State AG Updates: California, New York, Connecticut and Juul’s Settlement With 33 States and Puerto Rico

In this edition of Faegre Drinker’s State Attorneys General Update, we discuss:

• The California AG’s:
  • Plea deal with a pipeline operator relating to a 2021 oil spill
  • Investigation into alleged bias in health care algorithms
  • $8 million settlement with Safeway relating to alleged environmental violations at the company’s gas stations
• The New York AG’s:
  • $50 million settlement with two cigarette companies for failing to pay excise taxes
  • Lawsuit against a cryptocurrency platform for securities violations
• The Connecticut AG blocking a solar company from doing business in the state due to alleged failures to complete promised work
• Juul Labs’s $438.5 million settlement with 33 states and Puerto Rico for allegedly false and misleading advertising

California AG Announces Misdemeanor Plea Deal With Pipeline Operator Relating to 2021 Oil Spill

The California AG entered a plea deal with Amplify Energy Corp. and two of its subsidiaries related to a 2021 leak from an oil pipeline it operates off the coast of Orange County, California. The leak resulted from damage sustained when high wind caused two ships to drag their anchors across the sea floor until they caught on the pipeline and caused significant damage, including displacing the pipeline by approximately 100 feet. However, the pipeline did not begin to leak until around 10 months later. Amplify’s leak detection system advised it of an issue, and it shut down the pipeline. But Amplify attempted to restart the pipeline seven times over the course of 16 hours, before it reported the leak to authorities. Pursuant to the plea agreement, Amplify pled no contest to failing to immediately report a discharge of oil into California’s waters, water pollution (under the state’s Fish and Game Code) and killing of protected wildlife. It will pay $4.9 million in fines and penalties to the state and to Orange County and be on probation for 12 months. (This penalty is in addition to a $7.1 million federal penalty and paying the cost of the clean-up.) As part of its probation, Amplify will improve its leak detection system, train employees to immediately report spills to the relevant agencies, and conduct biannual visual inspections of the pipeline. Copies of the AG’s press release and the plea agreement are available here.

California AG Announces Investigation Into Alleged Bias in Health Care Algorithms

The California AG sent letters to 30 hospitals seeking information regarding how they identify and address racial and ethnic disparities in the software they utilize in making commercial decisions. The requests are the first step in his investigation of whether the algorithms result in discriminatory impacts, such as suggesting increased referrals for one group of patients relative to another. The algorithms at issue have functions ranging from hospital administration to aiding in patient diagnosis. They can be comparatively basic or highly complex and use artificial intelligence. A copy of the AG’s press release is available here.

California AG Announces $8 Million Settlement With Safeway for Alleged Environmental Violations at Gas Stations

The California AG, along with five district attorneys, entered an “$8 million settlement with Safeway resolving allegations that the company violated state environmental laws while operating underground storage tank systems at its 71 gas stations across California.” An investigation into Safeway’s gas stations allegedly “found a recurring failure to install, implement, and operate various spill prevention and safety measures since at least March 2015.” Specifically, the AG alleged that Safeway failed to:

• Install and/or maintain automatic line-leak detectors;
• Construct, operate and maintain secondary containment systems;
• Maintain a monitoring system capable of detecting a leak at the earliest possible opportunity;
• Continuously monitor and conduct required testing of underground storage tank systems; and
• Properly notify local agencies of the release of a hazardous substance.

Pursuant to the settlement, “Safeway will pay $7.5 million in civil penalties, including $600,000 to fund several supplemental environmental projects, and an additional $500,000 for investigative costs.” The settlement also requires Safeway “to take immediate steps to improve spill and alarm monitoring, employee training, hazardous waste management and emergency response at its gasoline stations.” Copies of the AG’s press release and the settlement agreement are available here.

New York AG Announces $50 Million Settlement With Cigarette Companies

The New York AG announced a $50 million settlement with two cigarette companies. The two companies allegedly imported millions of unstamped cartons of cigarettes into New York from Canada and then knowingly sold them without paying the required state excise taxes. In addition to recovering unpaid taxes, the agreement also permanently enjoins the companies from selling unstamped cigarettes in New York in the future. Copies of the AG’s press release and the stipulated final judgment are available here.

New York AG and Securities Regulators From Seven States Sue Cryptocurrency Platform for Operating Illegally and Defrauding Investors

The New York AG joined securities regulators from California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont in suing “cryptocurrency companies Nexo Inc. and Nexo Capital Inc. (Nexo), for failing to register with the state as securities and commodities brokers or dealers and for lying to investors about their registration status.” Entities, including cryptocurrency platforms, engaging in the offer, purchase, or sale of securities and commodities in New York must register with the Office of the Attorney General. The lawsuit alleges that “Nexo promoted and sold securities in the form of an interest-bearing virtual currency account . . . with promises of high returns for participating investors, while failing to register as a securities broker or dealer as required by state law.” It further alleges that “Nexo engaged in the unregistered purchase and sale of securities and commodities through its virtual currency trading platform . . . and misled investors by falsely representing that it was in compliance with applicable laws and regulations.” The lawsuit charges Nexo with violating New York’s Martin Act and New York Executive Law § 63(12) and it seeks restitution, disgorgement of revenues derived from the alleged unlawful conduct and permanent injunctions. It is part of a larger effort by the New York Attorney General to regulate the cryptocurrency industry. Copies of the AG’s press release and the complaint are available here.

Connecticut AG Announces Court Order Blocking Solar Wolf From Doing Business in Connecticut Until It Responds to Consumer Protection Investigation

The Connecticut AG and the Connecticut Department of Consumer Protection Commissioner announced an “investigation into and enforcement against unfair and deceptive practices” of the solar company Solar Wolf Energy, Inc., relating to alleged “failures to complete or even begin promised residential work” and the company’s failure to return deposits paid by the customers. After the company failed to respond to an investigative demand, the AG obtained a court order “blocking Solar Wolf from selling, advertising, offering, or marketing goods or services in Connecticut until it obtains permission from the court.” A copy of the AG’s press release is available here.

Juul Labs Enters $438.5 Million Settlement Over Allegedly Misleading Advertising

E-cigarette manufacturer Juul Labs entered a $438.5 million settlement with 33 states and Puerto Rico relating to the promotion of its products that were allegedly targeted at minors. The AGs alleged that Juul used a variety of marketing tactics to target minors, including using a “sleek design that could be easily concealed,” selling flavors known to appeal to younger consumers, modifying the composition of its product to make the vapor less harsh on new, or young, users, and using age verification strategies it knew would be ineffective. More generally, the AGs alleged that Juul improperly implied that its products had lower nicotine content than they actually did and misrepresented that its product was a smoking cessation device without FDA approval for such a claim.

The settlement documents were not finalized at the time the AGs announced the settlement. In addition to agreeing to refrain from a range of marketing tactics, Juul agreed to pay $438.5 million over six to 10 years. The longer the payment period the company opts to take, the higher the settlement amount will be. The maximum settlement amount is $476.6 million.