State Attorneys General Updates From Ohio, New Jersey, California, Vermont and New York

In this edition of Faegre Drinker’s State Attorneys General Update, we discuss:

• The Ohio AG’s $80 million PCB settlement with Monsanto
• The Third Circuit’s decision allowing Smith & Wesson to proceed with a declaratory judgment action challenging a New Jersey AG subpoena
• The California AG’s:
  • Complaint against a hospital system alleging state False Claims Act violations for failing to disclose unclaimed property
  • Announcement of his consumer protection enforcement priorities
  • Amicus brief in the Supreme Court arguing that private attorney general actions cannot be contracted away through arbitration provisions
• The Vermont AG’s settlement with a medical office relating to the office’s debt collection practices
• The New York AG’s:
  • $6.9 million settlement of False Claims Act and Wage Parity Act violations with two home health agencies
  • $2.6 million settlement of False Advertising Claims with an online travel agency
  • $2.15 million settlement with an energy services company over deceptive business practices

Ohio AG Enters $80 Million Settlement With Monsanto Over PCB Claims

Ohio AG Dave Yost announced an $80 million settlement resolving a 2018 lawsuit alleging that Monsanto and two of its subsidiaries were liable for contaminating Ohio’s soil and waterways with polychlorinated biphenyls (PCBs). The AG alleged that Monsanto continued to market PCBs despite allegedly being aware since the 1930s that PCBs were toxic and that Monsanto concealed information regarding the risks of PCBs from the public. PCBs were used in paints, inks, and coolants and as a fire proofer, among other applications. Monsanto stopped marketing products containing PCBs in 1977 — two years before the EPA banned PCBs. In entering the settlement, Monsanto expressly denied any wrongdoing. Copies of the AG’s press release, the original complaint, and the settlement agreement are available.

Third Circuit Revives Smith & Wesson’s Constitutional Challenge to a New Jersey Subpoena Seeking Materials for a Consumer Fraud Probe

On March 10, 2022, the Third Circuit revived Smith & Wesson’s constitutional challenge to a New Jersey subpoena seeking materials for a consumer fraud probe. After receiving a subpoena from the New Jersey AG seeking information about advertising and marketing that could potentially violate the state’s consumer protection laws, Smith & Wesson filed a complaint seeking declaratory and injunctive relief in federal court challenging the subpoena. Applying the Younger abstention doctrine (named after the Supreme Court’s decision in Younger v. Harris, 401 U.S. 37 (1971), which urged federal courts to abstain from certain cases involving matters pending before state courts), the federal district court dismissed the complaint. The Third Circuit reversed the district court’s ruling and held that the New Jersey AG’s lawsuit was not far enough along to merit abstention. The court explained, “Because the action ‘present[ed] only a possibility of contempt, akin to any other case,’ … abstention was unwarranted.” A concurring opinion went further, and criticized the state’s litigation tactics, suggesting that the state “selectively quoted” advertisements to make a “misleading argument” and that this “less-than-forthcoming approach to litigation suggests that careful review of New Jersey’s entire investigation is warranted.”

California AG Files Complaint Against Hospital System for Allegedly Failing to Disclose Unclaimed Payments on Its Books in Violation of the State’s False Claims Act

California AG Rob Bonta filed a complaint against U.S. Healthworks, Inc. (Healthworks) alleging that the hospital system violated the state’s Unclaimed Property Law (UPL) and, in doing so, violated the state’s False Claims Act. The UPL requires businesses to escheat any unclaimed property of third parties that they hold to the state if the property is not claimed within a set period — typically three years. Before escheating the property to the state, the UPL requires businesses to file reports regarding the property. The AG alleges that Healthworks received millions of dollars in overpayments from patients, customers and insurers, which it kept on its books as accounts receivable credits. Further, when Healthworks attempted to refund a portion of those overpayments, the checks it sent were not cashed and the company allegedly kept the funds on its books. Upon learning of the AG’s investigation, Healthworks filed the required UPL reports, but allegedly understated the amount of unclaimed property in its possession.

The California False Claims Act makes it unlawful to knowingly either make a false statement material to obligation to transmit money or property to the state, or to conceal or avoid an obligation to transmit money or property to the state. The AG alleges Healthworks violated both provisions by first failing to file required reports of unclaimed property and then underreporting the amount of unclaimed funds. The AG is seeking escheatment of the unclaimed fund, including a statutory 12% annual interest on the funds, and treble damages. Copies of the AG’s press release and complaint are available.

