United States: State AGs In The News - June 19th, 2014

Antitrust

Apple Enters Into Preliminary Settlement of E-Book Antitrust Lawsuit

• Apple Inc. has agreed to settle the antitrust class action lawsuit brought by 33 AGs and consumers alleging that it conspired with publishers to fix prices for e-books.
• The terms of the settlement were not released. The settlement is contingent on court approval and the outcome of Apple's pending appeal of a 2013 ruling by Judge Denise Cote in another case that was brought by the U.S. Department of Justice, finding that Apple colluded with publishers to increase e-book prices.
• The AGs' lawsuit was scheduled to go to trial next month. Apple has denied any wrongdoing.

Consumer Protection

Mississippi Attorney General Sues Credit Reporting Agency Alleging Violations of Consumer Protection, Fair Credit Reporting, and Dodd-Frank Acts

• Mississippi AG Jim Hood sued Experian Information Solutions, Inc., alleging that it failed to maintain reasonable procedures to verify credit information, correct mistakes, and conduct reasonable reinvestigations of consumer complaints in violation of the Fair Credit Reporting Act. AG Hood also alleged that it engaged in deceptive marketing of its credit monitoring services, credit scores, and identity theft protection services in violation of the state Consumer Protection Act and the Dodd-Frank Act. This is only the fourth known lawsuit by a state AG or regulator using Dodd-Frank enforcement authority.
• AG Hood filed the lawsuit in state court last month, but it was recently removed to the U.S. District Court for the Southern District of Mississippi. The AG seeks declaratory and injunctive relief, statutory and punitive damages, civil penalties, restitution, disgorgement, and costs. The AG also seeks to have Experian provide notice to the public of its alleged violations of Dodd-Frank.
• According to a representative of Experian, the company has cooperated fully with the AG, but it feels that the "lawsuit is not based on facts" and it intends to vigorously defend itself. A separate investigation of the industry by 32 other states, led by Ohio AG Mike DeWine, is also underway.

New York Attorney General Announces Agreement With Retailers to List Unit Pricing Online

• New York AG Eric Schneiderman announced a collaborative agreement with six retailers to expand their listing of pricing by unit of measurement, in addition to pricing by item, on their websites and mobile applications. The retailers are Costco, CVS, Drugstore.com, FreshDirect, Walgreens, and Walmart.
• Nineteen states and the District of Columbia currently require some type of unit pricing in stores, but unit pricing is not typically found online.
• Walmart commented that it is pleased it could work with the New York AG to expand its unit pricing online and bring consumers "greater transparency as they shop online." The retailers will complete this initiative by March 2015.

Florida Attorney General Settles With Penny Auction Website

• Florida AG Pam Bondi settled with Arrow Outlet, LLC, to resolve allegations that it used programming code on its website to deceive consumers who were purchasing and placing bids on consumer goods.
• Arrow allegedly used an auto-bid script to artificially inflate the number of bids required to win an auction. The script allegedly placed bids at certain intervals to prolong the auction, increase the number of bids purchased, and prevent consumers from winning.
• Under the agreement, Arrow will pay $425,000 in consumer restitution and will not create, administer, run, or purchase a penny auction website to generate income.

New York Attorney General Settles With Hobby Retailer for Alleged False Advertising

• New York AG Eric Schneiderman settled allegations of deceptive advertising practices with Hobby Lobby Stores, Inc.
• Hobby Lobby allegedly misled consumers by advertising its products as sale items for more than 52 weeks. AG Schneiderman alleged that this practice violated state false advertising laws, which prohibit never-ending sales.
• Under the agreement, the company will change its advertising practices, contribute $138,600 in supplies to public schools near its stores, and pay $85,000 in civil penalties and costs.

Contingency Fee Counsel

South Carolina Court Rules in Favor of Attorney General's Use of Contingency Fee Counsel

• The South Carolina Court of Common Pleas for the Fifth Judicial Circuit, in the case of Cephalon v. Alan Wilson, ruled that South Carolina AG Alan Wilson was authorized to hire outside legal counsel on a contingency fee basis to represent the state in an enforcement proceeding against Cephalon, Inc.
• Cephalon had argued that the enforcement action was akin to a criminal proceeding making any use of contingency fee counsel a per se violation of due process, even if the action was not akin to a criminal proceeding that the AG's financial interest in the outcome of the litigation invalidates his required neutrality, and the AG's retention of attorney fees and payment of attorney fees to outside counsel violates that state law requiring separation of powers.
• In an opinion by Judge G. Thomas Cooper, Jr., issued on June 2, the court disagreed with Cephalon and held that the enforcement action was civil in nature, the AG maintained the required control over and neutrality with outside counsel, the AG may withhold attorney fees for both his office and outside counsel, Cephalon's due process rights were not violated, and the retention agreement between the AG and outside counsel does not violate laws requiring the separation of powers.

