United States: State AGs In The News - March 5th, 2015

Hot News

Received a State AG Subpoena? Determine if Your Insurer Must Pay

• In a recent blog post, Dickstein Shapiro partners Maria Colsey Heard and Ann-Marie Luciano offer advice for companies facing AG investigations.

Consumer Protection

New York Attorney General Teams With FTC to Sue Debt Collectors

• New York AG Eric Schneiderman together with the Federal Trade Commission (FTC) filed lawsuits against two groups of related entities: Vantage Point Services, LLC, and Four Star Resolution, LLC. The lawsuits alleged violations of the U.S. FTC Act and Fair Debt Collection Practices Act, as well as New York State laws against abusive debt-collection, and unfair and deceptive practices. Although located in Buffalo, defendants are alleged to have collected more than $45 million in supposed debts, nationwide.
• In collection calls to consumers, the Vantage Point defendants allegedly held themselves out as government agencies—including the FBI—used abusive language, and threatened consumers with arrest if they did not pay.
• The Four Star defendants allegedly claimed to be attorneys, investigators, process servers, court officials, government agents, and criminal law enforcers during collection calls, and "spoofed" real law enforcement phone numbers, and threatened consumers with criminal action, wage garnishment, and seizure of their property for failure to pay.
• The lawsuits were filed in the Western District of New York. The court granted temporary restraining orders against defendants, enjoining their debt collection practices and freezing their assets.

FTC Settles With Company That Allegedly Paid Customers for Online Endorsements

• The FTC entered into a consent order with Amerifreight, Inc., to resolve claims that the automobile shipment broker committed unfair and deceptive practices under the FTC Act. This administrative complaint marks the first time the FTC has charged a company for failing to disclose that it gave cash discounts to customers to post reviews.
• The FTC alleged that Amerifreight deceived consumers by providing cash discounts and other incentives to customers who agreed to provide good reviews in online forums. The FTC also alleged that Amerifreight did not disclose that it compensated consumers to provide reviews, and represented its favorable reviews as a product of unbiased and unprompted customer reaction.
• The consent order precludes Amerifreight from making future misrepresentations and requires it to disclose any material connection between an endorsing entity and Amerifreight. It also requires, among other things, that the company maintain, for five years, copies of advertisements or promotional materials containing representations covered by the consent order, as well as complaints or inquiries against the company concerning any endorsement of its services. Amerifreight did not admit to the claims made by the FTC, other than those facts necessary to establish jurisdiction.

Data Privacy

Connecticut Attorney General Probes Computer-Maker Over Software Vulnerability

• Connecticut AG George Jepsen inquired into Lenovo Group Ltd., and software-maker Superfish, Inc., seeking information related to allegations that Lenovo computers were sold with built-in software that tracked users' internet browsing and made the computer more vulnerable to "man-in-the-middle" hacking, where a third party intercepts communications sent to and from the affected computer.
• AG Jepsen sent letters to Lenovo and Superfish, requesting information on the companies' contractual and financial relationship. AG Jepsen also requested information on the number of affected computers sold, testing and quality control measures, and any current or future remedial measures. The AG indicated that such information is necessary to determine whether the companies had violated Connecticut's laws prohibiting unfair or deceptive trade practices.
• Lenovo has promised to stop shipping products with Superfish installed and issued the following statement: "We have thoroughly investigated this technology, and do not find any evidence to substantiate security concerns."

President Obama Sparks Discussion With Draft Consumer Privacy Bill of Rights

• President Obama released a "discussion draft" of a proposed bill for the creation of a Consumer Privacy Bill of Rights. The bill is designed to bolster transparency in how companies use consumer data, and to foster greater consumer control.
• The response from interest groups, and the public, however, has been generally negative. In addition to finding the bill to be too lax, objectors note that the bill would preempt state data privacy laws that are already operating and that provide greater levels of protection to consumers.

