United States: State AGs In The News - July 23rd, 2015

Antitrust

AT&T Inches Closer to Approval for DirecTV Acquisition

  • The U.S. Department of Justice (DOJ) stated that it will not challenge AT&T's proposed acquisition of DirecTV, and the Federal Communication Commission (FCC) has indicated, subject to specific conditions, that it is likely to approve the deal that would join the country's largest satellite television provider with the second-largest wireless communication company.
  • FCC Chairman Wheeler has issued a proposed order, currently awaiting approval from the other commissioners, in which he outlined the conditions upon which he would approve the merger.
  • The order would require that AT&T increase investment in high-speed fiber connections, avoid policies that favor affiliated video services and content, and submit all completed interconnection agreements and network performance reports to the FCC. The chairman also proposed the appointment of an independent officer to help ensure compliance with the proposed conditions.

Oklahoma Gives AG Enhanced Powers Over Professional Boards

  • Oklahoma Governor Mary Fallin issued an executive order providing the State AG's office with the power to oversee state regulatory boards. The boards, many of which regulate professional standards and licensing, are now required to submit "all proposed licensure or prohibition actions" to the AG for legal review.
  • Earlier this month, AG Scott Pruitt wrote a letter to the governor, warning that many Oklahoma professional boards and commissions were at risk of antitrust liability in light of the recent decision in North Carolina State Board of Dental Examiners v F.T.C. decided earlier this year. In that case, the Supreme Court held that a state licensing board consisting of active participants in the regulated occupation cannot maintain immunity from antitrust liability if it is not actively supervised by the state.
  • AG Pruitt noted in his letter that many of Oklahoma's professional boards are at risk of antitrust liability, as they are comprised of members from the profession they regulate, yet do not have sufficient state oversight. Although the AG had previously provided legal advice to various state boards, the governor's executive order gives him the power to remove those board members who do not follow the AG's directives.

Another Senator Seeks Antitrust Investigation Into Airlines

  • This week U.S. Senator, Charles Schumer called for greater federal scrutiny into the airlines' sales practices, urging the DOJ and Department of Transportation to investigate whether certain airlines are violating antitrust laws by "freezing out" third-party travel websites. Senator Schumer's request comes on the heels of Senator Richard Blumenthal's letter to the DOJ alleging potential collusion among major air carriers.
  • According to Senator Schumer, a growing number of airlines are withholding information from third-party websites, such as TripAdvisor, Expedia, and Orbitz, or charging extra fees for tickets purchased through them. Senator Schumer argues that these changes in policy deny consumers the opportunity to compare different flights and airlines side by side, resulting in reduced competition and higher prices.
  • Airlines for America, an industry group, responded in favor of the airlines, pointing out that "[a]irlines like any other company that sells consumer goods, should be able to sell their products where they believe they are best suited for their customers."

Charities

New York AG Puts Greater Focus on Charity

  • New York AG Eric Schneiderman filed a lawsuit to close the National Children's Leukemia Foundation (NCLF) and to hold its founder Zvi Shor accountable for failing to conduct most of the programs advertised on its website, for failing to provide more than a tiny fraction of the money raised toward the charitable causes the donors intended to support, and for ignoring state filing obligations.
  • The NCLF had indicated that it used donations to create a bone marrow registry, an umbilical cord blood banking program, and its own cancer research center. It also told its donors that it had filed a patent application for a new lifesaving treatment for leukemia.
  • The lawsuit alleges that during a five-year period, NCLF raised $9.7 million; $8.9 million of which was raised by professional fundraisers hired by NCLF, who in turn were paid approximately $7.5 million. The AG also alleges that the organization spent less than one percent of the money raised on direct cash assistance to leukemia patients and transferred another five percent to a shell organization in Israel run by Shor's sister, allegedly for research purposes.

Consumer Financial Protection Bureau

CFPB Adds $70 Million in Penalties Onto $700 Million Restitution for Alleged Deceptive Credit Add-ons

  • The Consumer Financial Protection Bureau (CFPB) announced that it had reached an agreement with Citibank, N.A., Department Stores National Bank, and Citicorp Credit Services, Inc., (together "Citi") to resolve allegations that Citi violated the Consumer Financial Protection Act and the Telemarketing Sales Rule through aggressive marketing, billing, and collection practices associated with credit card add-on products and services.
  • The CFPB alleged that Citi engaged in myriad unfair or deceptive practices associated with its credit card accounts, including the following claims:

    • Deceptive marketing, where Citi misrepresented or failed to inform consumers about the true cost of the services offered, and also misrepresented the benefits and scope of the add-on products and services.
    • Unfair billing practices, where Citi either charged consumers for debt protection and credit monitoring services they did not receive, or charged consumers without express authorization.
    • Deceptive collection practices, where Citi misled consumers to believe that additional, optional, fees were unavoidable processing fees.
  • The consent order requires Citi to provide $700 million in relief to approximately 8.8 million customer accounts. Citi must also pay $35 million to the CFPB, and a separate $35 million to the Comptroller of the Currency as civil penalties.
  • The consent order also requires Citi to cease billing for credit monitoring products that do not provide the claimed benefits and precludes Citi from marketing or selling credit card add-on products and services by telephone or at point-of-sale without prior approval of its compliance plan by the CFPB. In addition, for a period of five years, Citi must keep detailed records on every enrollment in consumer credit add-on products and services.

