Digest 7.12.2018 The State AG Report Weekly Update

Breaking News

Washington Attorney General Reaches Settlement with Seven Fast Food Franchisors Over “No Poach” Provisions in Franchise Agreements

  • Washington AG Bob Ferguson announced settlements with Arby’s Franchisor, LLC (“Arby’s), Auntie Anne’s Franchisor SPV LLC (“Auntie Anne’s”), Buffalo Wild Wings International, Inc. (“Buffalo Wild Wings”), Carl’s Jr. Restaurants LLC (“Carl’s Jr.”), Cinnabon Franchisor SPV LLC (“Cinnabon”), Jimmy John’s Franchisor SPV (“Jimmy John’s”), and McDonald’s USA, LLC (“McDonald’s”) (collectively, the “franchisors”) to resolve the AG’s investigation into whether the franchisors’ alleged use of “no-poach” provisions in franchise agreements constituted an unlawful restraint of trade in violation of the state’s Consumer Protection Act.
  • According to the AG’s announcement, no-poach provisions—franchise agreement terms that prevent franchisees within the same chain from hiring away each other’s employees—allegedly decrease competition and worker mobility and cause wage stagnation among the franchisees’ workers.
  • Under the terms of the assurances of discontinuance reached with Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carl’s Jr., Cinnabon, Jimmy John’s, and McDonald’s, each of the franchisors agreed to cease enforcing no-poach provisions currently in franchise agreements, to remove such provisions from current and future franchise agreements, and to notify all franchisees and owners of the prohibition.
  • As reported below, the Washington announcement follows the actions of 11 AGs earlier this week in issuing letters to other national fast food franchisors regarding their alleged use of “no-poach” provisions in franchise agreements.

2018 AG Elections

Republican Peggy Marshall Thomas Announces Bid for Delaware Attorney General

  • Republican Peggy Marshall Thomas, a longtime county prosecutor, has filed to run for Delaware Attorney General in 2018.
  • Thomas, who worked as an attorney for the state General Assembly prior to announcing her candidacy for AG, previously served for many years as the chief prosecutor for Sussex County.
  • Thomas is the first Republican to declare her candidacy for AG in 2018. Four Democrats, Kathy Jennings, Chris Johnson, Tim Mullaney Sr., and LaKresha Roberts are currently vying for the Democratic nomination.  The primary election for AG is September 6, 2018.

Consumer Protection

New York Attorney General Settles with Automobile Dealership Over Allegedly Deceptive Practices Targeting Non-English-Speaking Consumers 

  • New York AG Barbara Underwood announced a settlement with automobile dealership Bay Ridge Honda of Brooklyn (“Bay Ridge”) over allegations that it violated state consumer protection laws by misleading non-English-speaking consumers regarding the terms of automobile sale and lease contracts that allegedly added thousands of dollars to the costs of the sales or leases.
  • According to the AG’s office, Bay Ridge allegedly negotiated the contracts in the non-English speakers’ native languages, but later provided written contracts in English that contained different terms, included charges for unwanted aftermarket services and products, and falsely promised to refinance automobile loans in response to consumers’ complaints.
  • According to the AG’s announcement, Bay Ridge will pay approximately $154,000 in penalties, fees, and costs to the state and approximately $270,000 in restitution to affected consumers, cease its allegedly deceptive sales and financing practices, translate future sales and lending documents into the language in which the dealer conducts business prior to executing documents in English, and revise its consumer complaint processing and employee training practices.


Rhode Island Attorney General Files Suit Against Energy Companies Over the Alleged Environmental Impact of Climate Change 

  • Rhode Island AG Peter Kilmartin filed suit against a group of 21 energy suppliers and retailers, including ExxonMobil, BP, and Shell, over the alleged costs of remedying the companies’ proportional responsibility for the alleged public nuisance and other tortious conduct arising from climate change.
  • According to the complaint, the energy suppliers have allegedly long understood the purported hazards of climate change, but failed to disclose the known harms of extracting, processing, and consuming fossil fuel products, attempted to promote widespread dependence on fossil fuels, downplayed the risks of fossil fuel extraction and consumption, evaded regulation, and obstructed the development of alternative energy sources, thereby causing the state to suffer severe economic and environmental harms.
  • The complaint seeks compensatory and punitive damages, abatement of the alleged nuisance, attorneys’ fees and costs, and disgorgement of profits.
  • As previously reported, a coalition of fifteen Republican AGs filed an amicus brief in support of five energy suppliers’ motions to dismiss similar claims by the cities of Oakland and San Francisco in a recently-dismissed federal lawsuit in California.

