United States: State AGs In The News - June 18th, 2015

AG Insights

Doing Business in California? The AG Wants You to Know Your Supply Chain

  • In a recent blog post, Dickstein Shapiro Counsel Doreen Manchester and Aaron Lancaster provide background on the California Transparency in Supply Chains Act.

Consumer Protection

New Jersey AG Settles Lawsuit Against Purveyor of "Home Warranties"

  • New Jersey Acting Attorney General John Hoffman settled the lawsuit against CHW Group, Inc., d/b/a Choice Home Warranty alleging that CHW violated the New Jersey Consumer Fraud Act and advertising regulations by selling residential service contracts misrepresented to be home warranties.
  • The Complaint alleged that CHW induced consumers to buy limited coverage service contracts by claiming they provided comprehensive coverage for various home systems and appliances, when in fact they only provided limited coverage in the form of buyout payments instead of providing repair or replacement. In addition, the AG claims that CHW made it arduous to the point of impossibility for consumers to realize the benefits of the contracts they received. For example, CHW allegedly denied claims when consumers could not demonstrate that they had performed regular maintenance on the covered items.
  • Under the terms of the Consent Judgment, CHW will pay approximately $780,000, inclusive of consumer restitution. CHW is also required to revise its business practices and retain a compliance monitor for at least one year. In addition, former CHW principals Victor Mandalawi, Victor Hakim, and David Seruya are required to execute Confessions of Judgment, a procedure that allows the AG to seek payment from them in the event CHW fails to make the settlement payment.

New York AG Reaches Settlement With Auto Dealers Allegedly "Jamming" Consumers With After-Sale Service Fees

  • New York Attorney General Eric Schneiderman reached an agreement with three jointly-owned auto dealerships doing business under the names Paragon Honda, Paragon Acura, and White Plains Honda (together, "Paragon") to resolve allegations that the dealerships used deceptive and high pressure sales tactics to add hidden costs and fees for non-negotiated services to the purchase or lease price of autos.
  • The AG's investigation of Paragon alleged that it used fraudulent and deceptive methods to "jam" credit repair and identity theft prevention contracts from third party Credit Forget, Inc., (CFI) into auto sales and leases—either by failing to disclose or hiding additional charges in the sales documents, or by misrepresenting that the services would not cost the consumer additional money. It also alleged that Paragon violated the law that prohibits charging upfront fees for credit repair services.
  • The settlement agreement requires Paragon to pay $6 million for consumer restitution and to provide each affected customer with a $500 "settlement card" that can be applied toward the purchase or lease of any new or used vehicle, or toward certain services or accessories. The agreement also prohibits Paragon from marketing or selling credit repair and identity theft services in connection with the sale or lease of a vehicle.
  • The AG reached a separate settlement with CFI and its principals, requiring CFI to instruct all relevant dealerships to stop selling CFI's services, and to remove all related promotional materials. It also enjoins CFI and its principals from engaging in the "credit services business" in violation of the law, and requires CFI to dissolve.
  • This investigation was part of a larger initiative to stop auto dealerships from "jamming" consumers with fees for additional after-sale services. In addition to this action against Paragon, AG Schneiderman settled with a separate dealership under investigation, and served notice of his intent to sue 11 additional dealerships.

State AGs Push for Stronger Regulation of E-Cigarettes

  • Maine Attorney General Janet Mills and Indiana Attorney General Greg Zoeller, sitting as chair and vice-chair of the NAAG Tobacco Committee, are calling on the Food and Drug Administration (FDA) to act on a 2014 proposal to add e-cigarettes to the Tobacco Control Act, and thus enable the FDA to regulate e-cigarettes in a manner similar to other tobacco products.
  • In the letter to the Director of the FDA Center for Tobacco Products, the AGs specifically request that the FDA subject e-cigarettes to the same advertising and marketing restrictions as traditional cigarettes, include e-cigarettes in the ban on "characterizing flavors," mandate stronger health warnings that indicate that nicotine from e-cigarettes is harmful and addictive, and require face-to-face sales of tobacco products to prevent Internet sales to minors.
  • Meanwhile, State AGs continue to press state legislatures for stronger protections regarding e-cigarettes. For example, the Rhode Island Senate passed AG Peter Kilmartin's legislation that would require child resistant packaging and would prohibit use of e-cigarettes on school property; Montana enacted AG Tim Fox's law to prevent sales to minors; and Massachusetts is considering AG Maura Healey's proposed regulations to limit sales and marketing to minors.

