State AG Monitor

State AGs in the News

Posted in 2014 Election, Consumer Financial Protection Bureau, Consumer Protection, Employment, Environment, Medicaid Fraud, Mortgages/Foreclosures, Pharmaceuticals

2014 Election

Connecticut Election Results

  • Incumbent AG George Jepsen (D) and Kie Westby (R) received their respective parties’ nomination after both ran unopposed in the primary. They will face Stephen Fournier (Green Party) in the general election.

Minnesota Election Results

  • Incumbent AG Lori Swanson (D), who ran unopposed in the Democratic primary, will face Scott Newman (R), Andy Dawkins (Green Party), Brandon Borgos (Independence Party), Mary O’Connor (Libertarian Party), and Dan Vacek (Independent) in November’s general election. Newman defeated Sharon Anderson in the Republican primary by a margin of 63% to 37%.

Wisconsin Election Results

  • In an open seat primary in Wisconsin, Susan Happ defeated Jon Richards and Ismael Ozanne for the Democratic nomination by a margin of 52% to 33% and 15%. Happ will face Brad Schimel, who ran unopposed in the Republican primary, and Thomas Nelson, Sr. (Libertarian) in November’s general election. Incumbent AG J.B. Van Hollen (R) chose not to run for reelection.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Begins Accepting Virtual Currencies Complaints

  • The Consumer Financial Protection Bureau (CFPB) simultaneously issued a consumer advisory and announced that it will begin accepting complaints related to virtual currencies, such as Bitcoin, which are alternatives to current payment systems.
  • According to CFPB Director Richard Cordray, the virtual currency market is like the “Wild West.” The CFPB stated that virtual currency exchange rates are volatile, have unclear costs, are subject to risk from serious data security threats, and may not offer refunds for lost or stolen funds.
  • The CFPB also warns consumers that neither the Federal Deposit Insurance Corporation nor the National Credit Union Share Insurance Fund, which insure losses in the event a covered entity fails, extends coverage to virtual currency accounts.

Consumer Protection

Twenty-Nine Attorneys General Submit Comments to FDA Urging Regulation of E-Cigarettes

  • The AGs from Illinois, Indiana, Massachusetts, and New York, joined by 25 other AG signatories, submitted comments to the Food and Drug Administration (FDA) in support of an FDA proposed rule and urging it to take additional steps in the regulation of e-cigarettes. The AGs particularly emphasized the importance of adding regulatory protections for young people.
  • The FDA’s proposed rule would deem e-cigarettes tobacco products and bring those products within the FDA’s jurisdiction under the Food, Drug, and Cosmetic Act, as amended by the Family Smoking Prevention and Tobacco Control Act.
  • Among other things, the AGs urged the FDA to prohibit flavors, other than tobacco and menthol; apply the same advertising and marketing restrictions already in place for cigarettes to e-cigarettes; and strengthen health warnings.

Vermont Attorney General Seeks to Dismiss Lawsuit Filed in Opposition to State Genetically Engineered Food Labeling Law

  • In Vermont federal district court, Vermont AG William Sorrell filed a motion to dismiss a lawsuit brought by food manufacturer trade associations. The lawsuit seeks to invalidate state Act 120, which requires the labeling and disclosure of foods produced with genetic engineering.
  • The motion argues that the act’s essential requirements are appropriate under the First Amendment and serve legitimate state interests, that the statute is not impermissibly vague, that the act does not violate the Commerce Clause because there is not a significant burden on interstate commerce, and that the act is not expressly or impliedly preempted because it is a valid exercise of the state’s regulatory power.
  • The motion also argues that several plaintiffs lack standing to bring the lawsuit and that the state governor and health and finance commissioners are not proper defendants because they are not responsible for enforcing the act.

New York Attorney General Enters Into Agreement With Retailer Regarding Allegations of Racial Discrimination of Customers

  • After an investigation, New York AG Eric Schneiderman entered into an agreement with Barneys New York to resolve allegations that it racially discriminated against minority customers.
  • The AG found that Barneys lacked comprehensive written policies regarding racial profiling and objective race-neutral criteria for investigating possible shoplifting or credit card fraud.
  • Pursuant to the agreement, Barneys will pay $525,000 in costs, fees, and penalties; retain an antiprofiling consultant; establish new recordkeeping requirements; limit access to closed-circuit televisions; adopt new loss-prevention and antiprofiling policies; develop new employee training; and investigate all customer complaints of profiling.

Vermont Attorney General Settles “Cramming” Allegations

  • Vermont AG William Sorrell settled “cramming” allegations with Enhanced Services Billing, Inc., for $200,000. “Cramming” is the practice of adding unauthorized charges to telephone bills.
  • According to the complaint, which the AG filed in May, Enhanced Services violated state law by facilitating cramming by Localbizusa, a web services seller, and failing to alert customers of the charges. Localbizusa allegedly signed businesses up for web services without consent, used deceptive telemarketing, and failed to provide required disclosures.
  • Enhanced Services will pay $75,000 in refunds to affected businesses and $125,000 to the state.

Virginia Attorney General Enters Into Agreement With Uber and Lyft Ridesharing Services

  • Virginia AG Mark Herring and Governor Terry McAuliffe announced agreements with ridesharing services Uber Technologies, Inc. and Lyft that will allow operation of these services in the state.
  • The agreements are the result of discussions with the companies following cease and desist letters sent by the Virginia Department of Motor Vehicles in June. According to the AG, the goals of the agreements are ensuring passenger safety, compliance with state law, appropriate insurance coverage, transparency of operations, and fairness among transportation providers.
  • Uber thanked the AG and Governor for “putting consumers first and embracing innovation, choice and opportunity.” Lyft stated that the agreement allows it “to continue providing safe rides and economic opportunity to Virginians as we work with state leaders to secure a permanent future for ridesharing.”

Employment

Massachusetts and New Hampshire Attorneys General Send Letter to Retail Chain Regarding Laws Governing Worker Terminations

  • Massachusetts AG Martha Coakley and New Hampshire AG Joseph Foster sent a letter to Market Basket to remind it of state laws governing employee terminations. AG Coakley also established a hotline for Market Basket employees to use to file complaints.
  • Market Basket allegedly terminated several employees, which resulted in a number of calls to the AGs’ offices regarding workers’ rights.
  • The letter reminds the retailer that the states’ laws require an employer to pay an employee all wages upon termination. Wages include any bonuses; earned sick, holiday, or vacation pay; any benefit plan contributions due; and any earned commission. The letter also reminds the retailer that any violations of these laws may result in civil or criminal penalties or a civil lawsuit.

Environment

Fifteen Attorneys General Send Letter to EPA Objecting to Rule Potentially Impacting Clean Water Act Exemption

  • Nebraska AG Jon Bruning, joined by Iowa AG Tom Miller and 13 other state AGs, sent a letter to the Environmental Protection Agency (EPA) to object to its rule, which would allegedly narrow the Clean Water Act exemption for “normal farming activities.”
  • The Clean Water Act provides an exemption for normal farming activities from permitting requirements for discharge of dredged or fill material. The AGs argue that normal farming activities is broadly defined and includes upland soil and water conservation practices, but that the EPA rule would arbitrarily narrow the scope and impermissibly eliminate the exemption for many of these activities.
  • The AGs also argue that the rule is unlawful because it was not issued in compliance with the notice and comment procedure required by the Administrative Procedure Act.

Kansas Attorney General Petitions DC Circuit to Block an EPA Settlement Agreement Regarding Implementation of Carbon Emissions Regulations

  • Kansas AG Derek Schmidt petitioned a federal appeals court to block a final settlement agreement between the EPA, 11 states, and private environmental organizations. The terms of that agreement allow the EPA to proceed with regulating carbon dioxide emissions from existing coal-fired power plants under the Clean Air Act.
  • In support of his argument, AG Schmidt states that the U.S. Supreme Court has held that the EPA lacks authority to regulate existing power plants under the Clean Air Act and that doing so will impose substantial new costs on existing power plants that will be passed on to consumers. He also states that the agreement represents a “sue and settle” arrangement that allows special interests and federal regulators to improperly exclude consumers and citizens from the process.
  • We recently blogged about a petition submitted by 12 other AGs in this case that seeks review of the agreement and asserts that the agreement was unlawful as to coal-fired power plants because those plants are already regulated under the Clean Air Act and cannot be subject to double regulation.

Texas Attorney General Opposes Proposed EPA Rule Regarding Navigable Waters

  • Texas AG Greg Abbott sent a letter to the EPA urging it to withdraw proposed rulemaking for navigable waters under the Clean Water Act. AG Abbott claims that the proposed rule exceeds the EPA’s authority to regulate navigable waters and will convey to the federal government a potentially boundless amount of jurisdiction over water and land.
  • In support of his argument, AG Abbott stated that the proposed rule is contrary to Congress’s objective in passing the Clean Water Act, is inconsistent with U.S. Supreme Court precedent, lacks cooperative federalism, is without scientific or economic justification, and would erode private property rights.

Medicaid Fraud

Texas Attorney General Settles Medicaid Fraud Allegations for $19.5 Million

  • Following an investigation, Texas AG Greg Abbott settled with Taro Pharmaceuticals USA, Inc., for $19.5 million to resolve allegations that it fraudulently reported inflated drug prices to the Medicaid program, causing the program to reimburse pharmacies more than it should have for certain products.
  • According to the AG, when manufacturers report inflated market prices for products to the Medicaid program, the program may reimburse the pharmacies at the inflated rate. Taro allegedly used the difference between actual market rate and the inflated rate to induce pharmacies to purchase its products.
  • Because the state and federal governments jointly fund Medicaid, a portion of the settlement will be paid to the federal government.

Mortgages/Foreclosures

Connecticut and Florida Attorneys General Sue Mortgage Rescue Relief Service Provider

  • Connecticut AG George Jepson and Florida AG Pam Bondi sued and obtained a temporary restraining order against Berger Law Group, Resolution Law Group, and related entities and individuals alleging that they engaged in deceptive practices and illegally collected upfront fees from distressed homeowners.
  • The temporary restraining order freezes assets and prohibits the defendants from collecting any fees or making any misrepresentations. The complaint alleges collection of advance fees, misrepresentations, and failure to make certain disclosures in violation of Regulation O; violations of the state deceptive and unfair trade practices act; and civil theft.
  • The AGs seek permanent injunctive relief; consumer relief, including rescission and reformation of contracts, refunds, restitution, and disgorgement; civil penalties; and costs.

Pharmaceuticals

Forty-Two Attorneys General Settle for $35 Million to Resolve Allegations of Deceptive Marketing Practices

  • Forty-two AGs settled with Pfizer to resolve claims that its subsidiary, Wyeth Pharmaceuticals Inc., engaged in improper marketing of the drug Rapamune prior to Wyeth’s acquisition by Pfizer. The settlement requires Pfizer to pay $35 million to the states.
  • Rapamune is an immunosuppressive drug approved by the FDA for use after kidney transplants. Wyeth allegedly improperly promoted Rapamune for unapproved uses, including for use after liver, heart, and lung transplants.

 

State AGs in the News

Posted in Antitrust, Consumer Protection, Energy, Environment, Financial Industry, Health Care, State AGs in the News

Hot News

Navigating State AG Subpoenas: A Map

  • Dickstein Shapiro State AG Practice Partner Milton A. Marquis and Counsel Ann-Marie Luciano published an article in the Summer 2014 issue of the American Bar Association’s State and Local Law News outlining strategies for handling a subpoena from a State Attorney General.
  • The article maps out the key areas every business should explore when navigating an AG subpoena and civil investigatory process to ensure efficiency and limit exposure.
  • To read more, please see the full article.

Recent NLRB Directive Against McDonald’s Provides Fuel for Active Attorneys General

  • The general counsel of the National Labor Relations Board (NLRB) authorized 43 complaints of unfair labor practices brought by McDonald’s franchise workers to proceed against the franchisor, McDonald’s USA LLC.
  • Allowing the workers’ cases to proceed against McDonald’s is not only unprecedented, but could have far-reaching implications for the entire franchise industry, including other restaurants, hotels, car and auto services, and financial services, among other businesses.
  • By increasing corporate franchisors’ potential liability, the NLRB’s directive, if upheld, could overturn decades of established franchise law and jeopardize the viability of the franchise business model. To learn more, please read our blog post.

