State AG Monitor

State AGs in the News

Posted in 2014 Election, Antitrust, Consumer Protection, Energy, Environment, Financial Industry, Health Care, Medicaid Fraud, Pharmaceuticals, State AGs in the News, States v. Federal Government

Hot News

Attorneys General Discuss Possible Approaches to Prescription Drug Abuse Problem

  • The dangers of prescription drug abuse continue to be a huge concern for regulators at every level, including state AGs. This week at the National Association of Attorneys General summer meeting in Mackinac Island, Michigan, AGs furthered their discussions of such abuse and possible tools to combat the problem.
  • To read about what AGs have been and will be doing to fight prescription drug abuse, visit our recent blog post on this topic.

2014 Election

Arkansas Primary Runoff Election Results

  • Leslie Rutledge defeated David Sterling for the Republican nomination by a margin of 58.94% to 41.06% with all of the precincts reporting. Rutledge will face Nate Steel (D) in November’s general election. Incumbent AG Dustin McDaniel (D) is term limited.

Nevada Primary Election Results

  • Ross Miller (D) and Adam Laxalt (R) received their respective party’s nomination after both ran unopposed in the primary. Incumbent AG Catherine Cortez Masto (D) is term limited.

North Dakota Primary Election Results

  • Incumbent AG Wayne Stenehjem (R) and Kiara Kraus-Parr (D) received their respective party’s nomination after both ran unopposed in the primary.

South Carolina Primary Election Results

  • Incumbent AG Alan Wilson (R) and Parnell Diggs (D) received their respective party’s nomination after both ran unopposed in the primary.

Connecticut Primary Election Candidates

  • The Connecticut filing deadline was on June 10. The candidates for the primary election are incumbent AG George Jepsen (D), Kie Westby (R), and Stephen Fournier (Green).

District of Columbia Court of Appeals Rules in Favor of Attorney General Election in 2014

  • The District of Columbia (DC) Court of Appeals ruled that an election for the attorney general position must be held in 2014 unless it would not be “practically possible” for the board of elections to do so under applicable statutory and regulatory provisions. If DC can establish that an election is not practically possible in 2014, the court stated that the election must be held as soon as practically possible in 2015.
  • Paul Zukerberg, a potential AG candidate, brought the lawsuit to place the DC AG position on the ballot in 2014. Zukerberg argued that the DC Charter, which reads, “[t]he first election for the position of Attorney General shall be after January 1, 2014,” prohibited the DC Council from delaying the election.
  • The DC Court of Appeals stated that the language was ambiguous when considered in isolation and could mean “the following day, any time after that date, or some point in between.” The court held that when examined in the broader context of the D.C. Code, however, that “the far more natural reading” of that language would be that the election “must be held in 2014.”
  • According to a news report, current AG Irvin Nathan stated that he would seek an en banc review of the case. The case is currently on remand to the DC Superior Court.

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

Antitrust

Amicus Brief Filed by 23 Attorneys General Regarding Application of Federal Antitrust Laws to State Regulatory Boards

  • Twenty-three AGs, led by West Virginia AG Patrick Morrisey, filed an amicus brief in the U.S. Supreme Court in support of a state regulatory board in the case of North Carolina State Board of Dental Examiners v. Federal Trade Commission.
  • The AGs argue that the state board, which is staffed by professionals in the field, is not a private actor and that the state action exemption to federal antitrust law applies. They also argue that application of federal antitrust laws to state regulatory boards would interfere with the states’ self-governance and sovereign authority to regulate industries within their borders.

Consumer Protection

Missouri Attorney General Settles Pricing Lawsuit With Major Retailer

  • Missouri AG Chris Koster and Walgreens settled a lawsuit brought by the AG alleging false, misleading, and deceptive retail pricing in Walgreens’ Missouri stores.
  • Pursuant to the settlement, Walgreens agreed to use an independent auditor to audit 25 percent of the Missouri stores each quarter for three years and to pay penalties for any failed inspections. In the settlement, the company did not admit any wrongdoing.

