Lawsuits & Settlements

OAKLAND – California Attorney General Edmund G. Brown Jr. announced today that the Environmental Protection Agency (EPA) has settled two multi-state lawsuits by agreeing to set greenhouse gas emissions limits for power plants and oil refineries.

Today’s historic settlements mark the first time the EPA has agreed to greenhouse gas emissions limits for some of the nation’s biggest polluters. California took a key role in the litigation.

“Power plants and oil refineries are among the top three emitters of carbon dioxide in the country,” Brown said. “While California has been aggressive in regulating such emissions, until recently, the federal government has not. This is a tremendous achievement that will help the state reach its greenhouse gas emission goals under the state’s climate law, AB 32.”

The two lawsuits settled today include New York v. EPA (D.C. Cir. 06-1322), which was brought by 12 states and environmental groups in 2006 to compel the EPA to issue performance standards for greenhouse gas emissions from new and existing power plants, and American Petroleum Institute v. EPA (D.C. Cir. 08-1277), which was brought by 13 states and environmental groups in 2008 to require the EPA to issue standards for greenhouse gas emissions from new and existing petroleum refineries.

These cases were part of an integrated legal strategy pursued by the California Attorney General’s office and other states that resulted in the Supreme Court’s historic 2007 decision that greenhouse gases are pollutants subject to regulation under the Clean Air Act.

Both settlements would require the EPA to propose and adopt regulations for control of greenhouse gases. The agency will have to build an extensive and solid technical foundation for the proposed regulations. Under the power plant settlement, the EPA must propose standards for new sources and emission guidelines for existing sources by July 26, 2011 and enact the new guidelines by May 26, 2012. Under the petroleum refineries settlement, the EPA must propose standards for new sources and emission guidelines for existing sources by December 10, 2011 and enact the new guidelines by November 10, 2012.

September 15 of this year was the 40th anniversary of the enactment of the 1970 Clean Air Act. The standards that will be set by today’s settlements are among the most effective methods available for control of greenhouse gas emissions from power plants and oil refineries.

States will use the national emissions guidelines to help them set their own standards and implementation provisions. Under AB 32, California has set the toughest emissions reduction goals in the country.

SAN FRANCISCO – Attorney General Edmund G. Brown Jr. today announced a settlement that requires the U.S. Forest Service to reconsider its plans regarding wilderness lands in four national forests, including the Los Padres, home of the endangered California condor.

"With this settlement, the state of California will now play an active role along with the Forest Service in determining which areas of Southern California forests will be preserved as wilderness,” Brown said.

The settlement resolves a lawsuit brought by Brown and various state agencies and environmental groups against the U.S. Forest Service for its plans to allow roads to be built through hundreds of thousands of acres of wild lands in the Los Padres, Angeles, Cleveland, and San Bernardino national forests.

The four national forests cover more than 3.5 million acres stretching from Big Sur to the Mexican border. While much of this area is wilderness, development has already occurred in parts, and just 900,000 acres remain roadless.

The suit was brought because the Forest Service issued plans that failed to properly analyze the environmental impact of various non-wilderness uses and failed to consult with California state officials. If approved, these plans would have allowed new roads and trails for off-road vehicles and other uses.

“By working together, we’ve achieved our goal of helping to guide the forest management plans to ensure that California’s national forests remain pristine,” said Lester Snow, state Secretary for Natural Resources.

The settlement requires the Forest Service to consider designating as many as 37 new wilderness or roadless areas. While the plan is being redone, the Forest Service cannot allow new roads, and it must undertake restoration efforts. The state and environmental groups will collaborate with the Forest Service to make sure the forests are protected in the revised management plans.

Once completed, the final Forest Service plans will be presented to Congress to permanently protect designated areas as undisturbed wilderness.

A copy of the settlement is attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. announced today that Wells Fargo has agreed to provide loan modifications worth more than $2 billion to thousands of California homeowners with “pick-a-pay” loans and to pay an additional $32 million to thousands of borrowers who lost their homes through foreclosure.

None of the loans were made by Wells Fargo. All were originated by World Savings and Wachovia, banks Wells Fargo acquired.

