The State AG Report Weekly Update May 16, 2019

Cozen in the News

Cozen O’Connor’s State Attorneys General Practice Discusses FTC Data Security Orders

  • JB Kelly, a member of Cozen O’Connor’s State Attorneys General Practice, was quoted in a recent FTCWatch article discussing the FTC’s April 2019 orders regarding a company’s efforts to secure data privacy.
  • The FTC orders, arising from allegations that two website operators had failed to protect consumers’ data, contained specific directives regarding how the companies should protect personal information going forward. These orders came after the U.S. Court of Appeals for the Eleventh Circuit ruled in June 2018 that an FTC order directing LabMD to “fix its weak security” was too vague to enforce.
  • Kelly highlighted how the FTC’s recent orders state that the prescribed safety measures are required “at a minimum,” and that the FTC may not be willing to mandate a comprehensive information security program.

Cannabis/Marijuana

Bipartisan Coalition of 38 Attorneys General Urge Congress to Protect Banks Serving Marijuana Industry

  • The National Association of Attorneys General (“NAAG”) sent a letter, signed by a bipartisan coalition of 38 AGs, to congressional leaders urging Congress to support legislation to protect financial institutions that provide banking services to the marijuana industry in jurisdictions that have legalized use.
  • In the letter, the AGs state that financial institutions are inhibited from providing banking services to the marijuana industry by criminal and civil liability under federal law, causing revenue from the industry to be handled outside of the regulated banking system which makes it difficult to track revenue for taxation and regulatory compliance purposes, and contributing to a public safety threat where the industry must rely on cash transactions.
  • The AGs urge enactment of the SAFE Banking Act, H.R. 1595, or similar legislation that would provide a safe harbor from certain federal laws for financial institutions that provide services to the industry in jurisdictions that have legalized certain uses of marijuana.
  • As previously reported, a bipartisan coalition of 18 AGs sent a similar letter urging congressional leaders to enact such legislation in January 2018.

Connecticut Enacts Bill Creating Industrial Hemp Pilot Program

  • Connecticut Governor Ned Lamont signed legislation that creates a pilot program authorizing the production and sale of industrial hemp.
  • The new law, Public Act 19-3, authorizes the Connecticut Department of Agriculture to establish and operate a pilot program for hemp research and to prepare a state plan for permanent implementation, and authorizes the Commissioner of Consumer Protection to issue licenses to growers, processors, and manufacturers, among other things.

Charities

New Jersey Attorney General Clarifies State Donor Reporting Requirements for Charities

  • New Jersey AG Gurbir Grewal adopted a new rule to clarify the donor reporting requirements for social welfare and other charitable organizations, following the federal government’s elimination of a requirement that social welfare organizations annually report their substantial donors to the Internal Revenue Service.
  • The new rule requires social welfare organizations to continue to identify significant contributors—those who have donated $5,000 or more—in their annual reports to the Division of Consumer Affairs within the AG’s office.

Consumer Protection

North Carolina Attorney General Files Amicus Brief in State Supreme Court in Support of Narrowing Exception to Consumer Protection Law

  • North Carolina AG Josh Stein filed an amicus brief in the North Carolina Supreme Court in the matter of Hamlet H.M.A., LLC v. Hernandez, No. 425A18, urging the state Supreme Court to find that the state’s Unfair and Deceptive Trade Practices Act’s (“UDTPA”) “learned-profession exemption” does not apply when the conduct at issue does not involve “the application of any professional expertise.”
  • In the brief, AG Stein argues that the learned profession exemption—which exempts lawyers and doctors from liability when a claim arises from their delivery of services that involve unique professional skills or knowledge—should be narrowly construed because it would otherwise immunize a wide swath of commercial activities engaged in by professionals that the state General Assembly intended the UDTPA regulate, such as deceptive advertising and abusive debt collection practices.
  • AG Stein urges the state Supreme Court to affirm the state Court of Appeals’ decision that the exemption does not apply to a business dispute between a hospital and a doctor.

FTC Settles With Three Businesses Over Alleged Use of Non-Disparagement Provisions in Consumer Contracts

  • The Federal Trade Commission (“FTC”) reached settlements with A Waldron HVAC, LLC d/b/a Waldron Electric Heating and Cooling, LLC and its owner (collectively, “Waldron”), National Floors Direct, Inc. (“NFD”), and horseback trail riding operation LVTR LLC and its owner (collectively, “LVTR”) to resolve allegations that they used non-disparagement provisions in consumer contracts in violation of the federal Consumer Review Fairness Act (“CRFA”).
  • According to the complaints, Waldron, NFD, and LVTR allegedly included non-disparagement provisions—terms barring consumers from writing or posting negative reviews online or threatening legal action if consumers post reviews—in consumer form contracts used in selling their respective products and services.
  • Under the terms of the settlement orders, Waldron, NFD, and LVTR must cease using non-disparagement provisions in consumer form contracts, notify consumers who signed such contracts that those provisions are non-enforceable, and file compliance reports.
  • These actions are reportedly the first FTC actions that exclusively enforce the CRFA.

False Claims Act

Indiana Attorney General Settles with Cosmetics Retail Chain Over Alleged Failure to Collect Retail Taxes on Shipping Charges for Internet Sales

  • Indiana AG Curtis Hill reached a settlement with Sephora USA Inc. to resolve allegations that it failed to collect certain taxes on internet sales in violation of the state’s False Claims Act.
  • According to the settlement agreement, Sephora allegedly failed to pay use tax—sales tax applied to out-of-state purchases—on shipping, handling, or freight charges for internet sales of goods shipped to Indiana consumers.
  • Under the terms of the settlement agreement, Sephora must pay $159,349 to the state, $68,293 to the relator who raised concerns regarding the alleged false claims conduct, and $157,358 in attorney’s fees and costs.