Data Privacy

Maryland Attorney General Settles With Mobile Application Developer

• Maryland AG Douglas Gansler settled with Snapchat, Inc., to resolve allegations that it engaged in deceptive trade practices and violated the Children's Online Privacy Protection Act (COPPA).
• Snapchat developed a mobile application by the same name that allows users to send photographs and video messages called "snaps." Snapchat allegedly misled consumers by representing that the snaps were temporary and would disappear after being viewed by the recipient, when those snaps could be captured or copied by the recipient for later use. The AG also alleged that Snapchat collected names and phone numbers from consumers' electronic contact lists without always disclosing that it was doing so or obtaining consent. Finally, the AG alleged that the company failed to comply with COPPA and a corresponding rule, which prevents collection of personal information for children under the age of 13 without parental consent.
• Snapchat agreed to injunctive relief that prevents it from making any false representations, material omissions, or misrepresentations regarding the nature of a snap; requires compliance with COPPA; and requires affirmative consent from consumers prior to collecting any contact information. The company also agreed to pay $100,000 to the state. Snapchat did not accept liability as part of the settlement.

Employment

New York Attorney General Proposes Legislation for Payroll Cards

• New York AG Eric Schneiderman, joined by State Assembly Majority Leader Joseph Morelle and State Senator Patrick Gallivan, proposed legislation to regulate the use of payroll cards to protect workers who are paid with those cards.
• The legislation proposes employee protections, including allowing an employee to select an alternative method of payment, requiring disclosure of payroll card fees, and restricting certain fees.
• We recently blogged about the Illinois legislature passing a similar bill. According to a news report, legislators in New York could face pressure from financial industry lobbyists who opposed the bill in Illinois.

Financial Industry

New York Attorney General Announces Commitment by Capital One to Modify Its Use of Third-Party Screening System for Opening Bank Accounts

• New York AG Eric Schneiderman announced that Capital One Financial Corporation has committed to adopt new policies governing its use of ChexSystems, a credit bureau that screens people seeking to open bank accounts. The system allegedly adversely affects lower-income applicants and victims of identity theft. The new policies are aimed at allowing more consumers to open bank accounts.
• Allegedly, consumers who ChexSystems deems a credit or fraud risk are typically denied the opportunity to open a bank account. As part of the agreement, Capital One will continue to screen customers for past fraud, but will not seek to predict whether customers present credit risks.
• Under the agreement, Capital One will also expand its support for a New York City agency that provides financial counseling to low-income consumers. The agreed upon changes are anticipated to take effect by the end of the year.

Mortgages/Foreclosures

Fifty Attorneys General and the Federal Government Settle Allegations of Improper Mortgage Practices With SunTrust for $968 Million

• Forty-nine state AGs, the District of Columbia AG, the U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development, and the Consumer Financial Protection Bureau settled allegations of improper mortgage origination, servicing, and foreclosure practices for $968 million with SunTrust Mortgage Inc.
• The complaint, filed at the same time as the announcement of the settlement, alleges violations of state and federal unfair and deceptive consumer practices laws for improper loan servicing, foreclosure processing, and loan origination practices. The complaint also alleges violations of the federal False Claims Act and Financial Institutions Reform, Recovery and Enforcement Act and federal bankruptcy laws.
• Pursuant to the settlement, SunTrust will pay $418 million to the DOJ to resolve its potential liability under the federal False Claims Act and provide $500 million in consumer relief for homeowners. It will also pay $50 million to redress its servicing practices, with $40 million of that amount to be distributed to borrowers and homeowners through a fund administered by the states. SunTrust will also implement changes to its programs and be subject to the oversight of an independent monitor who will oversee compliance with the implementation of servicing standards required under the agreement.
• The proposed consent judgment is expected to be filed in the U.S. District Court for the District of Columbia. Oklahoma did not participate in this settlement.

