United States: State AGs In The News - December 17th, 2015


Texas Medical Board Suffers Blow to Immunity

  • A federal judge for the Western District of Texas denied the Texas Medical Board's (TMB) motion to dismiss an antitrust lawsuit filed by Teladoc, Inc. Judge Pitman indicated that because Texas does not maintain "active supervision" over TMB—which comprises mostly private practice physicians—TMB could not rely on sovereign immunity to support its motion to dismiss.
  • In April, after years of litigation in state court on this issue, TMB created a new rule that requires a face-to-face visit with a patient before a physician is allowed to issue a prescription. Since Teledoc offers health care consultations with a physician for non-emergency conditions over the Internet, or secure video, the new rule effectively prevented Teledoc from operating in Texas. Teledoc sued TMB alleging that it was violating federal antitrust laws and limiting interstate commerce.
  • The facts mirror those in N.C. State Bd. of Dental Examiners v F.T.C., a case decided in February by the U.S. Supreme Court, which ruled that a professional oversight board can only claim state-action immunity from antitrust claims if it is actively supervised by the state. The Supreme Court held that professional boards must either contain less than a majority of market participants, or be actively reviewed by a state supervisor with the authority to review and, where necessary, overrule or modify the board's actions. Following up on the N.C. State Board decision, the Federal Trade Commission recently provided guidance on this issue.

Consumer Protection

West Virginia AG Settles Frontier

  • West Virginia AG Patrick Morrisey reached an agreement with Frontier Communications resolving allegations that the television and Internet provider had violated the West Virginia Consumer Credit and Protection Act by providing access to the Internet at speeds significantly slower than advertised.
  • The AG alleged that Frontier advertised connection speeds of 6 Mbps, but consumers complained that their Internet service was slow or failed entirely. The AG claimed the that consumers frequently achieved no more than 1.5 Mbps.
  • The Assurance of Voluntary Compliance requires Frontier to pay $500,000 for the AG's investigative costs, and to drop the fee on its Internet services to $9.99 per month until it can provide the advertised speeds. In addition, Frontier agreed to invest $150 million over the next three years to increase broadband speeds in West Virginia. According to AG Morrisey, the agreement with Frontier is the largest independently negotiated consumer protection settlement in the state's history. Moreover, the settlement may bring additional scrutiny of Frontier, triggering other AG investigations.

Consumer Financial Protection Bureau

CFPB Nabs an EZ Settlement

  • The Consumer Financial Protection Bureau (CFPB) entered into a Consent Order with EZCORP, Inc., including numerous wholly-owned subsidiaries, to resolve claims that the payday and installment lender violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act.
  • The CFPB alleged that EZCORP and its subsidiaries violated the law in the following ways:
    • Making in-person collection visits to consumers' homes and workplaces, as well as calls to credit references, supervisors, and landlords while ignoring consumers' requests to stop;
    • Claiming in advertisements that it would not conduct credit checks on loan applicants, while routinely running credit checks;
    • Requiring consumers to repay loans through ACH bank withdrawals, and deceiving consumers that they were not permitted to stop the ACH withdrawals or repay the loans early; and
    • Making multiple simultaneous attempts to withdraw money from a consumer's bank account, or making withdrawals earlier than promised, resulting in consumers incurring unnecessary bank fees.
  • The Consent Order requires EZCORP to submit to the CFPB a Redress and Remediation Plan outlining how EZCORP will return $7.5 million to the consumers involved. It also calls for a $3 million civil penalty. In addition, EZCORP is precluded from collecting on a portfolio of defaulted loans and must request that relevant credit reporting agencies remove any negative information that pertains to those debts.


Seattle Creates Roadmap for Drivers to Unionize

  • The Seattle City Council has passed an ordinance giving professional drivers—whether they drive for taxi, for-hire, or app-dispatch companies—the ability to unionize. The ordinance outlines a process through which drivers using the same company for generating customers can form a nonprofit organization to bargain on the drivers' behalf.
  • The ordinance, however, requires the nonprofit organization to be supported by a majority of a company's drivers before it can be recognized by the city as the bargaining representative. Once the organization is recognized, the city will provide a list of drivers using each driving company. The company is then expected to negotiate with the organization. The ordinance allows the city to issue fines for noncompliance, but not to revoke a company's business license.
  • Yet, as some commentators have noted, federal antitrust law generally prevents independent contractors from entering into agreements with each other regarding their business relationships with third parties. In addition, there is concern over the cost of implementation. Seattle mayor Ed Murray indicated that he would not sign the ordinance, but under the city's governance structure, it still goes into effect without his signature.

False Claims Act

Regulators See False Claims Liability in the Dirt

  • New Jersey Acting AG John Hoffman settled his investigation into whether Accutest Laboratories violated the New Jersey and U.S. False Claims Acts, as well as state regulations on scientific testing, when it allegedly failed to follow proper protocols while conducting soil and water tests under contract for the state Department of Environmental Protection (DEP).
  • The complaint was filed by relator, and former Accutest employee, Koroush Vaziri, in federal court for the District of New Jersey. The complaint alleged that technicians in Accutest's laboratories did not fully comply with the EPA's Standard Operating Procedures by failing to wait the required amount of time between stages of the extraction process, and by failing to properly implement quality control measures. It also alleged that Accutest did not properly calibrate the gas chromatography and mass spectrometry instruments, and thus knowingly presented or caused to be presented false claims to the State DEP.
  • The New Jersey settlement requires Accutest to pay $2 million to the state, to conduct an internal investigation, and to notify any of its clients that could have been impacted by the alleged failure to use standard protocols. Accutest had previously agreed to pay $3 million to the U.S. Department of Justice in a separate settlement involving the same core facts.


SEC Unearths New Rule for Mining Industry Disclosure

  • The Securities and Exchange Commission (SEC) proposed a new rule that would require companies operating in a mining or extractive industry to provide detailed disclosures regarding payments made to the U.S. and foreign governments in order to secure permission to commercially develop oil, gas, and mineral resources.
  • The Proposed Rule would apply to all U.S. and foreign companies that are required to file annual reports under Section 13 or 15(d) of the Exchange Act—even when the payment is made by a subsidiary or controlled entity. The Rule defines "development" as including exploration, extraction, processing, export, and the acquisition of a license. The term "payment" includes taxes, royalties, fees, production entitlements, and bonuses. The SEC also proposes to include dividends and payments for infrastructure improvements in the definition.
  • This is the SEC's second attempt to comply with Section 1504 of the Dodd-Frank Act. A variety of plaintiffs challenged the SEC's first rule in 2012. In 2013, the District Court for the District of Columbia ruled in favor of the plaintiffs, and held that the SEC had misinterpreted the statute by requiring public disclosure, and that the rule was arbitrary and capricious for lacking any exemption for payments made in countries that prohibited disclosure of such payments.
  • Initial comments on the Proposed Rule are due by January 25, 2016, and comments responding to issues raised in the initial comment period must be submitted by February 16, 2016.

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