Consumer Protection

Los Angeles—In an ongoing investigation of the state’s underground economy, Attorney General Edmund G. Brown Jr. today announced a fifth legal judgment against trucking companies operating at California ports that deny workers “the Social Security, Medicare and workers’ compensation benefits to which they are entitled under state law.”

Last month, the Los Angeles Superior Court found that Pacifica Trucks, a Southern California fleet operator, misclassified its drivers as independent contractors. The company failed to pay state employment-related taxes, contribute to Social Security and Medicare and provide W-2 forms to its employees.

“We’re sending a clear message that if you cheat your workers, we’re coming after you,” Brown said. “Pacifica Trucks claimed that its workers were independent contractors in order to avoid paying the Social Security, Medicare and workers’ compensation benefits to which they are entitled under state law. This judgment validates our continuing effort to ensure that all employees are protected.”

In 2008, Brown filed a lawsuit against Pacifica Trucks for unlawfully classifying its workers as 'independent contractors,' circumventing state employment taxes and ignoring labor laws that guarantee workers’ compensation and disability benefits.

In the lawsuit, Brown argued that Pacifica Trucks had exclusive authority over its drivers and provided all of the trucks, equipment, gas, repairs, and other business-related expenses used by employees. Under these conditions, the drivers should have been classified as employees with legally mandated protections and benefits.

Brown also argued that, in violation of California Business and Professions Code 17200, Pacifica Trucks had an unfair advantage over its competitors through the cost savings achieved by misclassifying its workers.

The judgment requires Pacifica Trucks to permanently refrain from misclassifying truck drivers as independent contractors and to pay a penalty.

Brown previously won lawsuits against the following trucking companies for similar violations:

• Guasimal Trucking
• Jose Maria Lira Trucking
• Esdmundo Lira Trucking
• Noel and Emma Moreno Trucking

Brown’s office has pursued several other companies suspected of operating underground economy schemes and violating worker’s rights. Recently, Brown filed a lawsuit against Auto Spa Express Car Wash in Los Angeles for forcing its employees to work nearly 60-hour weeks without overtime, ignoring minimum-wage laws and denying workers' compensation benefits to injured employees.

Last year, Brown also filed a lawsuit against Charles Evleth Construction in Bakersfield to recover $4.3 million in lost wages and benefits for the company’s employees.

Copies of the complaint and judgment against Pacifica Trucks are attached.

Oakland—With tax season quickly approaching, Attorney General Edmund G. Brown Jr. today urged Californians to avoid high-cost tax-refund-anticipation loans, which force taxpayers to “borrow their own money,” include numerous fees and can carry triple-digit annual interest rates.

According to the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA), refund-anticipation loans cost 8.4 million American taxpayers more than $800 million in 2008.

“As tax season begins, hardworking Californians should avoid tax-refund-anticipation loans and any tax preparer who advertises these loans as early tax refunds,” Brown said. “These loans carry steep interest rates and push taxpayers to borrow their own money instead of collecting their full refunds.”

A refund-anticipation loan is a short-term loan secured by a taxpayer’s anticipated income-tax refund. To obtain a tax-refund loan, taxpayers file electronically with a tax preparer who works directly with a bank to advance the refund as a loan— minus tax-preparation costs, a loan fee and other charges. The Internal Revenue Service (IRS) then sends the taxpayer’s full refund to the bank.

According to NCLC and CFA, loan fees can range from $34 to $130 and other add-ons alternately referred to as application, administrative, e-filing, service bureau, transmission, or processing fees can range from $25 to several hundred dollars.

Tax refunds are available at no charge from the IRS. Taxpayers who file electronically and have their refund directly deposited by the IRS into their bank account will usually have their refunds in 8-15 days.

