The State AG Report

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

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Digest 09.17.2020: AG Climate Change Suits Continue | Dunkin’ in Hot Water | CFPB and States Settle with Student Lender

2022 AG Elections

Challenger Takes on Texas Incumbent Attorney General

 Antitrust

FTC Requires Divestitures to Keep Animal Health Markets Competitive

  • The Federal Trade Commission (“FTC”) reached an agreement with animal health products supplier Elanco Animal Health, Inc. (“Elanco”) after determining that Elanco’s proposed acquisition of Bayer Animal Health, Inc., would harm competition and violate the FTC Act and the Clayton Act.
  • The complaint alleged that the proposed $7.6 billion acquisition would likely harm competition in low-dose prescription treatment for canine otitis, an inflammatory ear condition in dogs; in fast-acting flea-killing oral treatments for dogs; and in brand-name cattle pour-on insecticides.
  • Under the terms of the final order, Elanco will fully divest, within 10 days of its acquisition of Bayer Animal Health, its canine otitis treatment to Dechra Limited, its fast-acting flea-killing treatment for dogs to PetIQ, LLC, and its brand name cattle pour-on insecticide to Neogen Corporation. The order also appoints a monitor to observe and report Elanco’s compliance with its obligations under the order.

Data Privacy & Security

Cybercriminals’ Run on Dunkin’

  • New York AG Letitia James reached a settlement with franchisor Dunkin’ Brands, Inc. (“Dunkin’”) to resolve allegations that it failed to appropriately respond to a 2015 cyberattack on customers’ online accounts in violation of New York’s data privacy laws.
  • According to the AG’s office, beginning in 2015, Dunkin’ customers’ online accounts were repeatedly targeted and breached through automated attempts using usernames and passwords stolen from other unrelated online services. Tens of thousands of customer accounts were compromised, their Dunkin’-branded stored value cards accessed, and tens of thousands of dollars stolen from customers’ cards. The AG’s office alleged that Dunkin’ was repeatedly warned about the hacking attempts but failed to, among other things, conduct an investigation or notify customers about the security breach.
  • Under the terms of the proposed consent order, Dunkin’ will refund money stolen from customers’ stored value cards and will pay $650,000 in penalties and costs to the state. In addition, among other things, Dunkin’ will notify customers of the security breach, implement reasonable safeguards against similar cyberattacks, maintain a comprehensive data security program, and develop appropriate incident response protocols.

Climate Change

Democratic AGs Sue Fossil Fuel Companies over Allegations of Climate-Related Deception 

  • Delaware AG Kathy Jennings sued 31 fossil fuel companies and the industry’s trade association (collectively “Defendants”) over allegations that they knowingly misled and deceived consumers about the climate change dangers of fossil fuels, asserting claims including negligent failure to warn, trespass, public nuisance, and numerous violations of Delaware’s Consumer Fraud Act.
  • The complaint alleges that Defendants knew that burning fossil fuels contributed to climate change but hid their research and deceived consumers through advertising and “greenwashing” campaigns, among other things. The complaint further alleges that Defendants’ actions caused harm to public health, the environment, and the economy.
  • The complaint seeks injunctive relief, compensatory and punitive damages, civil penalties, and attorneys’ fees and costs.
  • Separately, Connecticut AG William Tong also sued Exxon Mobil Corporation (“Exxon”) over allegations that it knowingly misled consumers about the climate change dangers of fossil fuels in violation of the Connecticut Unfair Trade Practices Act. The complaint seeks, among other things, injunctive relief, remediation for past, present and future harm from climate change, restitution, disgorgement, civil penalties, attorneys’ fees and costs, and disclosure of all climate research.
  • As previously reported, other Democratic AGs, including Minnesota AG Keith Ellison, New York AG Letitia James, and District of Columbia AG Karl Racine have also sued Exxon over similar allegations.

 Consumer Financial Protection Bureau

PEAK settlement over alleged unfair student loan practices

  • The Consumer Financial Protection Bureau (“CFPB”) and 47 states reached a settlement with special purpose entity PEAKS 2009-1 (and its trustees) over allegations that PEAKS assisted ITT Educational Services, Inc. (“ITT”) in its unfair acts and practices with respect to issuing student loans, which violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • The CFPB’s complaint alleged that ITT induced students by a variety of unfair practices to take out PEAKS loans even though the students could not afford the loans and did not understand the loans’ conditions, and that PEAKS knew or was reckless in not knowing about the students’ lack of ability to pay and lack of understanding. The complaint further alleged that PEAKS activity in managing and servicing the loans constituted substantial assistance to ITT’s unlawful conduct.
  • Under the terms of the proposed stipulated order sought by the CFPB, PEAKS will stop collecting and will discharge all outstanding PEAKS loans, estimated to total $330 million. PEAKS will also ask credit reporting agencies to delete information it furnished about PEAKS-loan borrowers. In parallel, PEAK entered into an assurance of voluntary discontinuance, with substantially similar terms to the proposed stipulated order, with individual states participating in the settlement.

 Environment

Daimler Agrees to $1.5 Billion Settlement to Resolve Allegations It Cheated on Emissions Tests

  • California AG Xavier Becerra, the California Air Resources Board (“CARB”), the U.S. Environmental Protection Agency, and the U.S. Department of Justice (“DOJ”) reached a settlement with automaker Daimler AG and its affiliates and subsidiaries (collectively, “Daimler”) to resolve allegations that it used an undisclosed device to circumvent emissions testing in violation of the federal Clean Air Act and California’s environmental safety and unfair competition laws.
  • The complaint alleged that Daimler installed an undisclosed defeat device software on its diesel engines, thus enabling the vehicles’ emissions controls to run more efficiently during testing than in normal driving conditions, which allowed Daimler to sell thousands of non-compliant vehicles that emitted impermissibly high levels of the smog-forming pollutant NOx.
  • Under the terms of the proposed consent decree, among other things, Daimler will pay approximately $945 million in penalties to the federal government and $110 million to CARB to fund mitigation efforts and NOx-reduction activities, as well as $17.5 million to the California AG’s office. Daimler will also be required to recall and repair the emissions systems of impacted Mercedes-Benz diesel vehicles and fund a federal mitigation project with a combined estimated cost of $436 million. In addition, Daimler will extend warranty periods, implement systemic corporate reform to detect violations in the future, create a robust whistleblower program, and contract with an external compliance consultant.

False Claims Act

 Novartis Settles Allegations of Kickbacks to Healthcare Providers

  • California AG Xavier Becerra reached a settlement with pharmaceutical company Novartis Pharmaceuticals Corporation (“Novartis”) to resolve allegations that it engaged in a kickback scheme in violation of the federal Anti-Kickback Statue and False Claims Act, as well as the California False Claims Act.
  • The case, which was brought by the U.S. Department of Justice (“DOJ”) and 30 states and arose out of a whistleblower complaint, alleges that Novartis offered illegal incentives in the form of cash, meals, and honoraria to healthcare providers to encourage them to prescribe certain Novartis drugs to Medicare and Medicaid recipients.
  • Under the terms of the settlement agreement, Novartis will pay California $11.8 million. This settlement is part of a global settlement reached earlier with DOJ, in which Novartis agreed to pay over $591.4 million, forfeit an additional $38.4 million under the Civil Asset Forfeiture Statute to the United States, and pay over $48 million to resolve state Medicaid claims.