Massachusetts Attorney General Settles With Motorcycle Financial Services Company

  • Massachusetts AG Martha Coakley settled with Harley-Davidson Financial Services, Inc., to resolve allegations that it failed to pay required refunds to borrowers under its motorcycle finance agreements.
  • The company allegedly failed to refund all finance contract enrollment fees, which are fees typically paid by borrowers for special loan terms and refunded in a prorated amount if the borrower pays off the loan early.
  • The company will pay $228,000 in restitution to consumers and $25,000 to the state. It has also agreed to follow policies and procedures that ensure borrowers always obtain refunds.

West Virginia Supreme Court Affirms $14 Million Judgment Against Loan Company

Energy

Michigan Attorney General Files Additional Charges Against Energy Company for Alleged Racketeering and Fraud

  • Michigan AG Bill Schuette filed additional criminal charges against Chesapeake Energy Corporation alleging racketeering and fraud. Chesapeake allegedly obtained uncompensated land options from landowners using false pretenses and prevented competitors from leasing the land.
  • In March, the AG had charged Chesapeake and Encana Oil & Gas USA with alleged antitrust violations with regard to private land leasing and the state land auction. In May, Encana settled with the AG for $5 million.
  • The AG is now charging Chesapeake with one count of conducting criminal enterprises and eight counts of false pretenses. Representatives from the company are scheduled to be arraigned on June 25 before Cheboygan County’s 89th District Court.

Environment

Oil Spill Lawsuit Allowed to Proceed

  • A judge for the U.S. District Court for the Eastern District of Arkansas ruled that a lawsuit brought against ExxonMobil by Arkansas AG Dustin McDaniel, on behalf of the Arkansas Department of Environmental Quality, and the U.S. AG, on behalf of the U.S. Environmental Protection Agency, will be allowed to proceed.
  • The lawsuit, resulting from a pipeline rupture and oil spill in March 2013, alleges violations of the state and federal pollution and hazardous materials laws.
  • ExxonMobil argued that the plaintiffs did not state a claim or otherwise establish that the company should have to pay penalties for the spill. The court disagreed.

Vermont Attorney General Sues Gasoline Refiners for Alleged Groundwater Pollution

  • Vermont AG Bill Sorrell sued more than two dozen gasoline refiners, manufacturers, and suppliers of the gasoline additive methyl tertiary butyl ether (MTBE) for alleged pollution of state groundwater.
  • AG Sorrell alleges that the companies promoted, marketed, and distributed gasoline containing MTBE knowing that it was hazardous and posed risk to groundwater. AG Sorrell also alleges that the companies failed to inform state regulators, resellers, or consumers of the hazards or means to mitigate these hazards.
  • The complaint claims violations of the state groundwater protection act, design defect, failure to warn, public and private nuisance, trespass, negligence, and civil conspiracy. The AG seeks compensatory and punitive damages, injunctive and equitable relief, costs, and interest.

Pennsylvania Attorney General Investigation Leads to Criminal Environmental Charges

  • An investigation by Pennsylvania AG Kathleen Kane led to a grand jury recommending criminal charges against Minuteman Towing Inc., Minuteman Spill Response Inc., Minuteman Environmental Services Inc. (collectively Minuteman), Bolus Truck Parts and Towing Services Inc., the owners of these companies, and family members of the owners.
  • Prosecutors charge that Minuteman allegedly violated both the state Clean Streams Law and Solid Waste Management Act by unlawfully disposing of and/or burying waste in the ground. Prosecutors also found that Minuteman and its owner allegedly overbilled businesses, and that several of the owner’s family members were allegedly added to the payroll for Minuteman and Bolus and submitted increased health care premiums for the group health insurance.
  • The company responded that the charges are “baseless and without merit” and that it will defend itself against them.

Financial Industry

Court Remands Lawsuits Against Financial Rating Agency for Lack of Federal Jurisdiction

  • The U.S. District Court for the Southern District of New York remanded lawsuits brought by 17 AGs against Standard & Poor’s Financial Services LLC (S&P) for lack of federal jurisdiction. The decision effectively vacated an order by the U.S. Judicial Panel on Multidistrict Litigation (MDL), closed the MDL proceeding, and dismissed two related lawsuits brought by S&P against South Carolina and Tennessee.
  • The suits, filed in state courts, alleged that S&P violated consumer protection and deceptive trade practices acts by misrepresenting the objectivity of its rating service. S&P had the cases removed to federal court and the AGs moved to remand.
  • California, Connecticut, and Illinois have lawsuits against S&P that remained in state court. The U.S. Department of Justice also has a lawsuit pending in the U.S. District Court for the Central District of California.