“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”

The pick-a-pay, or pay option adjustable-rate, mortgage loans allowed borrowers to make payments at various levels. The highest level fully covered the monthly interest and principal due. Another level covered interest only. At the minimum level, payment was insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance.

Ultimately, the loans would reset, increasing the monthly payments dramatically.

Faced with unemployment, dramatic declines in home prices, and the sharp escalation of the monthly payments, thousands of borrowers were unable to meet their mortgage payments.

The settlement with Wells Fargo covers loans made by World Savings Bank, a subsidiary of Golden West Financial Corp., and Wachovia Bank. Wachovia purchased World Savings in 2006, and Wells Fargo then acquired Wachovia in 2008.

Under the settlement, Wells Fargo will offer affordable loan modifications to an estimated 14,900 California borrowers with pick-a-pay loans made by World Savings or Wachovia. Many of the modifications will include significant principal forgiveness. The total value of the modifications mandated by the settlement is projected to be more than $2 billion.

Wells Fargo is also required to pay $32 million in restitution to more than 12,000 pick-a-pay borrowers in California who lost their homes through foreclosure, plus approximately $1.8 million in costs to the state. Payments to foreclosed homeowners are expected to average more than $2,650.

Wells Fargo has reached settlements over pick-a-pay loans with attorneys general of several other states, including Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

California borrowers eligible for loan modifications should get a notice from Wells Fargo within the next two months. Borrowers who suffered foreclosures should be notified during the first six months of 2011. For further information and updates, check the Attorney General’s website at ag.ca.gov.

A copy of the settlement is attached.

SAN DIEGO – Attorney General Edmund G. Brown Jr. today announced a $13 million settlement with DIRECTV plus restitution for customers who were subjected to the satellite TV company’s misleading sales and marketing practices.

“DIRECTV won customers by offering special deals with hidden costs, and also extended customers’ contracts without telling them,” Brown said. “With this settlement, DIRECTV will reimburse customers and change its sales and advertising practices to comply with the law.”

The settlement by Brown and 48 other state attorneys general was filed today in San Diego Superior Court. It requires DIRECTV to make full restitution to all victims. In addition, the company is required to pay $13.25 million to the 49 states and the District of Columbia in civil penalties and costs, and obey state laws.

DIRECTV, based in El Segundo, has more than 18 million subscribers nationwide with more than one million in California.

The multi-state investigation found the company engaged in practices that misled customers about how much they would be required to pay and what kind of programming they could expect. The investigation established that DIRECTV:

• Extended contracts without customers’ knowledge. When the company serviced faulty DIRECTV equipment, its representative asked customers to sign what appeared to be service documents. Customers later learned that their signatures had extended their contacts for another two years.

• Failed to deliver promised channels. In its promotions, the company promised potential subscribers access to sports channels and local stations, but subscribers discovered that some of the promised programming was not available.

• Change the terms of promotions. The company offered cash-back deals and free trials but did not disclose key details, and some customers ended up paying more than expected. For example, DIRECTV offered a two-year deal at $29.99 a month (compared to a typical charge of $53.99 or $63.99) but did not disclose that the second year was at the regular price.

As part of today’s settlement, DIRECTV agreed to clearly state all costs, services offered, length of contracts and terms of cancellations and refunds.

Brown’s office is reviewing the 1,136 complaints it has received about DIRECTV to determine which customers are entitled to restitution. Complaints about conduct that occurred after January 1, 2007 are eligible for restitution. Californians who believe they were misled by DIRECTV have until June 9 to file a complaint with the Attorney General’s office at http://ag.ca.gov/consumers/general.php.

Copies of the Attorney General’s complaint and settlement judgment announced today are attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. today announced a $67 million multi-state settlement with Bank of America for illegal activity by some of its employees in investing the proceeds of municipal bonds. This activity amounted to bid rigging, price fixing, and other anti-competitive practices that defrauded state agencies, local governments and non-profit groups.

“This settlement means that government agencies facing lower budgets will recover millions of dollars in restitution for money that they were deprived of by some unscrupulous bond-derivative investment advisors,” Brown said.

