State AG Monitor

State AGs in the News

Posted in Antitrust, Consumer Financial Protection Bureau, False Claims Act, Financial Industry, Intellectual Property, Mortgages/Foreclosures, State AGs in the News, Utilities

Hot News

Delaware Senate Passes Reforms to State Unclaimed Property Audit Process

  • In a recent blog post, Dickstein Shapiro partner Maria Colsey Heard and counsel Aaron Lancaster explain how the Delaware legislature is seeking to reform the state unclaimed property audit process.

Antitrust

New Massachusetts Attorney General Hints at Possible Action on Hospital Merger

  • Massachusetts AG Maura Healey indicated to a Suffolk Superior Court judge that she would vigorously enforce the terms and conditions of a consent judgment reached between her predecessor, Martha Coakley, and two healthcare entities seeking merger approval, Partners HealthCare System, Inc. and South Shore Hospital, if the court decides to approve the consent judgment.
  • AG Healey also indicated, however, that she does not wholly endorse the settlement terms, and if the court declined to approve the consent judgment, her office would “exercise its right to void the agreement,” and would likely “litigate to enjoin Partners’ proposed acquisition of South Shore Hospital.”
  • In her submission, which was requested by the court and informed by public and industry comments, AG Healey outlined her concerns for the efficacy of the consent judgment, which include: concerns for the market power of the merged entity after the constraints expire, skepticism over the utility of “component contracting,” and the preference that the merged entity demonstrate an ability to contain costs before it is allowed to expand.

Consumer Financial Protection Bureau

CFPB Creates Scorecard for University-Linked Debit and Prepaid Cards

  • The Consumer Financial Protection Bureau (CFPB) is seeking public comments on a new “scorecard” it created to help minimize potential harm to students when their university enters into an agreement with a bank to offer university-linked debit and pre-paid card accounts on campus.
  • The CFPB proposed the scorecard out of concern that banks and schools were not properly considering students’ interests in the negotiations for these debit cards. Because universities are often provided with a signing bonus and/or a portion of the revenues generated from card fees, and given that these cards are sold on campuses, linked to student accounts, and used to access student loan balances, the CFPB emphasized that it is important they are structured to minimize fees and to promote sound financial practices by students.
  • The scorecard—which is a voluntary tool for universities to use—requires that a bank provide a clear description and annual summary of the fees charged to students, an explanation of  the bank’s marketing practices, and an estimate of bank earnings from student debit card accounts. The goal is to establish a uniform and transparent format for making disclosures so that the universities can better evaluate and compare the various debit card offers, and select the offer that best protects its students.

False Claims Act

Wisconsin Settles Ten-Year Old Dispute With Drug Maker

  • Wisconsin AG Brad Schimel has reached a settlement with Novartis Pharmaceuticals Corporation, resolving claims that Novartis charged artificially inflated prices to the State Medicaid program.
  • AG Schimel’s lawsuit, originally filed in 2004, alleges that Novartis reported inflated average wholesale prices for certain drugs provided to the Medicaid program. The dispute was scheduled for trial starting on February 2, with the state claiming $22 million in damages.
  • According to news reports, Novartis maintained that the state’s claims were unfounded but settled to avoid any additional costs of litigation. It also highlighted that it “provides millions of dollars every year to the state of Wisconsin, which enables Wisconsin to fairly pay its pharmacies and assure that Wisconsin Medicaid beneficiaries have access to Novartis’ innovative medicines.”

Financial Industry

New York Attorney General Looks to Amend “Dark Pools” Complaint, Spotlighting Alleged Wrongdoing With Greater Specificity

  • New York AG Eric Schneiderman has moved for leave to file an amended complaint against Barclays Capital Inc. and Barclays PLC, seeking to demonstrate that the alleged illegal conduct was not accidental or minimal, but rather part of “a broad course of conduct involving numerous Barclays employees.”
  • The amended complaint—which is based on information gained through discovery of more than 100,000 documents—names specific executive level employees and provides greater detail to the allegations that Barclays misled customers to boost its own profits. The amended complaint identifies specific incidents in which Barclays assured investors they were protected from “toxic” high-frequency traders, while at the same time was inviting high-frequency traders to transact in the “dark pools.”
  • Barclays responded that the amended complaint “merely repackages the same flawed arguments that were in the original complaint,” and that it will “continue to seek to cooperate with the New York Attorney General in this matter,” but will also “continue to defend vigorously against these allegations.”

Intellectual Property

Washington Attorney General Seeks Legislation to Curb “Patent Trolls”

  • Washington AG Bob Ferguson is proposing legislation to prohibit the deceptive and fraudulent assertion of alleged patent rights. If passed, Washington would become the 18th state in the last two years to limit the actions of “patent trolls” through legislation.
  • The  proposed legislation, the “Patent Troll Prevention Act,” prohibits an entity from sending demand letters that contain false or deceptive information, requesting a licensing fee for a patent they do not possess, baselessly threatening litigation if a fee is not paid, and failing to identify the individual asserting the patent and explaining the alleged infringement.

Mortgages and Forclosures

Maryland Attorney General and CFPB Settle With Banks Over Alleged Mortgage Kickback Arrangement

  • Maryland AG Brian Frosh, working together with the Consumer Financial Protection Bureau (CFPB), entered into consent judgments with Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. to resolve allegations that the banks violated the Real Estate Settlement Procedures Act and the Maryland Consumer Protection Act through a “kickback” arrangement with now defunct Genuine Title, LLC.
  • In the complaint, AG Frosh and the CFPB alleged that from September 2011 to early 2014, Genuine Title provided leads on potential mortgage clients to the banks in exchange for the banks’ referral of mortgage customers to Genuine for closing services.
  • Under the terms of the consent judgments, Wells Fargo will provide $10.8 million and Chase will provide $300,000 in restitution to customers who used either a Wells Fargo or Chase loan officer and closed with Genuine Title. In addition, the banks will pay civil penalties totaling $21.5 million to the CFPB and $3.1 million to the Maryland Consumer Protection Division.

States v. Federal Government

Ohio Attorney General Sues Federal Government Over Affordable Care Act “Tax” on State Entities

  • Ohio AG Mike DeWine, along with officials from Warren County and various Ohio public universities, filed a lawsuit in the Southern District of Ohio alleging that the application of the Affordable Care Act’s (ACA) Transitional Reinsurance Program requiring state entities to pay “contributions” to the U.S. Treasury for a three-year period beginning in 2014 is unconstitutional.
  • At the heart of AG DeWine’s lawsuit is the application of U.S. Department of Health and Human Services (HHS) regulations purporting to require local and municipal governments and public universities that offer self-insured group health plans to their respective employees to make monetary contributions toward the establishment of a national reinsurance pool.
  • In the complaint, AG DeWine argues that because local governments and public universities are essentially state entities, they cannot be mandated to make “contributions” under the ACA. DeWine further contends that such contributions amount to a direct revenue generating tax on the state that violates the Tenth Amendment and the doctrines of Intergovernmental Tax Immunity and Anti-Commandeering.

