States Ask SCOTUS to Stay EPA Rule—This Time Without Justice Scalia

  • A group of twenty State AGs filed a petition in an ongoing lawsuit, Michigan v. EPA, asking the Supreme Court to stay the implementation of the Mercury and Air Toxics Standards ("MATS") rule while the Environmental Protection Agency ("EPA") makes the required procedural revisions to the rule.
  • The MATS rule seeks to create technology-based emissions standards for mercury and other toxic air pollutants from power plants. One significant effect of its implementation will be to reduce the use of coal to generate electricity. In June, the plaintiff states successfully persuaded the Supreme Court that the MATS rule was promulgated without properly considering the costs of regulating mercury and other toxins from power plants. The EPA had argued that it was only required to consider the costs when determining the appropriate level of mercury and other toxins to permit, but the Court held that the costs of regulation must be considered at the outset.
  • On remand, however, the U.S. Court of Appeals for the D.C. Circuit allowed the rule to remain in effect while the EPA conducts the required assessment of costs. The states now argue that since the Supreme Court ruled that the EPA erred in promulgating the rule in the first place—a 5-4 decision authored by former Justice Scalia—the EPA never fulfilled the necessary precondition to regulate mercury emissions at all. Thus the rule should be stayed until the EPA can properly promulgate it.
  • A similar group of states was successful earlier this month in convincing the Supreme Court to stay the EPA's Clean Power Plan, a rule that aims to significantly reduce carbon emissions from power plants by 2030. In that case—also a 5-4 decision with Justice Scalia in the majority—the states won on the argument that implementation of the rule prior to a final determination by the D.C. Circuit would cause the states to incur substantial costs without the certainty that the rule would pass scrutiny. The difference between the Court's decision to stay the Clean Power Plan, and how it treats the petition to stay the MATS rule, may ultimately lie in the absence of Justice Scalia. If the Court takes the petition but comes to a 4-4 split, the D.C. Circuit decision will stand.

Data Privacy

FTC Settles With "Secure" Hardware Provider

  • The Federal Trade Commission ("FTC") reached an agreement with ASUSTeK Computer, Inc. ("ASUS"), to settle charges that the hardware and device provider violated the FTC Act by offering misleading advertisements, and by using unfair sales practices in connection to network routers and secure home cloud devices.
  • The FTC's complaint generally focused on ASUS's representations that its network products were secure when, in fact, there were multiple reported vulnerabilities and risks posed by hackers. The FTC claims that ASUS failed to give its customers proper notice regarding the availability of necessary security updates, and in some cases, told customers that they were using the most current version of router and cloud software when a newer version, containing necessary security updates, was available for download. The FTC also alleged that ASUS set unsecure default settings, and failed to provide instructions so that consumers could properly configure the equipment to provide the desired level of security. ASUS's actions, as alleged by the FTC, exposed information on customers' home computer systems to anyone on the Internet who knew their IP address.
  • The consent order requires ASUS to notify consumers about software updates and other steps they can take to protect themselves from potential security flaws. It also requires ASUS to establish a comprehensive program to detect security risks and take appropriate steps to protect the privacy and security of consumers' information. What it does not require is the payment of fines or monetary damages. Like a growing number of cases where consumers' data is unknowingly exposed to an increased risk of hacking, the FTC did not quantify the harm stemming from the vulnerability. Any future violations by ASUS, however, will result in a civil penalty of up to $16,000 per violation.

False Claims Act

Importer Agrees to Settle FCA Charges Over Misclassified Electrodes

  • The Department of Justice ("DOJ") intervened and settled a whistleblower case in which the plaintiffs alleged that Ameri-Source International Inc., Ameri-Source Specialty Products Inc., Ameri-Source Holdings Inc., and SMC Machining LLC (together "Ameri-Source") violated the U.S. False Claims Act in connection to the importation of graphite electrodes.
  • The relator in the case, Graphite Electrode Sales, Inc. ("GES"), alleged that Ameri-Source knowingly misclassified small-diameter graphite electrodes from China as being of a larger diameter, or from a different origin when completing necessary customs documentation. By importing the electrodes under a different classification and origin, Ameri-Source was able to avoid paying antidumping duties associated with the Chinese small-diameter electrodes.
  • According to the complaint, Ameri-Source used a scheme whereby it would first import the Chinese electrodes to a shell company in India. The Indian company claimed to refine the electrodes, allegedly transforming them to a new product. Finally Ameri-Source would import the electrodes into the U.S. under a different customs classification and with Indian origin. GES conducted its own investigation into the Indian company, finding that it lacked proper facilities to make any significant alterations to the electrodes, and that the company shared ownership with a U.S. affiliate of Ameri-Source.
  • As a result of the settlement agreement, Ameri-Source will be required to pay $3 million to the government, of which GES will receive $480,000 for its role in bringing the lawsuit.


SEC and DOJ Call on Telecom for FCPA Allegations

  • The Securities and Exchange Commission ("SEC"), together with the Department of Justice ("DOJ") and the Dutch Prosecution Service, reached a settlement with VimpelCom Ltd. to resolve allegations that the world's sixth largest telecom provider violated the Foreign Corrupt Practices Act ("FCPA") in efforts to secure business in Uzbekistan.
  • In a complaint filed in the Southern District of New York, the SEC alleged that VimpleCom paid more than $114 million in "old-fashioned bribes, hidden through sham contracts and charitable contributions" to Uzbek officials in order to secure the necessary licenses, frequencies, channels, and number blocks the company needed to enter the Uzbek market. The "sham" elements included fake technical services contracts, ownership stakes sold and later repurchased for 200 percent gain, and the use of third-party companies as intermediaries to obscure the payments made to Uzbek officials.
  • VimpleCom agreed to pay more than $795 million in fines and disgorgements in order to resolve the charges: $167.5 million to the SEC, $230 million to the DOJ, and $397.5 million to the Dutch authorities. VimpleCom also agreed to retain an independent monitor for a period of at least three years, and to implement a compliance program. In a related money laundering action, the DOJ is seeking forfeiture of more than $850 million held in Swiss, Belgian, Luxembourgish, and Irish bank accounts alleged to come from the bribes and other illicit conduct alleged in this case.


Tenth Circuit Decision Paves Way for States to Require Tax Notification for Online Purchases

  • In Direct Marketing Association v. Brohl, the U.S. Court of Appeals for the Tenth Circuit upheld a Colorado law that requires out-of-state retailers to report information to the Colorado Department of Revenue for all sales made to Colorado customers.
  • The law was designed to facilitate the collection of state "use" taxes, which states charge residents instead of sales taxes for all goods purchased from sources outside the state. Colorado argued that because state residents are left to declare their out-of-state or Internet purchases, and to pay the appropriate use tax, states have a difficult time collecting use taxes versus sales taxes. In 2012 alone, Colorado claims to have lost $170 million in potential tax revenue to Internet sales from out-of-state vendors.
  • Direct Marketing Association, a trade group representing online retailers, challenged the law as a improper restraint on interstate commerce under the Dormant Commerce Clause of the U.S. Constitution. It also argued the law was contrary to a 1992 holding in Quill Corp. v. North Dakota, where the Supreme Court ruled that states cannot not impose tax collection obligations on out-of-state vendors. The Tenth Circuit, however, held that the law avoided both Quill and the Dormant Commerce Clause as it only amounted to a reporting requirement, and was no more burdensome than collecting sales tax is for instate vendors.

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