Troll Tamers: State Attorneys General’s Role in the Patent Reform Debate

  • Dickstein Shapiro State AG Practice Partner Bernie Nash and Associate Christopher Allen discuss non-practicing entities (NPEs), also known as patent trolls, in their article published on July 31 in the Association of Corporate Counsel’s CLO Executive Bulletin.
  • Over the past two years, State AG offices have found themselves central to dealing with allegedly frivolous patent infringement claims that threaten litigation from NPEs. As Congressional reform efforts have stalled, AGs will likely continue to lead in this area as the debate continues about not only stopping patent trolls, but also how to balance innovation with intellectual property rights and economic growth.
  • To read more, please see the full article.

2014 Election

Kansas Primary Election Results

  • Incumbent AG Derek Schmidt (R) and A.J. Kotich (D) received their respective party’s nomination after both ran unopposed in the primary.

Antitrust

Proposed Apple E-Book Settlement Preliminarily Approved by Court

  • The court preliminarily approved the proposed settlement in the Apple e-book case. The case is an antitrust class action lawsuit brought against Apple Inc. by consumers and 33 AGs alleging that it conspired with publishers to fix prices.
  • As we previously blogged, the settlement proposes that Apple pay up to $450 million. The settlement is still contingent on the outcome of Apple’s pending appeal of a 2013 ruling finding that Apple violated antitrust laws. Pursuant to the agreement, if the appeals court vacates the verdict or finds that Apple did not violate antitrust laws, the amount that Apple pays under the settlement could be reduced to a lesser amount or to nothing.
  • A final fairness hearing is set for November 21.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Releases Report on Bank Overdraft Fees

  • The Consumer Financial Protection Bureau (CFPB) released a report about overdraft fees and services for bank debit cards and ATM transactions. The CFPB asserts that overdraft practices continue to have an ongoing impact on consumers.
  • According to the report, the majority of debit card overdraft fees are incurred on transactions of $24 or less and  the majority of overdrafts are repaid within three days. The CFPB calculated that when analyzed in lending terms, these numbers equate to a loan with a 17,000 percent annual percentage rate.
  • In remarks regarding the report, the CFPB Director stated that banks should not be precluded from offering overdraft coverage. The CFPB Director proposed further examination of the issue as the next step in reducing any alleged consumer harm.

Consumer Protection

Arizona Attorney General Issues Opinion That State Luxury Taxes and Smoking Prohibitions Do Not Apply to E-Cigarettes

  • In response to a question from State Senator Steven Yarbrough, Arizona AG Thomas Horne issued a formal opinion that state tobacco luxury tax and smoking prohibition laws do not apply to liquid nicotine vapor products, commonly known as electronic cigarettes or e-cigarettes.
  • According to the opinion, the state tobacco luxury tax applies only to defined categories of tobacco products. The AG stated that e-cigarettes do not fall into any of these defined categories because they do not contain any tobacco. The AG acknowledged that Minnesota applies tobacco luxury tax to e-cigarettes, the Minnesota statute applies to tobacco products and products “derived from tobacco,” while Arizona’s statute does not include the “derived from” language or terms broad enough to apply to e-cigarettes.
  • The AG also interpreted the state smoking prohibitions as only applying to “lighted tobacco product[s].” The AG stated that since e-cigarettes are neither lit nor tobacco products for purposes of the statute, the smoking prohibitions do not apply. The AG also stated that e-cigarettes do not violate the purpose of the statute, which is to protect people from the alleged health risks associated with secondhand smoke.

Thirteen Attorneys General and the CFPB Settle With Military Consumer Lender

  • Thirteen AGs and the CFPB, led by New York AG Eric Schneiderman, settled with Colfax Capital Corporation (formerly known as Rome Finance Co., Inc.); its subsidiary, Culver Capital, LLC (formerly known as Rome Finance LLC); and the companies’ owners (collectively, Rome Finance).
  • Rome Finance allegedly financed consumer debts to military servicemembers. The AGs and the CFPB alleged multiple violations of state and federal law, including failure to accurately disclose finance charges and interest rates; failure to provide required periodic disclosures; violations of state and federal laws governing unfair, deceptive, or abusive acts and practices; and violation of the Military Lending Act for excessive interest, onerous provisions, and for requiring allotment payment backed by access to a bank account.
  • The settlement requires liquidation of the companies, provides almost $92 million in debt relief to affected servicemembers, reports debt as paid to consumer finance reporting agencies, vacates any related judgment, and bans the companies and owners from consumer lending.
  • In addition to the CFPB and the New York AG, AGs from the following states participated in the settlement: Colorado, Delaware, Florida, Georgia, Indiana, Iowa, Kentucky, Massachusetts, Michigan, North Carolina, Tennessee, and Vermont.

Hawaii Attorney General Reaches Settlement for $11.3 Million to Resolve Allegations of Deceptive Credit Card Marketing Practices

  • Hawaii AG David Louie settled with Bank of America, JP Morgan Chase, Discover Financial Services, and Citibank for $11.3 million to resolve allegations that they engaged in deceptive marketing practices related to credit card payment protection plans in violation of state law.
  • The AG alleged that while selling credit card payment protection plans, the companies provided misleading information, enrolled customers without their consent, distorted plan benefits, billed for services that were not provided, unfairly charged customers interest and fees, and denied plan benefits to eligible participants.
  • The settlement proceeds will go to a state fund. According to the AG, federal enforcement actions by the CFPB and U.S. Office of the Comptroller of the Currency, and private class action lawsuits, have sought and are seeking restitution for consumers.

Energy

North Carolina Attorney General Sends Cease and Desist Notice to Company Seeking “Fracking” Rights

  • North Carolina AG Roy Cooper sent a cease and desist notice to Crimson Holdings requesting that it stop soliciting leases from state landowners for “fracking,” or hydraulic fracturing. The notice comes in advance of the expected legalization of fracking that is anticipated for next year.
  • The AG alleges that the company’s leases violate state law because they lack cancellation rights and appropriate disclosures and are for terms that are longer than the state limit of 10 years. The AG also alleges that the company’s solicitations are illegal because its land agent is not registered in the state.
  • The AG demands that the company stop doing business in the state, cancel any signed leases, and supply the AG’s office with the names of all landowners who sold fracking rights to the company.

Environment

Twelve Attorneys General Petition DC Circuit to Review an EPA Settlement Agreement to Compel Withdrawal of a Proposed Regulation

  • Twelve AGs, led by West Virginia AG Patrick Morrisey, petitioned the U.S. Court of Appeals for the DC Circuit for review of a 2011 settlement agreement, in which the U.S. Environmental Protection Agency (EPA) committed to proposing and finalizing a rule that required states to regulate existing coal-fired power plants under the Clean Air Act (CAA).
  • The AGs allege that the agreement is unlawful because coal-fired power plants are already regulated under a separate section of the CAA and the law prohibits double regulation of these plants.
  • The petition for review requests that the court find that the settlement agreement is unlawful to the extent that it commits the EPA to proposing or finalizing a coal-fired power plant rule, to enjoin the EPA from complying with the settlement by continuing the ongoing comment period or finalizing its proposed rule, and to vacate the relevant parts of the settlement agreement.

Financial Industry

California Attorney General May Sue Bank for Alleged Misrepresentations Regarding Securities and Investment Vehicles

  • According to a regulatory filing and news reports, California AG Kamala Harris may file a lawsuit against Morgan Stanley for allegedly making misrepresentations about residential mortgage-backed securities and structured investment vehicles (SIV). In addition, the SIV Cheyne Finance LLC allegedly issued securities marketed to the California Public Employees Retirement System before going bankrupt in 2007.
  • According to one news report, the state retirement system purchased $1.3 billion worth of the SIV. The regulatory filing states that the AG’s office has made preliminary conclusions that Morgan Stanley violated state law and that the AG may seek injunctive relief, treble damages, and penalties.

New York Attorney General Allegedly Expands “Dark Pool” Probe to Two More Banks

  • According to news reports, New York Attorney General Eric Schneiderman expanded his probe of “dark pools,” which are privately owned and operated trading exchanges, to include the dark pools run by Goldman Sachs and Morgan Stanley.
  • We previously blogged about a lawsuit that AG Schneiderman brought against Barclay’s Capital Inc. and Barclays PLC alleging wrongful practices related to the operation of its dark pool. Barclays has denied the charges.

Health Care

West Virginia Attorney General Sues U.S. Department of Health and Human Services for Allegedly Not Enforcing the Affordable Care Act

  • West Virginia AG Patrick Morrisey sued the U.S. Department of Health and Human Services (HHS) in the U.S. District Court for the District of Columbia. The lawsuit alleges that the President and HHS unlawfully suspended enforcement of Affordable Care Act (ACA) requirements for existing health care policies and shifted the burden and responsibility of cancellation or approval of individual health plans under the ACA to the states.
  • In the complaint, AG Morrisey claims violations of the Affordable Care and Administrative Procedure Acts, unlawful delegation of executive and legislative responsibility to the states, and violation of state sovereignty under the U.S. Constitution.
  • The AG requests declaratory relief, remand of the case to the U.S. Department of Health and Human Services “to permit the Administration promptly to work with Congress to address the fact that the ACA rendered millions of Americans’ health insurance plans unlawful,” costs, and fees.

State AGs in the News

Florida Attorney General Launches Mobile App

  • Florida AG Pam Bondi launched an application, or “app,” for mobile devices designed to allow consumers to file complaints and gain easy mobile access to news, announcements, and other information.
  • The app provides information about the AG and her office, news releases, the AG’s weekly briefing, and an online form to directly file a Medicaid Fraud Control Unit complaint or other complaint.
  • “By launching this Attorney General’s Office app, we are bringing key services right to Floridians’ smart phones and devices,” stated AG Bondi. “It is our hope that by making interacting with my office more convenient, we can enhance the services we provide to all Floridians.”

 

Recent NLRB Directive Against McDonald’s Provides Fuel for Active Attorneys General

Posted in Employment, States v. Federal Government

This week the general counsel of the National Labor Relations Board (NLRB), Richard Griffin, authorized 43 complaints of unfair labor practices brought by McDonald’s franchise workers to proceed against the franchisor, McDonald’s USA LLC. Allowing the workers’ cases to proceed against McDonald’s is not only unprecedented, but could have far-reaching implications on the entire franchise industry, including other restaurants, hotels, car and auto services, and financial services, among other businesses. By increasing corporate franchisors’ potential liability, the NLRB’s directive, if upheld, could overturn decades of established franchise law and jeopardize the viability of the franchise business model.

The NLRB directive is based on the theory that the Fair Labor Standards Act (FLSA), which extends liability to employers, encompasses in the definition of employer any individual that possesses sufficient control over the workers in question based on the economic realities of the relationship. See Zheng v. Liberty Apparel Co. Inc., 355 F.3d 61, 66 (2d Cir. 2003). Although courts have analyzed the employer-employee relationship between the franchisor and a franchisee’s employees, no court has extended FLSA liability to a franchisor for the acts of its franchisee. Instead, courts generally recognize that while the franchisor imparts minimum standards on the franchisee to ensure high quality and consistency across its brand, the franchisee independently owns and operates the franchise and, thus, is responsible for managing its day-to-day activities, including hiring and firing employees, setting wages, and establishing work schedules.

If upheld, the NLRB’s directive will likely embolden many AGs, particularly those who have been active in workplace issues in their role as counsel to their state labor agency, to pursue larger franchisors for the actions and decisions of their franchisees. Recently, AGs have actively investigated the labor violations of franchisees and other employers of low-wage workers.  For example, Massachusetts AG Martha Coakley fined a Massachusetts Burger King franchisee $50,000 for violations of child labor laws, New York AG Eric Schneiderman recovered $500,000 from seven McDonald’s franchisees and $450,000 from six Domino’s franchisees for wage and hour violations, and Illinois AG Lisa Madigan recovered $100,000 from a contractor for underpaying employees on a public works project. AG Schneiderman and Washington AG Bob Ferguson have also been active in supporting the rights of low-wage workers.