Health Care

Kentucky Attorney General Settles for $3.7 Million With Hematology and Oncology Center

  • Kentucky AG Jack Conway , the U.S. Attorney for the Western District of Kentucky, and the U.S. Department of Health and Human Services settled for $3.7 million with Elizabethtown Hematology and Oncology, PLC and its owners (collectively Elizabethtown) to resolve allegations that it submitted or caused to be submitted false claims to health care programs.
  • Elizabethtown allegedly extended chemotherapy treatment times to maximize reimbursements and billed unnecessary office visits for infusion therapies.
  • Pursuant to the settlement, Elizabethtown will also enter into a three-year corporate integrity agreement that requires enhanced accountability and monitoring.

Medicaid Fraud

Louisiana Attorney General Settles with Abbott Laboratories for $9.5 Million to Resolve Allegations of Medicaid Fraud

  • Louisiana AG Buddy Caldwell settled with Abbott Laboratories for $9.5 million to resolve allegations that it misbranded its drug Depakote, an antiepileptic medication, by promoting it to control agitation and aggression in elderly dementia patients and to treat schizophrenia without obtaining approval from the U.S. Food and Drug Administration.
  • Forty-nine other states and the District of Columbia previously settled with Abbott on similar allegations for $1.5 billion.

Pharmaceuticals

Forty-Five Attorneys General Settle for $105 Million With a Pharmaceutical Company to Resolve Unlawful Marketing Allegations

  • Forty-five attorneys general, led by Illinois AG Lisa Madigan and Oregon AG Ellen Rosenblum, settled allegations of violation of consumer protection laws with GlaxoSmithKline, LLC.
  • The AGs alleged that GlaxoSmithKline misrepresented and improperly promoted the uses, qualities, and benefits of its asthma drug, Advair, and its antidepressant drugs, Paxil and Wellbutrin.
  • Pursuant to the settlement, GlaxoSmithKline will pay $105 million, which a multistate executive committee will divide amongst the states and the District of Columbia. In addition, the company agrees not to make any false, misleading, or unapproved claims and will revise some of its practices, including those used for marketing and responding to health care provider questions. It will also continue a program that addresses compensation of sales representatives to reduce any financial incentives to engage in deceptive marketing. The company did not admit to any wrongdoing.

State AGs in the News

Mississippi Attorney General Elected NAAG President

States v. Federal Government

West Virginia Attorney General Writes Letter Objecting to Proposed Carbon Emissions Rule

  • West Virginia AG Patrick Morrisey wrote a letter to the U.S. Environmental Protection Agency (EPA) objecting to the EPA’s proposed rule to cut carbon emissions for existing power plants.
  • Last week we blogged about the AGs’ responses to the proposed rule, including both objections to and support for the proposal. In AG Morrisey’s letter, which is a follow up to his initial response last week, he argues that the proposed rule violates the Clean Air Act. He also describes the EPA’s plan as “legally flawed” and urges it to withdraw the proposal.


AGs Educated on Possible Approaches to Prescription Drug Abuse Problem

Posted in Pharmaceuticals

The dangers of prescription drug abuse continue to be a huge concern for regulators at every level, including State AGs. This week at the National Association of Attorneys General Summer Meeting in Mackinac Island, Michigan, AGs continued their discussions of such abuse and possible tools to combat the problem, including prescription drug monitoring programs (PDMPs) and public education campaigns.

Kentucky AG (and current NAAG Substance Abuse Committee co-chair) Jack Conway led the discussion, during which he highlighted his state’s PDMP as one of only three in the country whose use is mandated by doctors. AG Conway talked about the positive results of mandating doctors’ participation, despite initial pushback from doctors when the legislation was debated. Aaron Haslem, the former director of the State Medical Board of Ohio, focused on the necessity for states to collaborate and share information among their PDMPs. Michael Barnes, the Executive Director of the Center for Lawful Access and Abuse Deterrence (which advocates for market-based solutions to assist the government efforts in prescription drug abuse prevention plans), sounded a cautionary note. While he voiced support for PDMPs, he was concerned about patient privacy, stressing that law enforcement should not have unfettered access to the data in the systems.

