Lawsuits & Settlements

SAN DIEGO — Attorney General Edmund G. Brown Jr. today announced settlements that will bring $400 million in refunds for California consumers who were victimized by market manipulation and exorbitant prices during the energy crisis of 2000-2001.

The two-part agreement with San Diego-based Sempra Energy will provide reimbursement of $270 million to California utility customers who each month pay off debt from the utility crisis on their gas and electric bills. Sempra will also pay $130 million to consumers to settle separate claims by the state Public Utilities Commission and the Department of Water Resources.

“The settlements,” Brown said, “will put hundreds of millions of dollars back into the pockets of California energy consumers who suffered blackouts and great economic harm during the energy crisis.”

Including the prior settlement of a class-action suit, Sempra has now paid more than $700 million for the benefit of state utility customers.

During the energy crisis, Enron, Sempra and other energy companies created phony energy shortages, blackouts and record high energy prices. As a result, California’s two largest utilities, PG&E and Southern California Edison, became insolvent, forcing the state to spend billions of dollars for huge amounts of emergency power to keep the lights on.

In legal documents, Sempra was accused of “Enron-style gaming” of the energy markets and “a pervasive pattern of market manipulation and abuse.” It was accused of entering “Enron-style partnerships” that had a destructive impact on the market, driving prices higher and reducing energy availability and reliability. It was accused of a variety of other exotic schemes called “False Import, Paper Trading and Circular Scheduling” to short-circuit the proper functioning of energy markets.

Customers of PG&E, Southern California Edison and San Diego Gas and Electric (a subsidiary of Sempra) continue to pay for the energy crisis in a line item on their utility bills labeled “DWR bond charge.” Funds received in the settlements will go toward reducing those costs to ratepayers.

For the past nine years, the Attorney General has investigated, litigated and negotiated with Sempra and other energy sellers whose misconduct caused the energy crisis.

The Sempra settlement is the latest of 39 settlements hammered out by the Attorney General, in co-operation with the Public Utilities Commission, Department of Water Resources, PG&E, and Southern California Edison, that will provide more than $3 billion in ratepayer relief. The Attorney General continues to press California’s claims for compensation to ratepayers for overpriced energy sold to the state.

OAKLAND – Attorney General Edmund G. Brown Jr. today announced that California, along with other jurisdictions, has reached a $520 million settlement with AstraZeneca Pharmaceuticals LP, to settle allegations it engaged in the “dangerous practice” of promoting drugs for unapproved uses in marketing Seroquel, its blockbuster antipsychotic drug.

London-based AstraZeneca will pay states and the federal government a total of $520 million in damages and penalties. California’s share is $31 million for Medi-Cal, which provides health care to the state’s poor, and other state programs.

“This company engaged in an illegal, off-label marketing campaign to boost sales of Seroquel, a powerful antipsychotic drug that should be prescribed with great caution,” said Brown. “This practice of promoting drugs for unapproved uses is dangerous and can have serious and unforeseen consequences.”

Seroquel is an antipsychotic medication used to treat psychological disorders. From 2001 through 2006, AstraZeneca was found to have promoted the drug not only to psychiatrists, but also to primary care physicians and other healthcare professionals for unapproved uses in the treatment of medical conditions such as aggression, Alzheimer’s disorder, anger management, anxiety, attention deficit hyperactivity disorder, dementia and sleeplessness.

Doctors may prescribe medications for off-label uses, but drug makers are prohibited from promoting drugs for treatment of medical conditions not approved by the Food and Drug Administration (FDA.)

In its marketing campaign, AstraZeneca was also alleged to have made illegal payments to physicians, paying their way to travel to resort locations to “advise” AstraZeneca about marketing messages for unapproved uses, to serve as authors of articles written by AstraZeneca and its agents, and to conduct studies for unapproved uses of Seroquel.

The settlement resolves claims that, as a result of these promotional activities, AstraZeneca encouraged physicians to prescribe Seroquel for children, adolescents and dementia patients in long-term care facilities for uses not medically accepted or FDA-approved. Among other side effects, the drugs have been shown to cause significant weight gain in children. The company also failed to adequately disclose studies that show Seroquel increases the risk of diabetes.

As part of the settlement, AstraZeneca will enter into a Corporate Integrity Agreement with the United States Department of Health and Human Services, Office of the Inspector General, which will closely monitor the company’s marketing and sales practices.

This settlement is based on qui tam cases, or whistle-blower lawsuits, that were filed in the United States District Court for the Eastern District of Pennsylvania.