In light of these recent actions, businesses should expect AGs to continue to seek new ways to pursue legal action against corporate franchisors for alleged labor violations of their franchisees.

State AGs in the News

Posted in Antitrust, Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Employment, Environment, Financial Industry, For-Profit Colleges, Health Care, Mortgages/Foreclosures, State AGs in the News

Antitrust

West Virginia Attorney General Settles Allegations of Antitrust Violations

  • West Virginia AG Patrick Morrisey settled antitrust allegations with GE Funding Capital Market Services, Trinity Plus Funding Co. LLC, and Trinity Funding Co. LLC for $950,000. Those allegations included violations of the Sherman Act and the state Antitrust Act by illegally rigging bids, fixing prices, and manipulating the municipal derivatives market.
  • The AG sued more than 20 companies as part of this initiative and previously had settled with Royal Bank of Canada, Bank of America, Morgan Stanley, and JPMorgan Chase. The other lawsuits are ongoing.
  • Pursuant to the settlement, the money paid by the companies, minus fees and costs, will go to state agencies that invested in municipal derivatives. The companies denied the allegations during the lawsuit and denied any liability in the settlement.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Director Invites Consumers to Share Personal Financial Marketplace Experiences

  • In conjunction with the Consumer Financial Protection Bureau’s (CFPB) third anniversary, the CFPB Director invited consumers to share their personal financial marketplace experiences. The CFPB maintains that these stories can help show trends and provide insight into consumer financial products and services.
  • The invitation closely follows the CFPB’s proposed policy statement that it would add consumer complaint narratives to its consumer complaint database. Currently, the CFPB only publishes basic summary and demographic information related to consumer complaints. This proposal has been highly controversial among commentators and several concerns have been raised, including concerns regarding privacy and unverified data.

Consumer Protection

Amicus Brief Filed in U.S. Supreme Court by 27 Attorneys General Regarding the Truth in Lending Act

  • A coalition of 27 AGs, led by New York AG Eric Schneiderman, filed an amicus brief in the U.S. Supreme Court in the case of Jesinoski v. Countrywide Home Loans. The coalition requested that the Court overturn a ruling by the U.S. Court of Appeals for the Eighth Circuit and find that consumers may rescind a transaction under the federal Truth in Lending Act (TILA) without filing a lawsuit.
  • TILA requires creditors to disclose the terms of loans to consumers and inform them of their statutory rights. If creditors fail to do this, consumers may rescind a loan within three years of the date of the loan. The question presented to the court is whether notice to creditors of intent to rescind a covered home loan is sufficient or whether consumers must also file a lawsuit.
  • The AGs argue that TILA does not contain an express requirement for a lawsuit to enforce rescission rights. They also argue that rescission is a powerful consumer remedy and that requiring consumers to file court actions to exercise TILA rescission rights would dilute the deterrent purpose of the remedy and place it out of reach for many consumers.
  • Argument in the case has not been scheduled yet.

Vermont Attorney General Sues Discount Retail Chain for Allegedly Violating Its Prior Settlement With the State

  • Vermont AG William Sorrell filed a lawsuit against Dollar Tree Stores, Inc., alleging that it violated a 2010 settlement agreement with the state that prevented it from selling jewelry that contained toxins, such as lead or cadmium, in violation of state law.
  • The complaint is seeking injunctive relief that will prohibit Dollar Tree from selling jewelry in the state, consumer relief, civil penalties of up to $10,000 per violation of the state Consumer Protection Act, costs, and fees.

New York Attorney General and Ridesharing Service Reach Agreement

  • New York AG Eric Schneiderman and the state Superintendent of Financial Services reached an agreement with Lyft that will allow the launch of ridesharing services in New York City.
  • Pursuant to the agreement, Lyft will operate in compliance with state laws and regulations, launch in New York City using only commercial drivers, and suspend operations in Buffalo and Rochester. The AG and Superintendent will withdraw the application for a temporary restraining order and preliminary injunction that they previously filed against Lyft.

Connecticut Attorney General and Federal Trade Commission Settle With Ticket Resellers

  • Connecticut AG George Jepsen and the Federal Trade Commission (FTC) filed a complaint and consent orders related to allegations that TicketNetwork, Inc. (a ticket resale company), its subsidiary, two business partner companies, and the owners of those business partner companies (collectively, TicketNetwork) violated the state Unfair Trade Practices Act and the Federal Trade Commission Act.
  • The AG and FTC allege that TicketNetwork falsely created the impression for consumers that TicketNetwork websites were the websites of the official venues or other entities authorized to sell tickets at face value.
  • The agreements, which the court must approve, prohibit TicketNetwork from making any misrepresentations on their websites, require them to make certain disclosures on their websites, and require them to collectively pay $1.4 million to the state.

Data Privacy

Massachusetts Attorney General Settles Data Breach Allegations

  • Massachusetts AG Martha Coakley settled with Women & Infants Hospital to resolve allegations that it violated the HIPAA Privacy Rule and state rules and regulations designed to protect personal and protected health information.
  • The settlement arose from a data breach that the hospital reported to the AG’s office in November 2012. The hospital allegedly discovered several missing unencrypted backup tapes containing personal and protected health information. The AG alleged that inadequate employee training and policies contributed to delays in the discovery and reporting of the breach.
  • Pursuant to the settlement, the hospital agreed to pay $150,000 to the state. That amount includes a civil penalty, fees, costs, and payments to funds to support future information security litigation and promote data protection education and awareness. The hospital also will take measures to enhance its compliance program, including changing its inventory process and conducting an audit and any necessary remediation of its security measures.

Employment

Indiana Attorney General Requests Stay of Ruling Regarding State Right to Work Statute

  • Indiana AG Greg Zoeller requested an immediate stay of a county judge’s ruling finding the state right to work statute unconstitutional. The statute prohibits charging union dues to nonmembers as a condition of employment. The judge ordered the ruling to take effect upon entry, but the AG seeks a stay pending appeal.
  • “Strong opinions exist on both sides about involuntary union dues, but the Attorney General’s Office has a duty to defend the laws the Legislature passes from legal challenges plaintiffs file. If a trial court finds a law unconstitutional, then the appropriate action is to stay its ruling pending the appeal,” stated the AG.
  • The AG is defending the statute in another case where a judge found the law unconstitutional. That case is stayed pending appeal to the state supreme court. Oral arguments for that appeal are scheduled for September 4.

Environment

Colorado Attorney General Responds to Fracking Decision

  • Colorado AG John Suthers applauded a state district court decision that a city may not ban hydraulic fracturing (also known as fracking) or storage and disposal of fracking waste.
  • City of Longmont voters had passed an amendment to their city charter that banned fracking and the storage and disposal of fracking waste. The city asserted that the amendment was a valid exercise of local police power and land use authority and that the state oil and gas conservation commission does not regulate fracking.
  • The court disagreed and ordered that the amendment was invalid as preempted by the Colorado Oil and Gas Conservation Act. The court issued a stay of its order pending appeal.
  • “The law regarding preemption of local oil and gas regulation by the Colorado Oil and Gas Conservation Act is clear and the court got it right. Under the current law, local governments can’t ban fracking,” stated the AG.

Michigan Attorney General Issues Notice Regarding Great Lakes Pipelines

  • Michigan AG Bill Schuette and Michigan Department of Environmental Quality Director Dan Wyant sent a formal notice of noncompliance and request for corrective action to Enbridge Energy and Enbridge Pipelines, L.L.C., (collectively, Enbridge) regarding two of their Great Lakes pipelines.
  • In April, AG Schuette and Director Wyant sent a letter to Enbridge requesting information about their pipelines. Pending full review of Enbridge’s response, the AG and Director issued a notice that two of Enbridge’s pipelines were not in compliance with a state easement that limits the maximum span of unsupported pipe.
  • AG Schuette and Director Wyant requested that Enbridge correct the alleged noncompliance within 90 days or take remedial action as soon as reasonably possible.

Financial Industry

Bank Seeks to Dismiss Lawsuit Alleging Wrongful “Dark Pool” Practices

  • Barclays filed a motion to dismiss the lawsuit recently brought by New York AG Eric Schneiderman alleging wrongful practices related to Barclays’ operation of its “dark pool,” a type of privately owned and operated trading venue.
  • In its motion, Barclays argued that it did not make any false statements to its sophisticated clients and investors, that the AG’s claims fail on their merits, that the AG lacks standing to sue on behalf of private parties, and that the AG lacks authority to bring claims under the Martin Act.
  • “Barclays works closely with its regulators in all jurisdictions and will continue to cooperate with the New York attorney general,” stated a bank representative. “However, we do not believe that this suit is justified, and we have a duty to our shareholders, clients and staff to defend our position.”

For-Profit Colleges

Minnesota Attorney General Sues For-Profit Schools

  • Minnesota AG Lori Swanson sued the Minnesota School of Business and Globe University alleging that they misrepresented job opportunities available to graduates and the transferability of credits.
  • The AG alleged that the schools advertised about or recommended their degree programs for certain professions, but did not disclose that those professions required additional certification or degrees. The AG also alleged that the schools inaccurately told students that their credits could transfer to regionally accredited schools.
  • The lawsuit seeks injunctive relief, civil penalties, and restitution.

Health Care

Two Conflicting Federal Appeals Court Decisions Issued Regarding Affordable Care Act

  • Two federal appeals courts issued two conflicting decisions regarding the Affordable Care Act (ACA) employer mandate. In Halbig v. Burwell, the U.S. Court of Appeals for the DC Circuit held that the Internal Revenue Service’s (IRS) rules authorizing federal subsidies and the ACA employer mandate in states that opted not to set up a state-based exchange were invalid. In King v. Burwell, the U.S. Court of Appeals for the Fourth Circuit upheld those same rules.
  • Kansas AG Derek Schmidt, who led one set of amicus briefs in both cases in opposition to the IRS rules, stated that the “rulings move this important legal dispute one step closer to final resolution. Our interest is to ensure the IRS follows the law and Kansas obtains the benefit it anticipated when state policy makers chose not to establish a state-run health insurance exchange. Congress might not have expected so many states to decline to establish an exchange under the Affordable Care Act, but that misjudgment cannot justify allowing the IRS to effectively rewrite the statute to satisfy policy and political objectives. We will continue to represent the state’s interest as this litigation proceeds to its next stage, perhaps ultimately to the U.S. Supreme Court.”
  • Alabama, Georgia, Nebraska, Oklahoma, South Carolina, Virginia, and West Virginia also filed briefs in opposition to the IRS rule in Halbig and King.

Mortgages/Foreclosures

The CFPB, Federal Trade Commission, and 15 Attorneys General Take Action Against Foreclosure Relief Service Providers

State AGs in the News

Illinois Attorney General Testifies Before U.S. Senate About the Role of States in Higher Education

  • Illinois AG Lisa Madigan testified before the U.S. Senate Health Education Labor and Pensions Committee regarding the role of states in higher education.
  • Her testimony included recommendations for the committee to consider as it works to reauthorize the Higher Education Act, including heightened funding controls, a streamlined and accessible information system for students, and legislation to allow students to refinance federal loans.
  • This testimony follows the AG’s recent first-in-the-nation lawsuit that targeted an alleged new industry of student loan debt relief fraud.

State AGs in the News

Posted in Antitrust, Charities, Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Employment, For-Profit Colleges, Health Care, Mortgages/Foreclosures

Hot News

Conference of Western Attorneys General (CWAG) Annual Meeting

  • CWAG held its annual meeting this week in Park City, Utah, which was attended by several members of Dickstein Shapiro’s State Attorneys General practice. More than two dozen AGs gathered to deliberate on a variety of timely and important issues.
  • The meeting included panel discussions on patent reform, prescription drug and overdose issues, privacy and data breaches, regulation of e-cigarettes, and emerging issues related to the Internet.