Utilities

Kentucky Attorney General Secures $54 Million in Rate Reductions and Refunds

  • Kentucky AG Jack Conway, together with Kentucky Industrial Utility Customers, Inc., an association of energy-consuming companies, intervened in a utility price dispute before the Kentucky Public Service Commission, ultimately saving ratepayers $54 million in fuel costs.
  • The Kentucky Public Service Commission (PSC) found Kentucky Power Co.’s alleged failure to disclose $38.25 million in additional fuel costs stemming from a recent acquisition to be “incomprehensible”—especially in light of its finding that the Power Co. decided to operate two plants simultaneously, generating excess power that it sold on the open market while imposing the extra costs on its customers.
  • The PSC directed Kentucky Power Co. to refund $13.2 million to ratepayers for overcharges already collected during the first four months of last year, and barred the company from collecting approximately $41 million in additional fuel costs through May 2015.

Delaware Senate Passes Reforms to State Unclaimed Property Audit Process

Posted in Unclaimed Property

Delaware, like most states, requires that certain types of unclaimed property be reported and turned over to the State. Delaware’s unclaimed property administrator, as in other states, has the power to “examine the records” of businesses—either directly, or through the use of private-sector audit firms—to ensure compliance. This audit process has engendered controversy in recent years, and the Delaware Senate has been working on significant reforms. Although geographically small, Delaware is a heavyweight in forming policy in this area for one simple reason: Delaware is the state of incorporation for a large majority of American companies, and when the rightful owner’s address is unknown, unclaimed property must be reported to the state where the company holding it is incorporated.

In July 2014, the Delaware Senate created a task force to assess policy shortfalls and propose new legislative goals for identifying unclaimed and abandoned property. The task force met numerous times throughout 2014 and made its recommendations in a final report issued on December 23, 2014. The report identified both specific actions (e.g., amend the statute of limitations relating to unclaimed property audits so that businesses are not liable for unclaimed property after a reasonable period for record retention has expired) and general guidelines (e.g., maintain a broader base of contracted auditors) to be addressed in future legislation.

Last week, the Senate adopted some of those recommendations in Senate Bill 11. The proposed law would implement two key recommendations from the task force final report: it would limit a single private firm to securing no more than 50 percent of the contracts to audit for unclaimed property, and it would prohibit a firm awarded an auditing contract from employing persons who have served as supervisors in the Delaware Division of Revenue or Department of Finance during the prior two years. SB 11 also calls for the Secretary of Finance to create a detailed procedural manual by December 15, 2015, with further input from stakeholders and interested parties.

Passage of SB 11 likely will not resolve all controversy surrounding states’ use of outside auditors with a financial stake in the process, but it shows a recognition of businesses’ concerns about the fairness of the audit process. Other state unclaimed property offices, and state legislators, are certain to pay attention.

State AGs in the News

Posted in 2014 Election, Consumer Protection, Data Privacy, Environment, False Claims Act, Mortgages/Foreclosures, Securities, State AGs in the News

Hot News

Hawaii Governor Appoints Doug Chin as New Attorney General

Consumer Protection

Missouri Attorney General Settles With Credit Card Issuers Over Allegedly Misleading Payment Protection Services

  • Missouri AG Chris Koster settled with Discover Financial Services, Inc., HSBC Finance Corp., and Capital One Financial Corp. over allegations that they deceptively enrolled credit card customers into “payment-protection plans” that provided little or no benefit to the customer.
  • The investigation centered on allegations that consumers were unaware they had been signed up for the plans, were misleadingly upsold after calling on another matter, or were automatically enrolled if they failed to read and respond to a notice sent by mail. In addition, cardholders claimed that when they requested the suspension of payments due to injury or disability, a benefit to which they were entitled under the plan, the companies failed to comply.
  • The settlement requires the three companies to pay a total of $2.235 million (Discover, $760,000; Capital One, $740,000; and HSBC, $825,000) to a specialized fund, previously established to provide consumer protection education and enforcement. The three companies also agreed to cease selling payment protection and other related add-on products (such as identity theft protection) in a way that misleads Missouri consumers.

Data Privacy

Nineteen Attorneys General Investigate Data Breach at JPMorgan

  • A group of 19 AGs is asking for more information about the October 2014 data breach of JPMorgan Chase & Co.
  • The group of AGs, led by Illinois AG Lisa Madigan and Connecticut AG George Jepsen, has requested that JPMorgan clarify the number of customers in each of the states affected by the breach, whether there has been any fraudulent activity stemming from the breach, how JPMorgan discovered the breach, how it will protect against future breaches, and the evidence on which JPMorgan based its assertion that customer passwords and Social Security numbers were not compromised.
  • According to the New York Times, JP Morgan has until January 23, 2015, to respond to the offices of the Illinois and Connecticut AGs.

New York Attorney General Seeks to Strengthen Data Protection Regime

  • New York AG Schneiderman announced that he will propose legislation to the New York legislature to strengthen and expand state data privacy and breach notification laws.
  • AG Schneiderman’s bill would make the following changes: expand the legal definition of private information to include email addresses and passwords, medical and biometric information, and health insurance information; require companies that store data to have physical, technical and administrative safeguards; provide a presumption of lawfulness when a company demonstrates compliance with third-party certification standards; create a safe harbor for companies employing heightened security measures like encryption; and establish incentives for breached companies to share information with law enforcement.

Environment

Incoming Nebraska Attorney General Establishes Bureau for Environmental Issues

  • Recently elected Nebraska AG Doug Peterson announced that he has established a special bureau within the AG’s office to focus on issues of agriculture, environment, and natural resources. The new bureau will be headed by Assistant Attorney General Justin Lavene, and will focus, among other things, on the state’s disputes over water issues and federal environmental regulations.

False Claims Act

Washington State Recovers $3.35 Million for Allegedly Overbilled Dental Treatments

  • Washington AG Bob Ferguson settled with Sea Mar Community Health Centers (Sea Mar) over allegations that Sea Mar had submitted false claims to Medicaid in connection with patients receiving certain dental treatments between 2010 and 2014.
  • The dispute arose out of Sea Mar’s alleged practice of billing fluoride treatments as a stand-alone appointment or “encounter” with a dentist or hygienist with a requisite fee of $180, when instead they should have been billed as an add-on service connected to the patient’s regular checkup.
  • Sea Mar agreed to pay $3.35 million to resolve this dispute. As part of this settlement, Sea Mar also agreed to dismiss with prejudice a lawsuit it had filed in federal court naming AG Ferguson, the Director of the State Health Care Authority, and the Secretary of the Department of Social and Health Services as defendants. In its complaint, which came in response to a May 2014 letter from the AG seeking over $72 million in damages associated with the above-referenced billing practices, Sea Mar had requested reimbursement of all encounters since 2006 under the Medicaid Act and the Supremacy Clause.