According to the IRS, refund-anticipation lenders often target low-income taxpayers, especially those who receive the Earned Income Tax Credit. Brown urges taxpayers who are considering tax-refund-anticipation loans to take advantage of the IRS’s support programs. These include:

• The Volunteer Income Tax Assistance Program (VITA) Program, which offers free tax help to low to moderate-income people and members of the armed services; and
• The Tax Counseling for the Elderly (TCE) Program, which provides free tax help to people aged 60 and older.

More information on these programs is available at: www.irs.gov/individuals/article/0,,id=107626,00.html.

Some taxpayers may also qualify for free federal income-tax preparation and electronic filing through the Free File program, a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies. More information is available at: www.irs.gov/efile/article/0,,id=118986,00.html.

Taxpayers can also locate their nearest free tax service by calling the IRS at: 1-800-829-1040.

Over the past year, Brown has taken strong action to stop tax preparers from engaging in deceptive marketing of refund-anticipation loans:

• In June 2009, Brown won a $1.3 million lawsuit against Liberty Tax Service that bars the company from using false or misleading advertising to sell tax-refund loans.
• In January 2009, Brown secured a $4.85 million settlement with H&R Block that prohibits the company from marketing refund-anticipation loans as early tax refunds.

Oakland –Attorney General Edmund G. Brown Jr. today joined sixteen state attorneys general and the United States Department of Justice in approving the Ticketmaster and LiveNation merger after requiring the two companies to agree to several changes that would create “a more competitive market” for concert tickets by allowing two new primary ticketing competitors.

In the settlement, concert-promoter AEG will be able to “self-ticket”and offer ticketing services at other venues, and Ticketmaster will divest its Paciolan ticketing system unit, a proprietary computer system used for ticketing events and contracts.

“Ticketmaster and LiveNation together dominate the market for concert tickets,” Brown said. “Without serious competition, concert-goers will inevitably pay more for concert tickets. With this merger agreement, we’re taking an important step to ensure a more competitive market for concert-ticket sales.”

Ticketmaster Entertainment, based in West Hollywood, provides ticket sales, ticket resale services, and marketing and distribution services. It operates approximately 7,100 retail outlets and 17 worldwide call centers. In 2008, the company sold more than 141 million tickets valued at more than $8.9 billion.

LiveNation, based in Beverly Hills, promotes, markets and sells live concerts. The company operates 140 venues in the United States. Starting in January 2009, LiveNation entered into the ticketing business, putting it in direct competition with Ticketmaster for the first time. After the launch of LiveNation’s ticket system, Ticketmaster lost approximately 17% of its revenue.

In February 2009, Ticketmaster and LiveNation announced that the two companies would merge, creating a dominant force in ticketing and concert-promotion in the United States. The combined entity would control aspects of booking, promotion, “primary ticket sales” (tickets sold at their printed face value), “secondary ticket sales” (ticket sales that occur after the initial sale or “scalped tickets”), merchandising, direct marketing and other artist and venue relationships.

Due to the large number of California venues affected by the merger, Brown’s office began an investigation into the impact of the merger on the concert-ticket market and found that LiveNation was the company best positioned to compete with Ticketmaster. The investigation found that the two companies together would hold a virtual monopoly position in the ticket distribution market, with little to no competition in primary ticketing for live music concerts.

The settlement seeks to allow for competition in the market by giving concert-promoter AEG the ability to ticket its own concert venues, as well as offer ticketing services at other venues. The agreement also spins off Paciolan, the ticketing unit controlled by Ticketmaster, into an independent ticketing company able to compete in the concert-ticket market.

Other states participating in the merger agreement include Arizona, Arkansas, Florida, Iowa, Illinois, Louisiana, Massachusetts, Nebraska, Nevada, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas and Wisconsin.

A Proposed Final Judgment and a list of California's largest concert venues affected by the agreement are attached.

Oakland - Attorney General Edmund G. Brown Jr. today announced a $1.8 million settlement preventing Maurice Irving Glad, owner of 22 Midas auto shops throughout California, from owning or operating an auto repair shop in the state, after the franchisee “deceptively lured” customers with cheap brake specials and then charged hundreds of dollars for unnecessary repairs.