Attorneys General Discuss E-Cigarettes

  • At the CWAG annual meeting, the AGs discussed  e-cigarettes and whether they must regulate further in this area, including increasing advertising regulation.
  • Kentucky Chief Deputy AG Sean Riley expressed concern about the potential use of e-cigarettes by school-age children and whether e-cigarettes might be acting as a gateway to smoking rather than a way to quit. “We are at the very beginning stages of a new sort of revolutionary product here,” stated the Chief Deputy AG. “We need to be prepared, to work individually and collectively, to use our consumer protection acts to raise the floor of conduct we are seeing.”
  • Iowa AG Tom Miller warned his colleagues to tread carefully with new regulation of e-cigarettes. “The price of getting it wrong either way is high,” said AG Miller. He argued that if e-cigarettes are not properly regulated, use among youths might increase, but if regulation is too intense, the effectiveness of e-cigarettes as a way to quit tobacco may be compromised.

Antitrust

Details of Proposed Settlement of Apple E-Book Antitrust Lawsuit Released

  • Several AGs announced further details about the proposed settlement of the antitrust class action lawsuit brought against Apple Inc. by 33 AGs and consumers alleging that it conspired with publishers to fix prices. We blogged about the preliminary settlement when it was first announced in June, before the release of any details.
  • The settlement is contingent on court approval and the outcome of Apple’s pending appeal of a 2013 ruling finding that Apple violated antitrust laws. According to a recently filed motion to approve the settlement, Apple will pay $400 million to consumers and $50 million to the states if the court’s ruling is affirmed on appeal. If the court vacates the verdict and orders a retrial on liability, Apple will pay $50 million to consumers and $20 million to the states. If the court finds that Apple did not violate antitrust laws, Apple will pay nothing.
  • The settlement avoids a jury trial on damages that was scheduled for August. Apple denies any wrongdoing.

Charities

Arkansas Attorney General Settles With Police Defense Fund Charity

  • Arkansas AG Dustin McDaniel sued the National Police Defense Foundation (NPDF), and USA Publishing Group Inc. and its owners (collectively, USA Publishing), alleging that the organizations misled state donors into believing that their contributions would benefit state emergency responders.
  • The AG alleged that NPDF and USA Publishing (retained by NPDF to solicit donations) raised thousands of dollars in the state, but that they only used a few hundred dollars of that amount for charitable purposes. The AG also alleged that the defendants often misrepresented themselves as first responders and misled consumers into believing that the charity was based in the state when it is not.
  • The AG settled with NPDF through a consent agreement filed with the court. Pursuant to the agreement, NPDF agreed to pay $120,000 in consumer restitution and to not engage in professional fundraising activities in the state. NPDF denied the allegations. The lawsuit against USA Publishing is still pending.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Issues Report on Consumer Complaints

  • The Consumer Financial Protection Bureau (CFPB) issued a “snapshot” report on consumer complaints from July 2011 through June 2014.
  • According to the report, the CFPB handled more than 395,000 consumer complaints during that period. The majority of the complaints related to mortgage products (34%). The remaining complaints related to debt collection (20%), credit cards (14%), credit reporting (12%), bank accounts and services (12%), consumer loans (3%), student loans (3%), payday loans (1%), money transfers (0.5%), and other products (0.5%).
  • The CFPB also recently announced that it will begin accepting consumer complaints regarding prepaid cards, including gift cards, benefit cards, and general purpose reloadable cards. It will also begin accepting consumer complaints regarding additional nonbank products such as debt settlement services, credit repair services, and pawn and title loans.

Consumer Protection

Vermont Attorney General Releases Results of Questionnaire Regarding Genetically Engineered Food Labeling

  • Vermont AG Bill Sorrell released the preliminary results of a questionnaire that solicited public input on genetically engineered food labeling. The AG is in the process of developing rules to implement a new state genetically engineered food labeling law. Act 120 will require the labeling and disclosure of foods produced with genetic engineering. The AG is responsible for promulgating the associated rules and enforcing the law.
  • According to a preliminary report, the majority of respondents favored placing the required disclosure near a product’s nutrition facts label or ingredient list in a font size that is equivalent to the words “servings per container” and “calories.”
  • Official comments on a proposed draft rule will be solicited later this year. The AG plans to promulgate rules by July 2015 and the rules should go into effect on July 1, 2016.

Illinois and New York Attorneys General Encourage Federal Communications Commission to Strengthen Internet Neutrality Protections

  • Illinois AG Lisa Madigan and New York AG Eric Schneiderman submitted comments to the Federal Communications Commission (FCC) and wrote a letter to its Chairman urging it to strengthen rules to preserve what is known as “net neutrality” – the concept of an open Internet providing equal treatment for all content providers.
  • The AGs argue that net neutrality and nondiscrimination are critical to furthering competition and innovation on the Internet because these protections enable startup businesses to have an equal platform to provide new content to consumers at the same speed as established providers. The AGs also state that without net neutrality, providers could charge for priority treatment or faster access to the Internet.
  • The AGs encouraged the FCC to change its classification of Internet access from an “information service” to a “telecommunications service that provides information” to enable it to apply common carrier obligations to broadband providers. They argued that this would protect net neutrality principles by obligating providers to deliver traffic “indifferently” without compromising their ability to efficiently manage their network operations.
  • “The Internet is the public square of the 21st Century, and the voices of the ‘digital haves’ will drown out the ‘digital have-nots’… In effect, the Information Superhighway will become a toll road. Those who pay will rapidly reach their audiences, while newcomers, startups and others with limited resources will be left behind,” the AGs wrote.

Iowa Attorney General Takes Action Against Health Marketing Efficacy Claims

  • Iowa AG Tom Miller asked for an injunction against health supplement company Au Naturale Health Solutions, its chief executive officer, and two employees (collectively, Au Naturale), to halt any sales in the state and force compliance with the AG’s consumer fraud investigation.
  • Au Naturale allegedly telemarketed phytoplankton (microscopic underwater organisms) capsules, falsely claiming that the capsules would help or reverse several health conditions or afflictions, including cancer. Au Naturale allegedly had not responded to a civil investigative demand served by the AG.
  • In a similar matter handled by AG Miller, a state court issued an injunction against Americare Inc., doing business as Americare Health, its owner, and two of its telemarketers (collectively, Americare), barring them from telemarketing health- and nutrition-related products in the state, prohibiting them from collecting any payments for past sales, and requiring them to provide refunds.
  • Americare allegedly telemarketed a human growth hormone spray, falsely claiming that the spray was effective against several serious diseases and health conditions, including cancer. According to the U.S. Drug Enforcement Administration, spray forms of human growth hormone are not effective because the hormone molecules are too large to be absorbed across tissue linings.

New York Attorney General Announces $2.2 Million Restitution Fund Related to Alleged Immigration Services Fraud

  • New York AG Eric Schneiderman announced a $2.2 million restitution fund that was created as part of a settlement with two immigration services organizations, the International Immigrants Foundation, Inc., and the International Professional Association, Inc., to resolve allegations that the organizations made fraudulent promises of citizenship while engaging in the unauthorized practice of law.
  • The organizations allegedly misled clients about their legal credentials and their ability to obtain guaranteed immigration results. They also allegedly charged excessive fees that were inconsistent with the charitable purpose for which they were formed.
  • The settlement prohibits the organizations from providing immigration-related legal services.

Florida Attorney General Sues Business Directory Companies

  • Following an investigation with the New York AG’s office, Florida AG Pam Bondi and the FTC sued several business directory companies alleging that the companies charged consumers for business directory or advertising services they did not order.
  • The companies sued are Your Yellow Pages, Inc.; Rapid Pages, Inc.; City Pages, Inc.; 7051620 Canada, Inc.; National Business Advertising; National Biz Ads; and Yellow Business Ads.
  • The lawsuit seeks injunctive relief, restitution, civil penalties of $10,000 per violation of the state Unfair and Deceptive Trade Practices Act and $15,000 for each violation involving a senior citizen, costs, and fees.

Data Privacy

Illinois Attorney General Calls for Federal Data Breach Law

Employment

Massachusetts Attorney General Settles Alleged Violations of State Prevailing Wage Laws

  • Following an investigation, Massachusetts AG Martha Coakley settled with R&R Window Contractors, Inc., to resolve allegations that it failed to pay the proper prevailing wage and submit accurate payroll records.
  • The AG alleges that R&R did not properly pay workers performing carpentry and glazier work. Employees classified and paid as “Carpenter-Tenders” were allegedly performing work in other trade classifications that required a higher prevailing wage rate.
  • Pursuant to the settlement, the company agreed to pay more than $109,000 in restitution and penalties.

For-Profit Colleges

New York Attorney General Requests Information From For-Profit College

  • According to a regulatory filing, New York AG Eric Schneiderman has begun an investigation into whether DeVry Educational Group, Inc.’s television advertisements and website marketing violated any federal or state laws prohibiting false advertising or deceptive practices.
  • The filing indicates that DeVry received a letter from the AG requesting information from January 2011 to date. DeVry stated that it intends to fully cooperate with the AG with “a view toward demonstrating the compliant nature of its practices.”

Health Care

New York Legislation Proposed in Response to U.S. Supreme Court Hobby Lobby Decision

  • New York AG Eric Schneiderman and State Senate Democratic Conference Leader Andrea Stewart-Cousins announced that they would propose legislation in response to the U.S. Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc.
  • As we previously blogged, in that case the Court held that as applied to closely held corporations, U.S. Department of Health and Human Services regulations promulgated under the Patient Protection and Affordable Care Act, which imposes a mandate for employers’ group health plans to cover contraceptives, violated the Religious Freedom Restoration Act. AG Schneiderman stated that the opinion is misguided and limits women’s healthcare choices.
  • In response, the AG and State Senate Democratic Conference Leader will propose the Reproductive Rights Disclosure Act, which would create one notice standard for all employers, require employers to give current employees 90 days notice before changing contraceptive coverage, and require employers to notify prospective employees of the scope of contraceptive coverage that they offer to their employees.
  • The act will also provide civil penalties of up to $5,000 for each violation of the new notice provision.

Mortgages/Foreclosures

Colorado Attorney General Charges Foreclosure Law Firms With Alleged Fraud

  • Colorado AG John Suthers announced the filing of civil law enforcement actions against two foreclosure law firms for alleged fraudulent billing practices, including inflating charges for foreclosure-related services and charging additional costs for already compensated tasks.
  • In separate filings, the AG charged the Castle Law Group, its principals, and affiliated foreclosure-related businesses (collectively, Castle) and Aronowitz & Mecklenburg, its principals, and affiliated foreclosure-related businesses (collectively, Aronowitz) for alleged violations of the Colorado Consumer Protection Act, the Colorado Antitrust Act, and the Colorado Fair Debt Collection Practices Act. The AG simultaneously filed a proposed final consent judgment settling the case against Aronowitz.
  • Pursuant to the settlement, which must be approved by the court, Aronowitz agrees to pay the state $10 million in unjust enrichment, civil penalties, costs, and fees; operate at competitive market rates (with some exception); and have no ownership interest in any law firm or business engaged in foreclosure-related work in the state.
  • According to the AG, investigations of other foreclosure law firms and related businesses are ongoing.

State AGs in the News

Posted in Antitrust, Consumer Financial Protection Bureau, Consumer Protection, Data Privacy, Employment, Environment, False Claims Act, Health Care, Mortgages/Foreclosures, State AGs in the News, States v. Federal Government

Antitrust

Settlement to Resolve Allegations of Unlawfully Restrained Competition Obtained by New York Attorney General

  • New York AG Eric Schneiderman settled with waste hauling company Casella Waste Systems, Inc. to resolve allegations that it unlawfully restrained competition by combining restrictive contracting practices with market dominance and a pattern of acquiring smaller competitors.
  • The company’s contracts allegedly required it to be an exclusive provider, had long terms and severe early termination penalties, and allowed the company the right to match any competing offers. The AG alleged that long and restrictive contracts could entrench the market position of a dominant firm. The AG also alleged that the company had further strengthened its position through a pattern of acquiring smaller companies in key markets.
  • The settlement requires Casella to change its contracts, report any acquisitions of competitors to the AG, and pay the state $100,000. According to the AG, Casella entered into similar settlements with the Vermont AG in 2002 and 2011.