“DHCS works closely with the California Department of Justice and federal authorities to identify and recover improper payments caused by these unlawful practices. The funds recovered in this action will be put back into the Medi-Cal program to serve the medically needy citizens of this state,” said DHCS Director David Maxwell-Jolly.

A National Association of Medicaid Fraud Control Units team, including members from California and other states, participated in the investigation and entered into the settlement negotiations with AstraZeneca on behalf of the states.

LOS ANGELES – Accusing giant bond-rating firm Moody’s Investors Service of withholding evidence documenting its role in the housing and Wall Street meltdown, Attorney General Edmund G. Brown Jr. today announced court action to force Moody’s to explain why it gave its highest ratings to “risky and toxic” mortgage-backed securities that ultimately cost investors and taxpayers billions of dollars.

Brown’s action comes seven months after the Attorney General subpoenaed Moody’s, but the firm has refused to comply with the subpoena.

“The need for court action to enforce a state subpoena is highly unusual,” Brown said, “because companies almost always comply without such a drastic step being necessary.” But he said Moody’s, which played a central role in the run-up to the collapse of housing prices, has refused to explain its ratings practices to the state. Moody’s said responding to the state subpoena would be a “waste of time.”

“The state’s subpoena seeks information regarding Moody’s decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities,” Brown said.

“By taking this step, I intend to stop Moody’s from ignoring the state’s subpoena,” Brown said. “The people of California have the right to know how this credit rating agency got it so wrong and whether it violated California law in the process.”

Moody’s and other credit rating agencies ignored red flags in the run-up to the collapse in housing prices and gave stellar ratings to shaky securities, which made those investments appear as safe as government-issued Treasury bonds, Brown explained.

“But investors swiftly learned that the ratings were as worthless as the securities themselves,” he said.

Brown said Moody’s and other ratings agencies worked behind the scenes with the same Wall Street firms that created the securities, earning billions of dollars in revenue from those firms at a rate nearly double what they earned for rating other securities.

“A central question in the aftermath of the financial meltdown is whether Moody’s gave investment banks and other securities packagers unwarranted high ratings at the expense of investors, who depended upon the integrity and independence of Moody’s ratings,” Brown said.

The subpoena issued by Brown’s office on Sept. 17, 2009, seeks to determine:

• Whether Moody’s knew that the AAA ratings it gave to high-risk securities weren’t warranted
• Whether Moody’s made fraudulent representations about the quality of its ratings
• Whether Moody’s made fraudulent representations concerning the independence of its ratings
• Whether Moody’s conspired with companies it rated to the detriment of investors
• Whether Moody’s profited from giving inaccurate ratings to some securities
• Whether Moody’s compromised its own standards and safeguards in order to increase its own profits.

Moody’s and other Wall Street ratings agencies grade the credit worthiness of the bonds and securities that corporations and municipalities issue. Investors depend on these ratings to gauge risk in making investments. At the peak of the housing boom, these agencies gave their highest ratings to complicated, high-risk financial instruments that soon accelerated the financial collapse.

Brown said banks, pension funds and other investors, in California and elsewhere, relied on these ratings when they purchased trillions of dollars of securities backed by risky mortgages, seeking high returns and reassured by ratings indicating the issues were low-risk. Those purchases helped inflate the housing bubble by enabling ever-riskier mortgages.

When the speculative bubble burst, those risky mortgages defaulted in record numbers and investors were left unable to sell now-worthless securities. The agencies then downgraded the credit ratings of more than $1.9 trillion in residential mortgage-backed securities, a tacit acknowledgement they had ignored or did not understand the risks of the debt they rated, Brown said.

Moody’s is one of the most profitable companies in the country. It had the highest profit margin of any company in the S&P 500 in the years leading up to 2008 – higher than Google or Microsoft, according to U.S. Representative Henry Waxman, Chairman of the House Committee on Oversight and Government Reform.

Brown’s investigation of Moody’s is one of many actions by his office to fight financial abuses relating to the mortgage meltdown, including his 2008 lawsuit that resulted in an $8.68 billion settlement with Countrywide Home Loans over its fraudulent lending practices, as well as recent crackdowns by the Attorney General on foreclosure consultants and loan-modification scammers.

LOS ANGELES—-Attorney General Edmund G. Brown Jr. today filed a lawsuit against MDP California, Inc. for “dodging fair wage and labor laws” by denying workers overtime pay, worker’s compensation and pay for all hours worked. He is seeking $500,000 in restitution for cheated workers.

MDP California, a Nevada Corporation doing drywall installation throughout Southern California, also failed to pay state-mandated unemployment insurance, state disability fund payments, and state and federal taxes.

“MDP California cheated its workers and the State out of hundreds of thousands of dollars by dodging fair wage and labor laws,” Brown said. “Those kinds of business practices will not be tolerated in California.”