Massachusetts Attorney General Settles With Hospital Over Alleged Kickbacks

  • Massachusetts AG Martha Coakley, together with the U.S. Department of Justice and the Inspector General for the Department of Health and Human Services, entered into a consent judgment with South Shore Physician Hospital Organization, Inc. (SSPHO). The settlement resolves allegations that the hospital and its member organizations violated the False Claims Act.
  • AG Coakley alleged that for a ten-year period starting in 2001, SSPHO provided cash grants to recruit new member physicians, who in return were required to make patient referrals to participating providers. As such conduct allegedly violates the federal anti-kickback statute, it thus forms the basis for a False Claims Act violation when SSPHO and member organizations submit invoices for Medicaid reimbursement.
  • SSPHO, which initially disclosed the program in 2012, cooperated with the investigation and agreed to pay $1.77 million to resolve all allegations. Massachusetts will keep more than $620,000 of the settlement amount, with $310,625 going directly to Massachusetts’ Medicaid program.

Mortgages and Forclosures

Massachusetts Attorney General Secures $2.7 Million to Close Out Claims for Unlawful Foreclosures

  • AG Coakley reached a settlement with Bank of America, N.A.; JPMorgan Chase Bank, N.A.; Citibank, N.A.; and Wells Fargo Bank, N.A. (collectively “banks”), resolving claims that the banks failed to adhere to statutory requirements while seeking to foreclose on Massachusetts residents during 2008 and 2009.
  • The lawsuit alleged that the banks violated the Massachusetts Consumer Protection Act and as state foreclosure law by foreclosing upon residents’ homes without possessing the legal authority to do so, by misrepresenting to homeowners that the banks held the relevant mortgages when they did not, by omitting information regarding loan modification programs, and by engaging in false documentation to facilitate their foreclosure efforts.
  • Under the terms of the settlement, the banks will assist consumers who indicate problems with legal title due to an unlawful foreclosure attempt, provide curative documents where necessary, release junior liens held by the banks, and pay reasonable costs associated with curing the title. In addition, the banks will pay $700,000 to the AG’s Consumer Aid Fund and $2 million to the Commonwealth’s General Fund.

Securities

Massachusetts and New York Settle With Standard & Poor’s Over Poorly-Disclosed Ratings Methodology

  • Massachusetts AG Coakley and New York AG Schneiderman together with the U.S. Securities and Exchange Commission (SEC), reached a settlement with Standard & Poor’s Financial Services, LLC, (S&P) to resolve allegations that S&P made false and misleading public statements when describing its ratings methodology for commercial mortgage-backed securities (CMBS).
  • The investigation centered on representations S&P allegedly made to investors in 2011—that it had tightened the standards it used to provide credit ratings for CMBS and had adopted strict analytical independence, free from commercial considerations. The AGs alleged, to the contrary, that by not providing proper disclosure S&P had actually departed from its published criteria in a manner that was less conservative, provided less investor protection, and made its ratings more attractive to fee-paying issuers.
  • According to the settlement, S&P will pay $7 million in penalties to Massachusetts, $12 million to New York, and $35 million in penalties plus $7 million in disgorgement and interest to the SEC. In addition, S&P will refrain from rating any new CMBS conduit/fusion transaction for a period of twelve months.

Doug Chin (D) Appointed New Hawaii AG

Posted in 2014 Election

Late last Friday, Hawaii Governor David Ige (D) appointed Doug Chin to be the next Hawaii AG. Chin will replace former AG David Louie (D), whose term ended when Governor Ige took office on December 1, 2014.

Chin, a Democrat, has been a partner in the Corporate, Administrative Law, and Litigation practice groups of Carlsmith Ball LLP and has served as a managing partner since October 2014. Prior to joining Carlsmith Ball, Chin served as Managing Director for the City and County of Honolulu from 2010 to 2013. Chin also served as a prosecutor at the City and County of Honolulu Prosecuting Attorney’s office for 12 years, during which time he held positions as Acting Prosecuting Attorney and First Deputy Prosecuting Attorney.

When announcing his appointment, Governor Ige called Chin “a man of integrity who has the skills and experience to perform his duties as the state’s attorney general at the highest level. He is able to defend the state in court, facilitate and negotiate agreements, manage a large department and communicate well. It’s rare to find someone who can do all those things.”

State AGs in the News

Posted in Consumer Protection, Data Privacy, Intellectual Property, State AGs in the News, States v. Federal Government, Utilities

Hot News

California Attorney General Announces Candidacy for 2016 Senate Race

  • California AG Kamala Harris announced that she will run for the U.S. Senate seat that will be vacated by Senator Barbara Boxer, who will not seek reelection when her fourth term expires in 2016.

Consumer Protection

Nine State Attorneys General Settle With Online Shoe Retailer

  • AGs from nine states reached a settlement with Zappos.com, Inc., resolving their investigation into a 2012 data breach that potentially affected over 24 million customers.
  • The server exposed in the breach contained customer names, email addresses, billing and shipping addresses, phone numbers, and cryptographically scrambled passwords. However, Zappos asserts that the breach did not expose databases where critical credit card and other payment data were stored.
  • Zappos agreed to pay $106,000 and to implement a number of data security reforms, including: appointing a third party to audit its security procedures and reporting to the AGs the procedures that Zappos implements to bring its data security practices in compliance with the Payment Card Industry Data Security Standard.

New York Attorney General Collects From Allegedly Deceptive Debt Purchaser 

  • New York AG Eric Schneiderman reached a settlement with Encore Capital Group, Inc., to resolve claims that Encore improperly obtained more than 4,500 debt judgments in New York.
  • The investigation and settlement were based on allegations that Encore pursued debt collection lawsuits against consumers in New York, even though the underlying debt obligation originated in a different state and was outside of that state’s statute of limitation for debt collection. AG Schneiderman alleged that Encore was able to obtain default judgments on otherwise time-barred claims because many consumers do not generally respond to debt collection lawsuits.
  • Encore has agreed to vacate $18 million in allegedly improperly obtained judgments and pay $675,000 in civil penalties and costs. It also has agreed to change its future debt collection operations to provide better disclosures to debtors, including the following information: the name of the original creditor and the date of the debtor’s last payment on the debt, whether the debt is outside of the statute of limitations for litigation purposes, and whether the debt is outside of limits for reporting to credit reporting agencies.