Consumer Financial Protection Bureau

Consumer Financial Protection Bureau Enforcement Action Against Financial Services Company Results in $10 Million Recovery

  • The Consumer Financial Protection Bureau (CFPB) took enforcement action against Ace Cash Express for alleged use of illegal debt collection practices, resulting in a consent order that requires Ace to pay $5 million in consumer restitution and a $5 million civil penalty.
  • The CFPB alleged that Ace engaged in unfair, deceptive, and abusive practices to collect consumer debt by threatening litigation or criminal prosecution, threatening to charge extra fees and report consumers to credit agencies, and harassing consumers with collection calls. The CFPB further alleged that these practices created a false sense of urgency to pressure borrowers into taking additional loans that they could not afford.
  • The order requires Ace to refund $5 million in consumer payments, including fees and finance charges; pay a $5 million civil penalty; not engage in any unfair or deceptive collection practices; not use any abusive practices; submit a compliance plan to the CFPB; and be subject to further reporting and recordkeeping requirements.

CFPB Sues Law Firm for Allegedly Wrongful Debt Collection Practices

  • The CFPB sued Frederick J. Hanna & Associates and three of its principal partners for allegedly using illegal tactics to intimidate consumers into paying debt that they may not owe.
  • The CFPB alleges that the firm filed hundreds of thousands of debt collection lawsuits, often relying on deceptive court filings and faulty or unsubstantiated evidence.
  • The complaint alleges violations of the Fair Debt Collection Practices Act, which prohibits misrepresentations to consumers, and the Dodd-Frank Act, which prohibits deceptive acts or practices in the consumer financial marketplace. The CFPB seeks injunctive relief, damages, restitution, disgorgement, civil penalties, and costs.

Consumer Protection

Illinois Attorney General Sues Two Student Loan Debt Relief Companies

  • Illinois AG Lisa Madigan filed a lawsuit against First American Tax Defense LLC and Broadsword Student Advantage LLC alleging that they violated the state Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organizations Act, and the Debt Settlement Consumer Protection Act. AG Madigan claims that these lawsuits are the first in the nation of their kind because they involve an allegedly new industry of student loan debt fraud that exploits those struggling to repay debt.
  • The companies allegedly were not licensed, engaged in deceptive marketing, illegally charged upfront fees, and offered fraudulent services or charged for services that are free through the government.
  • The AG seeks declaratory and injunctive relief, damages, to revoke or suspend all licenses, to void the company’s contracts with consumers, consumer restitution, civil penalties, and costs.

New York Attorney General Seeks to Delay Launch of Ridesharing Service

  • New York AG Eric Schneiderman and the state Superintendent of Financial Services sought a temporary restraining order against Lyft, a ridesharing service, to delay its scheduled launch in New York City.
  • The AG and Superintendent alleged that Lyft’s business practices do not comply with state law because among other things, the company does not use drivers that have commercial insurance or are licensed by the city’s taxi commission.
  • According to a news report, Justice Kathryn Freed did not issue the restraining order after Lyft’s lawyers said at a hearing that the service won’t start until “the i’s are dotted and t’s are crossed.” Justice Freed stated, “I’m extending what is essentially a status quo.”

New York Attorney General Settles With Beverage Company to Resolve Allegations of Misleading Advertising

  • New York AG Eric Schneiderman settled with the Varas Group to resolve allegations that it engaged in misleading advertising and social media campaigns to promote its Chicha Limeña soft drinks.
  • Varas allegedly advertised its soft drink as containing an ingredient (purple maize) that fights cancer, obesity, and diabetes, and has other health benefits. According to the AG, while purple corn/maize is touted as containing high levels of antioxidants, the health benefits have not been established in scientific literature.
  • Pursuant to the settlement, Varas will not make health related claims in its marketing materials and will pay $5,000 in penalties, costs, and fees.

Data Privacy

Vermont Attorney General Fines Small Business for Failing to Notify Consumers of Alleged Security Breach

  • Vermont AG Bill Sorrell, pursuant to an assurance of discontinuance, fined Mayfield, Inc., doing business as Shelburne Country Store, $3,000 for allegedly failing to inform online buyers of a security breach that compromised their credit card information.
  • The state’s Security Breach Notice Act requires businesses to notify the AG within 14 days of discovery of a data breach, and to notify consumers in the most expedient time possible, but no later than 45 days after discovery. The AG alleged that the breach happened in late 2013, that Mayfield was informed of the breach on January 9, 2014, but that Mayfield did not notify consumers until March 19, after being contacted by the AG’s office.
  • “At this stage of the game… we will not accept the excuse that a business did not know of its obligations to report a breach,” stated the AG.

New York Attorney General Issues Data Breach Report and Recommendations to Businesses and Consumers

  • New York AG Eric Schneiderman issued a report on the number, complexity, and costs of data breaches in the state. The report, Information Exposed: Historical Examination of Data Security in New York State, looks at an eight-year period from 2006 to 2013.
  • According to Information Exposed, reported data breaches tripled during the examined period and 22.8 million personal records were exposed in nearly 5,000 breaches. The report states that in 2013 alone, 7.3 million personal records were exposed in more than 900 breaches, costing upward of $1.37 billion.
  • The report found that “hacking” intrusions, in which third parties gain unauthorized access to data stored on a computer system, were the leading cause of breaches, accounting for nearly 40 percent of all breaches.
  • The AG also made recommendations on steps that organizations and consumers can take to protect themselves from data loss, including identifying and minimizing data collection practices, taking immediate action in the event of a breach, and creating strong passwords.

Employment

Agreements With Employment Agencies Announced by New York Attorney General

  • New York AG Eric Schneiderman announced agreements with five employment agencies to resolve allegations that the agencies engaged in unlawful discrimination and predatory business practices directed at immigrant job applicants. The five companies are Excellent Employment Agency, United Employment Agency, Patricia Employment Agency, Rivera Employment Agency, and Sunset Employment Services.
  • The agencies allegedly collected nationality, gender, and age information from job applicants to direct them to employers with allegedly discriminatory preferences or to jobs paying less than the applicable state minimum wage. The agencies also allegedly charged excessive referral fees and failed to provide refunds of advance fees.
  • Pursuant to the agreements, the companies must not engage in unlawful discrimination when making job referrals, refer applicants to jobs paying below minimum wage, charge excessive fees, or refuse to refund advance fees. In addition, the companies must pay $20,000 in penalties, fees, and costs; report to the AG any employers that make discriminatory requests or seek applicants for jobs paying below minimum wage; revise their policies and procedures; and obtain training.

Environment

New York Court Dismisses Lawsuits Regarding Hydrofracking

  • New York AG Eric Schneiderman announced that state Supreme Court Justice Roger McDonough issued two decisions dismissing two lawsuits that sought to force the state Department of Environmental Conservation (DEC) to terminate its ongoing review of the environmental impacts related to high-volume hydrofracking.
  • Hydrofracking is a hydraulic fracturing process used to drill for natural gas. The lawsuits, brought by the trustee of bankrupt gas development company Norse Energy and the Joint Landowners Coalition of New York against the state, asked the court to compel the DEC to terminate its environmental review of the practice.
  • The AG represented the state in the cases and asked the court to dismiss the lawsuits. “The court’s decision to allow the state review of hydrofracking risks to continue is an important victory in our effort to ensure all New Yorkers have safe water to drink and a clean, healthy environment,” stated the AG.

False Claims Act

Forty-Five States and the Federal Government Settle With Astellas Pharma for $7.3 Million

  • Forty-five states and the federal government settled with Astellas Pharma US, Inc. for $7.3 million to resolve state and federal false claim allegations related to its product, Mycamine.
  • Mycamine is a sterile, lyophilized antifungal agent approved by the U.S. Food and Drug Administration (FDA) to treat adult patients suffering from serious and invasive infections caused by the Candida fungus and to prevent Candida infections in adults undergoing stem cell transplants.
  • During the relevant period, Mycamine was not approved by the FDA to treat pediatric patients. Astellas allegedly knowingly marketed and promoted the drug during that period to pediatric patients causing false claims to be submitted to state and federal health care programs for uses of the drug that were not approved by the FDA.
  • The settlement stems from a qui tam action that was filed in the U.S. District Court for the Eastern District of Pennsylvania.

Health Care

Attorneys General Investigating Pelvic Mesh Products

  • Texas women claiming alleged injuries from pelvic mesh implants, which are used to correct pelvic organ prolapse, sent a letter to Texas AG Greg Abbott requesting an investigation. A spokesperson for the AG declined comment, but confirmed that the AG’s office is leading a nationwide investigation of mesh products that includes nine other states.
  • According to a news report, the women suggested that the AG pursue legal action against Johnson & Johnson, a maker of the implants, for allegedly engaging in deceptive business practices in violation of consumer protection laws.
  • Representatives of Johnson & Johnson did not respond to requests for comment, but the company’s lawyers have argued in lawsuits that the implants were effective and that the company properly warned consumers about related risks.

Mortgages/Foreclosures

Five Attorneys General and the Federal Government Settle Mortgage-Backed Securities Claims With CitiGroup for $7 Billion

  • Following investigations, the AGs for California, Delaware, Illinois, Massachusetts, and New York and the U.S. Department of Justice (DOJ), settled with CitiGroup, Inc., for $7 billion to resolve claims related to its conduct in the packaging, securitization, marketing, sale, and issuance of residential mortgage-backed securities.
  • The settlement, which includes an agreed upon statement of facts, requires CitiGroup to pay $4.5 billion of the $7 billion to state and federal entities and $2.5 billion to consumers as relief, which will include loan modifications and refinancing for distressed borrowers.
  • The $4.5 billion to state and federal entities will be divided as follows: $4 billion to DOJ as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA); $208.25 million to the Federal Deposit Insurance Corporation; $102.7 million to California; $92 million to New York; $45.7 million to Massachusetts; $44 million to Illinois; and $7.35 million to Delaware.
  • According to the DOJ, the $4 billion civil penalty is the largest penalty to date under FIRREA.

State AGs in the News

Former Utah Attorneys General Charged on Criminal Allegations  

California Attorney General Convenes Multinational Law Enforcement Summit on Technology and Transnational Crime

  • California AG Kamala Harris will convene officials, including U.S. state AGs, U.S. federal officials, the Mexico AG, the El Salvador AG, and Mexico state AGs, for a multinational summit focused on the use of technology to fight transnational organized crime.
  • The summit, which will take place on July 20, will be held in association with the annual meeting of the U.S. Conference of Western Attorneys General and will focus on intellectual property violations, money laundering, and human trafficking.
  • In March, we blogged about AG Harris and four other AGs signing a letter of intent with Mexico to fight money laundering. The letter and this summit follow a delegation visit, led by AG Harris, to Mexico to enhance efforts to combat transnational crime.

States v. Federal Government

Maine Attorney General Sues Environmental Protection Agency

  • Maine AG Janet Mills filed a lawsuit against the U.S. Environmental Protection Agency (EPA) alleging that it failed to approve the state’s water quality standards under the Clean Water Act.
  • The complaint alleges that the state submitted revised standards, which included standards for waters that are arguably within Indian territories or land, to the EPA more than one year ago. The AG alleges that the EPA had begun in 2004 to limit its approvals to waters outside of Indian territories and land.
  • The AG asserts that the EPA has a duty to either approve the state’s revisions to its standards or identify any necessary changes the state must make to its standards for approval. AG Mills argues that the EPA has not fulfilled either of its duties, which creates uncertainty for state residents.
  • The AG seeks a declaration that the state’s jurisdiction extends to all waters of the state, including waters that are arguably within Indian territories or land; a declaration that the revised standards are deemed approved by the EPA and in effect; and award of attorney fees and costs.

State False Claims Act Analysis: Does Your State Contract Prohibit Offshore Outsourcing?