Consumer Protection

FTC Seeks Enforcement Against Alleged Repeat Offender

  • The Federal Trade Commission (FTC) filed an enforcement action under seal in federal court against Lifelock, Inc., alleging that the company violated the terms of its 2010 settlement with the FTC and 35 State AGs.
  • The 2010 settlement required Lifelock and its principals, among other things, to stop making any further deceptive claims, including falsely advertising that it protected consumer data with the same high-level safeguards as financial institutions; and to establish a comprehensive information security program to protect the sensitive personal data, including credit card, social security, and bank account numbers it collects from its users. The FTC now alleges that Lifelock has failed to satisfy either.
  • The FTC is asking the court to order LifeLock to provide full redress to all consumers affected by the company's ongoing violations.

Forty-Five AGs Call for Call-Blocking

  • Indiana AG Greg Zoeller led a group of 45 AGs asking telecom service providers to offer technology to their consumers that would allow customers to request automatic call-blocking of robo-calls and other mass call efforts.
  • The AGs' letter, which was sent through the collaborative forum of the National Association of Attorneys General, is addressed to the CEOs of five major telecom service providers. It highlights recent events, including AGs efforts in requesting the Federal Communications Commission (FCC) to provide clarification, and the FCC's guidance that expressly permits telecom companies to offer their customers the ability to block robo- and autodialed calls, as well as other unwanted spam calls and texts.
  • Previously, representatives of the telecom industry had testified in front of a Senate sub-committee that "legal barriers prevent carriers from implementing advanced call-blocking technology to reduce the number of unwanted telemarketing calls."

Data Privacy

Seventh Circuit Clarifies "Impending Certainty" Defense for Data-Breached Companies

  • The Seventh Circuit has ruled that victims of the 2013 Neiman Marcus data breach adequately alleged standing to sue the retailer, even if they have not yet suffered any fraudulent charges, identity theft, or other damages from the information taken by hackers.
  • The Seventh Circuit decision reversed the trial court (N.D. Ill.), which had ruled that the plaintiff's theory of damages, based on the risk of future harm, was too remote to grant Article III standing. The trial court dismissed the lawsuit based in large part on a 2013 Supreme Court decision, Clapper v Amnesty International, which held that plaintiffs must show that a future injury is "certainly impending" in order to bring claims.
  • The Seventh Circuit distinguished the Clapper holding significantly in the context of a consumer data breach, and indicated that a plaintiff can demonstrate standing, even if there is only a "substantial risk" of future harm, and the plaintiff is compelled to "reasonably incur costs to mitigate or avoid that harm."
  • The court also weakened one other potential challenge to consumers claiming standing in data breach lawsuits: it indicated that even though other major retailers suffered similar breaches that may have exposed plaintiff's private information, for pleading causation, the plaintiffs' injuries were still "fairly traceable" to Neiman based on the retailer's "admissions and actions" following the breach.

Facebook Loses Appeal, Lacks Standing to Challenge Search Warrants on Behalf of Users

  • A New York state appeals court upheld the trial court's determination that Facebook, Inc. lacked standing to challenge, on behalf of its users, the state prosecutor's search warrants demanding access to user account information.
  • The warrants were issued in support of the state's investigation into disability fraud, and sought information on 381 Facebook users alleged to have led active lives despite collecting state disability payments. Facebook argued that the warrants were overly broad as they requested information regarding users' ages, religions, cities of birth, educational affiliations, family members, partners, friends, favorite music, political "liked" things, photographs, private chats, and messages. Although the court ruled against Facebook on standing, it indicated that it was troubled by the scope of the warrants.
  • Facebook also argued that because it was required to participate in the search and provide the information stored on its servers to the state, the warrants were the legal equivalent of a civil subpoena, which an Internet service provider can challenge under the U.S. Stored Communications Act. The five judge panel, however, ruled that a social media company has "no constitutional or statutory right to challenge an allegedly defective warrant before it is executed." The court indicated that under state and federal law, only defendants could challenge search warrants, and only after they have been executed in a pre-trail hearing.

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