United States: State AGs In The News - 8 May 2014

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.

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