S. Senate seat that will be vacated by Senator Barbara Boxer, who will not seek reelection when her fourth term expires in 2016.
Nine State Attorneys General Settle With Online Shoe Retailer
- AGs from nine states reached a settlement with Zappos.com, Inc., resolving their investigation into a 2012 data breach that potentially affected over 24 million customers.
- The server exposed in the breach contained customer names, email addresses, billing and shipping addresses, phone numbers, and cryptographically scrambled passwords. However, Zappos asserts that the breach did not expose databases where critical credit card and other payment data were stored.
- Zappos agreed to pay $106,000 and to implement a number of data security reforms, including: appointing a third party to audit its security procedures and reporting to the AGs the procedures that Zappos implements to bring its data security practices in compliance with the Payment Card Industry Data Security Standard.
New York Attorney General Collects From Allegedly Deceptive Debt Purchaser
- New York AG Eric Schneiderman reached a settlement with Encore Capital Group, Inc., to resolve claims that Encore improperly obtained more than 4,500 debt judgments in New York.
- The investigation and settlement were based on allegations that Encore pursued debt collection lawsuits against consumers in New York, even though the underlying debt obligation originated in a different state and was outside of that state’s statute of limitation for debt collection. AG Schneiderman alleged that Encore was able to obtain default judgments on otherwise time-barred claims because many consumers do not generally respond to debt collection lawsuits.
- Encore has agreed to vacate $18 million in allegedly improperly obtained judgments and pay $675,000 in civil penalties and costs. It also has agreed to change its future debt collection operations to provide better disclosures to debtors, including the following information: the name of the original creditor and the date of the debtor’s last payment on the debt, whether the debt is outside of the statute of limitations for litigation purposes, and whether the debt is outside of limits for reporting to credit reporting agencies.
Washington Attorney General Seeks Greater Data Privacy Through Improved State Laws
- Washington AG Bob Ferguson introduced draft legislation, with bipartisan support, designed to amend the state data breach and notification law to better protect consumers through increased breach disclosures.
- The proposed legislation would strengthen data breach notification requirements by eliminating the blanket exemption for encrypted data, requiring consumer notification no later than 30 days whenever personal information is likely compromised, and requiring that the AG be notified within 30 days when a data breach occurs at a business, nonprofit or public agency.
Federal Judge Sends Alleged “Patent Troll” Back to State Court
- A federal judge for the District of Vermont again remanded to state court a lawsuit brought by Vermont AG William Sorrell alleging violations of the Vermont Consumer Protection Act by MPHJ Technology Investments, LLC.
- AG Sorrell is suing MPHJ on allegations that it violated state consumer protection laws by sending “unfair and deceptive” letters to small businesses and nonprofits throughout Vermont, claiming they had infringed MPHJ’s intellectual property and demanding that they pay licensing fees. The patent MPHJ claims to have been infringed pertains to “scanning documents and attaching them to email via a network.”
- This lawsuit was initially filed in Vermont state court in May 2013, and has been removed twice to federal court on arguments that deciding these claims in state court would negatively affect MPHJ’s patent rights under federal law. For more background on this, and a related lawsuit in Nebraska, please see our previous post.
States v. Federal Government
Twenty-Five Attorneys General Argue for Reversal of Ninth Circuit Decision on Gun Law
- A bipartisan group of twenty-five AGs, including Montana AG Tim Fox, submitted an amici brief to the U.S. Supreme Court in support of petitioners’ application for a writ of certiorari to review the Ninth Circuit’s decision affecting gun rights.
- The Ninth Circuit decision, Jackson v. City & County of San Francisco, upheld a San Francisco ordinance requiring firearms in a private residence to be stored in locked and inoperable condition when not being carried on a person. The amici AGs—many from states in the Ninth Circuit—argue that this ordinance infringes on gun owners’ rights under the Second Amendment by denying them immediate access for the core lawful purpose of home defense.
- The AGs contend that the San Francisco ordinance in question is substantially similar to the law that was struck down for being too restrictive in District of Columbia v. Heller, a 2008 Supreme Court decision.