As part of the settlement, Midas International Corporation is acquiring all of Glad’s shops, which therefore will continue to operate without interruption.

“For years, Glad ran a bait-and-switch scam, in which he deceptively lured customers into his Midas shops with cheap brake specials, then charged them hundreds of dollars more for unnecessary repairs,” Brown said. “Our settlement makes sure that Glad will never own or operate an auto repair shop in California again.”

After a four-year undercover investigation by the California Bureau of Automotive Repair, Brown filed suit against Glad in June 2009. The investigation revealed that Glad regularly advertised $79 to $99 brake specials at his Midas shops to draw in customers and then often charged another $110 to $130 for unnecessary brake-rotor resurfacing. In some cases, customers were charged hundreds of dollars more for repairs that were not needed or never performed.

The settlement requires Glad to pay $1.8 million in damages, investigative costs and attorney fees, plus permanently prevents the franchisee from:

• Applying for or holding any license or registration issued by the California Bureau of Automotive Repair or any successor agency; and
• Engaging in any business that requires any type of license or registration issued by the California Bureau of Automotive Repair or any successor agency.

In addition to acquiring Glad’s 22 shops, Midas International Corporation has agreed to honor any and all guarantees or warranties previously made or given to customers.

In 1989, the state attorney general sued Glad for similar violations, which resulted in an injunction prohibiting his shops from performing unnecessary repairs, charging for services not performed, or using scare tactics to convince customers to purchase unnecessary parts and services. The California Bureau of Automotive Repair initiated its recent investigation into Glad’s Midas shops to monitor compliance with the injunction.

Undercover agents, posing as customers, conducted approximately 30 sting operations at Glad’s shops. In total, there were more than 35 incidents, involving 105 violations, in which shop managers, mechanics and employees made false or misleading statements to pressure customers into purchasing unnecessary parts and services. On average, the shops charged undercover agents almost $300 in unnecessary brake-rotor resurfacings, brake-drum repairs, brake adjustments, brake-cleaning services and other services.

“Overselling of services has become an increasing problem,” said California Bureau of Automotive Repair Chief Sherry Mehl. “It amounts to fraud and seriously harms the consumer. That’s why we aggressively work to find and shut down these shops.”

Brown’s lawsuit was filed jointly with Alameda County District Attorney Tom Orloff (then) and Fresno County District Attorney Elizabeth A. Egan, due to the large number of shops operating in Alameda and Fresno Counties. Glad’s 22 Midas shops are located in Campbell, Clovis, Concord, Dublin, Fremont, Fresno, Hayward, Manteca, Merced, Modesto, San Jose, San Leandro, Turlock and Walnut Creek.

Brown’s lawsuit contended that Glad and his shops:

• Used false and misleading advertising in violation of Business and Professions Code 17500;
• Employed unlawful, unfair and fraudulent business practices in violation of Business and Professions Code 17200; and
• Disobeyed the 1989 Alameda County Superior Court injunction in violation of Business and Professions Code 17535.5 and 17207.

“The Department of Consumer Affairs has zero tolerance for consumer fraud,” said California Department of Consumer Affairs Director Brian Stiger. “We are very pleased that, in partnership with the Attorney General’s office, we have been able to stop a bad player from further harming both consumers and the hard-working, law-abiding players in the auto repair industry.”

Consumers who believe they have been overcharged by an auto-repair facility can file a complaint with the California Department of Consumer Affairs, Bureau of Automotive Repair online at: www.autorepair.ca.gov or by calling 1-800-952-5210.

The settlement is attached.

Oakland - Attorney General Edmund G. Brown Jr. today is encouraging Californians to make charitable donations for victims of the devastating earthquake in Haiti, but warns citizens to avoid “scam artists” who may prey on the goodwill of California donors.

“After every tragedy, a wave of scam artists take advantage of generous individuals who want to help the victims of a tragedy,” Brown said. “It’s important to thoroughly research charitable organizations before you write a check.”

