In a year when families and business were forced to make immediate and radical adjustments, government offices also scrambled to proceed in a new environment. Regulators shifted resources in order to comply and respond to complaints of price-gouging while also continuing the investigations and enforcement actions already on the books.
The life cycle of most enforcement actions and initiatives involve many years — up to six years or more — with others being quickly investigated and resolved within a month to a year. Price-gouging cases fall into the category of the latter, and while important, are not the routine cases.
Enforcement actions can also be distinguished by those that are multi-state actions versus an investigation controlled and led by just one state. Cases also fall into distinct subject-matter areas demonstrating the trends in enforcement actions. Multi-state investigations can take up to eight years before completion with a public announcement.
This year included many such investigations coming either to suit or settlement. The following is by no means a comprehensive report on the many classifications, but rather a sampling of investigations.
For links to the underlying actions, please see our full blog post on this subject: Full Blog Post
Data Breach
For well over a decade, state law makers have expanded the authority of state attorneys general relevant to data breach notification. Without meaningful and new national cybersecurity legislation, the states will continue to be the primary enforcers of data security.
The 2014 Home Depot data breach case concluded with a $17.5 million price tag. The retailer was hit with malware that allowed hackers to obtain payment card information through stores in the U.S. between April 10 and Sept. 13, 2014. The attorneys general of 45 states and the District of Columbia joined the action, which was led by Texas, Connecticut and Illinois.
Consumer Finance
With COVID-19 emergency orders, and consumers' finances being tighter, regulatory oversight and enforcement is likely to increase.
In May, 34 attorneys general announced a settlement with the nation's largest subprime auto lender. This settlement included $550 million in relief to consumers. The Illinois-led coalition began in 2015 after receiving complaints regarding the company's alleged predatory loan practices in connection with its risk-based models and other alleged deceptive sales practices related to ancillary products.
Restitution included a $65 million payout to identified consumers who defaulted on their loans between Jan. 1, 2010 through Dec. 31, 2019 and did not have their car repossessed. The consumers also get to keep the vehicles and the loan balances are waived – a $45 million value. An additional $2 million was paid to a settlement administrator and the states also received an additional $5 million. In addition, the company agreed to waive the deficiency balances for certain defaulted borrowers equaling $433 million.
On Dec. 7, the CFPB and the States concluded their joint investigation against a mortgage company related to their servicing practices for 2011 through 2017. The proposed judgment, if accepted by the court, provides for civil penalties paid to the Bureau and restitution to already identified individuals outlined in each state's filing.
In June, New York announced a settlement with a home loan company that included $17 million in loan forgiveness to New York customers who "were placed in unfair, interest-only loan modifications by the company."
In March, the Commonwealth of Massachusetts obtained a consent judgment from a "buy-here, pay-here" automobile dealer. The Commonwealth initiated suit back in in September of 2017. The judgment requires the car dealer to cancel debts and pay $1.5 million to consumers.
Massachusetts was also busy in the small-loan lending space. In January, the state announced that it secured an Assurance of Voluntary Complaint and obtained $1.25 million from an online lender for usury. The Commonwealth determined that the upfront fees charged by lender should be included in the calculation of interest because the amounts disbursed to consumers were less than the face-value of the loan.
In February, Maryland entered a final order against a title-loan company and its owner for operating without a license and "making usurious loans targeting consumers in financial distress." The order requires the company to pay $2.2 million in restitution and a $1,200,750 in penalties.
Debt Collection
In September, the FTC along with state regulators and attorneys general announced a sweeping law enforcement action called "Operation Corrupt Collector." The FTC filed five suits against debt collectors, the Bureau filed three cases, and the Department of Justice and U.S. Postal Inspector brought three criminal cases. In addition, the following states reported actions as part of the operation: Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Massachusetts, New Mexico, North Carolina, North Dakota, New York, Ohio, South Carolina, and Washington.
As reported by InsideArm: "The Receivables Management Association International (RMAI) applauded the FTC and state and local governments for their commitment to enforcing the law against companies who are blatantly breaking the law to collect debts consumers do not owe or engaging in abusive and threatening practices."
In September, the New York Attorney General joined forces with the feds and filed suit against Buffalo-based debt collection agencies and its owners for engaging in prohibitive conduct by "extorting payments from consumers by using illegal and deceitful tactics." The press release notes that the New York AG obtained $66 million the years prior in similar actions.
On Sept. 29, Ohio Attorney General Yost announced a lawsuit filed against a debt collector for violations of the Ohio Consumer Sales Practices Act and FDCPA. The lawsuit was filed after the agency received complaints that the company was contacting family members, co-workers, and employers of debtors for the purpose of disclosing debts and intimidating debtors.