Eleven Attorneys General Argue in Support of Executive Action on Immigration
- Eleven states, led by Washington AG Bob Ferguson, submitted an amici brief to the U.S. District for the Southern District of Texas as part of the recently filed case Texas v. U.S. The AGs argue in support of President Obama’s executive actions on immigration and in opposition to the plaintiff states’ motion for a preliminary injunction.
- In contrast, recently elected Texas AG Ken Paxton is leading the group of 24 states seeking to enjoin and have declared unconstitutional the executive actions, which include a U.S. Department of Homeland Security (DHS) Directive providing deferred action for certain groups of immigrants. A preliminary hearing is scheduled for today in Brownsville.
- In their amici brief, the AGs supporting President Obama’s actions argue that the requirements for injunctive relief are not met because directives allowing immigrants to work legally do not irreparably harm but rather substantially benefit states, through increased wages and therefore spending power of immigrant workers, increased state tax revenues, and by allowing the DHS to focus its resources on the deportation of criminals and other threats to state security.
Massachusetts Attorney General Resolves Disputes Over Electricity Prices; Provider to Refund $44.7 Million
- Massachusetts AG Martha Coakley settled a series of related disputes pending before the Massachusetts Department of Public Utilities (DPU), that alleged that NSTAR Electric & Gas Company overcharged customers.
- The overcharges are alleged to have occurred due to billing practices that allowed NSTAR to raise rates to address predicted increases in certain associated costs, such as capital improvement expenses, energy efficiency projects, and pension increases. However, the DPU had allegedly failed to review and reconcile the predicted cost increases with the actual cost outlays each year for accuracy. The complaints stem from allegations that NSTAR increased rates without later incurring the associated costs.
- As a result of the settlement, which must be approved by the DPU in March, NSTAR will refund $44.7 million in overcharges, provided to its current customers in the form of rate reductions, starting in April 2015.
Congratulations to Ann-Marie Luciano!
- State AG Monitor wishes to congratulate blog contributor Ann-Marie Luciano, who was elected to partner in the State Attorneys General Practice in Dickstein Shapiro’s Washington, DC, office as of January 1, 2015. Ann-Marie represents clients facing litigation and investigations brought by the Federal Trade Commission, Department of Justice, State AGs, and other regulators in a wide array of industries, including telecommunications, consumer technology, financial services, and education. Ann-Marie also advises clients on antitrust and consumer protection compliance issues, and counsels on potential acquisitions from an antitrust perspective. Ann-Marie earned a B.A., magna cum laude, from Allegheny College and a J.D. from Cornell University Law School.
Indiana Seeks to Regulate E-Cigarettes as Regular Cigarettes
- Indiana AG Greg Zoeller is working with the Indiana legislature to create and modify the state regulatory framework to better address the growing use of e-cigarettes among teenagers.
- The proposed legislation would require “vape shops” to be licensed and would give more oversight authority to the Indiana Alcohol and Tobacco Commission. It would also tax e-cigarettes in similar fashion to that of regular cigarettes, include them in the statewide ban on cigarettes sales to persons under age 18, and require child-resistant packaging to protect against accidental exposure.
- AG Zoeller currently sits as vice chair of the National Association of Attorneys General (NAAG) Tobacco Committee, where he promotes federal regulation of e-cigarettes similar to traditional tobacco products.
Massachusetts Resolves Allegations of Deceptive Sales Practices With Electricity Supplier
- Massachusetts AG Martha Coakley reached an agreement with Just Energy Group Inc. to resolve allegations that it deceived consumers through marketing and selling electricity supply contracts.
- The lawsuit alleged that Just Energy, through a third-party telemarketing vendor and door-to-door agents, misrepresented the true cost of service, falsely claimed to offer products affiliated with a state-run program, entered consumers into agreements without their consent, and charged costly termination fees that were not adequately disclosed.
- The Assurance of Discontinuance was filed in Suffolk Superior Court and requires Just Energy to pay $3.8 million to an independent trust fund for purposes of making restitution payments to certain consumers, and $200,000 to the Commonwealth.
False Claims Act
Five States Settle With Dialysis Provider Over Allegations of Illegal Kickbacks
- Colorado AG John Suthers, along with the AGs from California, Florida, Kentucky, and Ohio, reached an agreement with DaVita Healthcare Partners Inc. to resolve claims that DaVita violated state False Claims Acts by submitting false and fraudulent claims to state Medicaid programs.
