United States: State AGs In The News - July 3rd, 2014

Hot News

CFPB Exercises Both Supervisory and Enforcement Authority

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

Antitrust

Massachusetts Attorney General Reaches Final Agreement With Partners HealthCare

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

Charities

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

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

Climate Change

Nine Attorneys General File Amicus Brief Opposing Proposed Power Plant Rules

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

Consumer Protection

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

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

Indiana Attorney General Settles Tobacco Dispute

  • Indiana AG Greg Zoeller settled a longstanding dispute with major tobacco companies resulting in a net amount of approximately $217 million to be paid to the state during this year and next.
  • An arbitration panel had ruled that six states had not diligently enforced laws in 2003 requiring escrow payments from tobacco companies that did not participate in a 1998 master settlement agreement. The six states, including Indiana, had not settled their cases during the arbitration. The arbitration panel had ordered that those six states were responsible not only for their own share of the loss, but also for the shares of the states that had settled their cases.
  • AG Zoeller filed a motion to vacate in state court objecting to the arbitration panel's decision. Relatedly, we recently blogged about a Missouri state court decision that partially vacated this arbitration panel ruling.

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

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

Employment

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

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

Environment

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

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

False Claims Act

New York Attorney General Alleges False Claims Act Violations

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

Financial Industry

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

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

For-Profit Colleges

Massachusetts Finalizes New For-Profit and Occupational School Regulations

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

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

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

Health Care

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

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

States v. Federal Government

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

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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