After an internal investigation, Bank of America voluntarily reported the scheme in 2004 to the federal Department of Justice and applied for the Corporate Leniency Program, which reduces potential criminal liability in exchange for cooperation. Throughout the Attorney General’s investigation, Bank of America cooperated in identifying California-based transactions and victims.

This action is part of a $137 million overall series of settlements agreed to by Bank of America with 20 states and federal agencies, including the Internal Revenue Service and the Securities and Exchange Commission. California agencies and non-profits will receive about $6 million in restitution under today’s multi-state settlement.

The illegal activities date back at least to 1998, and they include rigging bids, compensating losing bidders, submitting courtesy bids, deliberately losing bids and agreeing not to bid. These schemes enriched the financial institutions and brokers at the expense of state agencies, cities, school districts and non-profits, who received lower rates of return on investments or paid higher rates to protect their funds.

The U.S. municipal bond market is large. Some $400 million in new tax-exempt bonds are issued each year, and the total market value of exempt bonds is almost $2.8 trillion. The bonds are an important source of funds for governmental and non-profit agencies. They are used for projects such as mass transit, construction of schools and street repair.

Today’s settlement is one of a string of contemplated actions against other bond brokers and major financial institutions that engaged in similar illegal practices.

The other states joining California in the settlement are Alabama, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.

OAKLAND -- Attorney General Edmund G. Brown Jr. today announced an agreement to upgrade the quarter-century-old wind turbines in Altamont Pass to make them more efficient and less deadly to migratory birds.

“This landmark settlement mandates the replacement of outmoded wind turbines with newer models that are more efficient, generate more power and are less harmful to eagles, falcons and other birds,” Brown said.

The Altamont Pass Wind Resources Area in Alameda and Contra Costa counties is the site of the world’s first wind turbines. These units, constructed more than three decades ago, are now outdated, inefficient and deadly to thousands of birds each year.

Today’s settlement is between environmental groups, the state, and NextEra Energy Resources, the largest turbine operator at the site. Under the agreement, NextEra will upgrade all its older-model turbines. Scientific data shows that newer, larger turbines are more efficient and kill far fewer birds.

A 2004 study commissioned by the California Energy Commission found that the 5,400 older turbines operating at Altamont Pass killed an estimated 1,766 to 4,271 birds annually, including between 881 and 1330 raptors such as golden eagles -- which are protected under federal law -- hawks, falcons and owls. The bird fatalities at Altamont Pass -- an important raptor breeding area that lies on a major migratory route -- are greater than on any other wind farm in the country.

In September 2005, Alameda County renewed permits for the turbines, but several Audubon Society chapters and Californians for Renewable Energy (CARE), a local environmental group, challenged the permits in a lawsuit under the California Environmental Quality Act (CEQA).

After a settlement failed to substantially reduce the large number of bird fatalities, Brown stepped in and brokered today’s agreement.

Under the agreement, NextEra will replace some 2,400 turbines over the next four years and will shut down all its existing turbines no later than 2015. The company also has agreed to erect the new turbines in environmentally friendly locations.

NextEra agreed to pay $2.5 million in mitigation fees, half to the state Energy Commission’s Public Integrated Energy Research Program and half to East Bay Regional Park District and the Livermore Area Regional Park District for raptor habitat creation.

A copy of the agreement is attached.

OAKLAND — Attorney General Edmund G. Brown Jr. today announced a settlement to prevent Smoking Everywhere, one of the country's largest electronic cigarette sellers, from targeting minors and claiming that its products are a safe alternative to smoking.

“Smoking Everywhere aimed ads at minors and falsely claimed its products were safe,” Brown said. “This settlement stops the company from marketing these addictive products to kids or claiming they aren’t dangerous.”

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 and other electronic cigarette makers have claimed that e-cigarettes are safe because they contain no carcinogens or tar, and produce no second-hand smoke.

The U.S. Food and Drug Administration (FDA), however, found that some electronic cigarettes contain a variety of dangerous chemicals, including nicotine, carcinogens such as nitrosamines, and one brand also contained diethylene glycol, commonly known as antifreeze.