Data Privacy

Washington Attorney General Seeks Greater Data Privacy Through Improved State Laws

  • Washington AG Bob Ferguson introduced draft legislation, with bipartisan support, designed to amend the state data breach and notification law to better protect consumers through increased breach disclosures.
  • The proposed legislation would strengthen data breach notification requirements by eliminating the blanket exemption for encrypted data, requiring consumer notification no later than 30 days whenever personal information is likely compromised, and requiring that the AG be notified within 30 days when a data breach occurs at a business, nonprofit or public agency.

Intellectual Property

Federal Judge Sends Alleged “Patent Troll” Back to State Court

  • A federal judge for the District of Vermont again remanded to state court a lawsuit brought by Vermont AG William Sorrell alleging violations of the Vermont Consumer Protection Act by MPHJ Technology Investments, LLC.
  • AG Sorrell is suing MPHJ on allegations that it violated state consumer protection laws by sending “unfair and deceptive” letters to small businesses and nonprofits throughout Vermont, claiming they had infringed MPHJ’s intellectual property and demanding that they pay licensing fees. The patent MPHJ claims to have been infringed pertains to “scanning documents and attaching them to email via a network.”
  • This lawsuit was initially filed in Vermont state court in May 2013, and has been removed twice to federal court on arguments that deciding these claims in state court would negatively affect MPHJ’s patent rights under federal law. For more background on this, and a related lawsuit in Nebraska, please see our previous post.

States v. Federal Government

Twenty-Five Attorneys General Argue for Reversal of Ninth Circuit Decision on Gun Law

  • A bipartisan group of twenty-five AGs, including Montana AG Tim Fox, submitted an amici brief to the U.S. Supreme Court in support of petitioners’ application for a writ of certiorari to review the Ninth Circuit’s decision affecting gun rights.
  • The Ninth Circuit decision, Jackson v. City & County of San Francisco, upheld a San Francisco ordinance requiring firearms in a private residence to be stored in locked and inoperable condition when not being carried on a person. The amici AGs—many from states in the Ninth Circuit—argue that this ordinance infringes on gun owners’ rights under the Second Amendment by denying them immediate access for the core lawful purpose of home defense.
  • The AGs contend that the San Francisco ordinance in question is substantially similar to the law that was struck down for being too restrictive in District of Columbia v. Heller, a 2008 Supreme Court decision.

Eleven Attorneys General Argue in Support of Executive Action on Immigration

  • Eleven states, led by Washington AG Bob Ferguson, submitted an amici brief to the U.S. District for the Southern District of Texas as part of  the recently filed case Texas v. U.S. The AGs argue in support of  President Obama’s executive actions on immigration and in opposition to the plaintiff states’ motion for a preliminary injunction.
  • In contrast, recently elected Texas AG Ken Paxton is leading the group of 24 states seeking to enjoin and have declared unconstitutional the executive actions, which include a U.S. Department of Homeland Security (DHS) Directive providing deferred action for certain groups of immigrants. A preliminary hearing is scheduled for today in Brownsville.
  • In their amici brief, the AGs supporting President Obama’s actions argue that the requirements for injunctive relief are not met because directives allowing immigrants to work legally do not irreparably harm but rather substantially benefit states, through increased wages and therefore spending power of immigrant workers, increased state tax revenues, and by allowing the DHS to focus its resources on the deportation of criminals and other threats to state security.

Utilities

Massachusetts Attorney General Resolves Disputes Over Electricity Prices; Provider to Refund $44.7 Million

  • Massachusetts AG Martha Coakley settled a series of related disputes pending before the Massachusetts Department of Public Utilities (DPU), that alleged that NSTAR Electric & Gas Company overcharged customers.
  • The overcharges are alleged to have occurred due to billing practices that allowed NSTAR to raise rates to address predicted increases in certain associated costs, such as capital improvement expenses, energy efficiency projects, and pension increases. However, the DPU had allegedly failed to review and reconcile the predicted cost increases with the actual cost outlays each year for accuracy. The complaints stem from allegations that NSTAR increased rates without later incurring the associated costs.
  • As a result of the settlement, which must be approved by the DPU in March, NSTAR will refund $44.7 million in overcharges, provided to its current customers in the form of rate reductions, starting in April 2015.

State AGs in the News

Posted in Consumer Protection, False Claims Act, Health Care, Securities, State AGs in the News

Hot News

Congratulations to Ann-Marie Luciano!

  • State AG Monitor wishes to congratulate blog contributor Ann-Marie Luciano, who was elected to partner in the State Attorneys General Practice in Dickstein Shapiro’s Washington, DC, office as of January 1, 2015. Ann-Marie represents clients facing litigation and investigations brought by the Federal Trade Commission, Department of Justice, State AGs, and other regulators in a wide array of industries, including telecommunications, consumer technology, financial services, and education. Ann-Marie also advises clients on antitrust and consumer protection compliance issues, and counsels on potential acquisitions from an antitrust perspective. Ann-Marie earned a B.A., magna cum laude, from Allegheny College and a J.D. from Cornell University Law School.

Consumer Protection

Indiana Seeks to Regulate E-Cigarettes as Regular Cigarettes

  • Indiana AG Greg Zoeller is working with the Indiana legislature to create and modify the state regulatory framework to better address the growing use of e-cigarettes among teenagers.
  • The proposed legislation would require “vape shops” to be licensed and would give more oversight authority to the Indiana Alcohol and Tobacco Commission. It would also tax e-cigarettes in similar fashion to that of regular cigarettes, include them in the statewide ban on cigarettes sales to persons under age 18, and require child-resistant packaging to protect against accidental exposure.
  • AG Zoeller currently sits as vice chair of the National Association of Attorneys General (NAAG) Tobacco Committee, where he promotes federal regulation of e-cigarettes similar to traditional tobacco products.

Massachusetts Resolves Allegations of Deceptive Sales Practices With Electricity Supplier

  • Massachusetts AG Martha Coakley reached an agreement with Just Energy Group Inc. to resolve allegations that it deceived consumers through marketing and selling electricity supply contracts.
  • The lawsuit alleged that Just Energy, through a third-party telemarketing vendor and door-to-door agents, misrepresented the true cost of service, falsely claimed to offer products affiliated with a state-run program, entered consumers into agreements without their consent, and charged costly termination fees that were not adequately disclosed.
  • The Assurance of Discontinuance was filed in Suffolk Superior Court and requires Just Energy to pay $3.8 million to an independent trust fund for purposes of making restitution payments to certain consumers, and $200,000 to the Commonwealth.