Posted in False Claims Act

So your company has been diligently trying to comply with state and federal government contracting regulations. You pay your service employees in accordance with the Service Contract Act, you file your EEO-1s and VETS 100s, you monitor state campaign contributions, and you follow all of the additional requirements in your compliance plan. You think your company is “golden.” Right? Maybe. Are you “offshoring” services under your contract, or the data related to your state and/or Medicaid government contracts? This easily overlooked issue has been percolating to the top of the list for government agencies, state attorneys general, and perhaps, qui tam plaintiffs’ attorneys.

Offshoring, or “the import from abroad of goods or services that were previously produced domestically,”[1] is a major part of today’s business landscape, and government contracting at both federal and state levels is no exception. The issue of offshore outsourcing of services first drew attention in the world of government contracts in 2004, when the media reported that call centers in India were answering customer service calls from Food Stamp recipients.[2] The controversy faded from the public spotlight, but in response to public outcry some states passed legislation or issued executive orders prohibiting or limiting the practice.

A recent (April 11, 2014) report[3] from the Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) resurfaced the issue of offshoring restrictions in the context of Medicaid contracts. The report reminded contractors that offshoring prohibitions and limitations remain in full force today, and government contractors need to be aware of them. Government contractors must review each individual state contract to ensure compliance with any offshore outsourcing prohibition or restriction. Running afoul of an offshore outsourcing prohibition could have serious consequences. Noncompliance could expose a contractor to suspension, debarment, or even liability under the state’s version of the False Claims Act under the theory that the contractor implicitly certified compliance with a material term of the contract.[4]

The varying levels of prohibitions on offshore outsourcing that exist throughout the United States and U.S. territories underpin the importance of carefully reviewing each state’s requirements and each individual contract. Some states, such as Alaska, Arizona, Missouri, New Jersey, Ohio, and Wisconsin, have broad prohibitions against offshore outsourcing of services. For example, Ohio’s standard solicitation includes a Standard Affirmation and Disclosure Form Governing the Expenditure of Public Funds on Offshore Services, which states, “If awarded a contract, both the Service Provider and any of its subcontractors shall perform no services requested under this Contract outside of the United States.”[5] Similarly, Wisconsin’s standard solicitation warns offerors that their “inability to perform all services in the United States shall be grounds for disqualifying your Proposal for this contract.”[6]

Even if a state does not have a statute, regulation, or Executive Order directly impacting the offshoring of services, it is still necessary to review all solicitations closely for language regarding offshoring. For example, Delaware contains no statutory or regulatory prohibition on offshore outsourcing, yet a recent Delaware solicitation states, “The State will not permit project work to be done offshore.”[7] The solicitation makes clear that this prohibition extends to subcontractors. For the most part, Pennsylvania frames the offshoring issue as a preference for “Domestic Workforce Utilization” by awarding bonus points to nonoutsourcing offerors, but the Commonwealth exercises strict border patrol when it comes to offshoring of customer service. A recent Pennsylvania RFP involving customer service support provided that the “Commonwealth requires that there be no offshoring of calls for participants.”[8]

Other states require the disclosure of services to be performed offshore without prohibiting offshoring. South Carolina has no offshoring prohibition on the books but does use the standard solicitation clause “Offshore Contracting,” requiring offerors to identify any work to be performed offshore, including work by subcontractors. Offerors in South Carolina must disclose (1) the type of work being contracted offshore; (2) the percentage of the total work being contracted offshore; (3) the percentage of the total value of the contract being contracted offshore; and (4) a Service Level Agreement between the contractor and offshore contractor. The “Vendor Disclosure Statement” in Colorado solicitations not only asks offerors to identify any planned offshoring but also to justify it: “If it is anticipated that services under the contract, or any subcontracts, will be performed outside of the United States or the State of Colorado, explain why it is necessary or advantageous to go outside the United States or the State of Colorado to perform the contract or any subcontracts.”

The recent DHHS OIG Report canvassed state Medicaid agencies and reported their policies on offshore outsourcing. According to the report, Medicaid contract provisions in Montana and New Mexico prohibit direct offshore outsourcing, highlighting the importance of consulting the solicitation closely, especially if the scope of work involves handling patient health information (PHI). The OIG cautions Medicaid agencies that if they “engage in offshore outsourcing of administrative functions that involve PHI, it could present potential vulnerabilities.”[9] The Health Insurance Portability and Accountability Act (HIPAA) requires Medicaid agencies to enter into Business Associate Agreements (BAAs) with contractors who offshore administrative functions to safeguard PHI.[10] However, the OIG believes that sending PHI offshore limits the effective enforcement of BAA provisions and therefore the BAAs themselves provide insufficient protection of PHI.[11]

One should not conclude from these restrictions that individual states are inward-focused and unengaged in the global market place; in fact the opposite trend is taking place. The offshore outsourcing prohibitions that exist are only directed at the location of the services performed, not the contractor’s country of origin. States want their contractors to employ Americans, but they welcome the business of favored international trading partners. Indeed, 37 U.S. states have signed the World Trade Organization (WTO) Government Procurement Agreement (GPA). The states’ positions on offshore outsourcing did not appear to have any bearing on their willingness to join the WTO GPA: Arizona and Wisconsin are among them. The WTO GPA requires its 43 member countries to afford one another equal treatment on acquisitions above a certain threshold. The current threshold for goods and services for the 37 states is $558,000.[12]

Nonetheless, the April 2014 DHHS Report coincides with a significant increase in states adopting and expanding False Claims Acts. Thirty-six states and the District of Columbia now have FCAs, which empower state attorneys general to file false claims actions, as well as review qui tam suits filed by relators to determine whether the state should intervene and assume primary responsibility for prosecuting the action. Further, states, mirroring action at the federal level, are expanding False Claims Acts to incorporate new theories of liability. Particularly relevant to the issue of offshoring is the implied certification theory, whereby a defendant submitting claims for payment is found to have implicitly certified that it has complied with all statutory, regulatory, and contractual provisions that are a precondition for payment—including state prohibitions on offshore outsourcing. The prospect of state action on such theories becomes only more likely as state attorneys general face pressure to recover funds for their states, and they—as well as qui tam relators, with whom state attorneys general increasingly work—are given ever more expansive tools with which to do so.

As with any procurement, but perhaps more so with the variety and flux across state acquisitions, a close reading of the solicitation is paramount. If your services involve sensitive client data (particularly PHI) or call centers, meticulously examine the RFP for any offshore outsourcing prohibitions.

  • Review the solicitation closely. A state solicitation can contain offshoring prohibitions even where the state has no statutory or regulatory prohibition on offshoring.
  • If your solicitation contains an offshoring provision, is it a total prohibition, a partial limitation, or just a disclosure requirement? Understand what is required for compliance.
  • Do the services to be performed involve sensitive client data, like PHI? If offshoring such data, establish controls to appropriately safeguard the information.

[1] U.S. Gov’t Accountability Office, GAO-06-342, Offshoring in Six Human Services Programs: Offshoring Occurs in Most States, Primarily in Customer Service and Software Development (2006).

[2] See id.

[3] Dep’t of Health and Human Servs. Office of Inspector General, OEI-09-12-00530, Offshore Outsourcing of Administrative Functions by State Medicaid Agencies (2014) (“OIG Report”), available at http://oig.hhs.gov/oei/reports/oei-09-12-00530.pdf.

[4] Neither the Department of Defense nor the Department of Veterans Affairs has any offshore prohibitions, only requirements that individuals certify they meet certain criteria.

[5] Ohio’s Executive Order 2011-12K prohibits all Executive Agencies from entering into any contract using public funds to purchase services provided outside the United States.

[6] Wis. Stat. § 16.705(lr).

[7] Del. RFP No. HSS-14-021 for Electronic Case Management/Client Record System for the Division of Developmental Disability Services, § 4.1.3.

[8] Penn. RFP 6100029521 for PA State Police Health Reimbursement Arrangement Benefits, VI-4(G).

[9] OIG Report at 7.

[10] Id. at 1.

[11] Id. at 7.

[12] Procurement Thresholds for Implementation of the Trade Agreements Act of 1979, 78 Fed. Reg. 76,700 (Dec. 18, 2013) (threshold for calendar years 2014 and 2015 updated by U.S. Trade Representative).

State AGs in the News

Posted in Consumer Protection, Data Privacy, Employment, Environment, Health Care, Insurance, Medicaid Fraud, Mortgages/Foreclosures, State AGs in the News, Utilities

Consumer Protection

New York Attorney General and Uber Announce Agreement to Cap Pricing During Emergencies and Natural Disasters

  • New York AG Eric Schneiderman and Uber, the provider of a mobile application that connects riders with for-hire vehicles, have announced an agreement to cap prices for all services within the state during abnormal disruptions of the market, such as an emergency or natural disaster.
  • Uber uses a dynamic rate model that allows rates to rise and fall with demand rather than setting a single, fixed price. Pursuant to the agreement, Uber will limit its pricing during abnormal disruptions of the market to the range of prices it charged in the preceding 60 days, excluding the three highest prices charged on different days during that period. Uber is expected to announce a national policy that incorporates changes to its pricing model similar to those in this agreement.
  • The AG celebrated the agreement, stating that it “serves as a model for the kind of effective collaboration that should exist between government and technology companies like Uber.” The chief executive officer and co-founder of Uber similarly said, “This policy intends to strike the careful balance between the goal of transportation availability with community expectations of affordability during disasters. Our collaborative solution with [AG] Schneiderman is a model for technology companies and regulators in local, state and federal government.”

Washington Attorney General Sues Company for Allegedly Misleading Solicitations

  • Washington AG Bob Ferguson sued Mandatory Poster Agency, doing business as Corporate Records Services, and its officers (collectively, Mandatory Poster) for allegedly unfair and deceptive business practices in violation of the state Consumer Protection Act.
  • Mandatory Poster allegedly mailed forms that were preprinted with the recipients’ company name, labeled “important,” listed several state laws, and requested $125 dollars from each company to satisfy annual minutes requirements. There is no state requirement for corporations to prepare minutes of their shareholder meetings.
  • AG Ferguson requests restitution totaling $362,500, civil penalties of $2,000 per violation, and any available additional penalties for violations of a prior agreement that the AG and Mandatory Poster entered into in 2008 after Mandatory Poster allegedly made similar solicitations. That agreement prohibited any misleading words or terms that implied that the solicitations were from a government agency or required immediate or mandatory responses.

Wyoming Attorney General Fines Company for Alleged Violations of Telephone Solicitation, Promotional Advertising, and Consumer Protection Laws

  • Wyoming AG Peter Michael and FHNC, Inc., doing business as Silver King International, entered into an assurance of voluntary compliance that requires FHNC to pay a civil penalty of $15,000 to resolve allegations that it violated state telephone solicitation, promotional advertising of prizes, and consumer protection laws.
  • FHNC allegedly called consumers on federal and state do-not-call lists and used misleading surveys and prize offers to arrange in-home solicitations without providing the required disclosures.
  • In addition to the penalty, FHNC must offer restitution to consumers who purchased the company’s product through an in-home solicitation by allowing them to indefinitely exercise the three-day right to cancel purchases. FHNC denies that it violated any laws.

Rhode Island Attorney General Settles With Gym for Allegedly Deceptive Practices

  • Rhode Island AG Peter Kilmartin filed a lawsuit against Gable Fitness, Inc., doing business as Gold’s Gym, and its owner (collectively, Gable Fitness) for alleged violations of the state Deceptive Trade Practices Act and the state Health Club Act.
  • Gable Fitness closed one of their Gold’s Gym locations and allegedly offered customers membership to another of their locations, which was within 15 miles of the original location. State law does not require refunds of prepaid gym memberships if there is another gym within 15 miles that will accept the contract. A little more than a month later, Gable Fitness sold the Gold’s Gym at the replacement location. The new owner allegedly began charging maintenance fees for membership.
  • The AG alleges that, in violation of state law, Gable Fitness solicited and accepted membership fees for services that they could not and would not provide.