The Attorney General’s Office regulates charities and professional fundraisers in order to prevent the misapplication of charitable donations made by Californians. Brown offers the following tips on how to give wisely in order to assure that donations will be used for the intended purpose:

1. Carefully review disaster-relief appeals before giving. In times of disaster, many “sound-alike” organizations and sham operations solicit donations.

2. Know the charity before you donate. Review the charity’s website and written material to assure the program is one you want to support. Check the organization’s financial filings to see how it spends its assets, how long it has been operating and what program services it offers.

3. Make sure the charity is registered in the Attorney General’s Registry of Charitable Trusts. Registration does not guarantee that a charity is effective, but it is an important indicator. A searchable database is available at http://ag.ca.gov/charities.php.

4. Beware of organizations that don’t have a track record. Only give to established charities, not organizations that seem to spring up overnight. Again, check the Registry database to confirm this information.

5. Take action on your own rather than responding to solicitations. Seek out known organizations and give directly, either by calling the organization, using the organization’s official web site, or mailing a check to the address listed on the organization’s website.

6. Listen closely to the name of the group and beware of 'copycat' names that sound like reputable charities.

7. Avoid donating through email solicitations. Clicking on an email may lead you to a website that looks authentic, but is established by identity thieves seeking to obtain money or personal information.

8. Do not give cash. Write checks to the charitable organization, not a solicitor.

9. Do not be pressured into giving. Even in times of emergency, reputable organizations do not expect you to contribute immediately if you are unfamiliar with their services. Be wary of appeals that are long on emotion, but short on details about how the charity will help disaster victims.

10. If you are contacted by a solicitor, ask what percentage of your donations will be used for charitable activities that help victims and how much will be used to pay for administrative and fundraising costs. State law requires solicitors to provide such information if requested by donors. Be wary of fundraisers who balk at answering.

11. Find out what the charity intends to do with any excess contributions remaining after victims' needs are met.

12. There are many forms of giving. Alternative forms of giving include charitable gift annuities, in-kind contributions, and endowments.

For additional tips on charitable giving, go to http://ag.ca.gov/charities/charit_giving.php. Information on national charities is available from the Better Business Bureau's Wise Giving Alliance at 800-575-4483 or www.give.org.

Californians who believe they or others have been victimized by fraudulent charitable solicitation can file a complaint online with the Attorney General's Registrar of Charitable Trusts at http://ag.ca.gov/charities.php.

Oakland—Attorney General Edmund G. Brown Jr. today sued Florida-based electronic-cigarette retailer Smoking Everywhere to prevent the company from targeting minors and making “misleading and irresponsible” claims that electronic cigarettes are a safe alternative to smoking.

“Smoking Everywhere launched a misleading and irresponsible advertising campaign targeting minors and claiming that electronic cigarettes do not contain harmful chemicals,” Brown said. “We are asking the Court to take these cigarettes off the market until the company has proven the products are safe.”

Electronic cigarettes, or e-cigarettes, are battery-operated devices with nicotine cartridges designed to look and feel like conventional cigarettes. Instead of actual smoke, e-cigarettes produce a vapor from the nicotine cartridge that is inhaled by the user. Smoking Everywhere, one of the largest e-cigarette retailers in the United States, claims in its advertisements that the e-cigarettes have no carcinogens, no tar, no second-hand smoke, and are therefore safe and healthy.

However, the U.S. Food and Drug Administration (FDA) has determined that electronic cigarettes contain a variety of dangerous chemicals, including nicotine, carcinogens such as nitrosamines and, in at least one case, diethylene glycol, commonly known as antifreeze.

Today’s lawsuit seeks to prevent the company from selling its products until there is evidence to substantiate its claims that they are safe. The lawsuit will also require the products to display the state-mandated Proposition 65 warnings of ingredients known to cause cancer or reproductive harm and seeks to prevent the company from making false and misleading claims and promoting the products to minors.