During a panel on innovative AG outreach programs, AGs focused on education efforts to combat prescription drug abuse. Indiana Attorney General Greg Zoeller talked about how he used funding from settlements with pharmaceutical companies to jump-start his prescription drug abuse education program (the “Bitter Pill Campaign”), which includes television, radio and the Internet. Mitchel Denham, Assistant Deputy AG to Kentucky AG Conway, discussed how his office and AG Conway have pushed the robust “Keep Kentucky Kids Safe Program,” where Conway and program partners talk to students about the dangers of prescription drugs. Like Indiana, Kentucky uses funds (approximately $20M) from pharmaceutical settlements to pay for its program, as well as to help fund treatment facilities, another important component in combating the prescription drug abuse epidemic.

As laboratories of democracy, states will continue to use a variety of approaches to fight prescription drug abuse. As these discussions highlight, AGs have been, and will be, at the forefront of this fight.

State AGs in the News

Posted in 2014 Election, Antitrust, Charities, Consumer Protection, Contingency Fee Counsel, Employment, Energy, Environment, False Claims Act, For-Profit Colleges, State AGs in the News, States v. Federal Government, Unclaimed Property

Hot News

Alabama Primary Election Results

  • Incumbent AG Luther Strange (R) and Joe Hubbard (D) received their respective party’s nomination after both ran unopposed in the primary.

California Primary Election Results

  • Incumbent AG Kamala Harris (D) will face Ronald Gold (R) in November’s general election after the candidates received 53.1 percent and 12.7 percent of the vote, respectively.
  • California has a nonpartisan blanket primary in which the top two candidates, regardless of party affiliation, receive the nomination for the general election.

Iowa Primary Election Results

  • Incumbent AG Tom Miller (D) received his party’s nomination after running unopposed.  After failing to field a nominee for the primary, the Iowa Republican Party will nominate a candidate at the party’s state convention on June 14. Adam Gregg (R) is currently seeking the nomination.

New Mexico Primary Election Results

  • Susan Riedel (R) will face Hector Balderas (D) in November’s general election after both ran unopposed in the primary.

Kansas Primary Election Candidates

  • The Kansas filing deadline passed on June 1. The candidates for the primary election are incumbent AG Derek Schmidt (R) and A.J. Kotich (D).

Massachusetts Primary Election Candidates

  • The Massachusetts filing deadline was on June 3. The candidates for the primary election are Maura Healey (D), Warren Tolman (D), and John Miller (R).

Minnesota Primary Election Candidates

  • The Minnesota filing deadline was on June 3. The candidates for the primary election are incumbent AG Lori Swanson (D), Sharon Anderson (R),Scott Newman (R), Brandon Borgos (I), Andy Dawkins (G), and Mary O’Connor (L).

Wisconsin Primary Election Candidates

  • The Wisconsin filing deadline was on June 2. The candidates for the primary election are Susan Happ (D), Ismael Ozanne (D), Jon Richards (D), Brad Schimel (R), and Thomas Nelson, Sr. (L).

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

2014 Election

District of Columbia Court of Appeals Hears Arguments on Attorney General Election

  • As we previously blogged, Paul Zukerberg, a potential AG candidate for the District of Columbia (DC), sued to place the DC AG position on the ballot in 2014. The DC Superior Court granted a motion to dismiss and Zukerberg filed an appeal with the DC Court of Appeals. Zukerberg argues that the DC Charter, which reads, “[t]he first election for the position of Attorney General shall be after January 1, 2014,” prohibited the DC Council from delaying the election. A three-judge panel recently heard arguments on the appeal.
  • It was reported that two of the three judges said at oral argument that they believed that the “after January 1, 2014” language was ambiguous and were skeptical that it permitted a delay.
  • If the appeals court rules in favor of Zukerberg, it may still remand the matter back to the trial court for further proceedings and the city may still be able to seek review by the full appeals court.

Antitrust

West Virginia Attorney General Settles Allegations of Antitrust Violations With Bank

  • West Virginia AG Patrick Morrisey settled antitrust allegations with JP Morgan Chase for $400,000. Those allegations included bid rigging, price fixing, and manipulation of the municipal derivatives market. The money will go to state agencies that invested in municipal derivatives.
  • JP Morgan was one of 22 banks and financial companies sued by the AG’s office. Royal Bank of Canada, Bank of America, and Morgan Stanley had already settled with the AG. Lawsuits against other banks are still ongoing.
  • JP Morgan Chase denied the allegations during the lawsuit and denied wrongdoing in the settlement.