Some e-cigarettes come in strawberry, chocolate, mint, banana and cookies-and-cream flavors designed to appeal to a young audience.

Today's settlement prohibits Smoking Everywhere from marketing to minors and from making false or misleading claims about electronic cigarettes. Specifically, the company has agreed that it will not:

- Market or sell electronic cigarettes to minors. Its website will be age-restricted, and a customer will need to show a government-issued ID. Retail products will be behind a counter. Advertising must note the age restriction.

- Sell flavored electronic cigarette cartridges such as strawberry, mint or bubblegum that could appeal to minors.

- Advertise its products as a smoking cessation device unless the FDA approves them for that purpose.

- Claim that its products are safer than cigarettes or contain no tobacco, tar or carcinogens, and produce no second-hand smoke unless there is competent reliable scientific evidence to support the claims.

Smoking Everywhere also agreed to implement quality control standards to eliminate harmful substances in its products and submit to independent audits.

Smoking Everywhere will also provide a Proposition 65 warning that its products contain nicotine, a chemical known to be addictive and to cause birth defects or reproductive harm. The warning must appear on product packaging, Smoking Everywhere's website and at retail sites.

Smoking Everywhere and its owner will pay $170,000 in penalties and fees.

A copy of the consent judgment is attached.

SAN DIEGO - Attorney General Edmund G. Brown Jr. today announced a $3.3 million settlement with Bayer Healthcare over its “totally unsubstantiated claims” that its One-A-Day men’s multivitamins are able to reduce the risk of prostate cancer.

“By virtue of this settlement,” Brown said, “Bayer has stopped making totally unsubstantiated claims that its One-A-Day multivitamins can reduce men’s risk of developing prostate cancer.”

Brown joined state attorneys general in Oregon and Illinois in this $3.3 million multistate settlement. The State of California will receive more than $1 million for its Consumer Protection Fund. Today’s judgment also prevents Bayer from making claims about its products that are not based on sound and reliable scientific evidence.

Brown’s complaint alleges that Bayer knew, or should have known, that its advertisements made misleading claims about the mineral selenium, which is found in its One-A-Day Men’s Health Formula and One-A-Day Men’s 50+ multivitamins. The ads claimed that “emerging research” suggested selenium may reduce the risk of prostate cancer.

In 2008, Bayer launched its “strike out prostate cancer” campaign that made deceptive claims about the One-A-Day products’ ability to reduce the risk of developing prostate cancer, according to the complaint. As part of the campaign, Bayer entered into a promotional relationship with Major League Baseball in which the company advertised its multivitamins during games and used Major League Baseball graphics and players to promote its One-A-Day products.

But there was broad scientific consensus that selenium did not reduce the risk of prostate cancer, and that assessment was confirmed in October 2008 with the results of a clinical trial funded by the National Institute of Health.

Nevertheless, Bayer continued to use the “emerging research” claim in television and print advertising until June 2009. In addition, the claim remained on the packaging for One-A-Day Men’s Health Formula products that appeared on store shelves until as recently as May 2010.

The Attorney General’s office monitors the conduct of drug and nutritional supplement companies to protect consumers from false and misleading information. In 2009, Brown’s office required Bayer Corporation to stop its deceptive ad campaign for the oral contraceptive, “Yaz,” and to spend $20 million to publicly correct misleading assertions about the product. Bayer claimed the drug could treat symptoms related to premenstrual syndrome (PMS), and acne – claims that were not approved by the Food and Drug Administration. See: http://ag.ca.gov/newsalerts/release.php?id=1677&

A copy of the complaint and the stipulation for entry of judgment submitted to the San Diego County Superior Court today for approval are attached.

LOS ANGELES – Expanding legal action against excessive salaries and pensions in two southeast Los Angeles County cities, Attorney General Edmund G. Brown Jr. has subpoenaed testimony from the city of Vernon and asked a court to appoint a monitor to oversee finances and management in the city of Bell.