Kansas Elder Abuse Law Goes Into Effect

  • Kansas AG Derek Schmidt announced that a new state law that protects the elderly from financial abuse went into effect on July 1.
  • Senate Bill 256 makes mistreatment of an elder person a crime. Among other things, the law makes it illegal to take the personal property or financial resources of an elderly person, including through a violation of the state Power of Attorney Act or the Uniform Trust Code.
  • “In the past, the penalties for taking financial advantage of a senior did not fit the crime. If cases were able to be prosecuted at all, the punishment was usually very small. That is about to change,” stated AG Schmidt.

Data Privacy

New Indiana Consumer Protection Law Goes Into Effect and Offers “Security Freezes” to Protected Consumers

  • Indiana AG Greg Zoeller announced that a new state law that extends “security freezes” to protected consumers went into effect on July 1. Security freezes, which have been in place for years, allow consumers to register with credit reporting agencies to prevent identity thieves from opening lines of credit in the consumers’ names, even if the consumers’ identifying information was stolen.
  • Senate Enrolled Act 394 extends the protection of security freezes to children 16 years old or younger and disabled adults. A parent or legal guardian can register the protected consumer.
  • “Parents must recognize that their children—even those too young to obtain credit cards—can fall victim to identity thieves who can ruin their credit for years to come, so a security freeze is a sensible precaution,” stated AG Zoeller.

Employment

Washington Attorney General Settles With Online Training Provider

  • Washington AG Bob Ferguson settled with eFoodhandlers, Inc., to resolve allegations that it sold invalid food handling certificates to food service workers.
  • Washington requires all food service workers to obtain a food worker card from their local health department. The AG alleges that eFoodhandlers misled workers to believe that its online training and certification satisfied these state requirements when they did not.
  • The consent decree requires the company to pay approximately $120,000 in restitution to more than 11,000 consumers and $40,000 to the state in costs and fees. It also prohibits the company from writing about compliance with state laws on its website.

Environment

Colorado Attorney General Obtains $1 Million in Criminal Fines Against Asbestos Abatement Companies

  • Colorado AG John Suthers obtained over $1 million in fines against two asbestos abatement companies and their owner. Tri State Environmental Group, Aftermath Cleanup & Remediation Services, LLC, and their owner, plead guilty to the felony crime of Causing and Contributing to a Hazardous Substance Incident. The behavior that was subject to criminal charges also allegedly violated state regulations regarding illegal storage of asbestos containing waste matter.
  • The companies and their owner allegedly illegally deposited hazardous asbestos containing waste material and caused or contributed to hazardous substance instances.
  • Each company was sentenced to a fine of $500,000. The owner was sentenced to 500 hours of community service and six years of probation. He also agreed to pay $2,538 in restitution.

Health Care

New York Attorney General Settles With Health Insurer Regarding Behavioral Health Claims

  • New York AG Eric Schneiderman settled with health insurer EmblemHealth, Inc., to resolve claims that it allegedly wrongly denied mental health and substance abuse treatment in violation of state mental health parity laws.
  • EmblemHealth allegedly denied 64 percent more behavioral health claims than medical case claims. According to the AG, this is his office’s third settlement this year involving enforcement of mental health parity laws and this matter was part of a broader, ongoing investigation of these issues.
  • Pursuant to the settlement, the insurer will submit previously denied claims for independent review, which according to the AG could result in the return of more than $31 million to insureds. The settlement also requires the insurer to pay a $1.2 million civil penalty, reform its behavioral health claims review process, cover residential treatment, charge the lower primary care copayment for outpatient visits to mental health and substance abuse treatment providers, be monitored by an external entity, and file an annual parity compliance report.

Insurance

Massachusetts Attorney General Settles With Motorcycle Insurer for Over $14.9 Million

  • Massachusetts AG Martha Coakley settled with Commerce Insurance Company for more than $14.9 million to resolve allegations that it overcharged customers for motorcycle insurance policies.
  • The settlement resulted from a larger investigation that led to settlements with 19 insurance companies. This settlement was the largest of these settlements. Commerce Insurance allegedly overcharged certain customers by using inflated or undepreciated motorcycle values to calculate insurance premiums.
  • Under the agreement, the company will pay $14.6 million in refunds to its customers and will pay $325,000 to the state.

Medicaid Fraud

Idaho Attorney General Files Petition for Writ of Certiorari With U.S. Supreme Court

  • Idaho AG Lawrence Wasden, on behalf of the Idaho Department of Health and Welfare and Idaho Medicaid, asked the U.S. Supreme Court to consider its appeal of a lawsuit that challenges the Medicaid reimbursement rates paid to providers.
  • Five providers brought the lawsuit, alleging that the Medicaid rates paid by the state were too low. A federal district court ruled against the state and the Ninth Circuit U.S. Court of Appeals affirmed the decision. The Ninth Circuit held that precedent and the Supremacy Clause of the U.S. Constitution gives the private party providers the right to enforce Medicaid Act funding conditions against states, even where Congress did not create an enforceable right to do so.
  • AG Wasden argues that the Ninth Circuit erred in allowing providers to rewrite the Medicaid Act and the state’s agreement with the federal government regarding the terms of federal funding. In addition, AG Wasden argues that the Ninth Circuit is the only circuit to require that rates bear a relationship to provider costs.
  • “We’re asking the Supreme Court to take up this case because the 9th Circuit’s decision incorrectly permits private parties to interfere with the administration of the state’s Medicaid program and the Legislature’s choices regarding that program,” stated AG Wasden.

Mortgages/Foreclosures

New York Attorney General Settles Allegations of Misleading Solicitations Regarding Reverse Mortgages

  • New York AG Eric Schneiderman settled with New View Mortgage Corp., requiring it to pay a penalty of $12,500 to resolve allegations that it used misleading direct mail solicitations.
  • The AG alleges that New View advertised reverse mortgages that were designed to look like official government notices from the Federal Housing Administration and only listed the benefits associated with reverse mortgages in its solicitations, but none of the alleged risks.
  • In addition to assessing the penalty, the settlement prohibits New View from making any misrepresentations about reverse mortgages in any of its solicitations.

Utilities

North Carolina Attorney General Appeals Utility Rate Increase

  • North Carolina AG Roy Cooper appealed the North Carolina Utilities Commission’s approval of a proposed rate increase by Aqua North Carolina, Inc., the largest private water utility in the state. The Utilities Commission used an accelerated process for the approval, which is permissible under state law if the rate case for that utility is in the public interest.
  • In the notice of appeal, AG Cooper argues that the rate increase is not in the public interest. He also argues that an accelerated approval in this case would deny public hearings and discovery. Consumers “deserve a chance to weigh in” and the “Utilities Commission should have all the information before making a decision to raise rates,” stated AG Cooper.

Illinois Attorney General Opposes Rate Increases by Utilities

  • In filings with state regulators, Illinois AG Lisa Madigan opposed rate increases by Peoples Gas, Integrys, and Commonwealth Edison.
  • Peoples Gas, the primary natural gas company for Chicago, requested a $129 million rate increase, which would allegedly increase monthly consumer bills by $5 per month, or by 22 percent. AG Madigan argued that the proposed increase should be reduced by $74 million because the company was overestimating the cost of a pipe replacement project and not maximizing efficiencies in its operations.
  • Integrys requested a $7.1 million increase, which would allegedly increase monthly consumer bills by $2.50 per month. AG Madigan argued that instead of a rate increase, current rates should be cut by about $1 million.
  • AG Madigan also asserted that Commonwealth Edison’s attempts to recoup $87.9 million in employee bonuses from consumers through a rate increase is illegal, but according to a news report the company believes that the law supports including employee compensation incentives in its rates.

States AGs in the News

Legal Developments in Kansas and Massachusetts on Casino Issues

  • Kansas AG Derek Schmidt announced that the U.S. Department of the Interior has denied the Wyandotte Nation of Oklahoma’s application to convert its land into a federal trust, which would allow casino gaming on that land.
  • In a federal district court, AG Schmidt defended the state’s legal interest in not allowing a tribal casino. The district court ruled in favor of Kansas on the tribe’s request to force the Department of the Interior to rule in its favor, but urged the Department of the Interior to make a decision on the tribe’s land-into-trust application. In response, the Department of the Interior denied the application in a letter to the tribe.
  • “If there are later efforts by the tribe or others to contest the Department’s denial of the application, we will continue to vigorously defend our state’s legal interests,” stated AG Schmidt.
  • In another state casino matter, the Massachusetts Supreme Judicial Court recently ruled unanimously that voters would decide whether a law allowing casinos in the state should be repealed through a ballot question on the November ballot. The court’s decision overturned a finding by Massachusetts AG Martha Coakley that the proposed ballot question is unconstitutional because it causes casino developers to lose property without compensation.

State AGs in the News

Posted in Antitrust, Charities, Climate Change, Consumer Financial Protection Bureau, Consumer Protection, Employment, Environment, False Claims Act, Financial Industry, For-Profit Colleges, Health Care, State AGs in the News, States v. Federal Government

Hot News

CFPB Exercises Both Supervisory and Enforcement Authority

  • The Consumer Financial Protection Bureau (CFPB) continues to assert itself in the consumer credit card market, exercising both its supervisory and enforcement authority in finding that GE Capital Retail Bank, now operating as Synchrony Bank, allegedly engaged in discriminatory and deceptive practices against consumers.
  • The two-part settlement reached with the CFPB and the U.S. Department of Justice orders GE Capital to pay a record $225 million. To learn more, please read our blog post about this settlement.

Antitrust

Massachusetts Attorney General Reaches Final Agreement With Partners HealthCare

  • Massachusetts AG Martha Coakley reached a final agreement with Partners HealthCare to resolve her antitrust investigation of the organization and its acquisition of South Shore Hospital.
  • A consent judgment was filed in Suffolk Superior Court seeking review and approval of the agreement. The judge denied a motion to intervene filed by Partners’ competitors, but ordered a three-week comment period before ruling on the agreement.
  • The agreement will allow payers to split Partners into separate contracting entities, prevent Partners from contracting with affiliate physician groups that are not part of its owned hospitals, cap health costs at the rate of inflation, cap its physician growth, and block further hospital expansion in the eastern part of the state.
  • We previously blogged about the agreement in principle that AG Coakley had reached with Partners regarding its acquisition of South Shore and Hallmark Health Systems. Review of the Hallmark transaction is still ongoing.

Charities

New York Attorney General Settles With Fundraisers for Record $24.6 Million

  • Following an investigation, New York AG Eric Schneiderman settled with Quadriga Art and Convergence Direct Marketing, two for-profit mail vendors of the Disabled Veterans National Foundation, to resolve allegations of engaging in misleading solicitations and failing to disclose conflicts of interest.
  • Pursuant to the settlement, Quadriga will pay $9.7 million in damages and Convergence will pay $300,000. The money will be used to help support disabled veterans. In addition, Quadriga will pay $800,000 in costs and fees, forgive $13.8 million in debt owed to it by the foundation, and institute reforms to improve transparency and its ethics practices.
  • The settlement is believed to be the largest amount of financial relief obtained in the United States for allegedly deceptive charitable fundraising.

Climate Change

Nine Attorneys General File Amicus Brief Opposing Proposed Power Plant Rules

  • Nine AGs, led by West Virginia AG Patrick Morrisey, filed an amicus brief in the U.S. Court of Appeals for the DC Circuit urging the court to declare the U.S. Environmental Protection Agency’s (EPA) proposed regulations to reduce carbon emissions illegal.
  • “In its proposed rule, EPA is blatantly violating the Clean Air Act,” stated AG Morrisey. He also said that the U.S. Supreme Court’s recent decision in Utility Air Regulatory Group v. Environmental Protection Agency, “rejected another effort by EPA to ‘bring about an enormous … expansion in EPA’s regulatory authority without clear congressional authorization.’ The proposed rule for existing coal-fired power plants at issue in the present lawsuit is even more obviously illegal than the rule the Supreme Court struck down. EPA’s proposed rule here is not just without ‘clear’ congressional authorization, but is directly and unambiguously prohibited by the Clean Air Act.”
  • We previously blogged about Alabama AG Luther Strange’s testimony to Congress on this issue and AGs’ responses to these proposed rules, including West Virginia AG Patrick Morrisey’s letter to the EPA.