Environment

Exxon Settles With New Jersey, Lawmakers and Interest Groups Object

• Exxon Mobil Corporation has agreed to settle with New Jersey for $225 million (the New York Times had previously reported $250 million) over the company's liability for alleged environmental damage resulting from oil refining and petrochemical production at two sites dating back to the 1870s.
• The court was rumored to be close to issuing a decision on damages, but Acting AG John Hoffman asked Judge Michael Hogan to defer his decision as the parties had agreed on the general parameters of a settlement. AG Hoffman called it an "important settlement" that "holds the company financially accountable through payment of a historic Natural Resource Damages settlement on top of Exxon's obligation to clean up the sites."
• Although the settlement would end an eleven-year litigation, numerous interest groups have criticized the settlement as being too small in relation to the State's original claims of $8.9 billion, and in light of the fact that Exxon had essentially conceded liability.
• The public will have a chance to comment on the agreement next month and it will be submitted to the court for approval in May. State Senators Steve Sweeney and Raymond Lesniak have indicated that they will challenge the proposed settlement, beginning with filing a motion to oppose the settlement with the court. Lesniak indicated the agreement can be overturned if it is fraudulent, arbitrary or capricious and that this settlement "certainly appears to be arbitrary and capricious, to say the least."

Attorneys General Testify Before Congress on EPA Proposed Rule

• Arkansas AG Leslie Rutledge and Montana AG Tim Fox appeared before the U.S. House of Representatives Oversight Subcommittee on the Interior to testify regarding the scope and potential effects of three rules proposed by the Environmental Protection Agency (EPA) that are scheduled to go into effect later this year.
• The hearing focused on how certain state interests and small businesses will be affected by the implementation of the Clean Power Plan, the National Ambient Air Quality Standards for Ozone, and the Waters of the United States rule.
• State AGs have been increasingly active, on both sides, of EPA rule-making. Currently, a group of 20 AGs is challenging an EPA rule under the Clean Air Act at the U.S. Supreme Court, (with 17 AGs as co-respondents). AGs have also sued the EPA in other contexts, have joined in multiple amici briefs in support of, and opposition to EPA rules, and have submitted numerous comments to proposed rules.

Financial Industry

New York Attorney General Pushes Bill to Protect and Reward Whistleblowers

• New York AG Eric Schneiderman has indicated that he will propose legislation to protect and reward insiders who report information about illegal activity in the financial services industries.
• The Martin Act, a New York securities law that predates the U.S. Securities and Exchange Commission, gives the AG broad powers to investigate suspected fraud in the offer, sale or purchase of securities. However, it does not currently provide direct monetary incentives for industry insiders to come forward and aid in investigations.
• The bill would create incentives for insiders to report fraud: it provides monetary rewards—10 to 30 percent of the final settlement or penalty—to individuals who voluntarily provide original and useful information, not previously known to the AG; keeps the identity of the whistleblower confidential; and it would prohibit employers from discharging, demoting, suspending, or otherwise retaliating against employees who report suspicious or fraudulent activity.
• AG Schneiderman stated, "New York has a unique opportunity to set the gold standard for states seeking to expose and hold individuals accountable for financial crimes. This law will be the strongest, most comprehensive in the nation, and is long overdue for a state with the world's most important financial markets."

States vs Federal Government

Supreme Court Holds Tax Injunction Act Does Not Block Challenge of Tax Notification Requirements

• The U.S. Supreme Court ruled unanimously in favor of Petitioner Direct Marketing Association (DMA), holding that the U.S. Tax Injunction Act (TIA)—which purports to restrict federal district courts from restraining the assessment, levy or collection of any tax under State law—does not preclude tax payers from challenging other aspects of state tax laws in federal court.
• At the core of this dispute is a Colorado law that requires online retailers to report information for sales made to Colorado residents to the State Department of Revenue, to aid the state in collecting "use" taxes on those purchases. Petitioner, not wanting to litigate Colorado tax policy in state courts, filed a lawsuit in federal court claiming that the notification requirement burdened out-of-state retailers disproportionately as compared to in-state retailers. The State asserted that the TIA precluded the Petitioner from bringing a lawsuit to challenge the state tax law in federal court. Twenty-five AGs filed an amici brief in support of Colorado's position.
• Writing for the Court, Justice Thomas indicated that the TIA did not apply to "notice and reporting requirements" that were tangential to the collection of state taxes. Thus, the TIA did not preclude DMA from challenging the law in federal court. However, the Court left it to the Tenth Circuit Court of Appeals to decide whether the doctrine of comity could be applied to achieve a similar result.
• In a separate opinion, Justice Kennedy observed, "[t]here is a powerful case to be made that a retailer doing extensive business within a state has a sufficiently substantial nexus to justify imposing some minor tax-collection duty, even if that business is done through mail or Internet." Kennedy's observation may indicate a willingness to break with previous decisions banning states from requiring retailers who lack a physical presence to collect and submit taxes to the state for sales made to residents.

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