Labor & Employment

Washington Attorney General Reaches Agreements with Five More Franchisors to Eliminate “No-Poach” Provisions

  • Washington AG Bob Ferguson reached agreements with franchisors AAMCO Transmissions, LLC f/k/a AAMCO Transmissions, Inc., Famous Dave’s of America, Inc., Meineke Franchisor SPV LLC, Qdoba Restaurant Corporation, and Villa Pizza, LLC to eliminate “no-poach” provisions in their franchise contracts.
  • According to the AG’s office, the franchisors utilized provisions in their contracts with franchise owners that prohibited employees from moving among stores within the same corporate chain.
  • Each of the franchisors signed an assurance of discontinuance requiring that they cease enforcing the no-poach provisions currently in their franchise contracts and remove such provisions from current and future franchise contracts.
  • As previously reported, AG Ferguson reached similar agreements with franchisors in February 2019 and November 2018, filed a lawsuit against a fast food franchisor in October 2018over its alleged use of no-poach provisions, and reached settlements with fast food franchisors in July 2018August 2018, and September 2018 to resolve investigations regarding their uses of no-poach provisions.

Pharmaceuticals

6 Attorneys General Sue Opioid Manufacturer for Allegedly Misrepresenting Risks of Prescription Opioids

  • 5 AGs filed lawsuits against opioid manufacturer Purdue Pharma L.P. and Purdue Pharma Inc. (collectively, “Purdue Pharma”) and a related individual and Pennsylvania AG Josh Shapiro filed a lawsuit against Purdue Pharma and The Purdue Frederick Company over allegations that the defendants engaged in deceptive marketing and misrepresented the risks of prescription opioid use in violation of the states’ consumer protection acts and common law.
  • According to the complaints, the named defendants allegedly deceptively marketed prescription opioid products to doctors by understating risks of addiction and targeted doctors with addicted patients and patients who were diverting its opioid products for unlawful use to increase prescriptions of opioid products.
  • The complaints seek injunctive relief, civil penalties, and costs, among other things.

 Kentucky Attorney General Sues Insulin Manufacturers Over Allegedly Artificially-Inflated Prices

  • Kentucky AG Andy Beshear filed a lawsuit against insulin manufacturers Novo Nordisk, Inc., Sanofi-Aventis U.S. LLC, and Eli Lilly and Company over allegations that they conspired to inflate the prices of their insulin products in violation of the state’s Consumer Protection Act.
  • According to the complaint, the insulin manufacturers allegedly artificially inflated the list prices for their insulin products and negotiated lower net prices with pharmacy benefit managers (“PBMs”) to obtain favorable placement on PBMs’ health-plan-approved drug lists, resulting in list prices to increase by at least 10 times and be more expensive for consumers with high-deductible health plans, the uninsured, and Medicare beneficiaries, while insulin manufacturing costs remained low.
  • The complaint seeks declaratory and injunctive relief, civil penalties, disgorgement, damages, costs and attorney’s fees, and prejudgment interest.
  • As previously reported, former Minnesota AG Lori Swanson filed a complaint against the same insulin manufacturers over similar allegations in October 2018.

 State v. Federal

8 Democratic Attorneys General Obtain Judgment Against EPA Over Alleged Failure to Implement Methane Emission Guidelines

  • 8 Democratic AGs, led by California AG Xavier Becerra, obtained a judgment against the U.S. Environmental Protection Agency (“EPA”) over allegations that it failed to implement its 2016 Emission Guidelines and Compliance Times for Municipal Solid Waste Landfills (“Emission Guidelines”) in violation of the Clean Air Act.
  • As previously reported, the complaint alleged that the EPA failed to fulfill its statutory duty to implement its Emission Guidelines—which took effect in October 2016—by refusing to implement the guidelines, and declining to respond to state-issued implementation plans or promulgate a federal implementation plan for non-responding states.
  • The order from the U.S. District Court for the Northern District of California declares that the EPA failed to perform its statutory duties and orders it to approve or disapprove of existing state plans, promulgate regulations setting forth a federal plan, and file status reports detailing its compliance progress.
  • As previously reported, nine Democratic AGs submitted comments in January 2019 in opposition to the EPA’s proposed rule to further delay implementation of its Emission Guidelines by another four years.

19 Democratic Attorneys General Urge Congress to Reject Trump Administration’s Proposed Cuts to the EPA’s Budget

  • 19 Democratic AGs and the Pennsylvania Department of Environmental Protection, led by New York AG Letitia James, sent a letter urging congressional leaders to reject the Trump Administration’s proposed Fiscal Year 2020 cuts to the U.S. Environmental Protection Agency (“EPA”) budget and inclusion of budget riders.
  • In the letter, the AGs argue that the overall 31% proposed EPA budget cut, coupled with workforce reductions, would undermine the EPA’s ability to perform its duties, damage the partnership between the EPA and state and local governments, and endanger the environment and public health. The AGs also argue that the budget riders—provisions regarding policies and regulations included with the proposed budget—are anti-environmental.
  • The AGs urge Congress to reject the proposed budget cuts and budget riders.
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