Employment

California Labor Commissioner Rules that Uber Drivers are Employees, Not Independent Contractors

  • The California Labor Commission recently ruled that Barbara Berwick, a driver who performed services through Uber Technologies, Inc., should be considered an employee, not an independent contractor.
  • The Commission indicated that in California, where the services provided are of a personal nature, there is a presumption in favor of employment and the party seeking to avoid liability has the burden to demonstrate that the retained worker is an independent contractor. The Commission focused on the amount of control Uber retains over the provision of services on its platform and found that Berwick was properly classified as an employee. The Commission awarded Berwick $4,152 as reimbursable expenses associated with the driving services she provided, including wages for miles driven on behalf of Uber in between passengers and toll charges.
  • Uber has appealed the Commissioner's ruling in California Superior Court in San Francisco. Uber issued a statement that the ruling "is non-binding and applies to a single driver." The Case is Uber Technologies Inc. v. Berwick, No. 15-546378.

False Claims Act

DOJ Settles With Skilled Nursing Facility for Alleged Violations of the Anti-Kickback Statute

  • The U.S. Department of Justice (DOJ) reached a settlement with Hebrew Homes Health Network Inc. resolving allegations that the Florida-based skilled nursing center violated the U.S. False Claims Act by paying doctors to refer Medicare patients to its nursing center.
  • The U.S. alleged that from 2006 to 2013, Hebrew Homes, under the direction of former president William Zubkoff, hired physicians as "medical directors," pursuant to detailed contracts that paid each several thousand dollars monthly. In reality, the government argued, those were "ghost positions" and the physicians were not hired to perform their contracted duties, but rather to refer patients to the Hebrew Homes facilities.
  • The investigation was initiated based on allegations made in a lawsuit filed by Stephen Beaujon, a former CFO of Hebrew Homes, under whistleblower provisions of the False Claims Act. It was conducted by the U.S. Department of Health and Human Services' Office of Inspector General (HHS-OIG) working together with the Federal Bureau of Investigation's Miami Field Office. Beaujon will receive $4.25 million as his share of the settlement.
  • Hebrew Homes agreed to pay $17 million to resolve the case—the largest FCA settlement involving a skilled nursing service provider. As part of the settlement, Mr. Zubkoff agreed to resign as Hebrew Homes' Executive Director and will no longer be an employee of the company. Hebrew Homes entered into a five-year corporate integrity agreement with HHS-OIG, and agreed to change its policies on the use of medical directors.

States v. Federal Government

Court Sets Hearing for States to Argue Against Federal Fracking Regulations

  • The U.S. District Court for the District of Wyoming will hear oral arguments on June 23 from three states seeking a preliminary injunction to prevent the Bureau of Land Management (BLM) from putting its new Hydraulic Fracturing Rule into effect on June 24, 2015.
  • The Rule would apply to fracking activities on all public land and land belonging to American Indian tribes. According to the BLM, the Rule seeks to mitigate risks to groundwater, air, and wildlife, and protect public health by updating requirements for well-bore integrity and wastewater storage and disposal, and by requiring disclosure to the BLM of the chemicals and fluids used in the fracturing operation.
  • Colorado, North Dakota, and Wyoming are seeking the injunction as part of a claim they filed in April contesting the BLM's authority to impose regulations on hydraulic fracturing under federal law. The states argue that the Hydraulic Fracturing Rule exceeds the BLM's statutory jurisdiction, conflicts with the Safe Drinking Water Act, and interferes with state hydraulic fracturing regulations.

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