Charities

Arizona Attorney General Sues School Allegedly Misrepresenting Itself as a Non-Profit

  • Arizona AG Tom Horne sued Rise and Shine Exceptional Services, LLC and its owners for allegedly misrepresenting the school as a non-profit in violation of the state consumer fraud act.
  • Rise and Shine allegedly misrepresented to some parents and donors that the school was tuition-free while it charged some students, including recipients of state scholarships, tuition ranging from $2,000 to over $26,000 per year. Rise and Shine allegedly received donations of goods, services, and money because of these misrepresentations.
  • The suit seeks a permanent injunction prohibiting the school and its owners from unlawful acts and practices, restitution for parents and donors, disgorgement of profits gained through any illegal acts, civil penalties, costs, and attorney fees.

Consumer Protection

Missouri Attorney General Obtains Verdict Against Telemarketer in First “No Call” Trial

  • Missouri AG Chris Koster obtained a verdict against Pure Air, Inc. and its president for alleged violations of the state “no call” and telemarketing laws. The judge ordered Pure Air to pay $35,000 in fines and cease telephone solicitations in the state. If Pure Air fails to comply with the order, the fines could increase to up to $350,000.
  • According to AG Koster, this is the first “no call” case brought to trial in the state and he believes it is the first brought to trial by any state AG in the nation.

New York Attorney General Applauds State Assembly for Passing Consumer Credit Fairness Act

  • New York AG Eric Schneiderman applauded the state assembly for passing the Consumer Credit Fairness Act, which offers due process protections for consumers against debt collectors attempting to collect on debt using the judicial process.
  • The legislation will establish a three-year statute of limitations, establish requirements for a complaint, and require notice to the consumer of their rights in the initial debt collection correspondence and any lawsuit. According to AG Schneiderman, the act will “provide important notice to consumers that a suit has been filed against them, and require collectors to prove that the debt is legally owed to them based on statutes of limitations and other requirements.”
  • The state assembly passed the bill and referred it to the state senate judiciary committee, where it is now pending review. “I urge the Senate to take up this measure and help put an end to the abuse of consumers by debt collectors in our state,” stated AG Schneiderman.

Contingency Fee Counsel

Louisiana Passes Legislation Prohibiting Attorney General’s Use of Contingency Fee Counsel

  • Louisiana recently passed legislation prohibiting the state attorney general from hiring attorneys on a contingency fee basis.
  • House Bill 799 prohibits the attorney general or any state agency, board, or commission (excluding public postsecondary education institutions), from hiring attorneys on a contingency fee basis absent express statutory authority. The bill also requires that preference be given to attorneys licensed in the state and caps attorney fees at $500 per hour.
  • The bill creates an exception to these provisions for attorneys that are retained for purposes of defending the state in tort litigation or matters involving the state self-insurance fund.
  • Both the state house and senate passed the bill and the house recently concurred in senate amendments. The bill has now been sent to the governor for approval.

Employment

Illinois Passes Bill Protecting Workers Paid Through Payroll Cards

  • The Illinois legislature passed a bill crafted by Illinois AG Lisa Madigan, with the assistance of the state department of labor and sponsored by State Representative Arthur Turner and State Senator Kwame Raoul, which protects workers who are paid using payroll cards.
  • House Bill 5622  will:
    • Require employee voluntary consent;
    • Prohibit most fees including those for account balances and point of sale transactions;
    • Prohibit linking of account to any form of credit, including overdraft fees and loans against future pay;
    • Require employer to offer other methods of payment;
    • Require employers to disclose the terms and conditions of the card; and
    • Require employers to give notice that third parties may assess transaction fees.
  • “People shouldn’t have to pay to get their pay,” stated AG Madigan. The bill is now being sent to the governor for approval.

