United States: State AGs In The News - December 30th, 2015


State AGs Take CIDs to the Movies

  • A group of State AGs is investigating movie theater management companies, AMC Entertainment Holdings, Inc., Cinemark Holdings, Inc., and Regal Entertainment Group, for alleged violations of state antitrust law.
  • AMC and Cinemark have disclosed in regulatory filings that they have both received civil investigative demands (CID) from Ohio, Texas, Washington, Florida, New York, Kansas, and the District of Columbia, asking for documents and responses to questions "concerning potentially anticompetitive conduct, including film clearances and participation in certain joint ventures." The State AGs' investigation comes in addition to a U.S. Department of Justice investigation disclosed in May.
  • The state investigation centers on whether the large theater companies are using their combined market share to influence studios into entering into exclusive agreements that preclude independent movie theaters and nonprofit film centers from carrying first run movies if the smaller theater is too closely located to a larger theater.

Consumer Protection

Daily Fantasy Sports Websites Suffer Déjà Vu in Illinois

  • Illinois AG Lisa Madigan issued an opinion in which she indicated that daily fantasy sports betting is illegal under the Illinois Criminal Code, which generally prohibits a person from "operat[ing] an Internet site" that offers "games of chance or skill" played for "money or other thing of value." Madigan indicated that daily fantasy sports does not fit under the broad exception to the gambling provision, which allows "the actual contestants in a bona fide sporting contest" to be paid to play a game of skill.
  • In response to the AG's opinion, DraftKings and FanDuel have filed lawsuits seeking to enjoin AG Madigan from shutting down daily fantasy sports betting in Illinois. DraftKings acknowledges in its complaint the potential for Illinois to cause a ripple effect, stating that "[AG Madigan's] opinion, if left unchecked, will not only force DraftKings to exit the State, but also have a ripple effect, irreparably banning DraftKings' operations throughout the nation and causing it to lose customer goodwill that can never be restored."
  • AG Madigan's legal analysis strikes a similar chord to those made by New York AG Eric Schneiderman in cease-and-desist letters sent to the two largest daily fantasy sports betting sites, DraftKings and FanDuel, in early November. As we indicated in prior posts, many state laws employ a similar definition of gambling, and defendants will likely continute to base arguments on an exception for fantasy sports in the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). Both Schneiderman and Madigan drew distinctions between fantasy sports betting pools among friends or colleagues (believed to be allowed by UIGEA) and the type of wagers offered by daily fantasy websites like FanDuel and DraftKings.

FTC Offers Policy Guidance for Native Ads

  • The Federal Trade Commission (FTC) issued an enforcement policy statement on deceptively formatted online advertisements, and a business guide to explain how companies can avoid liability under the FTC Act when engaging in Internet marketing and publishing.
  • The policy statement specifically addresses "native advertising," where a company advertises through digital content that resembles news stories, articles, testimonials, product reviews, and other material differing in form from traditional advertisements. The FTC's main concern with native ads is that they can resemble the design, style, and functionality of the media which they accompany. Consumers may not be able to easily determine whether a particular article or post is an advertisement or substantive work.
  • The FTC indicates that the policy is based on the application of traditional consumer protection principles developed under Section 5 of the FTC Act to a rapidly evolving digital marketplace. Thus, it will continue to look to the "net impression" conveyed to consumers by the ads when determining if there is deception. The guide specifically indicates that advertisements will be found deceptive "if they convey to consumers expressly or by implication that they're independent, impartial, or from a source other than the sponsoring advertiser."
  • The guide focuses on the need for effective disclosure and offers examples of how a company can provide clear and conspicuous disclosures with various formats of native advertising. The FTC indicated that when assessing the effectiveness of disclosure, it will apply the perspective of a reasonable consumer; when ads target a specific audience, the perspective will be one of a reasonable member of the targeted group. As a general rule, the more an advertisement resembles content on the publisher's site—both in format and topic—the more likely that the FTC will require disclosure.