Consumer Protection

Attorneys General and the Federal Government Obtain Judgment Against Telemarketers for $255 Million

  • Florida AG Pam Bondi, New York AG Eric Schneiderman, and the Federal Trade Commission (FTC) settled with Tax Club, Inc. (which also does business as Success Merchant Services, Corporate Tax Network, and Corporate Credit) and its owners (collectively, Tax Club) to resolve allegations that they engaged in deceptive business practices and false advertising.
  • Tax Club allegedly called consumers repeatedly, falsely claimed affiliation with companies that the consumers had already done business with, and misled consumers about their home-based business services. Tax Club also allegedly charged a large initial fee and recurring monthly membership payments for their services, but had a restrictive refund policy. The AGs and the FTC asserted that many of the offered services were allegedly unnecessary or never provided.
  • The AGs and the FTC obtained judgments against Tax Club for $255 million, which will be suspended upon surrender of certain assets valued at almost $16 million. The settlement prohibits Tax Club, subject to some exemptions, from selling business coaching services and work-at-home opportunities; misrepresenting material facts; selling or otherwise benefiting from consumers’ personal information; and violating the Telemarketing Sales Rule, which prohibits abusive and deceptive telemarketing acts.

Indiana Attorney General Settles Tobacco Dispute

  • Indiana AG Greg Zoeller settled a longstanding dispute with major tobacco companies resulting in a net amount of approximately $217 million to be paid to the state during this year and next.
  • An arbitration panel had ruled 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 Indiana, 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.
  • AG Zoeller filed a motion to vacate in state court objecting to the arbitration panel’s decision. Relatedly, we recently blogged about a Missouri state court decision that partially vacated this arbitration panel ruling.

North Dakota Attorney General Suspends Activity of Door-to-Door Salespeople

  • North Dakota AG Wayne Stenehjem suspended all sales and installations of satellite television services in the state by Dish One Satellite, LLC, due to alleged aggressive and misleading sales tactics.
  • The company allegedly violated state consumer fraud laws by not carrying identification, making false and misleading statements, using contracts without proper cancellation notices, and not providing written copies of contracts.
  • “I am reserving a decision on issuing a Cease & Desist Order or other formal legal action, pending the outcome of the investigation and a determination on the cooperation,” stated the AG.

Employment

Settlement With Film and Television Production Industry Labor Organization by New York Attorney General

  • New York AG Eric Schneiderman recently settled with International Alliance of Theatrical & Stage Employees, Local 52, a labor organization representing employees in the film and television production industry over allegations regarding discriminatory admissions processes.
  • Local 52 allegedly used nepotism in admissions processes and inconsistently applied its application procedures, which the AG asserts had a discriminatory effect on minority applicants.
  • Under the agreement, Local 52 will pay $475,000 in costs, fees, and restitution. It will also restructure its processes, implement new policies, hire a diversity consultant, hire staff to manage these policies and processes, develop relevant trainings, and establish new recordkeeping requirements.

Environment

Michigan Attorney General to Co-Chair Multi-Agency Pipeline Task Force

  • Michigan AG Bill Schuette announced that he will co-chair a multi-agency government task force with Michigan Department of Environmental Quality Director Dan Wyant to examine the pipelines transporting petroleum products around the state.
  • Formal oversight for interstate gas and oil pipelines comes from the federal Pipeline and Hazardous Materials Safety Administration, but the task force believes that the pipelines have the potential to affect Michigan’s environment and communities.
  • We recently blogged about a formal inquiry that AG Schuette and Director Wyant sent to Enbridge Inc. and Enbridge Pipeline Inc. in May regarding their pipelines. A response to the inquiry is pending and will be reviewed by the task force.
  • The task force will also focus on emergency preparedness for spills, coordination of permitting for pipeline upgrades and replacement, and the creation of a state website.

False Claims Act

New York Attorney General Alleges False Claims Act Violations

  • New York AG Eric Schneiderman sued Continuum Health Partners, Inc., Beth Israel Medical Center, and St. Luke’s-Roosevelt Hospital Center for allegedly failing to return improperly obtained money to the state Medicaid program in violation of the state False Claims Act and other statutes.
  • Beth Israel and St. Luke’s-Roosevelt allegedly submitted improper claims to Medicaid. Continuum, which operated these organizations during the relevant period, allegedly failed to take steps to repay improperly submitted claims after identifying those claims.

Financial Industry

New York Attorney General Sues Bank for Alleged Wrongful “Dark Pool” Practices

  • Following an investigation, New York AG Eric Schneiderman sued Barclay’s Capital Inc. and Barclays PLC regarding alleged wrongful practices related to its operation of its “dark pool.” Dark pools are a type of privately owned and operated trading venue, as opposed to a public stock exchange.
  • The AG alleges that Barclays increased the market share of its dark pool through false statements to clients and investors about the extent and type of high frequency trading in its dark pool and its use of a surveillance system and services to detect alleged predatory traders.
  • The complaint alleges violations of the state Martin Act and persistent fraud and illegality. The AG seeks damages, disgorgement, restitution, injunctive relief, and costs.

For-Profit Colleges

Massachusetts Finalizes New For-Profit and Occupational School Regulations

  • Massachusetts published final regulations, which were proposed and filed by Massachusetts AG Martha Coakley, intended to enhance consumer protections governing the for-profit and occupational school industry.
  • The new regulations state that they are intended to promote accurate information for the public, prohibit misleading advertising practices, and address unfair lending practices.
  • Under the regulations, schools are required to disclose in their advertising accurate information regarding their tuition, fees, employment statistics, graduation rates, and program completion time. Schools are also prohibited from using any high-pressure sales tactics or deceptive practices related to student loans or financial aid.

Judge Affirms Sanctions on National College for Failing to Respond to an Attorney General’s Subpoena

  • A state circuit court affirmed a previous order for National College and its attorneys to pay civil penalties for their alleged failure to comply with a subpoena issued by Kentucky AG Jack Conway.
  • The subpoena sought information regarding potential violations of Kentucky’s Consumer Protection Act. After approximately three years of litigation and an allegedly incomplete production of documents in response to the subpoena, the circuit court ordered sanctions against National College and its attorneys for failing to comply and their delay in responding.
  • After further proceedings, the circuit court affirmed the penalties that it had imposed and ordered National College to pay $147,000 and its attorneys to pay $10,000.

Health Care

U.S. Supreme Court Rules on Religious Exemptions for Contraception Coverage Under the Affordable Care Act

  • The U.S. Supreme Court, in a 5-4 opinion in Burwell (Sebelius) v. Hobby Lobby Stores, Inc., held that, as applied to closely held corporations, U.S. Department of Health and Human Services (HHS) regulations promulgated under the Patient Protection and Affordable Care Act, which imposes a mandate for employers’ group health plans to cover contraceptives, violated the Religious Freedom Restoration Act (RFRA). The court affirmed a Tenth Circuit judgment involving Hobby Lobby and Mardel, and reversed a Third Circuit judgment involving Conestoga Wood Specialties Corp.
  • The RFRA prohibits the government from substantially burdening a person’s exercise of religion unless the government can demonstrate that the burden is in furtherance of a compelling governmental interest and is the least restrictive means. The Court held that RFRA applies to regulations that govern the activities of closely held for-profit corporations and that HHS’s regulation substantially burdens the exercise of religion.  Although the Court found that there was a compelling governmental interest behind HHS’s regulation, the Court held that the mandate was not the least restrictive means for furthering that interest.
  • The Court was careful to state that its decision only applied to the contraceptive mandate and not other insurance coverage mandates and that it cannot be used to cloak illegal discrimination.
  • As we previously blogged, 37 AGs filed amicus briefs with the Court in this case. Twenty AGs, led by Michigan AG Bill Schuette and Ohio AG Mike DeWine, and Oklahoma AG Scott Pruitt in a separate brief, argued that the Court should affirm the Tenth Circuit judgment. Similarly, 18 states filed an amicus brief asking the Court to overrule the Third Circuit. Fifteen states and the District of Columbia, led by California AG Kamala Harris and Massachusetts AG Martha Coakley, argued that the Court should overrule the Tenth Circuit.
  • AG Schuette and AG Pruitt celebrated the decision as a victory for religious liberty, while AG Harris and AG Coakley expressed disappointment in the decision, which they see as a setback in the provision of quality, affordable, preventative health care for women.

States v. Federal Government

U.S. Supreme Court Holds That President Lacked Authority to Make Recess Appointments

  • The U.S. Supreme Court, in National Labor Relations Board (NLRB) v. Noel Canning, held that the U.S. President lacked the authority to make recess appointments during a three-day recess during the Senate’s pro forma sessions. In its opinion, the Court stated that the Recess Appointments Clause of the U.S. Constitution empowers the President to fill any existing vacancy during any recess of sufficient length, but that the U.S. Senate was in session during the pro forma sessions at issue and that three days is too short a time to bring a recess within the scope of the clause. The Court affirmed the DC Circuit on different reasoning.
  • As we previously blogged, 17 AGs had filed an amicus brief with the Court urging it to uphold the DC Circuit. The AGs argued that they had an interest in the case because ultimately it was one involving issues of federalism and the individual freedoms states want their citizens to enjoy.
  • In addition, as we previously blogged, the invalidation of these appointments could call into question some actions by the NLRB and other agencies, like the CFPB, whose officials were appointed during the same recess. Commentators have said, however, that any challenge to the CFPB’s action before the confirmation of its director by the Senate, would likely be unsuccessful.
  • Kansas AG Derek Schmidt and South Dakota AG Marty Jackley, who had joined the amicus brief to the Court, applauded the decision and AG Jackley stressed the importance of Senate oversight of the NLRB.

CFPB Exercises Both Supervisory and Enforcement Authority Ordering GE Capital to Pay Record $225 Million Over Credit Card Practices

Posted in Consumer Financial Protection Bureau, Consumer Protection

The Consumer Financial Protection Bureau (CFPB) continues to assert itself in the consumer credit card market, exercising both its supervisory and enforcement authority in finding that GE Capital Retail Bank (GE Capital), now operating as Synchrony Bank, engaged in discriminatory and deceptive practices against consumers. The two-part settlement reached with the CFPB and the U.S. Department of Justice (DOJ) resolved claims that GE Capital discriminated against Hispanic customers in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f, by not offering promotions to those whose preferred language was Spanish or had mailing addresses in Puerto Rico, even though they otherwise met the offer criteria. The CFPB cited its authority to supervise very large banks under the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. § 5515, as a basis for its jurisdiction to enforce the ECOA. GE Capital will pay $169 million to approximately 108,000 borrowers who were declined account balance settlement offers. The CFPB and the DoJ stated that the settlement with GE Capital was the biggest settlement in U.S. history over credit card discrimination.

Through the consent order, the CFPB also required GE Capital to pay $56 million, including a $3.5 million fine, to resolve allegations that the company deceptively sold five credit and debt cancellation add-on products in violation the CFPB’s unfair or deceptive acts or practices (UDAP) law contained in the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B). The products were intended to cancel credit card balances or payments upon the occurrence of certain life events like involuntary unemployment or disability. GE Capital was alleged to have misrepresented to customers that the add-on products were free, glossed over certain eligibility requirements, or even made offers to customers who were known to be ineligible. Telemarketers working for the company were alleged to have misled customers by making product purchases seem like routine account updates and to have used false language to create a sense of urgency for the customer. 638,000 credit card customers will be compensated under the deceptive practices portion of the settlement, and GE Capital is required to end all deceptive marketing and discriminatory credit practices. If the company wants to engage in future telephone customer enrollments for credit card product add-ons, then the company must submit a compliance plan to the CFPB for approval.

CFPB Director Richard Cordray remarked that this was the latest of six significant Bureau enforcement actions regarding credit card add-on products that have netted roughly $1.5 billion for consumers. Financial institutions must be closely attentive to the CFPB exercising its supervisory and enforcement authority due to the possible risk of wide-ranging investigations or enforcement actions.