False Claims Act

Five States Settle With Dialysis Provider Over Allegations of Illegal Kickbacks

  • Colorado AG John Suthers, along with the AGs from California, Florida, Kentucky, and Ohio, reached an agreement with DaVita Healthcare Partners Inc. to resolve claims that DaVita violated state False Claims Acts by submitting false and fraudulent claims to state Medicaid programs.
  • The AGs’ claims were based on allegations that DaVita provided a “kickback” through buying or selling ownership shares in joint ventures to the physicians at prices that were manipulated to make the transactions financially favorable for the physicians, with the understanding that the physicians would primarily refer patients to the resulting jointly-owned dialysis centers.
  • Under the terms of the state settlement agreement, DaVita will pay $22 million to the five states, with Colorado receiving $3 million. DaVita previously settled with the U.S. Department of Justice on related allegations of violating federal law, agreeing to pay $350 million in restitution and $39 million in civil forfeiture. DaVita also entered into a corporate integrity agreement with the U.S. Department of Health and Human Services which requires it to restructure certain business arrangements and to appoint an independent monitor to prospectively review DaVita’s future business arrangements.

Massachusetts Settles With Telecom Provider for Overcharging the State

  • Massachusetts AG Martha Coakley settled with Verizon New England Inc. over claims that the company overcharged the Commonwealth for telecommunications services provided under a statewide procurement contract. The settlement resolves a lawsuit filed by a whistleblower alleging violations of the False Claims Act, in which the Commonwealth intervened.
  • The lawsuit specifically alleged that Verizon invoiced certain state customers at rates higher than those permitted by the state contract for various landline services from September 2006 to October 2012. As a result of the settlement, Verizon agreed to pay $1.3 million to the state and to be responsible for any additional related payments to towns, cities, and other entities impacted by the alleged overbilling.
  • Verizon issued the following statement: “After a thorough review, Verizon and the attorney general have agreed to settle certain billing issues under a now-expired state contract…We have a long history of providing reliable, cost-efficient services, and promptly addressing issues that can arise under agreements as complex and wide-ranging as the state’s blanket contracts.”

New York Attorney General Goes After Medicaid Transportation Provider

  • New York AG Eric Schneiderman settled with Apple Transportation of New York, Inc., resolving allegations that from January 1, 2004, to October 30, 2008, Apple overbilled the state Medicaid program for transportation services provided to Medicaid recipients to and from health care appointments.
  • As part of the settlement, Apple admitted that it frequently billed Medicaid for ambulette services when it had only provided livery services to passengers. Transportation providers can bill Medicaid at a higher rate for ambulette services because physical assistance is provided to the Medicaid passenger in connection with a trip.
  • Apple agreed to pay $300,000 to resolve the dispute.

Health Care

For-Profit Healthcare Network Seeks Attorney General Approval to Buy Nonprofit Hospitals

  • California AG Kamala Harris has until February 6 to decide whether to approve a proposal by Prime Healthcare Services to acquire the Daughters of Charity Health System, which consists of six nonprofit hospitals.
  • Prime Healthcare, a for-profit network that operates 29 hospitals in nine states, has agreed to purchase the six hospitals for $843 million in cash and assumed liabilities. However, California law requires AG Harris to approve the sale because it would effectively change the status of the six hospitals from nonprofit to for-profit.
  • Although Prime Healthcare has a record of reviving financially distressed hospitals, there are some concerns that the sale to Prime Healthcare will cause an erosion of services currently offered through the Daughters of Charity hospitals, especially those services oriented to low-income patients.

Securities

Ohio Attorney General Files Motion to Support Ohio Pension Funds as Lead Plaintiffs in Class Action

  • Ohio AG Mike DeWine filed a motion in support of two Ohio pension funds, arguing that the funds should be appointed lead plaintiffs in a class action lawsuit by a variety of investors against American Realty Capital Properties, Inc. (ARCP), a real estate investment trust based in New York.
  • The two pension funds, the State Teachers Retirement System of Ohio and the Ohio Public Employees Retirement System, reported losses in value of more than $7.5 million as a result of alleged accounting fraud by ARCP. The lawsuit alleges that ARCP overstated key performance metrics, and under reported net losses for reporting periods ending June 30, 2014.
  • The Ohio funds, plaintiffs in Ciraulu v. American Realty Capital Properties, Inc., No. 14-08659 (S.D. N.Y. Oct. 30 2014), are seeking consolidation with at least six related lawsuits, and have filed a separate motion to be named lead plaintiffs of the consolidated action.

State AGs in the News

Posted in Consumer Financial Protection Bureau, Consumer Protection, Financial Industry, Marijuana, State AGs in the News

Consumer Financial Protection Bureau

State Attorneys General Join With the CFPB to Enforce Dodd-Frank Act

  • AGs from Virginia and North Carolina joined the Consumer Financial Protection Bureau (CFPB) in an enforcement action against Freedom Stores, Inc.; Freedom Acceptance Corporation; Military Credit Services LLC; as well as owners and chief executives John F. Melley and Leonard B. Melley, Jr., (collectively, defendants) for alleged violations of the 2010 Consumer Financial Protection Act (CFPA) and related state laws.
  • The complaint alleges that the defendants violated both state and federal law through the use of deceptive and abusive debt collection practices and the misuse of state courts to obtain default judgments against consumers who did not live or conduct business in the forum. Under Section 1042 of the Dodd-Frank Act, states have jurisdiction to enforce provisions of the CFPA.
  • The parties entered into a consent order that requires that the defendants will provide more than $2.5 million in monetary compensation in the form of debt forgiveness and refunds. The order also requires defendants to pay a civil penalty of $100,000.
  • The consent order enjoins defendants from utilizing certain debt collection methods, including filing legal actions outside of a consumer’s county of residence or the county where the debt was incurred, charging credit or debit cards without consumer consent, garnishing wages, contacting third parties regarding the debt, and selling or transferring any portion of debt related to this enforcement action.

Consumer Protection

State Attorneys General and Federal Regulators Settle Cramming Allegations With T-Mobile

  • The Federal Trade Commission, the Federal Communications Commission (FCC), and AGs from all 50 states and the District of Columbia reached a settlement with T-Mobile USA, Inc., to resolve allegations that T-Mobile engaged in unfair and deceptive practices by engaging in mobile cramming.
  • The consent order requires T-Mobile to pay “no less than $90 million,” including at least $67.5 million dedicated to reimbursing consumers. It also requires T-Mobile to pay $18 million to the states and $4.5 million to the FCC.
  • In addition, T-Mobile agreed to develop and implement a system to ensure that consumers provide express consent before being charged for any third-party services and that they are given a full refund or credit if they are charged for unauthorized services. T-Mobile will also provide information to consumers on how to block third-party charges and will display such charges in a dedicated section of the bill.

Members of Congress Seek Action by State Attorneys General on E-Cigarettes

  • Members of the U.S. Congress have sent letters to various State AGs urging them to consider regulation of e-cigarettes as regular cigarettes under the Master Settlement Agreement (MSA).
  • The MSA prohibits subjected tobacco companies from targeting youth when advertising, promoting, or marketing applicable tobacco products, or taking “any action the primary purpose of which is to initiate, maintain or increase the incidence of [y]outh smoking.”
  • These letters dovetail with recent efforts to establish a more concrete and uniform regulatory framework for e-cigarettes, including a petition organized through the National Association of Attorneys General and signed by 40 State AGs urging the Food and Drug Administration to classify e-cigarettes as tobacco products under the Tobacco Control Act.