Energy

Attorneys General Respond to Environmental Protection Agency’s Proposed Rule to Cut Carbon Emissions

  • Several attorneys general commented on the Environmental Protection Agency’s recently proposed rule to cut carbon emissions. The proposed rule would cut carbon emissions from power plants by 30 percent from the 2005 levels by 2030.
  • Attorneys general opposing the proposed rule so far include those from Oklahoma, Texas, and West Virginia. Attorneys general who applauded the proposed rule are those from Massachusetts, New York, Rhode Island, Washington, and Illinois.
  • The agency is now taking public comment on the proposed rule. It anticipates releasing a final rule in June 2015. States would likely then be given another year from the release of the final rule to submit compliance plans or apply for extensions.

Environment

Allegations of Transporting Waste From Unregistered Facilities Settled by Massachusetts Attorney General

  • Massachusetts AG Martha Coakley settled with Safety-Kleen Systems, Inc., a company that transports waste in the state, to resolve allegations that it transported waste from unregistered facilities and submitted inaccurate reports to the state environmental protection department.
  • The state requires facilities that generate hazardous waste to obtain an identification number from the U.S. Environmental Protection Agency or the state. Companies transporting hazardous waste must only accept waste from facilities with a valid identification number and must submit monthly operating reports to the state environmental protection department detailing each shipment of hazardous waste. Safety-Kleen allegedly failed to meet these state requirements.
  • The settlement requires Safety-Kleen to pay a penalty of $100,000, of which $40,000 will be suspended if the company complies with environmental laws as outlined in the agreement. The company must also take steps to ensure future compliance, including training employees and instituting penalties and reporting for those employees who do not comply with state environmental laws.

False Claims Act

Medical Center Settles False Claims Act Allegations for $40.9 Million

  • Kentucky AG Jack Conway, the U.S Department of Justice (DOJ), the Federal Bureau of Investigation, and the U.S. Department of Health and Human Services, announced a settlement of $40.9 million with King’s Daughters Medical Center (KDMC) to resolve allegations that it falsely billed federal and state Medicare and Medicaid programs for heart procedures that were not medically necessary in violation of the federal False Claims Act. Kentucky will receive $1,018,380, which is its share of the Medicaid funds recovered as part of this settlement.
  • The federal False Claims Act only allows reimbursement to providers for procedures that are deemed medically necessary. KDMC allegedly billed for unnecessary coronary stents and diagnostic catheterizations performed by its physicians.
  • The settlement also resolves allegations of violations of the Stark Law, which is intended to limit monetary influence on physicians by prohibiting financial relationships between hospitals and referring physicians unless the relationship meets certain exceptions. KDMC also agreed to enter into a Corporate Integrity Agreement, which requires internal compliance reforms and third-party review of its claims for five years.
  • The DOJ is calling this a “landmark settlement” because it represents the largest federal health care fraud claims settlement involving a hospital in the history of the eastern district of Kentucky.

For-Profit Colleges

South Carolina Attorney General Issues Opinion Regarding Purchase and Licensing of Private Law School

  • South Carolina AG Alan Wilson issued an opinion, in response to a request from a state representative, stating that the state Commission on Higher Education, which licenses nonpublic postsecondary institutions, has no discretion to deny a license to a properly qualified applicant. Specifically, the commission lacks authority to consider licensing criteria outside the criteria articulated under South Carolina law, particularly the criterion of whether granting a license is in the best interest of the state.
  • The opinion implies that the commission erred in voting last month against approval of a license application filed by InfiLaw, which is trying to purchase Charleston Law School.
  • The opinion states that it is especially important that the commission, “make its decisions only upon criteria authorized by law because fundamental due process rights of the applicant are at stake. Any licensing decisions based upon criteria outside the law would, of course, be subject to judicial review and possible reversal.”

State AGs in the News

District of Columbia Attorney General Sues Management Company for Allegedly Improperly Diverting Charter School Funds

  • District of Columbia AG Irvin Nathan sued Community Action Partners and Charter School Management LLC and its CEO alleging that they contracted for management services with a non-profit charter school and improperly distributed operating profits from the school to themselves for their own benefit.
  • The complaint alleges that the management company and its owners violated the district’s Non-Profit Corporation Act by distributing the charter school’s operating profits to themselves and causing the charter school to act contrary to its non-profit purpose. The complaint further alleges that these acts caused charter school funds to be diverted from the lawful purpose of providing education and other services to the students of that school so that the funds could be used to benefit and enrich the management company and its owners.
  • The AG seeks a temporary or preliminary injunction to preserve the assets of the management company and a constructive trust for any improperly distributed funds. The AG also seeks to rescind the management agreements, enjoin any further payments, and enjoin any further allegedly improper actions.
  • An attorney for the CEO of the management company responded that the business agreements were legal.

