United States: State AGs In The News - June 11th, 2015


Attorneys General Look Into Apple's Negotiations With Record Companies for Streaming Music Services

  • New York AG Eric Schneiderman and Connecticut AG George Jepsen are investigating Apple Inc. for potential antitrust violations associated with its negotiations with record labels to make way for Apple's new music streaming service.
  • The investigation centers on whether Apple used its market power as the largest seller of downloaded music to pressure or conspire with music recording companies to withdraw their support for free music streaming services offered by companies like Spotify Ltd. in favor of the subscription streaming service Apple plans to provide.
  • In addition to State AGs, other regulators, including the European Commission and the Federal Trade Commission, have shown interest in determining the extent of the underlying negotiations, and the effects of Apple entering this market. In 2013, a federal judge ruled that Apple violated the antitrust laws when it colluded with publishers to raise the price of e-books. That case is pending appeal in the Second Circuit.

Consumer Financial Protection Bureau

CFPB Decides First Appeal of Administrative Decision

  • The Consumer Financial Protection Bureau (CFPB) issued its first decision on appeal of a CFPB administrative enforcement proceeding since the CFPB was created in 2010. In contrast to appellate review proceedings at the Federal Trade Commission or Securities and Exchange Commission—which are presided over by a group of commissioners—the CFPB's appeal process is presided over by a single person, the director, Richard Cordray.
  • The question on appeal was whether PHH Corporation violated the Real Estate Settlement Procedures Act (RESPA) when it referred mortgage borrowers to mortgage insurers who agreed to reinsure the mortgages with PHH's wholly owned reinsurance company, Atrium Reinsurance Corporation. Director Cordray generally upheld the Administrative Law Judge's (ALJ) decision, finding that PHH engaged in a prohibited fee-splitting arrangement because it predominantly referred borrowers from the mortgages it originated, to insurers that had reinsurance agreements with Atrium. Director Cordray also extended liability by ruling that a violation occurred each time Atrium accepted a reinsurance premium during the period in question (the ALJ's decision had found violations only for loans that closed during the period in question).
  • Director Cordray's final order requires PHH and related entities to disgorge $109 million in reinsurance premiums received during the relevant period. It also bans PHH from future violations of RESPA, and, for a period of 15 years, from referring consumers to a provider of real estate settlement services in conjunction with a reciprocal payment or referral of service. According to the CFPB appeals procedure, the respondents can seek review in U.S. Court of Appeals within 30 days of the service of the final order.

CFPB Issues Final Rule to Regulate Nonbank Auto Finance Industry

  • The CFPB published the Final Rule that authorizes it to supervise the largest participants in the nonbank auto finance market. Accordingly, the CFPB also updated the Examination Manual to provide guidance on how it will monitor compliance by nonbank auto finance companies.
  • The Rule will apply to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more auto loans or leases in a year. By CFPB estimates, the Rule will implicate approximately 34 nonbank auto finance companies and their affiliates, which originate around 90 percent of nonbank auto loans and leases, and provide financing to approximately 6.8 million consumers annually.
  • The Rule focuses on four main areas of compliance for nonbank auto lenders: fair and transparent marketing practices, accurate reporting to the credit bureaus, fair treatment of consumers when collecting debts, and equal opportunity in offering of loans and lease terms.

Consumer Protection

New York Attorney General Asks Court to Shut Down Allegedly Deceptive Online Study Program

  • New York AG Eric Schneiderman filed a lawsuit against the College Network, Inc.; American Credit Exchange, Inc.; and Southeast Financial Credit Union for allegedly using deceptive practices to sell an online study program purporting to lead to an associate degree in nursing.
  • In the complaint, AG Schneiderman alleges that College Network misled consumers into believing it was affiliated with Excelsior College, that its study guides were tailored to accredited nursing programs offered by Excelsior, and that consumers could receive degrees in nursing through its study program. The complaint further alleges, among other things, that College Network targeted certain consumers with high pressure home sales calls, induced consumers to finance the purchase of the study guides at 12 percent interest or more, and misled consumers about the entire cost of the program.
  • The lawsuit seeks a temporary restraining order to prevent the College Network (based in Indiana) from selling any of its products in New York, and to prevent Southeast and American Credit Exchange from attempting to collect on the debts stemming from the College Network's allegedly fraudulent conduct. The AG is also seeking rescission of consumers' contracts, restitution for consumers already harmed, and penalties and costs.
  • In addition, the AG is seeking to hold Gary Eyler, the College Network's CEO, personally liable based on his involvement in the allegedly misleading actions even after repeat warnings by Excelsior College's General Counsel dating back to 2003, and a 2007 investigation by the Arkansas AG.

