United States: State AGs In The News - February 26th, 2015

Hot News

Delaware Amends Unclaimed Property Law

  • In a recent post, Dickstein Shapiro partner Maria Colsey Heard and counsel Aaron Lancaster continue their analysis of the legal reforms taking place to state unclaimed property laws.

Antitrust

Judge Rules in Favor of Attorneys General, Finds American Express Violated Antitrust Laws

  • Ohio AG Mike DeWine led a group of 17 AGs, working together with the U.S. Department of Justice, to successfully argue that American Express Co. and American Express Travel Related Services Co., Inc. (Amex), violated antitrust laws by prohibiting merchants from "steering" consumers to payment cards with lower costs associated.
  • According to the decision, Amex required merchants to agree to terms of service that prevented merchants from expressing a preference for a lower cost credit card, or providing extra benefits and discounts when the customer uses one. The court found that Amex's terms harmed consumers because they prevented merchants from "steering additional charge volume to their least expensive network," and thus "short-circuit[ed] the ordinary price-setting mechanism in the network services market by removing the competitive 'reward' for networks offering merchants a lower price for acceptance services."
  • Judge Nicholas Garaufis for the Eastern District of New York will determine the remedy in subsequent hearings. Competitors Visa Inc. and MasterCard Inc. reached a settlement in 2013 on similar claims.
  • Amex has announced that it will appeal the decision.

Eleven Attorneys General and the FTC Sue to Block Merger of Food Companies

  • Illinois AG Lisa Madigan along with ten other AGs and the Federal Trade Commission (FTC), filed a lawsuit in federal court to block Sysco Corporation's proposed $8.2 billion acquisition of US Foods Inc. The FTC also filed its own administrative complaint against Sysco and US Foods.
  • The AGs and FTC contend that the proposed merger would substantially reduce competition among "broadline food distributors" resulting in "higher prices and diminished service for restaurants, health care facilities, hotels, schools, and other institutions that require full-service food distribution services." Broadline foodservice distributors warehouse and sell a vast array of food and food-related products, serving as a "one-stop-shop" for foodservice operators. It is distinct from other types of food distribution because it requires timely and frequent delivery and a constant availability of a wide array of food products and supplies.
  • The FTC determined that the merger of Sysco and US Foods would result in a combined entity having a 75 percent share of the national broadline market, and an even higher market share in a number of local markets. Counsel for Sysco indicated that the merger is "procompetitive," calling it "good for customers" and "good for the United States."

Charities

California Attorney General Approves Hospital Acquisition, Subject to Conditions

  • California AG Kamala Harris conditionally approved the sale of six hospitals currently operated by nonprofit organization Daughters of Charity Health Systems (DCHS) to Prime Healthcare Services, Inc. California law requires the AG to approve purchases of nonprofit hospitals by for-profit enterprises.
  • AG Harris' approval requires that Prime continue to operate four of the six DCHS hospitals for up to ten years, to "ensure continued community access to essential health care services." In addition, AG Harris required structural improvements to the hospitals that will cost in excess of $350 million.
  • In its purchase agreement, Prime offered to maintain services at all hospitals for five years after the acquisition, and agreed to assume about $350 million in pension debt and retire about $400 million in other debts and liabilities. In addition, Prime indicated it would spend $150 million on upgrades to the hospitals.
  • Prime responded in a statement that AG Harris' conditions were "extensive" and "unprecedented." Prime indicated that it will "need to evaluate the viability and future stability" of the DCHS hospitals under the conditions proposed by AG Harris.

California Attorney General Pushes Legislation to Increase Transparency in Charitable Giving

  • AG Harris, together with state Assembly Member Jacqui Irwin, proposed Assembly Bill 556 to "close the loophole" that permits certain types of commercial fundraising to remain undisclosed, and thus increase confidence in charitable giving.
  • The bill would require "fundraising counsel," which solicits funds in the name of a charity for compensation, to disclose the portion of a charitable donation that is paid to them. AG Harris was prompted to propose the bill after her office examined data on charitable solicitation campaigns for 2013, revealing the "alarming extent to which charitable donations are often diverted to for-profit companies." The AG's findings are summarized in a detailed report together with other publications on charities.
  • AB 556 would also create a ten-year statute of limitations and would expand AG authority to address fraud and other misconduct from for-profit fundraising firms and other third parties.

