United States: State AGs In The News - May 7th, 2015

Hot News

James Martin Receives Honor for Legal Writing

Charities

California Attorney General Wins at Ninth Circuit in Dispute Over Donor Disclosures

  • The Ninth Circuit issued its decision in Center for Competitive Politics v. Kamala Harris, affirming the District Court's denial of a preliminary injunction, and finding that a California law which requires nonprofit groups to provide to the California AG a list of donors who have contributed more than $5,000, was not likely to be a violation of CCP's, or its members', First Amendment Rights.
  • The California law in question—the Supervision of Trustees and Fundraisers for Charitable Purposes Act—requires organizations that solicit funds from California residents to register with the Registry of Charitable Trusts, which in turn requires the list of donors to be disclosed to the AG.
  • CCP had argued that mandatory donor disclosure infringed on its members' right to freely and anonymously associate with CCP in violation of the First Amendment, and would have a chilling effect on members' future participation. AG Harris argued that the information provided would remain confidential, and was necessary to ensure that the putative charity is engaged in a charitable purpose and not engaging in improper business practices.
  • CCP President David Keating indicated that CCP would seek review of the decision, framing the outcome as requiring "an impossible choice" between "disclos[ing] donors to the attorney general or [not] asking Californians to support our work to defend free speech."

Consumer Protection

FTC Issues Complaint Against Weight-Loss Companies Profiting From "Fraud Trifecta"

  • The Federal Trade Commission (FTC) secured a temporary restraining order enjoining Sales Slash LLC, Purists Choice LLC, Artur Babayan, and Vahe Haroutounian d/b/a Prisma Profits (defendants) from violating the FTC Act and the CAN-SPAM Act in connection with marketing, promoting, and selling various weight loss products online.
  • The complaint alleges three types of illegal behavior:
    1. defendants made multiple unsubstantiated claims regarding the efficacy of the weight-loss products
    2. defendants paid marketers to post banner ads on third-party websites that led consumers to false news reports designed to appear as if coming from an independent consumer, or in some cases, from a celebrity or a doctor who has endorsed the product
    3. defendants hired marketers to send spam emails to the contacts of hacked email accounts, making it appear that the email came from a friend or family member
  • The commissioners voted 5-0 in favor of the complaint, which seeks permanent injunctive relief, as well as restitution for injured consumers. The lawsuit is pending in federal court for the Central District of California.

Data Privacy

Los Angeles Sues Bank Over Alleged Deceptive Practices

  • The City of Los Angeles is suing Wells Fargo Bank, N.A., for unfair business practices and failure to report a data breach. The City alleges that Wells Fargo permitted, and even encouraged, bank employees to engage in unfair, unlawful, and fraudulent conduct resulting in higher customer fees.
  • The City alleges that Wells Fargo employees opened unauthorized customer accounts, refused to close those accounts when the customers demanded it, and, in some instances, moved funds from authorized client accounts to pay the fees associated with the newly opened accounts (a practice known as "gaming").
  • Wells Fargo responded by stating that it is "focused on the best interests of its customers and creating a supportive, caring and ethical environment for our team members." The bank further averred that it provides its employees with "training, audits and processes" to ensure that its customers "receiv[e] only the products and services they need and will benefit from."
  • Under a law that permits larger California municipalities to seek redress for consumers statewide, the City is seeking restitution and injunctive relief, as well as civil penalties of up to $2500 for each violation.

U.S. DOJ Unveils Guidelines for Best Practices in Cybersecurity

  • The U.S. Department of Justice (DOJ) released guidelines for businesses to prevent, address, and mitigate damages from potential cybersecurity threats.
  • The Guidelines provide specific suggestions for companies to implement before a cyberattack or intrusion, including:
    • identify the data, assets or services most important to the company's existence and create tiered security measures to protect such data, assets, or services;
    • create and test an actionable incident response plan comprised of concrete procedures to follow in the event of a cyberattack;
    • implement network monitoring; and
    • acquaint legal counsel with laws regarding cyber incidents and responses.
  • Finally, the Guidelines provide a list of information that a company should retain after a cyber incident, and instructions for notifying relevant law enforcement bodies.

Environment

California Teams With EPA and DOJ to Enforce Clean Water Act

  • California AG Kamala Harris together with the California Water Resources Control Board, the U.S. Department of Justice, and the U.S. Environmental Protection Agency, settled claims against Lehigh Southwest Cement Company and Hanson Permanente Cement, Inc., (Lehigh) for alleged violations of the U.S. Clean Water Act and the California Water Code.
  • The Plaintiffs alleged that, over a five-year period, Lehigh discharged millions of gallons daily of process water from cement manufacturing and other industrial activity, polluted with selenium and other toxic metals, into the local ecosystem.
  • In addition to $2.5 million in civil penalties, the Consent Decree requires Lehigh to spend more than $5 million to construct and operate a system to treat all process storm water so that it does not exceed stipulated maximum levels of pollutants, and to develop and implement procedures to minimize future pollution from storm water surges. Lehigh must also submit semiannual progress reports to the EPA and the Water Resources Control Board.

False Claims

Telecom Carriers Pay $10.9 Million in Penalties to FCC

  • The Federal Communications Commission (FCC) agreed to resolve claims with AT&T and Southern New England Telephone (SNET) alleging that the telecom carriers overbilled the government for services provided to the FCC's Lifeline program.
  • Through the Lifeline program, the FCC provides financial support to telecom carriers based on the number of qualified low-income subscribers to which the carrier reports that it provided discounted service. AT&T and SNET allegedly failed to remove customers in 2012 and 2013 from their records when those customers did not recertify their qualifying status under the program.
  • AT&T responded in a statement that it "discovered this issue in the course of an internal review, voluntarily reported it, and reimbursed the Universal Service Fund." AT&T also indicated that it had "implemented process enhancements so this does not happen again."
  • In addition to reimbursing the government for payments received for allegedly ineligible customers, AT&T and SNET will pay a combined $10.9 million in civil penalties to the U.S. Treasury.

Intellectual Property

House Committee Passes "TROL Act"

  • The U.S House of Representatives Committee on Energy and Commerce approved the Targeting Rogue and Opaque Letters (TROL) Act, legislation designed to address the problem of patent assertion entities misusing overly-broad patents.
  • The TROL Act declares certain forms of patent misuse—for example, sending large numbers of deceptive demand letters that threaten litigation and order businesses to pay license or settlement fees in exchange for the recipient's use of the alleged patent—to be unfair or deceptive practices under the FTC Act. It also gives authority to the FTC and State AGs to levy fines on entities engaging in patent misuse.
  • The House Judiciary Committee is considering a different bill to address patent misuse, the Innovation Act, which creates more specific pleading standards and directs courts to award attorneys' fees if the position and conduct of the non-prevailing party was not reasonably justified in law and fact.

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