In one advertisement targeted to minors, Smoking Everywhere featured a video with radio show host Howard Stern claiming, “kids love ‘em.” The products feature flavors that appeal to youth, including strawberry, chocolate, mint, banana and cookies-and-cream.

Other ads claim that electronic cigarettes can help people quit smoking. To be advertised as a smoking-cessation device, a product must be approved by the FDA for that purpose. In fact, none of Smoking Everywhere’s products have been approved by the FDA.

The American Cancer Society, the American Heart Association, the American Lung Association, the Campaign for Tobacco Free Kids and other groups have expressed serious concerns about the safety of electronic cigarettes and urged that they be removed from the market until proof of their safety has been established.

A copy of the complaint is attached.

Oakland—Attorney General Edmund G. Brown Jr. and 23 other state attorneys general today announced a $22.5 million settlement with pharmaceutical giants Abbott and Fournier after the companies “illegally blocked” cheaper generic substitutes for the cholesterol-reducing drug Tricor.

The settlement is the result of one of the country’s first legal actions challenging pharmaceutical companies for 'product hopping,' a strategy to block generic competition by making slight changes to the formulation of a drug.

“Abbott and Fournier devised a complex scheme that illegally blocked cheaper generic drugs from entering the market,” Brown said. “They used minor reformulations of the drug to delay competition and filed frivolous patent lawsuits. This scheme cost California and other states millions of dollars.”

Beginning in 1998, Abbott and Fournier, two of the nation’s largest pharamaceutical companies, partnered to manufacture and distribute Tricor, a cholesterol-reducing drug. Tricor’s annual sales were in excess of $750 million.

By 2002, as Tricor’s patents were set to expire, several drug companies sought approval from the Food and Drug Administration (FDA) to market a generic drug equivalent to Tricor. To be approved by the FDA, the generic-drug manufacturer must prove that its drug has the same active ingredients and the same labeling as the brand-name drug, in addition to being a therapeutic equivalent of the brand-name product.

Once a generic drug is approved for market, the market share for a brand-name drug like Tricor can decrease by up to 80 percent. Most states and group health plans require pharmacists to substitute the generic drug for a brand-name drug to get the cost benefit of the cheaper generic version.

Knowing generic manufacturers were attempting to enter the market, the lawsuit alleged that Abbott and Fournier devised a complex scheme to delay and prevent the approval and marketing of generic versions of Tricor. The companies made minor changes in the form and dosage strength of Tricor that did not provide any significant health benefits over previous Tricor formulations. These minor changes interfered with and delayed any FDA approval of the generics.

To further delay the process, Abbott and Fournier also filed more than a dozen lawsuits against generic drug manufacturers Teva Pharmaceuticals and Impax Laboratories because the law prohibits the FDA from approving a generic drug for 30 months after patent-infringement lawsuits have been filed. After the 30-month automatic stays expired, all of the suits were eventually dismissed.

As a result of the scheme, Abbott and Fournier recorded Tricor sales exceeding $1 billion at the expense of consumers and state governments.

Today’s settlement agreement requires the companies to cease illegal efforts to block generic competition to Tricor and to pay the states approximately $22.5 million dollars. In California, the Department of General Services, Medi-Cal and the Department of Corrections will be reimbursed for overcharges.

States joining California in today’s lawsuit include: Arizona, Arkansas, Connecticut, District of Columbia, Florida, Iowa, Kansas, Maine, Maryland, Minnesota, Missouri, Nevada, New York, Oregon, Pennsylvania, South Carolina, Washington, and West Virginia.

A copy of the agreement is attached.

Sacramento – Attorney General Edmund G. Brown Jr. announced today a $21.3 million settlement with Schering-Plough Corporation, resolving allegations the company “deliberately inflated” the price of Albuterol and other drugs, causing California’s Medicaid (Medi-Cal) program to overpay millions of dollars in pharmacy reimbursement.