Consumer Financial Protection Bureau

CFPB Director Speaks to NAAG, Highlights Priorities and Promotes Coordination

  • Consumer Financial Protection Bureau (CFPB) Director Richard Cordray presented remarks at the winter meeting of the National Association of Attorneys General (NAAG), and highlighted four areas—the Four "Ds"—on which the CFPB will continue to focus: deceptive marketing, debt traps, dead ends (i.e., areas where consumers cannot effectively protect their interests), and discrimination.
  • Director Cordray, a former Ohio Attorney General, also highlighted areas where the CFPB has effectively worked with State AGs, including deceptive advertising, payday lending, debt collection, and rulemaking under the Dodd-Frank Act.
  • Director Cordray concluded by encouraging AGs to utilize the CFPB's resources, specifically noting its searchable database of consumer complaints, available through a secure portal.

Consumer Protection

FTC Sues Company Alleging to Consolidate Payday Loans

  • The Federal Trade Commission (FTC) filed a complaint in federal court against Payday Support Center, LLC, now known as PSC Administrative, LLC, and related entities, for allegedly violating the FTC Act's prohibition on deceptive practices and the Telemarketing and Consumer Fraud and Abuse Act.
  • According to the complaint, the defendants allegedly induced consumers to sign up for a "financial hardship program" to help consumers consolidate and pay off their payday loan balances "free of interest and fees" in exchange for a biweekly payment to the defendants. The complaint alleged, however, that defendants usually failed to take sufficient steps to obtain the promised debt relief for consumers.
  • The case is pending in U.S. District Court for the Southern District of Alabama, and seeks both preliminary and permanent injunctions, as well as rescission of payments and contracts, restitution, refunds, disgorgement of "ill-gotten monies," and costs.

Marijuana

Marijuana Legalization Takes Effect in Alaska and the District of Columbia

  • AGs and other government officials in Alaska and the District of Columbia are grappling this week with regulatory gaps and questions of federal liability as voter-initiated marijuana legalization measures go into effect.
  • The DC law allows adults to possess up to two ounces of marijuana and to grow six plants, whereas the Alaska law limits possession to just one ounce. However, neither jurisdiction has yet legalized the sale of marijuana, nor put in place a regulatory structure allowing for taxation and commercialization like that found in Colorado.
  • In DC, the government faces additional dilemmas related to drafting and enacting robust and comprehensive regulations without violating the Anti-Deficiency Act or drawing Congressional ire.

States vs Federal Government

Massachusetts Attorney General Argues That Website Can Be Held Liable for Third Party Violations of State Law

  • Massachusetts AG Maura Healey filed an amicus brief in Doe v. Backpage.com, LLC, pending in federal court, in support of plaintiff's opposition to Backpage's motion to dismiss based on statutory immunity under the U.S. Communications Decency Act (CDA). In her brief, AG Healy argues that the CDA does not provide immunity to websites against liability for knowingly and actively allowing violations of state law by third parties.
  • Specifically, AG Healey contends that Backpage can be held liable under state law for human trafficking and deceptive practices for "intentionally promot[ing] sex trafficking by fostering the online market for illegal commercial sex and by helping traffickers both to develop effective advertisements and to evade detection and prosecution."
  • As AG Healey argues, sex trafficking is a nationwide problem which NAAG and State AGs are actively engaged in addressing through state law. Moreover, the implications of the court's immunity ruling could be broad, potentially inhibiting AG enforcement efforts in other areas where state law violations share a nexus with online advertising and publishing.

Virginia Rejects Bill That Would Require Attorney General to Defend All State Laws

  • With Lieutenant Governor Ralph Northam casting the tie-breaking vote, the Virginia Senate narrowly rejected a bill that would have required the AG to defend any state law challenged on constitutional grounds or in situations where it conflicts with other federal laws.

Unclaimed Property

States Debate Bills With Effects on Unclaimed Life Insurance Proceeds

  • Lawmakers in various states, including Oklahoma and Virginia, are considering bills to require life insurance companies to conduct investigations into the status of policyholders by, among other things, checking the Social Security Administration's death master file.
  • Generally speaking, all states have laws that require holders of unclaimed property to transfer it to a state-controlled fund, often housed within the AG's or Treasurer's office. As we have previously reported, these state officials are beginning to focus on potential new types of unclaimed property, including life insurance proceeds and health savings account balances.
  • The current bills would apply only to newly-issued policies, leaving questions about holders' obligations to review older policies for potential beneficiaries. Some commentators worry that passage of these new bills will potentially complicate processes already in existence. For example, some states have agreements with life insurance companies requiring them to consult the master list and transfer proceeds accordingly until beneficiaries can be located and informed.

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