Data Privacy

RadioShack Reaches Agreement to Proceed With Data Sale, Again

  • RadioShack has received court approval of the agreement it reached with third-party telecom services providers AT&T and Verizon, clearing one of the few remaining hurdles for it to move forward with a planned asset sale involving customer data.
  • The agreement between RadioShack, AT&T, and Verizon—which will become final on June 14, assuming there are no significant objections—prevents RadioShack from transferring or disclosing the confidential information of up to 117 million customers gathered through its third-party wireless service agreements, as well as any proprietary information belonging to AT&T or Verizon. The agreement requires RadioShack to work with the telecom companies to identify and scrub all documents that will be transferred so as to remove credit or debit card information, Social Security numbers, telephone numbers, and dates of birth.
  • This agreement is in addition to the mediation efforts between RadioShack and 38 State AGs over how the personal information and consumer data stemming from RadioShack's business interactions would be handled, given RadioShack's stated privacy policy. This two-step process to secure consumer data privacy will likely serve as a template for future bankruptcy proceedings.

False Claims Act

Georgia Settles With Hospitals Over Alleged Kickbacks for Undocumented Patient Referrals

  • Georgia AG Sam Olens settled with Health Management Associates, Inc. and Clearview Regional Medical Center (Defendants) regarding allegations that they violated the federal False Claims Act and the Georgia False Medicaid Claims Act by submitting false claims to the Georgia Medicaid program.
  • AG Olens alleged that the Defendants paid monthly fees to an obstetric clinic that served mostly undocumented Hispanic women in exchange for referring the pregnant women to be admitted to their hospitals for delivery and post-birth recovery. The women were either qualified for Medicaid or Emergency Medical Assistance, a Medicaid program providing coverage to undocumented aliens for childbirth. According to the complaint, the Defendants sought to maximize the number of Medicaid qualified women who were admitted (versus outpatient services) as the hospitals received three to four times greater reimbursement from the government for those patients.
  • The Defendants agreed to pay $991,925 to resolve the allegations, with Georgia retaining $396,770 as its share of the settlement. The case was initiated by a whistleblower, a former financial officer, who will receive $83,322 pursuant to Section 3730(d) of the False Claims Act.

Intellectual Property

Federal Court Moves Forward With Suit Challenging Vermont Patent Assertion Law

  • Vermont AG Bill Sorrell faced a setback in his ongoing battle with patent assertion entity MPHJ Technology Investments LLC, when a federal judge from the District of Vermont denied the AG's motion to dismiss MPHJ's lawsuit challenging the constitutionality of the 2013 Vermont Bad Faith Assertion of Patent Infringement law. The AG prevailed on his motion to dismiss MPHJ's other claims, based on actions taken by the AG, and the federal court abstained regarding the AG's consumer protection lawsuit currently pending in Vermont state court.
  • In the lawsuit, MPHJ challenges the Vermont law on the basis that it violates the First Amendment by chilling MPHJ's ability to send demand letters to parties it believes are infringing its patents. The law in question provides a list of factors that a court can consider as evidence of bad faith in asserting patent rights through demand letters, including: whether the demand letter contains proper information regarding the patent or patent holder; whether the demand letter identifies how the alleged infringement is occurring; whether the license fee is disproportionate to the value of the patent; and, inter alia, whether a court has found the same or similar claim of infringement meritless.
  • AG Sorrell sought to dismiss the facial challenge to the law as being unripe because the AG has not yet charged MPHJ with violating the 2013 law. The judge, however, relied on statements made by the AG regarding the applicability of the law to MPHJ's actions, as well as to a sufficient threat of enforcement, to sustain MPHJ's challenge to the law.
  • The case is MPHJ Technology Investments LLC v. William Sorrell, Case No. 2:12-cv-00191. State AG Monitor has followed this matter closely, including analysis of the lawsuit in state court by AG Sorrell against MPHJ.

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