The State AG Report

Editor-in-Chief: Christopher Allen
Contributing Editors: Grace Garver, Hannah Land, Keturah Taylor, Emily Yu

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Digest 11.12.2020: $60 Million Pest Control Settlement | Sotheby’s Alleged Tax Dodge | More Zoom Security Scrutiny

2020 AG Elections

New Leadership Team at the Republican Attorneys General Association

 Campaign Finance

Washington Court of Appeals Upholds Treble Penalty for Campaign Finance Violations

  • Washington AG Bob Ferguson obtained a unanimous ruling from the Washington State Court of Appeals upholding an $18 million penalty against the Grocery Manufacturers Association (“GMA”) for violations of Washington’s Fair Campaign Practices Act (“FCPA”).
  • The trial court ordered GMA to pay $18 million in treble penalties after finding that GMA committed multiple FCPA violations by failing to register as a political committee and by not disclosing the sources of its funding during a campaign over a ballot initiative that would have required all packaged foods to identify genetically modified organisms.
  • The Court of Appeals decision held that the penalty was not excessive under the Eighth Amendment because it found GMA’s FCPA violations to be serious and significant, especially because GMA took affirmative steps to shield the identity of its members and the sources of its funding from public scrutiny.
  • The Court of Appeals decision came after the Washington Supreme Court reversed the Court of Appeals’ prior decision and found subjective intent to violate the FCPA was not necessary to be subject to treble damages, and remanded the case for consideration of whether the penalty was excessive under the Eight Amendment.

 Consumer Financial Protection Bureau

The CFPB Issues No-Action Letter for Small-Dollar Short-Term Credit Product

  • The Consumer Financial Protection Bureau (“CFPB”) issued a no-action letter (“NAL”) to Bank of America, N.A. regarding its “Balance Assist” credit product designed to provide a banking solution to consumers with short-term liquidity needs.
  • The NAL was issued pursuant to the updated NAL policy, and is meant to increase regulatory certainty that the CFPB will not bring supervisory or enforcement action against the bank under the circumstances detailed in the letter.
  • Bank of America’s application for the NAL was based on CFPB’s application template, which provides guidance on the information and certifications that an application for a NAL should include and the scope of a potential NAL issued in response to an application.

 Consumer Protection

Terminix Agrees to $60 Million Settlement over Allegations of Undelivered Termite Protection Services

  • Alabama AG Steve Marshall reached a settlement with pest control service provider Terminix Global Holdings, Inc (“Terminix”) to resolve allegations that Terminix charged consumers for services it did not provide in violation of Alabama’s Deceptive Trade Practices Act.
  • According to the AG’s office, Terminix allegedly routinely collected annual termite protection premiums from consumers but failed to provide competent annual termite inspections and termite protection services, which resulted in homes suffering termite damage. In addition, Terminix double-charged consumers for pesticide.
  • Under the terms of the settlement, Terminix agreed, among other things, to expend $60 million, including $35 million toward consumer relief and refunds, $20 million to the AG’s office, $4 million to the Alabama Department of Agriculture and Industries, and $1 million as a charitable contribution to Auburn University.

 Data Privacy & Security

FTC Seeks Zoom Security Upgrades

  • The Federal Trade Commission (“FTC”) reached a settlement with online video platform Zoom Video Communications, Inc. (“Zoom”) to resolve allegations that Zoom engaged in a number of deceptive and unfair practices that undermined the data security and privacy of its users.
  • The complaint alleged that, among other things, Zoom misled users by deceptively marketing its service as offering end-to-end, 256-bit encryption that made communications unreadable to anyone except the sender and recipient, while in reality providing a lower level of encryption and maintaining cryptographic keys. The complaint further alleged that Zoom misled users by promising to immediately encrypt recordings stored in the cloud but some recordings were left unencrypted for 60 days, and that it compromised the security of users by installing software that bypassed an Apple Safari browser safeguard.
  • Under the terms of the proposed consent order, among other things, Zoom must take steps to increase its security measures, including by assessing, documenting, and addressing any potential security risks on an annual basis and implementing a vulnerability management program. In addition, Zoom is prohibited from misrepresenting the strength of its data privacy and security practices.
  • As previously reported, Zoom entered into a similar settlement with New York AG Letitia James over its alleged security flaws.

 False Claims Act

Sotheby’s Sued over Allegations of Unpaid Sales Taxes on Collector’s Art Acquisitions

  • New York AG Letitia James sued international auction house Sotheby’s, Inc. for allegedly underpaying millions of dollars in sales tax in violation of the New York False Claims Act, which unlike the federal False Claims Act applies to failure to pay taxed due to New York.
  • The complaint, which stems from a 2018 settlement between the AG’s office and Porsal Equities relating to art acquisitions by Porsal Equities from Sotheby’s, alleges that Sotheby’s knowingly issued false tax exemption certificates, known as resale certificates, which stated that Porsal Equities was purchasing art for resale as an art dealer while in reality it bought the items for its owner’s personal collection.
  • The suit seeks damages, civil penalties, and attorneys’ fees and costs.