Albuterol is a widely prescribed generic drug, delivered through inhalers, nebulizers and masks, and used to treat asthma and other breathing problems.

“With healthcare costs spiraling out of control, it’s unconscionable that a Fortune 500 pharmaceutical company deliberately inflated its drug prices to cheat California’s public healthcare system out of millions of dollars,” said Brown. “This is a company that made more than $12 billion in profits last year, yet still raided the pockets of California taxpayers.”

Today’s settlement stems from a lawsuit filed by a whistleblower against several pharmaceutical companies accused of Medicaid fraud. The case is still proceeding against Dey, Inc., Mylan Pharmaceuticals, Inc., Sandoz, Inc. and their parent companies. Schering-Plough recently merged with Merck, and is now known as Merck & Co.

California’s $21.3 million agreement is one of three settlements negotiated with Schering-Plough, collectively totaling $69 million, over falsely inflated drug prices. The three lawsuits were originally filed by a whistleblower, Ven-A-Care of the Florida Keys, Inc., on behalf of California, Florida and the federal government. Schering-Plough also reached settlements with Florida and the federal government, the latter for approximately $44.5 million.

The settlement resolves allegations that Warrick Pharmaceuticals, a subsidiary of Schering-Plough, deliberately inflated the Average Wholesale Prices (AWPs) it reported to California for Albuterol. Medi-Cal sets the reimbursement rates for pharmacies for many of the drugs dispensed to Medi-Cal patients based on the AWPs reported by drug manufacturers.

California pharmacies dispensed Albuterol to patients and were then reimbursed by Medi-Cal. By reporting falsely inflated AWPs, some drug manufacturers caused Medi-Cal to overpay millions of dollars in pharmacy reimbursement. Medi-Cal is funded on a roughly 50% - 50% basis by the federal government and the State of California.

Reporting fraudulent AWPs is a violation of the California False Claims Act. The Attorney General’s Office investigated the claims, and in 2005, intervened in the lawsuit with its own complaint, currently being litigated in federal court in Boston. The California Department of Health Care Services, which is responsible for administering Medi-Cal, will receive $20.1 million, and the Attorney General’s False Claims Fund will receive just over $1.2 million.

The Attorney General’s False Claims Fund is used for the ongoing investigation and prosecution of false claims, including Medi-Cal fraud claims. Today’s settlement was negotiated by the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse. The Bureau of Medi-Cal Fraud and Elder Abuse investigates and prosecutes claims of Medi-Cal civil and criminal fraud, as well as allegations of elder abuse, such as physical assaults or financial theft.

The settlement agreement is attached.

Los Angeles –Attorney General Edmund G. Brown Jr. today sued a Los Angeles car wash for $2.6 million for illegally forcing employees to work nearly 60-hour weeks without overtime, ignoring minimum wage laws and denying injured employees workers’ compensation benefits.

Brown's legal action was part of his statewide crackdown on companies that break worker-protection laws.

"Most companies in California comply with state wage and benefit laws, but if you're running a firm that's exploiting your workers in this economy when people are desperate for jobs, we want you to know that we will find you, we will stop you and we will file some of the toughest legal actions in the nation against you,' Brown warned.

Brown’s lawsuit was filed in Los Angeles Superior Court today against Auto Spa Express, Inc. and its owner, Jonathan Min Kim, and Sunset Car Wash, LLC. The violations occurred at Auto Spa Express car wash facility located at 2028 Sunset Blvd., which employed between 23 and 41 people, depending on the time of year. The facility was sold to Sunset Car Wash, LLC earlier this year.

The suit contends that from 2006 to 2008, the company failed to:

• Pay the state minimum wage to its employees. Employees were often paid $6.32 an hour; the state’s minimum wage is $8.00 an hour. On days when there were no customers, employees sometimes would not be paid at all.

• Pay overtime. Employees were often forced to work six days a week, from 8 a.m. to 6 p.m., without overtime pay.