Twenty-Two State Attorneys General Urge Department of Defense to Reform Military Lending Regulations

  • In a recent letter to the Department of Defense, a bipartisan group of 22 AGs issued recommendations for proposed amendments to regulations implementing the Military Lending Act (MLA).
  • The AGs, while acknowledging previous efforts to protect U.S. servicemembers from predatory lending practices, identified additional practices that should be addressed by the amended regulations. The AGs target two areas for greater improvement: closing loopholes that allow loans to be structured that effectively exceed the maximum interest rate allowed on loans to servicemembers (currently 36 percent); and adapting the MLA to address loans nominally secured by the property purchased—such as auto loans or household electronics—but functionally lacking a valid or enforceable security interest.

Financial Industry

Massachusetts Attorney General’s Investigation Into Auto Lender Mirrors Department of Justice’s

  • Massachusetts AG Martha Coakley is reportedly investigating Banco Santander SA for predatory lending and securitization practices targeting subprime auto borrowers. AG Coakley is specifically looking into Santander’s use of borrowers’ credit histories in connection to the loan terms offered and the disclosures made to potential investors in the final securitized product.
  • In regulatory filings earlier this year, Santander Consumer USA Holdings, Inc.—a U.S. subsidiary of Banco Santander, formerly known as Drive Financial Services LP, that specializes in auto loans—acknowledged that it had received a subpoena from the U.S. Department of Justice (DOJ). The DOJ subpoena sought documents and communications related to the underwriting and securitization of nonprime auto loans.
  • In response, Santander has indicated that it is cooperating with investigators and reiterated that it will “comply with all lending and loan servicing laws, as well as the rules and guidance of our supervisors and regulators.”

Marijuana

State Attorneys General Claim Colorado Marijuana Laws Are Preempted

  • AGs from Nebraska and Oklahoma sought leave to file a lawsuit with the U.S. Supreme Court challenging Colorado’s legalization of recreational marijuana use and establishment of a commercial marketplace.
  • For more on this story, please see our recent blog post.

Marijuana Wars Reach SCOTUS

Posted in Marijuana, States v. Federal Government

Last week AGs from Nebraska and Oklahoma filed a motion in the U.S. Supreme Court seeking leave to bring a lawsuit challenging Colorado’s Amendment 64, and related implementing regulations, which have established a regulatory framework allowing for the personal sale and consumption of marijuana. (Pursuant to Article III, § 2, cl.2 of the U.S. Constitution, and 28 U.S.C. § 1251(a), the Supreme Court has original and exclusive jurisdiction over cases and controversies between two or more states.) The AG plaintiffs argue that Amendment 64 to the Colorado Constitution violates the U.S. Controlled Substances Act (CSA) and is therefore unconstitutional under the Supremacy Clause.

The AGs argue that with the CSA, Congress made a clear effort to eliminate and prohibit commercial transactions for marijuana and a range of other drugs. The AGs argue that even though the CSA does not preempt all state law on the issue, Section 903 indicates a clear Congressional intent to preempt any state law that directly conflicts with the provisions of the CSA. As Amendment 64 seeks to permit the establishment of a commercial regulatory framework for marijuana, the AGs contend that it is the very type of state law preempted by the CSA. The AGs expressed concern that Colorado allowing the establishment of a commercial marijuana industry—as opposed to simply decriminalizing personal use of marijuana—will cause an increase in the amount of marijuana produced, and thus an increase in the amount that flows through informal channels, from Colorado into neighboring states where its use and sale remain illegal. The AGs argue that combating this increased flow will deplete their states’ fiscal resources, and strain their criminal justice systems.

In response to the lawsuit, Colorado AG John Suthers vowed to “vigorously defend” Amendment 64, indicating that Nebraska’s “primary grievance stems from non-enforcement of federal laws regarding marijuana, as opposed to choices made by the voters of Colorado.”

States will be closely watching to see how the Supreme Court addresses this case. AG Bob Ferguson of Washington State, where the commercial sale and use of marijuana was also legalized through a ballot initiative, indicated that he was “disappointed that Nebraska and Oklahoma took this step to interfere with Colorado’s popularly enacted initiative to legalize marijuana.” AG Ferguson echoed AG Suthers’ sentiments, and promised to “vigorously oppose any effort by other states to interfere with the will of Washington voters.”

State AGs in the News

Posted in Antitrust, Charities, Consumer Protection, Employment, Environment, For-Profit Colleges, Health Care, Mortgages/Foreclosures

Antitrust

Attorneys General Continue to Scrutinize Merger of Food Distributors

  • In a letter to the Federal Trade Commission (FTC) dated December 10, 2014, Minnesota AG Lori Swanson questioned the effectiveness of divestitures proposed by Sysco Corporation and US Foods, Inc., as they seek regulatory approval to merge.
  • Earlier this year, a group of AGs began reviewing the proposed merger, identifying certain regional markets where the resulting entity, according to some estimates, would have greater than 70 percent market share.
  • In order to provide greater competition in these regional markets, and thus secure FTC and State AG approval, the merging entities proposed selling $5 billion in assets to a smaller distributor, Performance Food Group, Inc. AG Swanson’s letter argues that these asset divestitures will not be enough to ensure competition.

Charities

Non-Profit Organization Tests California Disclosure Law on First Amendment Grounds

  • The Americans for Prosperity Foundation (AFP), a non-profit organization founded by Charles and David Koch, filed a lawsuit to enjoin California AG Kamala Harris from enforcing certain disclosure provisions of the California Supervision of Trustees for Charitable Purposes Act (the Charities Act).
  • The Charities Act requires organizations to register with the state and to submit the names and addresses of individuals who donate more than $5,000 in a tax year (information that organizations are also required to list on Schedule B of Form 990 to the IRS). In 2013, AG Harris requested that AFP submit a copy of its Schedule B for tax years 2011 and 2012. AFP resisted.
  • In its lawsuit, AFP contends that requiring the disclosure of Schedule B to California would hinder citizens’ ability to freely and anonymously associate with AFP in violation of the First Amendment. AFP also argues that such disclosure is preempted by Section 501 of the Internal Revenue Code.
  • AG Harris faced a similar challenge to the disclosure requirements in the Charities Act earlier this year, when the Center for Competitive Politics (CFCP) sued to enjoin the disclosure of its Schedule B. In that lawsuit, the District Court refused to grant the CFCP’s request for a preliminary injunction, and CFCP is currently appealing that decision to the 9th Circuit.