Massachusetts Attorney General Settles With Mortgage Servicer for $3.7 Million

• Massachusetts AG Martha Coakley settled with Ocwen, a mortgage servicer, for $3.7 million to resolve allegations that it failed to provide certain required notices to homeowners and that it unlawfully foreclosed on certain properties.
• The AG alleged that Ocwen failed to follow state law for notices and mortgage assignments, including that it failed to send notices to homeowners in default; that it failed to execute proper mortgage assignments; and that Litton Home Servicing Limited Partnership, a company acquired by Ocwen, unlawfully initiated foreclosures when it did not hold the mortgage.
• Pursuant to the settlement, the company agreed to pay $3 million to homeowners and $700,000 to the state, properly execute documents filed in foreclosure proceedings, and mail legally compliant notices to homeowners.

New York Legislation Increases Maximum Allowable Land Banks to 20

• The New York legislature passed a bill proposed by New York AG Eric Schneiderman that increases the maximum allowable land banks from 10 to 20. Land banks are nonprofit organizations that can acquire vacant, abandoned, or foreclosed properties and choose to rebuild, demolish, or redesign them.
• Bill A8819-2013 / S6731-2013, sponsored by State Assemblyman William Magnarelli and State Senator David Valesky, amended a law, passed in 2011, that authorized the land banks.
• AG Schneiderman is currently funding eight land banks. He stated that these land banks will place hundreds of properties "back on the local and county tax rolls over the next 24 months."

State AGs in the News

Michigan Attorney General Moves to Quash Subpoena Requesting Testimony in Detroit Bankruptcy

• Michigan AG Bill Schuette moved to quash a subpoena filed by bond insurer Syncora Guarantee Inc. that seeks to depose the AG regarding a formal opinion that he issued last June. The opinion stated that the art collection of the Detroit Institute of Arts (DIA) could not be sold to satisfy its debts because the art is held in charitable trust for the people of Michigan, whom the AG represents.
• In his brief to the U.S. Bankruptcy Court for the Eastern District of Michigan, AG Schuette argues that the subpoena creates an undue burden, that no extraordinary circumstances exist to allow the deposition, and that the AG's process in preparing the opinion is protected under the deliberative process and work-product and attorney-client privileges.
• The AG stated that he has no firsthand knowledge of the facts relevant to the determination of the legal status of the DIA's art collection and that he is unaware of any case authorizing a party to depose an AG on legal conclusions provided in an official opinion.
• It is anticipated that Judge Steven Rhodes will consider the AG's request to quash the subpoena on June 26. A proposed settlement is pending, however. On Tuesday, AG Schuette announced that he supported the proposed settlement, which would transfer ownership of the DIA from the city to an independent trust.

Oklahoma Supreme Court Affirms $47 Million Judgment in Favor of Attorney General

• The Oklahoma Supreme Court affirmed a lower court grant of summary judgment, in favor of Oklahoma AG Scott Pruitt, that awarded the state $47 million.
• The AG brought the action against Native Wholesale Supply (NWS) alleging violations of the Oklahoma Master Settlement Agreement Complementary Act, which is meant to maintain the integrity of a master settlement agreement among 46 states and four tobacco product manufacturers in a lawsuit regarding health care expenses that allegedly resulted from cigarette smoking.
• The act requires all tobacco manufacturers selling cigarettes in Oklahoma to list the cigarette brand names with the AG and certify that they made all required payments into an escrow account. AG Pruitt alleged that NWS brought cigarettes into the state knowing that it was in violation of the act and sought disgorgement of all gross proceeds realized by the sales of these cigarettes.
• The district court had granted a motion to dismiss for lack of subject matter jurisdiction that the Oklahoma Supreme Court had reversed. On remand, the district court granted summary judgment for $47 million in favor of the AG and NWS appealed. In its decision, the court held that based upon the act, "the settled law of the case, and the undisputed material facts on summary judgment, the summary judgment was proper, and the district court did not abuse its discretion."

States v. Federal Government

Supreme Court Rules on Gun Sales to "Straw Purchasers"

• The U.S. Supreme Court, in a 5-4 opinion in Abramski v. United States, held that a misrepresentation by a "straw purchaser," which is a person who buys a gun on someone else's behalf and claims it is for himself or herself, is punishable under a statute, regardless of whether the true buyer could have purchased the gun without the straw.
• Hawaii AG David Louie led eight other state AGs and the District of Columbia in filing an amicus brief supporting federal prosecution of straw purchasers in gun sales. West Virginia AG Patrick Morrisey and 26 other AGs filed an amicus brief asking the Court to protect their citizens' freedom to legally transfer firearms between individuals.
• AG Louie applauded the Court's decision.

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