States v. Federal Government

Massachusetts Attorney General Sues Federal Agency and Mortgage Providers Over Alleged Refusal to Engage in Foreclosure Buyback Programs

  • Massachusetts AG Martha Coakley sued the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac for alleged violations of the state foreclosure law.
  • The complaint alleges violations of the state non-profit buyback provision of the foreclosure law, which prohibits creditors from conditioning a sale to a legitimate buyback program on the program agreeing not to resell or rent the property to the former owner, and the state unfair and deceptive business practices law.
  • We recently blogged about a letter AG Coakley sent to the director of FHFA encouraging the agency to direct Fannie Mae and Freddie Mac to permit buybacks of homes by non-profits. The complaint requests declaratory judgment, preliminary and/or permanent injunction, penalties of up to $5,000 for each unfair or deceptive act, attorney fees, and costs.

Unclaimed Property

Washington Attorney General Files Charges Against Former State Employee Alleging Theft of Unclaimed Property

  • Washington AG Bob Ferguson filed charges against a former Washington Department of Social and Health Services employee who allegedly used confidential state databases to steal more than $150,000 in unclaimed property.
  • The former employee allegedly used confidential state vital records to create false claims on the state unclaimed property website managed by the state Department of Revenue.
  • The former employee was charged with first degree computer trespassing, money laundering, eight counts of first degree theft, three counts of second degree theft, 16 counts of first degree identity theft, and an unrelated count of unlawful possession of a firearm. He is scheduled to be arraigned on June 11 at the King County Superior Court.

State AGs in the News

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

Hot News

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

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

State False Claims Act Enforcement Explodes in 2014

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

2014 Election

Texas Primary Runoff Election Results

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

Arizona Primary Election Candidates

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

Consumer Financial Protection Bureau

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

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

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

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

Data Privacy

Three Attorneys General Will Investigate Alleged eBay Data Breach

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

California Attorney General Releases Privacy Policy Recommendations for Businesses

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

Environment

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

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

Wisconsin Attorney General Settles Air Pollution Allegations With Electric Power Company

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

Health Care

Twenty Attorneys General Challenge Affordable Care Act

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

State AGs in the News

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

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

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

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

State False Claims Act Enforcement Explodes in 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

State AGs in the News

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

Hot News

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

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

2014 Election

Arkansas Primary Election Results

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

Georgia Primary Election Results

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

Idaho Primary Election Results

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

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

Antitrust

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

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

Campaign Finance

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

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

Consumer Protection

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

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

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

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

Energy

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

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

For-Profit Colleges

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

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

Mortgages and Foreclosures

Washington Attorney General Obtains TRO Against Foreclosure Trustee

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

States v. Federal Government

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

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

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

Posted in Health Care, States v. Federal Government

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

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

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

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

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

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

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

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

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

State AGs in the News

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

Hot News

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

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

Nebraska Primary Election Results

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

Consumer Protection

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

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

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

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

Data Privacy

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

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

Employment

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

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

Energy

Sixteen Attorneys General File Comments With EPA on Proposed Carbon Regulations

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

False Claims Act

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

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

Financial Industry

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

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

Insurance

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

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

Medicaid Fraud

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

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

State AGs in the News

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

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

Judge Rules on Airbnb Subpoena

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

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

Posted in Consumer Protection

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

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

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

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

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

State AGs in the News

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

Hot News

Ohio Primary Election Results

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

Kentucky Attorney General Announces Candidacy for Governor in 2015

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

Antitrust

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

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

Consumer Protection

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

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

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

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

Delaware Attorney General Proposes Legislation for Consumer Protection of Servicemembers

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

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

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

Energy

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

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

Environment

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

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

Michigan Attorney General Requests Assurances on Great Lakes Pipelines

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

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

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

False Claims Act

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

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

For-Profit Colleges

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

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

Financial Industry

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

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

Insurance

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

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

State AGs in the News

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

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

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

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