California AG Announces Consumer Protection Enforcement Priorities

The California AG issued a press release announcing his enforcement priorities in the consumer protection realm, specifically: housing, debt collection, data privacy, higher education and consumer lending. In doing so, he touted his previously announced Housing Strike Force and explained that team is particularly interested in the issues of “illegal evictions and rent increases, housing discrimination, and mortgage origination and servicing.” Regarding debt collection, the AG is focused on collectors who repeatedly contact debtors in a short period of time, make allegedly false statements, or contact debtors “at unusual or inconvenient times or places.” In the data privacy realm, the AG highlighted certain provisions of the California Consumer Privacy Act (CCPA) on which he will focus: (1) consumers’ right to know what personal information has been collected about them and why; (2) consumers’ right to have businesses delete their personal data on request; (3) consumers’ right to have businesses stop selling their personal data on request; (4) the prohibition on the selling of minors’ personal data absent specific consents; and (5) the prohibition on discriminating against consumers who exercise CCPA rights. In the higher education space, the AG is focused on allegedly predatory loans and alleged deception by for-profit schools. Regarding consumer lending, the AG expressed his commitment to prosecuting predatory lenders and cautioned consumers about pay-day lenders.

California AG Files Amicus Brief in the Supreme Court Arguing Against Arbitration Provisions Prohibiting Private Attorney General Actions (PAGA) in Employment Contracts

The California AG filed an amicus brief in the U.S. Supreme Court supporting an employee’s argument that the arbitration provision in her employment contract could not prohibit her from filing a PAGA action under California law. California’s PAGA statute allows aggrieved employees to bring actions on behalf of the state for alleged labor law violations. The outcome of such actions bind aggrieved nonparty employees, as well — similar to a class action. The employee retains 25% of any award, and the state receives the remaining 75%. At issue before the Supreme Court is whether the Federal Arbitration Act (FAA) requires courts to enforce arbitration provisions barring representative claims when an individual brings a claim under the PAGA statute. The AG’s brief argued in favor of California precedent holding that arbitration agreements precluding PAGA actions are contrary to public policy. Specifically, the AG argued that PAGA actions are grounded in the state’s inherent police powers. Allowing the FAA to preempt PAGA would interfere with California’s use of a traditional qui tam enforcement mechanism, which the state uses to make up for claimed funding shortfalls in labor-law enforcement. Further, the AG argued that PAGA actions are not equivalent to class actions because the PAGA plaintiff is acting on behalf of the state, not other private citizens. A copy of the AG’s brief in Viking River Cruises, Inc. v. Moriana, No. 20-1573, is available.

Vermont AG Settles Consumer Protection Act Claim Based on Medical Provider’s Debt Collection Practices

Vermont AG TJ Donovan entered a settlement with Taconic Orthopaedics, P.C. (Taconic) resolving allegations that Taconic’s debt collection practices violated the state’s Consumer Protection Law. The AG alleged that collection letters Taconic sent to approximately 1,500 debtors were deceptive because they included a threat that Taconic would sue the debtors. This statement was allegedly deceptive because the statute of limitations to file a claim had passed for many of the debtors. Pursuant to the settlement, Taconic is barred from collecting certain types of debt, including from Medicaid patients, and will pay a fine of $10,000. $5,000 of the fine is suspended due to Taconic’s cooperation, which included promptly sending a letter to all 1,500 debtors rescinding Taconic’s prior, allegedly deceptive letter. Copies of the AG’s press release and the settlement agreement are available.