In late 2009, Brown launched an investigation into MDP California after being notified of possible worker’s rights violations. The subsequent investigation found hundreds of violations of California law.

Brown’s office also alleged that because the firm did not pay its workers a fair wage or pay state taxes, MDP California had an unfair advantage over its competitors and could underbid them for jobs.

Today’s lawsuit contends MDP California violated:
• California Labor Code section 510 by denying overtime pay
• California Labor Code section 226 by providing wages to employees in other employees’ names
• California Wage Order 16-2001(4)(A) denying pay for all hours worked
• California Labor Code section 226.7 by denying employees with a 10-minute break each four hours
• California Labor Code section 3700 by failing to pay worker’s compensation insurance
• California Labor Code section 201 by failing to pay wages owed to laid-off employees immediately
• California Business and Professions Code section 17200 for engaging in unfair business practices.

According to workers interviewed by Brown’s office, MDP California required workers to regularly work nine to 11 hours per day, Monday through Saturday and on sometimes on Sunday. None of the workers received any additional compensation for overtime worked.

One worker who was injured on the job was forced to take time off unpaid because he was not provided with any worker’s compensation.

Last week, Brown announced his office had won restitution for over 200 employees of Charles Evleth Construction, Inc., a Bakersfield construction company. The agreement also prohibited the company from denying workers fair wages and overtime pay, paying employees in cash to avoid state and federal taxes, and permitting supervisors to take kickbacks from employees in exchange for the employees being allowed to work.

Last month, Brown announced two other lawsuits against companies that denied their workers minimum wage, overtime pay, and in some cases, subjected workers to potentially deadly working environments.

On March 10, Brown sued Juan Munoz, a farm labor contractor in Southern California, for neglecting to provide rest breaks, potable drinking water or shade to field workers.

On March 3, Brown sued Livermore-based Country Builders after the company falsified payroll records to hide underpayments, deliberately misclassified workers to reduce the company's workers' compensation premiums and violated state prevailing wage laws.

The Attorney General’s investigation was conducted by his Underground Economy Unit. To protect mistreated workers, Brown created the unit in 2007 to investigate businesses for suspected violations of state wage and labor laws.

A copy of the lawsuit filed in Los Angeles County Superior Court is attached.

LOS ANGELES – Attorney General Edmund G. Brown Jr. today announced a multi-state agreement with Valero Oil to stop young people from purchasing tobacco products at its convenience stores.

“For years gas station convenience stores have served as an illegal provider for underage smokers. Today, Valero has finally joined the growing list of companies that have made a commitment to prevent illegal access to tobacco,” Attorney General Brown said. “Smoking remains a serious public-health problem in our country, and we need to do everything possible to keep young people from picking up the habit.”

Every day, some 2,000 children begin smoking in this country. One-third of them will die of tobacco-related diseases. Nearly half of underage smokers said they bought their cigarettes at gas station convenience stores.

Attorneys General throughout the country reached this agreement after a nationwide investigation, led by Brown’s office, of tobacco selling practices at convenience stores owned by or affiliated with Valero.

The agreement includes the following provisions:

• Valero retail personnel will receive training about the health risks associated with childhood tobacco use.
• Valero will administer independent compliance checks to monitor sales practices at company-owned convenience stores, to ensure they are not selling tobacco to minors.
• Vending machines, free samples, and self-service displays of tobacco products will be prohibited at company-owned stores.
• In-store tobacco advertisements will be limited to reduce youth demand for tobacco products.
• Valero will require all of its convenience store operators to notify the company if tobacco products are sold to minors in violation of state law.
• The states will continue to impose sanctions against stores that sell tobacco to minors.

There are over 900 Valero stations in California. Although Valero does not directly own or operate the convenience stores at many of those stations, it has agreed to adopt procedures designed to reduce tobacco sales to minors at all of its outlets.

Nationwide, 47% of underage youths who reported buying cigarettes said they got them at gas station convenience stores. Studies have linked retail tobacco marketing with underage smoking. In addition, many convenience stores are located near schools and playgrounds. Studies show that most adult smokers began smoking before the age of 18.

Recently, other multi-state agreements have been inked to curb the sale of tobacco to minors at gas station convenience stores, including Conoco, Phillips 66, 76, Exxon, Mobil, BP, ARCO, Chevron, and Shell, as well as retail and pharmacy outlets operated by Kroger, 7-Eleven, Walgreens, Rite Aid, CVS, and Wal-Mart. Participating grocery stores include Ralphs, Safeway, and Vons.

A copy of the agreement is attached.