Consumer Protection

Six States Reach Settlement with Digital Advertising Firm Over Cookie Practices

  • New Jersey Acting AG John Hoffman and six other AGs entered into a settlement with PointRoll, Inc., a digital advertising and tech services company owned by Gannett Co., Inc., for allegedly violating various state consumer protection laws.
  • Following an investigation led by AG Hoffman, the AGs alleged that PointRoll engineered a process that allowed it to circumvent users’ privacy controls and place internet tracking cookies on web browsers—even where the user had adopted privacy settings specifically designed to block such cookies.
  • The assurance of voluntary compliance requires PointRoll to pay $750,000 and prohibits PointRoll from overriding consumers’ browser settings without their consent. In addition, PointRoll must implement a privacy program, including: placing a conspicuously-displayed explanation of what cookies are and how PointRoll uses them on its website, conducting employee training on consumer privacy, requiring third-party service providers to operate under similar privacy protocols, and organizing an annual assessment of the effectiveness of PointRoll’s privacy-enhancing policies.

Maryland Attorney General Settles With Medicaid Supplier

  • Maryland AG Doug Gansler reached a settlement with Americle Healthcare, Inc.—a supplier of medical equipment and adult incontinence supplies to Maryland Medicaid recipients—resolving allegations that, from 2005 to 2009, Americle submitted bills to Medicaid for goods it did not provide, or that were not properly documented as being medically necessary.
  • The settlement requires Americle to pay $1 million in restitution and other recoveries to the state. The investigation was conducted with the Inspector General from the U.S. Department of Health and Human Services.

Employment

Massachusetts Attorney General Enforces Prevailing Wage Laws

  • Massachusetts AG Martha Coakley ordered New Hampshire-based R&A Drywall, LLC, and owner Allan Vitale to pay $200,000 in restitution and penalties for allegedly violating Massachusetts prevailing wage and recordkeeping laws.
  • AG Coakley alleged that R&A mislabeled certain employees as apprentices and underpaid other employees, according to standards set by Massachusetts law, which requires certain wages for companies completing public works projects. AG Coakley also found that R&A had failed to submit payroll records, in violation of state record keeping laws. In addition to restitution and penalties, R&A and Vitale were precluded from submitting bids for Massachusetts public works projects for one year.

Environment

New York State Bans Fracking Indefinitely

  • New York Governor Andrew Cuomo announced a permanent ban on extracting natural gas and oil through a process called hydraulic fracturing (fracking), following the completion of a study that found “significant public health risks” associated with the practice.
  • This ban comes shortly after New York AG Eric Schneiderman concluded agreements with oil and gas development companies to disclose to shareholders and the public the financial risks associated with the regulatory and environmental uncertainty associated with fracking. It also follows a ruling by the New York Court of Appeals affirming that towns have the authority to ban fracking through zoning laws.

For-Profit Colleges

Attorney General Settles With For-Profit College Over Alleged Deceptive Practices

  • Massachusetts AG Martha Coakley reached an agreement with Premier Education Group, L.P. and Salter College: A Private Two-Year College, LLC (collectively, Salter), to settle allegations that Salter violated the Massachusetts Consumer Protection Act by using deceptive practices to market its educational programs to potential students.
  • The complaint alleged that Salter made a number of misrepresentations to potential students, including overstating the rate at which it placed students in their career field, the level of job placement services provided, its success at finding externships for students, and the extent to which tuition included the costs of necessary post-graduation certification programs.
  • The consent judgment requires Salter to pay $3.5 million to the state, and to forgive $200,000 in outstanding student debt held by former Salter students. In addition, Salter must provide full disclosure to prospective students that it is an open enrollment institution and does not guarantee employment in the student’s desired field.

Health Care

New York Attorney General Resolves Investigation With Medical Clinic

  • New York AG Eric Schneiderman entered into a settlement agreement with PATH Medical, P.C., to resolve claims that PATH provided false and misleading information to patients regarding the price of, and the extent to which insurance would cover, certain exotic and expensive medical services it recommended, such as “brain electrical activity mapping” and various psychological and cognitive assessments. AG Schneiderman also resolved claims that PATH improperly transmitted protected health information over unsecured personal email accounts, offered unlimited access to medical care for a fixed fee, and other violations of state and federal law.
  • In an assurance of discontinuance, PATH agreed to refund former patients for overcharges and to provide increased price transparency, better payment options for lower-income patients, staff training programs, and HIPAA-compliant email policies. PATH also agreed to pay $15,000 in civil penalties.

Mortgages/Foreclosures

Attorneys General Investigate Mortgage Servicer, Again

  • A group of State AGs on the National Mortgage Settlement Monitoring Committee are investigating whether Ocwen Financial Corporation provided false or misleading information when it reported compliance with a 2012 national settlement agreement.
  • The investigation centers on determining if Ocwen has properly implemented an independent internal audit process to determine whether it was meeting standards for dealing with struggling borrowers as required by the settlement. In addition to the AGs’ investigation, National Mortgage Settlement Monitor Joseph A. Smith Jr. has indicated that he will also take a close look at Ocwen’s compliance.
  • In response to the investigation, Ocwen issued a statement that “[it] will continue to support the monitor’s efforts to ensure that [Ocwen is] fully compliant with all aspects of the national mortgage settlement.”

State AGs in the News

Posted in Antitrust, Consumer Protection, Data Privacy, Environment, False Claims Act, Intellectual Property, State AGs in the News, States v. Federal Government

Hot News

Dickstein Shapiro Presents a Webcast on Antitrust Scrutiny: Ways to Plan, Prepare and Respond

  • Dickstein Shapiro is partnering with the National Constitution Center to provide a 90-minute webcast on December 17th at 1:00 PM ET discussing recent developments in antitrust laws.
  • Jim Martin and Jennifer Hackett, both partners in Dickstein Shapiro’s Antitrust & Financial Services Practice, will provide analysis on the evolving governmental framework for antitrust scrutiny and advice for designing customized compliance programs.
  • To access a recording of the webcast, please click here. The presentation slides are also available here.

More States Join Texas Lawsuit Against President’s Immigration Order

  • Seven additional states have joined Texas AG Greg Abbott’s lawsuit challenging President Obama’s Executive Order on immigration as unconstitutional and in violation of the U.S. Administrative Procedures Act.
  • The amended complaint now lists a total of 25 plaintiffs, including 19 State AGs.

Antitrust

Idaho Attorney General Settles With Physician Group

  • Idaho AG Lawrence Wasden settled with four doctors who allegedly violated the Idaho Competition Act. During negotiations with Madison Memorial Hospital in Rexburg, the doctors allegedly collectively sought compensation, in addition to hospital privileges, in return for providing on-call coverage.
  • AG Wasden clarified that the focus of his investigation was on whether the doctors formed an agreement to cease providing on-call coverage that constituted an unreasonable restraint of commerce in violation of state antitrust law, and not whether the doctors had a right to negotiate increased compensation.
  • The settlement requires that the physicians refrain from conspiring with other physicians in future negotiations with the hospital over compensation. It also requires them to certify their compliance with Idaho Competition Act to AG Wasden for each of the next five years.