Consumer Financial Protection Bureau

CFPB Throws Wrench in the Works of Debt-Collection Mill

  • The Consumer Financial Protection Bureau (CFPB) entered into a consent order with Frederick J. Hanna & Associates, resolving claims that the Georgia law firm, and its three principal partners, violated the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA) through the use of deceptive court filings and faulty evidence.
  • In the complaint the CFPB alleged that Hanna & Associates filed lawsuits through an automated process completed predominantly by non-attorney staff, with an attorney signing the complaint. The process allegedly allowed the firm to generate more than 130,000 debt collection lawsuits over a two-year time frame. It further alleged that the firm made unsubstantiated claims in its complaints and used faulty sworn statements to intimidate debtor-defendants, but when challenged, the firm would move to dismiss the lawsuits.
  • The consent order requires the firm and the indicated principal partners to jointly pay $3.1 million as a civil penalty to the CFPB. It enjoins the firm and partners from filing, or threatening to file, debt-enforcement lawsuits unless there are specific documents reviewed by attorneys showing that the debt is accurate and enforceable. It also prohibits the use of affidavits as evidence if they do not specifically and accurately describe the signer's knowledge of the relevant facts and documents.

Financial Industry

Banking Regulators Team Up on FTC Act Enforcement

  • The Board of Governors of the Federal Reserve System (FRB) and the Federal Deposit Insurance Corporation (FDIC) reached settlements with WEX Bank and its institutionally-affiliated party, Higher One, Inc., for alleged deceptive practices in violation of Section 5 of the FTC Act. Under Section 8 of the FDI Act, banking regulators are given authority to enforce the FTC Act's prohibition on unfair or deceptive practices over the entities they regulate.
  • The FRB and the FDIC alleged that Higher One and WEX Bank omitted material information about fees and certain features (such as the locations of fee-free ATMs) associated with debit card accounts used by students to receive financial aid disbursements. As a result, the banks were alleged to have collected $31 million in improper fees from students over a two year period. The FRB had previously settled with Cole Taylor Bank regarding its affiliation with Higher One during the period in question, issuing a civil penalty of $3.5 million.
  • The settlements require Higher One to pay civil penalties of $2.23 million to both the Board and to the FDIC (for a total of $4.46 million). In addition, WEX Bank is required to pay a civil penalty of $1.75 million to the FDIC. The banks must also provide approximately $55 million in restitution to an estimated 1.47 million harmed students.

Ohio AG Pursues Piece of London Whale for Pensioners

  • Ohio AG Mike DeWine, representing the Ohio Public Employees Retirement System (OPERS), and together with public pension funds from Oregon and Arkansas as lead plaintiffs, reached a settlement with JPMorgan Chase & Co. to resolve allegations that the investment bank issued false and misleading statements when reporting trades made and positions held by the bank through a trader in its London office nicknamed the "London Whale."
  • The lawsuit alleged that JPMorgan misled investors during a 38-day period following the announcement of the bank's large position in certain derivative instruments. Plaintiffs claim that by describing the position as "risk management" or "hedging," when in fact it comprised illiquid and speculative bets that carried additional risk of loss, JPMorgan convinced investors that there would not be significant losses associated. Once the trading losses from those risky bets materialized, the plaintiffs claim JPMorgan's stock value plummeted, causing class members to collectively lose more than a billion dollars.
  • The settlement agreement requires JPMorgan to pay $150 million to the harmed investors. The class action was filed in U.S. District Court for the Southern District of New York and includes all investors who bought shares in JPMorgan from April 13, 2012 to May 21, 2012.

Intellectual Property

California AG Offshores Liability to Indian Firm

  • California AG Kamala Harris reached an agreement with Indian company Pratibha Syntex Ltd., to resolve allegations that the textile maker violated California Business Professional Code Section 17200 by using pirated software to gain an unfair advantage over its competitors.
  • In the complaint AG Harris argued that because Pratibha saved money by not paying licensing fees, it was able to hire additional employees and invest greater in research and development, thus giving it an unfair advantage over other firms manufacturing and selling clothing in California.
  • The stipulated final judgment requires Pratibha to pay $100,000 in restitution, and prohibits Pratibha from using unlicensed or pirated software, as well as from making copies of licensed software without the permission of the copyright holder. It also requires Pratibha to perform regular audits of the software on its computers, and to fix violations within 45 days.
  • More interesting than the precise terms of the settlement, this marks the first time that a State AG has obtained a judgment in state court against a foreign company for what was essentially alleged copyright violations occurring wholly abroad.

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