In August, Pennsylvania entered into an Assurance of Voluntary Compliance with a Pennsylvania based bank in connection with its collection practices. The AG's office claims the bank would threaten legal action never intended to take and was engaged in forum shopping by filing actions in counties unconnected with the consumer or the transaction.
Telemarketing and "Robocalls"
In August, the Washington State Attorney General obtained a judgment for $10 million following suit against an air duct cleaning company for making over 13 million "robocalls" from 2017 through 2019. The AG's office filed suit after receiving 120 complaints from consumers concerning the company's actions.
In June of this year, Texas announced that it filed suit along with six other states in U.S. District Court, Southern District of Texas for violations of the Telephone Consumer Protection Act. The suit alleges that the companies placed calls to cell phones and home phones with pre-recorded messages and used caller id spoofing.
On Nov. 20, TRACED (Telephone Robocall Abuse Criminal Enforcement and Deterrence) Working Group filed its report. The group was convened by the U.S. Attorney General, in consultation with the Chairman of the FCC, and includes the FTC and CFPB along with the National Association of Attorneys General led by Mississippi, Nebraska, New Hampshire, and North Carolina.
In May, the CFPB and Commonwealth of Massachusetts filed suit against a credit repair telemarketer for violations of the Telemarking Sales Rule and deceptive conduct dating back to 2011.
On Oct. 23, the attorneys general of 38 states banded together in filing an amici curiae brief with the U.S. Supreme Court in the Dugid v. Facebook case. The states aligned themselves with the Ninth Circuit's definition of an auto dialer covered under the TCPA. The states contend that every state statute back in 1991 defined an auto dialer to include devices "with the capacity to store and dial numbers from a predetermined list, regardless of whether a random or sequential number generator was used."
Student Loans and For-Profit Institutions
In September, 48 AGs and the Consumer Financial Protection Bureau announced a national settlement agreement for $330 million against the operator of a private loan program for students at ITT Tech, a for-profit defunct educational institution. The allegations are that the lender participated in and with ITT Tech in predatory lending practices by not making students aware of "the true cost of repayment for these loans until after they took out the loan."
The school closed in September 2016 and filed for bankruptcy after being hit by the federal Department of Education with heavy sanctions at the same time as being under investigation by attorneys general related to deceptive practices. In 2019, 44 AGs settled with another ITT loan provider, requiring the lender to discharge loan balances valued at $168 million.
Debt Relief and Debt Settlement
Enforcement actions related to debt relief continue to be a hot topic for federal and state regulators. Individual states continue to pursue companies in this industry for violations of state debt settlement and deceptive trade statutes. In addition, attorneys general can bring claims under the federal Telemarketing Sales Rule which specifically calls out debt relief companies and prohibits advanced fees.
In April, Minnesota obtained a settlement with a California-based company for collecting impermissible advanced fees. The agreement requires the company to pay $121,019.18, which is the full amount of fees collected and not refunded to consumers. On Dec. 16, Pennsylvania announced another settlement with the company, requiring it to cease operation, pay restitution of $75,000, and $50,000 to the state for costs and penalties.
In October, Massachusetts secured a judgment against debt relief companies for engaging in unfair and deceptive practices related to paying impermissible upfront fees.
New York reached a consent judgment for $5.5 million against three debt relief companies. The consent judgment stems from the suit originally filed in 2018.
New York also breathed life into its 2011 settlement with a debt relief company and secured an additional settlement of $3.6 million in restitution for the company for violating the terms of the previous agreement.
In July, the Florida AG and FTC announced a settlement with a debt relief company. The settlement provides more than $16 million in refunds to consumers. The AG and FTC alleged that the company falsely promised to pay, settle, or obtain dismissal of consumers' debts.
Batterygate: The iPhone case
In November, California's attorney general announced a multistate settlement whereby Apple agreed to pay $113 million for misrepresenting the iPhone battery and performance throttling related to the iPhone 6 and 7. Earlier this year, Apple resolved class action lawsuits filed in 2017 and 2018 for similar issues and in 2018 the Department of Justice filed suit.
The Honda Airbag Saga
When any product goes bad, state enforcement actions are likely to follow. If something is unsafe and sold, then the argument is that somewhere there must be a false, misleading, and deceptive act.
On Aug. 27, 44 AGs announced an $84,151,210 settlement with Honda related to faulty Takata airbags in Honda and Acura vehicles. The frontal airbags could rupture and send metal fragments flying. While the settlement is specific that Honda admits no wrongdoing, the defect caused 14 deaths and 200 injuries.
The related class action, In re Takata Airbag Products Liability Litigation, obtained settlement approval by the court in September 2017 for $605 million. The claims in the class action are identical to the allegations in the multi-state enforcement case. Car and Driver provides additional backstory on the faulty Takata airbags where Takata admits to deceiving manufacturers such as Honda. Still, Honda takes the hit.