Consumer Protection

Forty-Five Attorneys General Settle With Satellite Radio Provider

  • Led by Ohio AG Mike DeWine, 45 states reached a settlement with Sirius XM Radio Inc. for $3.8 million following an investigation of the company’s advertising and billing practices. In addition to the payment to the states, Sirius will also provide restitution to consumers who have eligible claims based on the problems identified in the investigation.
  • The settlement resolves allegations that Sirius violated numerous state consumer protection laws through deceptive advertising and billing practices, including: automatically renewing subscriptions without customer consent, making it difficult for customers to cancel service and failing to honor customer requests to cancel once made, failing to provide timely refunds, and refusing to refund unapproved charges.
  • Sirius signed a detailed Assurance of Voluntary Compliance in which it agreed to increase customer disclosure and transparency through a wide range of compliance procedures. Sirius denied any wrongdoing, and stated that it had disclosed all relevant features of its billing practices and had obtained the proper consumer consent at the time of initial purchase.

Data Privacy

Massachusetts Settles With Bank Over Lost Data

  • Massachusetts AG Martha Coakley settled with TD Bank, N.A., to resolve an investigation into a 2012 incident where TD Bank lost unencrypted server backup tapes that contained information, including names, addresses, Social Security numbers, account numbers, and date of birth for approximately 90,000 Massachusetts residents, and failed to comply with state data breach notification requirements.
  • The settlement requires TD Bank to pay $325,000 in civil penalties and $75,000 in attorney’s fees and costs. It also requires TD Bank to provide $225,000 to a fund administered by the AG’s Office to promote data breach education and fund local programs aimed to increase consumer protection. TD Bank further agreed to encrypt personal information stored on backup tapes, to require third-party service providers to adopt stricter security practices, and to monitor service providers for compliance.
  • Earlier this year, nine states, led by Florida AG Pam Bondi, also reached a settlement with TD Bank for $850,000 to resolve their investigations into the 2012 data breach.

Environment

Attorneys General Pair With Nonprofit Organizations to Challenge EPA Rule at DC Circuit

  • Kansas AG Derek Schmidt, together with Nebraska AG Jon Bruning, filed a petition to the U.S. Circuit Court of Appeals for the District of Columbia challenging the Environmental Protection Agency’s Rule requiring states to use a new air pollution estimating model as they create their State Implementation Plans under the U.S. Clean Air Act.
  • AG Schmidt contends that the EPA Rule was promulgated without notice and an opportunity for states to comment. AG Schmidt also contends that the MOVES2014 methodology required by the Rule produces false conclusions regarding the use of ethanol as an additive to gasoline, ultimately harming Kansas’s and Nebraska’s ethanol industries.
  • The AGs joined as petitioners with Urban Air Initiative Inc. and the Energy Future Coalition. The petition identifies the Energy Future Coalition as “an unincorporated initiative of the Better World Fund, which is in turn a nonprofit publicly supported endowment incorporated in a manner consistent with Section 501(c)(3) of the Internal Revenue Code.” It identifies Urban Air Initiative as a “social welfare organization incorporated in a manner consistent with Section 501(c)(4) of the Internal Revenue Code.”

False Claims Act

Florida and the U.S. Intervene in False Claims Suit Against For-Profit College

  • Florida AG Pam Bondi joined with the U.S. Attorney for the Southern District of Florida to intervene in a two-yearold lawsuit against FastTrain II Corporation d/b/a FastTrain College, and its owner Alejandro Amor, alleging violations of both the federal and state False Claims Acts.
  • The lawsuit alleges that from at least January 1, 2009 through June 22, 2012, FastTrain and Amor submitted numerous false claims for payment to the U.S. Department of Education by fabricating false documents, such as high school diplomas, and by inducing otherwise ineligible students to falsify applications for federal student aid programs. The lawsuit also alleges that FastTrain kept students on its financial aid recipient list long after those students were no longer attending. In total, FastTrain students received over $6.5 million in Federal Pell Grants and other federally-provided financial aid. FastTrain administered for-profit college programs across seven campuses in southern Florida, but is now defunct.
  • The lawsuit was originally filed on April 17, 2012 by Juan Pena, a former admissions employee of FastTrain. The case, U.S. ex rel Pena v. FastTrain II Corp. 1:12-cv-21431, is pending in U.S. District Court for the Southern District of Florida.

Intellectual Property

Nebraska Ordered to Pay Attorneys’ Fees in Failed Attempt to Limit Alleged Patent Trolls

  • The U.S. District Court for the District of Nebraska has ordered the state to pay $725,000 in legal fees to MPHJ Technology Investments, LLC, and ActiveLight, Inc. (formerly known as Activision TV Inc.). MPHJ and ActiveLight were awarded attorneys’ fees for prevailing in their action to preempt an investigation by Nebraska AG Jon Bruning.
  • AG Bruning had sought to use state consumer protection and deceptive trade practices laws to prevent MPHJ and ActiveLight from asserting their patent rights, allegedly in bad faith or in a deceptive manner.
  • We have followed this story from the outset, and reported on the court’s decision to grant summary judgment to MPHJ and ActiveLight and to enjoin AG Bruning from conducting further investigations or enforcement actions.

States v. Federal Government

Attorneys General Argue Against Preemption by Natural Gas Act

  • Twenty-one State AGs, led by Kansas AG Derek Schmidt, submitted an amici brief in a U.S. Supreme Court case involving natural gas prices and state law. The AGs’ brief supports the respondents—manufacturers, public schools, hospitals, and other direct purchasers of natural gas—in arguing that the U.S. Natural Gas Act (NGA) does not preempt state antitrust laws that apply to retail transactions for the sale of natural gas.
  • The core of the AGs’ argument is that although the federal government has had a long-standing role in regulating the wholesale markets and interstate transportation of natural gas, it “disavowed any intent to preempt state regulation of retail sales of natural gas.”
  • This dispute emerged from multiple lawsuits, some of which were brought individually by the respondents under various state antitrust laws, claiming that the petitioners—mostly energy companies—conspired to fix higher-than-market prices for natural gas sold at the retail level. The petitioners, who were defendants in the state lawsuits, removed the cases to federal court, where they were consolidated in the District of Nevada. The district court ultimately found that the NGA preempted state law. However, on appeal, the 9th Circuit unanimously reversed, and held that the NGA cannot preempt state antitrust in the area of retail sales.
  • The case, Oneok, Inc. v Learjet, Inc., No. 13-271, is scheduled for oral argument on January 12, 2015.