False Claims Act

Connecticut Attorney General Reaches Settlement with Behavioral Health Practice Over False Billing Allegations

  • Connecticut AG George Jepsen reached a settlement with Affinity Behavioral Health, LLC and its co-owners (collectively, “Affinity”) to resolve allegations that they violated the Connecticut False Claims Act by billing the state’s Medicaid Assistance Program (“CMAP”) for services that were not provided as claimed.
  • According to the AG’s office, from 2013 to December 2016, Affinity allegedly knowingly submitted claims to CMAP for behavioral health services that it claimed were performed by licensed behavioral health clinicians, but that were actually performed by unlicensed individuals employed by Affinity.
  • Under the terms of the settlement agreement, Affinity will pay $300,000 to the state, which will be returned to the state’s Medicaid program, and will implement a five-year compliance program intended to prevent and detected CMAP fraud, waste, and abuse, among other things.

Massachusetts Attorney General Reaches Settlement with Electrical Supply Distributor Over Alleged Overbilling of State Entities

  • Massachusetts AG Maura Healey reached a settlement with Granite City Electric Supply Co. (“Granite City”) to resolve allegations that it violated the Massachusetts False Claims Act and Consumer Protection Act by overcharging state entities for electrical and lighting products.
  • According to the AG’s office, Granite City was a vendor on a public supply and equipment contract, but allegedly overcharged hundreds of public entities for supplies in violation of the contract and failed to implement proper safeguards to ensure it was pricing goods in compliance with the contract.
  • According to the AG’s announcement, Granite City will refund more than $1.18 million in overcharges to 285 public entities throughout the state, pay an additional $1.18 million to the AG’s office for the state’s General Fund, refrain from participating in public contracts for one year, and will implement changes to its business practices, including revised training and compliance review procedures.

Financial Industry

Illinois Attorney General Reaches Settlement with Bank Over Allegedly Deceptive Marketing and Sale of Risky Mortgage-Backed Securities

  • Illinois AG Lisa Madigan announced a settlement with international financial services company Royal Bank of Scotland (“RBS”) over allegedly deceptive practices in the marketing and sale of residential mortgage-backed securities (“RMBS”) to investors.
  • According to the AG’s office, RBS allegedly failed to disclose the true risk of RMBS investments and contributed to the 2008 economic crisis.
  • According to the AG’s announcement, RBS agreed to pay $20 million to the state, which will be used to fund various state employee retirement systems.
  • As previously reported, this settlement follows other similar settlements with major banking institutions over alleged misconduct in the years preceding the 2008 economic crisis.

Labor & Employment

Multistate Coalition of 11 Attorneys General Opens Investigation of Fast Food Franchisee Hiring and Recruitment Practices

  • A coalition of 11 AGs, led by Massachusetts AG Healey, issued letters to national fast food franchisors Arby’s, Burger King, Dunkin’ Donuts, Five Guys Burgers and Fries, Little Caesars, Panera Bread, Popeyes Louisiana Kitchen, and Wendy’s seeking documents and information intended to assess the purposes and effects of the alleged use of “no-poach” provisions in franchise agreements.
  • According to a partially-redacted copy of one letter released by AG Healey, no-poach provisions in franchise agreements—provisions that restrict a franchisee’s ability to recruit or hire employees of another franchisee of the same chain—may negatively impact low-income workers’ earning potential, franchisees’ ability to hire desirable skilled workers, and states’ economies generally.
  • The AGs’ letters do not allege specific legal violations, but request documents and information regarding the adoption and use of no-poach provisions, policies related to their implementation, and identification of franchise locations using such provisions in franchise agreements.

State AGs in the News

Attorney General Andy Beshear Announces Bid for Kentucky Governor in 2019

  • Kentucky AG Andy Beshear has officially declared his candidacy for the Democratic nomination for Governor of Kentucky in 2019.
  • AG Beshear, who was elected in 2015, is the son of former Kentucky Governor Steve Beshear and previously worked in private practice at a regional law firm.
  • AG Beshear is the first candidate of either party to formally announce his candidacy for the 2019 Governor’s race. Republican incumbent Matt Bevin has yet to announce whether he intends to seek re-election.

Former Hawaii Attorney General Confirmed as Federal Court of Appeals Judge by U.S. Senate

  • Former Hawaii AG Mark Bennett has been confirmed by the U.S. Senate as a judge of the U.S. Court of Appeals for the Ninth Circuit.
  • Judge Bennett, who served as Hawaii AG for two terms from 2003 to 2010 under former Republican Hawaii Governor Linda Lingle, was appointed to the Ninth Circuit by President Trump in February 2018.
  • Judge Bennett is the first judicial appointment by President Trump to be confirmed to the Ninth Circuit.