Brown’s subpoena seeks testimony under oath from Vernon officials about compensation and pension benefits for six highly paid city officials, one of whom received more than $1.6 million in a single year.

In the case of the scandal-scarred city of Bell, Brown filed a motion in Los Angeles Superior Court asking for the appointment of a monitor to oversee the city’s operations to safeguard city finances and ensure the city is run in an open and transparent manner until next year’s election.

“In both cities,” Brown said, “independent scrutiny is essential in restoring public trust.”

“The public has suffered from raiders who plundered the city treasuries,” Brown added. “The people deserve to know that the guilty individuals will be held accountable and that their tax dollars will no longer be siphoned into exorbitant salaries.”

In the Vernon subpoena, Brown asked the city to designate one or more persons most knowledgeable to testify about compensation and retirement benefits given to Eric T. Fresch, former city administrator and deputy city attorney; Donal O’Callaghan, former city administrator and utilities director; Roirdan S. Burnett, city treasurer/finance director; Jeffrey A. Harrison, former city attorney; Bruce Malkenhorst Jr., former city clerk; and Bruce Malkenhorst Sr., former city administrator.

According to media reports and other sources, Fresch was paid $1.65 million in 2008; O’Callaghan was paid $785,000 last year; Burnett, $570,000 last year; and Harrison, $800,000 last year. Malkenhorst Jr. was paid $290,000 in 2008. Malkenhorst Sr., who retired in 2005, receives a pension of more than $500,000 a year.

O’Callaghan was indicted Tuesday by a Los Angeles grand jury on three felony counts of conflict of interest and misappropriation of public funds. Malkenhorst Sr. has been charged with embezzling public funds.

Brown also vowed to continue aggressively pursuing pending civil claims he filed last month against eight Bell city officials.

On September 15, Brown filed a lawsuit against former city manager Robert Rizzo; former assistant city manager Angela Spaccia; former police chief Randy Adams; council members Oscar Hernandez, Teresa Jacobo and George Mirabel; and former council members Victor Bello and George Cole. The suit charges fraud, civil conspiracy, waste of public funds and breach of fiduciary duty. It also alleges the defendants deliberately misled the public about the true amounts of their compensation.

The city of Bell was named as a defendant to ensure that it would no longer be responsible for the grossly excessive compensation (including salaries and retirement benefits) awarded to the individual defendants and others.

The suit demands that the defendants return all excessive compensation and asks the court to establish appropriate salary levels for pension purposes. Rizzo’s last annual base salary was $787,638; Adams’ was $457,000 and Spaccia’s was $336,000. Bell city council members were paid $96,000 a year before they took a recent cut. Cities of similar size pay their council members $4,800 a year.

Bell is a “city in crisis,” Brown said, and the appointment of a monitor is imperative to aid in the recovery of funds and restore transparency and trust-worthiness to city operations.

“One city council member has resigned,” Brown said. “One is still in jail. Two others, recently out of jail, called in ‘sick’ and did not attend the last City Council meeting.”

The court-ordered monitor for Bell would have complete and unfettered access to all matters relating to the city, the right to participate in all meetings and discussions of city affairs, and the right to examine all of the city’s financial affairs and transactions.

The monitor would also have the authority to investigate everything relevant to the civil lawsuit filed by Brown and subsequent criminal complaints filed by the Los Angeles District Attorney, and to report to them at least once a month any indications of fraud, dishonesty or mismanagement in the affairs of the city.

The monitor would be required to hold a public forum at least once a month to report on city operations and take questions from the public.

The position of the monitor would be temporary, lasting until one month after certification of the results of the city’s municipal election in March of next year.

Bell, in southeast Los Angeles County, has a population, according to the 2000 census, of 36,624, which includes a high percentage of low-income residents. Vernon, a neighboring industrial city, has fewer than 100 residents.

The Bell motion to appoint a monitor and memorandum are attached, as is the Vernon subpoena.

SACRAMENTO -- Attorney General Edmund G. Brown Jr. today filed a $60 million lawsuit against a pair of Sacramento companies that lured desperate homeowners with a deceptive marketing scheme that promised to obtain mortgage modifications through the use of computer-generated “forensic loan audits.”