- The AGs’ claims were based on allegations that DaVita provided a “kickback” through buying or selling ownership shares in joint ventures to the physicians at prices that were manipulated to make the transactions financially favorable for the physicians, with the understanding that the physicians would primarily refer patients to the resulting jointly-owned dialysis centers.
- Under the terms of the state settlement agreement, DaVita will pay $22 million to the five states, with Colorado receiving $3 million. DaVita previously settled with the U.S. Department of Justice on related allegations of violating federal law, agreeing to pay $350 million in restitution and $39 million in civil forfeiture. DaVita also entered into a corporate integrity agreement with the U.S. Department of Health and Human Services which requires it to restructure certain business arrangements and to appoint an independent monitor to prospectively review DaVita’s future business arrangements.
Massachusetts Settles With Telecom Provider for Overcharging the State
- Massachusetts AG Martha Coakley settled with Verizon New England Inc. over claims that the company overcharged the Commonwealth for telecommunications services provided under a statewide procurement contract. The settlement resolves a lawsuit filed by a whistleblower alleging violations of the False Claims Act, in which the Commonwealth intervened.
- The lawsuit specifically alleged that Verizon invoiced certain state customers at rates higher than those permitted by the state contract for various landline services from September 2006 to October 2012. As a result of the settlement, Verizon agreed to pay $1.3 million to the state and to be responsible for any additional related payments to towns, cities, and other entities impacted by the alleged overbilling.
- Verizon issued the following statement: “After a thorough review, Verizon and the attorney general have agreed to settle certain billing issues under a now-expired state contract…We have a long history of providing reliable, cost-efficient services, and promptly addressing issues that can arise under agreements as complex and wide-ranging as the state’s blanket contracts.”
New York Attorney General Goes After Medicaid Transportation Provider
- New York AG Eric Schneiderman settled with Apple Transportation of New York, Inc., resolving allegations that from January 1, 2004, to October 30, 2008, Apple overbilled the state Medicaid program for transportation services provided to Medicaid recipients to and from health care appointments.
- As part of the settlement, Apple admitted that it frequently billed Medicaid for ambulette services when it had only provided livery services to passengers. Transportation providers can bill Medicaid at a higher rate for ambulette services because physical assistance is provided to the Medicaid passenger in connection with a trip.
- Apple agreed to pay $300,000 to resolve the dispute.
For-Profit Healthcare Network Seeks Attorney General Approval to Buy Nonprofit Hospitals
- California AG Kamala Harris has until February 6 to decide whether to approve a proposal by Prime Healthcare Services to acquire the Daughters of Charity Health System, which consists of six nonprofit hospitals.
- Prime Healthcare, a for-profit network that operates 29 hospitals in nine states, has agreed to purchase the six hospitals for $843 million in cash and assumed liabilities. However, California law requires AG Harris to approve the sale because it would effectively change the status of the six hospitals from nonprofit to for-profit.
- Although Prime Healthcare has a record of reviving financially distressed hospitals, there are some concerns that the sale to Prime Healthcare will cause an erosion of services currently offered through the Daughters of Charity hospitals, especially those services oriented to low-income patients.
Ohio Attorney General Files Motion to Support Ohio Pension Funds as Lead Plaintiffs in Class Action
- Ohio AG Mike DeWine filed a motion in support of two Ohio pension funds, arguing that the funds should be appointed lead plaintiffs in a class action lawsuit by a variety of investors against American Realty Capital Properties, Inc. (ARCP), a real estate investment trust based in New York.
- The two pension funds, the State Teachers Retirement System of Ohio and the Ohio Public Employees Retirement System, reported losses in value of more than $7.5 million as a result of alleged accounting fraud by ARCP. The lawsuit alleges that ARCP overstated key performance metrics, and under reported net losses for reporting periods ending June 30, 2014.
- The Ohio funds, plaintiffs in Ciraulu v. American Realty Capital Properties, Inc., No. 14-08659 (S.D. N.Y. Oct. 30 2014), are seeking consolidation with at least six related lawsuits, and have filed a separate motion to be named lead plaintiffs of the consolidated action.