Google and Facebook in the Crosshairs
Back in September 2019, Texas Attorney General Paxton announced that Texas was leading 50 attorneys general in a multistate investigation of Google's business practice and "overreaching control of online advertising markets and search traffic." This was a follow-up to the June 2019 comment filed by Attorney General Paxton and Iowa Attorney General Miller with the FTC urging a renewed focus on "consumer privacy and data in antitrust enforcement actions against dominate technology platforms that collect and leverage consumer data."
As reported by CNN Business, shortly after the 2019 announcement, Google punched back and filed an open records request for the state to turn over volumes of documents and materials. At the same time, by seeking a protective order from a court, Google also sought to block the AG from releasing information to "consultants."
The investigation finally resulted in lawsuits being filed by two groups of attorneys general, instead of one. On Dec. 16, the State of Texas along with nine states filed suit against Google in U.S. District Court – Eastern District of Texas for anti-trust and consumer protection violations as summarized by the state's press release. On Dec. 17, an additional 39 states filed suit in U.S. District Court in Washington D.C., the same court in which the DOJ filed its own anti-trust suit related to the company's search engine a month prior.
While there is some commonality among these suits, the Texas action dives deeper by accusing the company of abuse of power by displaying ads in tech-marketing campaigns.
In a related, but much more typical posture, 46 states, the District of Columbia and Guam in conjunction with the FTC announced a suit filed against Facebook for anti-competitive conduct. The suit was the result of a lengthy and cooperative joint investigation into Facebook's practices.
Drugs and Devices
Over the past decades, the state attorneys general have pursed investigations with Big Pharma against manufacturers in connection with deceptive marketing practices. The investigations resulted in significant settlements that included injunctive relief and big civil penalties.
In February, a $1.6 billion global settlement was announced between the state attorneys general against the largest generic opioid manufacturer in the U.S. Negotiations regarding the final settlement are ongoing as the company filed for bankruptcy. In 2017 the National Association of Attorneys General brought attention to opioid abuse as a matter of public health. That same year a coalition of 40 states served investigative subpoenas on eight companies who manufactured opioids. In 2017 the attorneys general quickly investigated and initiated lawsuits against the manufacturers of the drugs. Interestingly, 36 states filed an amicus letter in the Northern District of Ohio opposing "exorbitant attorneys' fees" requested by the plaintiff's lawyers in opioid litigation.
In 2012 investigations commenced against manufacturers of surgical mesh for deceptive practices in the marketing of the product. In September, the surgical mesh enforcement investigation into C.R. Bard and its parent company Becton, Dickson and Company yielded a $60 million settlement for the 48 participating states. Although the company ceased manufacturing the product, the relief includes future injunctive terms in addition to the civil penalty.
Another surgical mesh investigation concluded in October 2019 against Johnson & Johnson and its subsidiary Ethicon with a civil penalty of $116.9 million. On Oct. 16, 2020, Attorney General Rosenblum of Oregon announced its individual surgical mesh settlement of $5.5 million against Johnson & Johnson, having opted out of the multi-state investigation. Oregon sued Johnson & Johnson in December 2019. California also did not participate in the multistate. The California Department of Justice sued Johnson & Johnson back in May 2016 and obtained a judgment for $343.99 million in civil penalties against the company following a nine-week trial.
Transitioning into 2021
Be prepared, informed, and nimble.
We believe we are likely to see an increase in investigations that market or involve services connected to a consumer's home or vehicle (home improvement and services, claims of energy savings, foreclosure, warranty sales, auto finance, and auto sales).
Price-gouging may not be in the limelight, but regulators will be on the look-out for businesses perceived to be taking advantage of the pandemic and consumer fear in marketing of their products. The phrase "safe and effective" has specific meaning to regulators but in today's time, the concept of "safe" pivoted.
State agencies in combination with attorneys general will likely increase probes into nursing homes, care-giving facilities, and home health care. Protection of the elderly is always in the AG mission statement, and government agencies are tasked with ensuring the physical and financial safety of those in nursing homes, assisted living facilities or obtaining services from certain health care providers.
Finally, data breach cases are likely to continue to rise especially as risk increases with workers based in remote settings.
State attorneys general (and the feds) have broad authorization to initiate investigations and broad power to determine conduct that violates consumer protection statutes and regulations. It is not just the scammer or fraudster who is investigated, nor the big company.
Big or small and within any industry, a business can find themselves the recipient of an investigatory subpoena. Regulatory scrutiny is different than routine litigation. But a basic compliance program that involves good customer service along with a response plan can go a long way to mediating the business costs and disruption when a consumer complaint finds itself in the hands of an investigator or AG resulting in a subpoena.
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Email: rwutscher@MauriceWutscher.com
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