New York AG Enters $6.9 Million Settlement With Two Home Health Agencies Over Alleged Violations of the Federal and State False Claims Acts and New York’s Wage Parity Act

New York AG Letitia James entered settlements totaling $6.9 million with two home health agencies — All American Homecare (All American) and Crown of Life Care NY LLC (Crown) — over allegations the agencies failed to pay their home health aides minimum hourly wages required by New York’s Wage Parity Act. The Wage Parity Act sets a minimum hourly wage of $15 per hour, with higher rates required in certain areas, for home health and personal care aides. The New York AG’s joint investigation with the U.S. Attorney’s Office for the Eastern District of New York resulted from a qui tam action filed in 2017, which alleged that All American issued false certifications to Medicaid stating they were in compliance with the Wage Parity Act and thereby violated the federal and state False Claims Acts. Under the terms of the settlement, Crown will pay approximately $1.1 million to impacted home health aides, provide approximately $411,000 in paid-time-off for current employees and pay $1.4 million to Medicaid. All American issued catch-up payments in the form of deposits in current employees’ 401(k) accounts and backpay to former employees in undisclosed amounts and will pay $4 million to Medicaid. Crown will be required to submit revised company policies and procedures to the AG for approval and provide reports to the AG on staff wages and policy implementations for six years. All American will report to the AG for the next two years. The AG’s press release and the settlements are available.

New York AG Settles False Advertising Claims With Online Travel Agency for $2.6 Million

The New York AG settled allegations against online travel agency Fareportal relating to alleged false or misleading statements used to induce customers to book plane tickets or hotel stays. The AG alleged that Fareportal used a variety of false or misleading practices to induce potential customers to make purchases. For example, if a customer searched for a certain number of airline tickets, the results would include a notation that there was only one more ticket at the advertised price than the number of tickets for which the customer had searched, regardless of how many tickets were available, e.g., if a customer searched for two tickets, they would automatically be told there were only three tickets remaining at the advertised price. Another technique involved Fareportal generating a random number and telling consumers that that many other customers were looking at the same offer at the same time, even if no other customers were. According to the AG, Fareportal used similar tactics regarding hotels. For example, it allegedly asserted that a random percentage of rooms in a given hotel were booked. That rate would automatically be higher the closer to the date of the customer’s planned stay. Further, the AG alleged that Fareportal created prices that were inflated or not actually charged to customers to use in comparison to the prices Fareportal charged to create the appearance that the customer was obtaining a good deal. In entering the settlement Fareportal neither admitted nor denied the AG’s allegations. Under the terms of the settlement Fareportal agreed to ensure the accuracy of various statements on its website and to pay the state $2.6 million in disgorgement and costs. Copies of the AG’s press release and the settlements are available.

New York AG Settles Deceptive Practices Allegations Against Energy Service Company for $2.15 Million

The New York AG settled allegations that energy service company Family Energy used deceptive practices to secure new customers. Family Energy sells electric and gas products directly to utility customers. The AG alleged that Family Energy employed a variety of misleading or deceptive tactics, such as: (a) making false promises to utility customers that contracting with Family Energy would results in savings on their energy bills, (b) presenting statements regarding savings not being guaranteed in a misleading and/or inconspicuous fashion, (c) charging significant termination fees when customers attempted to end their contracts, (d) misrepresenting Family Energy’s sales agents to be representatives of the customers’ existing utility companies, and (e) enrolling customers without the customers’ permission. Additionally, the AG alleged that Family Energy violated the Telephone Consumer Protection Act by soliciting customers despite their phone numbers being included on the Federal Do Not Call Registry.

Under the terms of the settlement, Family Energy will be required to pay $2,150,000 in restitution, as well as “take measures to prevent deceptive practices in the future, including providing adequate training of customer service representatives, recording telephone communications between customers and sales representatives that result in a sale, refraining from misleading marketing and advertising that implies savings, regularly monitoring sales calls, and implementing appropriate disciplinary procedures for violations of the law.” Additionally, the company will be required to appoint a compliance officer and submit reports to the AG for the next three years. Copies of the AG’s press release and the settlement agreement are available.

Colorado AG Enters Settlements With Three Credit Unions for Alleged Failures to Refund Guaranteed Automobile Protection Payments

Colorado AG Phil Weiser entered a settlement with three credit unions over allegations they failed to make required refunds relating to certain car loans. Specifically, the AG alleged that the credit unions failed to make required Guaranteed Automobile Protection (GAP) refunds. GAP coverage is a product sold to consumers who finance a car purchase. If the car is totaled, GAP coverage serves to cancel or pay any balance remaining on the loan that is not covered by the consumer’s auto insurance policy. Colorado law requires that lenders refund any unearned GAP-related payments if the loan is paid off early or the car is repossessed. Under the terms of the settlements, the credit unions refunded approximately $6 million and made payments to the AG for the AG’s investigation costs. Copies of the AG’s press release and the settlement agreements are available.