“These defendants dangled the term 'forensic loan audit’ as a sure-fire remedy for the mortgage problems of homeowners in distress,” Brown said. “In fact, it was no remedy at all, and hundreds of desperate California homeowners took the bait and lost their money -- and sometimes their homes.”

Brown filed the $60 million lawsuit against US Loan Auditors, My US Legal Services, and five individuals, including two attorneys, who operate a fraudulent mortgage audit scheme that preys on desperate homeowners anxious to save their homes. The suit demands civil penalties, restitution for victims, and permanent injunctions to keep the companies and other defendants from fraudulently marketing forensic loan audits and legal services of little value.

The companies, based in Rancho Cordova, work together to market and sell “forensic loan audits” to homeowners, who pay thousands of dollars in up-front fees for a dubious computer-generated review of their mortgages. The audits purport to show violations of law by lenders, which sales agents cite to convince homeowners they have a strong legal case. Sales agents use these findings to encourage homeowners to stop making their mortgage payments and instead pay additional fees to bring “predatory lending” lawsuits against their lenders.

Both companies deceive homeowners by assuring them that filing these lawsuits will give them “legal leverage” to obtain a loan modification and prevent lenders from foreclosing or collecting monthly mortgage payments. Homeowners who filed these lawsuits have lost thousands of dollars and placed themselves in greater danger of losing their homes.

My US Legal Services bilks clients for months, filing cookie-cutter complaints with little or no merit, billing unjustified monthly fees, and then dodging clients’ phone calls or stringing them along with false assurances that a settlement is in progress.

Hundreds of California homeowners, many of them facing possible loss of their homes, have been duped into paying thousands of dollars to the two companies -- one homeowner paid more than $55,000 -– but received little or no relief.

Meanwhile, the litigation mill run by My US Legal Services has littered courts with hundreds of lawsuits that have scant chance of success. Two federal judges have expressed concern about the legitimacy of these lawsuits and have several times sanctioned attorneys involved.

In addition to the companies, Brown is suing the three owners: attorney and real estate broker James Sandison, Jeffrey Pulvino, and Shane Barker, as well as two California attorneys, Sharon L. Lapin and Jonathan G. Stein.

The State Bar filed disciplinary charges yesterday against Sandison for alleged misappropriation of clients’ funds and aiding the unauthorized practice of law.

The Attorney General’s investigation, assisted by the State Bar and the Department of Real Estate, located victims throughout California cities hit hard by the foreclosure crisis: Corning, Fresno, Hayward, Irvine, Manteca, Richmond, Sacramento, Salinas, Sanger, Santa Ana, Stockton, Tracy, Vacaville and West Sacramento.

In February, Brown, along with the Bar and the Department of Real Estate, issued an alert (http://ag.ca.gov/newsalerts/release.php?id=1862&) warning consumers to be wary of forensic loan audits that require homeowners to pay up-front fees. There is no evidence or statistical data to support claims that forensic loan audits of a lenders’ mortgage practices – even if performed by a licensed mortgage professional or a lawyer -- help homeowners obtain loan modifications or any other foreclosure relief.

Brown has led the fight against fraudulent mortgage rescue and loan modification companies. He has obtained court orders to shut down several companies and has brought criminal charges against deceptive loan modification consultants. For more information on Brown’s actions against loan-modification fraud, see: http://ag.ca.gov/loanmod.

If you are a homeowner who has been scammed, you can file a complaint online with the Attorney General’s office at: www.ag.ca.gov/consumers/general.php. You can learn more about avoiding scams and obtain a complaint form by visiting the Department of Real Estate’s website at: www.dre.ca.gov.

If you have a complaint against Sandison, Lapin, Stein or any other lawyer involved in a loan modification or foreclosure relief service, contact the State Bar Complaint Hotline at 1-800-843-9053. Complaint forms and an explanation of the attorney discipline system are available online at: www.calbar.ca.gov.

Attached are a copy of the complaint and a sample of the fraudulent advertising mailers sent by the companies.