• Provide accurate itemized statements of hours and wages to employees. Employees were often paid in cash so that the company would not have to pay into the State Unemployment Fund or withhold pay for state taxes.

• Provide safe working conditions or report industrial injuries suffered by employees.

After receiving numerous complaints from Auto Express Spa employees, the Underground Economy Unit of the Attorney General's Office conducted an investigation into Auto Spa Express’ practices and uncovered the violations.

Brown seeks to recover $630,000 in unpaid wages for the company’s workers and to assess $2 million in penalties for violating California’s Unfair Business Act. The Attorney General is also seeking an injunction to prevent the defendants from committing similar violations in the future.

Today's action is part of Attorney General Brown’s ongoing crackdown on businesses that engage in unfair business practices by evading payroll taxes and failing to provide employees with state-mandated protections and benefits. Similar lawsuits were filed against a drywall contractor in Bakersfield and several trucking companies in Los Angeles.

The lawsuit is attached.

Los Angeles – Attorney General Edmund G. Brown Jr. and the Los Angeles County Department of Consumer Affairs announced today that $100,000 in consumer refunds are still available as part of a settlement reached last year with Hy Cite Corp. after the company “hoodwinked” consumers into buying its high-priced cookware using deceptive in-home demonstrations and scare tactics.

Brown urges consumers who were scammed by Hy Cite to contact the Los Angeles County Department of Consumers Affairs at 1-800-593-8222 to claim their refund.

“Hy Cite hoodwinked hundreds of consumers into purchasing high-priced pots and pans by using deceptive in-home demonstrations and scare tactics,” Brown said. “We want people to know that if they were scammed by HyCite, there’s refund money available for them. While $250,000 has already been paid to victims as part of our settlement, $100,000 in refunds remains unclaimed.”

In September 2008, Brown’s office secured a million-dollar settlement with Hy Cite, requiring the company to pay $350,000 in restitution to consumer victims. As part of the settlement, the Los Angeles County Department of Consumer Affairs agreed to distribute the restitution funds, $100,000 of which remains unclaimed.

Prior to the settlement, Brown’s office investigated Hy Cite and found that the company violated the state’s unfair competition and false advertising laws, as well as a previous injunction prohibiting such practices.

Hy Cite’s victims were mostly Spanish-speaking consumers living in predominantly Latino neighborhoods in Southern California. To get into homes, salespeople told consumers that they had won a prize or asked them to participate in opinion polls. Once inside, salespeople often used high-pressure, deceptive tactics, including in-home demonstrations of their products.

For example, salespeople regularly performed bogus “tests” on the victim’s cookware, claiming that non-stick or aluminum cookware was unsafe for families and could lead to illness. One test involved heating a mixture of baking soda and water in consumers’ pans to produce a bad-tasting paste. The salespeople claimed their tests showed that toxic chemicals were transferred into the family’s food through their existing cookware. Hy Cite’s “Royal Prestige” cookware ranged in price from $2,000 to $4,500 per set.

Costs further escalated when consumers agreed to pay for the pots and pans through the Hy Cite’s financing plan. Under these terms, while the company promised low rates, consumers were instead stuck with interest rates of 24% or higher, leading to missed payments, damaged credit scores and collection calls.

Brown’s office also found that the company used two separate credit structures for customers based on ethnicity: one for “Anglo” customers, who were offered 90-day payment deferral, contract cancellation, and the use of post-dated checks; and one for Latino customers, which included none of these options.

In addition to the restitution and penalties, last year’s settlement required Hy Cite to pay for an independent monitor to conduct in-depth interviews with future consumers of Hy Cite products. The settlement also set forth strict requirements on what salespeople say before and during sales presentations.

A copy of the September 2008 settlement with Hy Cite is attached.

*To request interviews in Spanish, please contact the Los Angeles County Department of Consumer Affairs, Office of Director Pastor Herrera Jr. at 213-974-9750*