Thirteen attorneys general, all but one are Republican, are rushing to kill the federal healthcare bill by filing lawsuits alleging that the bill violates states' rights. Here in California, a handful of Republican leaders have followed suit and are asking that I join in. Accordingly, I've instructed deputies in my office to carefully review these claims in light of applicable constitutional principles. Health care is not the place, with people's lives at stake, to engage in poisonous partisanship. At this critical time in our nation's history, we need to come together to forge a common purpose.

Oakland—Attorney General Edmund G. Brown Jr. today announced a court judgment against Pro’s Choice Beauty Care, Inc., a New York-based hair care product distributor, blocking the company from selling “pollution-causing” products that also exacerbate respiratory illnesses.

The judgment also requires the retailers Rite Aid, Long’s Drug Stores, CVS Pharmacy, Walgreen Company, Ralphs Grocery Company, Kmart and Target to remove these products at all California stores.

“Pro’s Choice sold thousands of containers of pollution-causing hair products to consumers who unknowingly exposed themselves and the environment to harmful pollutants,” Brown said. “Today’s agreement will remove products from store shelves that pollute our air and exacerbate respiratory diseases such as asthma.”

Pro’s Choice, the largest distributor of professional hair care and nail products in the country, buys U.S. brand-name products overseas and re-imports the products to sell them below suggested retail value. The products are then redistributed to pharmacies, grocery chains, and wholesale clubs throughout the country.

In late 2006, the California Air Resources Board (CARB) and several district attorneys notified Brown’s office that many products supplied by Pro’s Choice contained air contaminants well above the state’s limits on volatile organic compounds (VOCs.) Despite numerous tests and repeated violations and requests for compliance, Pro’s Choice continued to sell these products to retailers.

Brown’s office filed a lawsuit against the company in 2008. The company was charged with violating California’s Health and Safety Code 42400 et seq., which protects air quality and prevents companies from intentionally discharging pollutants into the air.

VOCs significantly contribute to the formation of smog. Under California law, depending on whether the product is a hair spray, mousse, gel or styling product, each must meet California’s stringent standards for VOC content. According to the American Lung Association’s 2009 State of the Air Report, California has five of the top-ten worst smog areas and the highest rate of asthma in the country.

Some of the non-compliant products Pro’s Choice resold to retailers include:

• Big Sexy Hair Dense at a Target in Modesto, CA;
• Redken Fabricate at a RiteAid in Modesto, CA;
• Sebastian Threads Microber Cream at a K-Mart in Lodi, CA;
• Sebastian Shaper Plus at Ralphs in Sacramento, CA;
• John Paul Mitchell Freeze and Shine Super Spray Firm Hold at Longs in Stockton, CA; and,
• Short Sexy Hair Hard Up Gel at Rite Aid in Torrance, CA.

Today’s judgment requires Pro’s Choice to:
• Stop selling or distributing products that violate the limits of VOCs;
• Pull all of the products found in violation;
• Identify and sort products that are non-compliant before distributing them for sale in California;
• Obtain written verification from the manufacturer that the product is compliant or test representative samples from the batch; and,
• Pay $1.25 million in penalties and costs.

A copy of the Stipulation for Entry of Judgment and Permanent Injunction is attached.

Los Angeles—Attorney General Edmund G. Brown Jr. today filed a lawsuit against an Imperial Valley farm labor contractor Juan Munoz for failing to pay minimum wage and overtime, as well as committing “potentially deadly” worker safety violations by neglecting to provide rest breaks, potable drinking water or shade to field workers.

Juan Munoz supplied field workers to onion farms in Kern County and in the Coachella Valley and Mojave Desert.

“In the scorching summer months, farm work can be dangerous if workers aren’t given rest breaks, shade and drinking water,” Brown said. “We have no tolerance for contractors like Munoz who deny their workers a fair wage and subject them to potentially deadly working conditions.”

In 2009, Brown’s office conducted a routine field visit at a Southern California onion farm. During the visit, Brown’s office interviewed more than ten workers hired by Munoz.

According to the workers, Munoz gathered workers from throughout Southern California and delivered them to an onion field that was often far from their home. Once at the fields, they worked split shifts throughout the day and night, slept in the fields and bathed in a nearby reservoir.

The workers were not given rest breaks or potable drinking water, and the employees were not provided with training on how to recognize and prevent heat exhaustion.

Growers paid Munoz a set price per piece, such as a four-gallon onion sack, and Munoz determined the rate of pay for the field workers. The workers were typically paid $1.23 for each four-gallon sack of onions they harvested.

Employees worked split shifts totaling approximately 70 hours a week, but were not provided premium pay. Under state law, workers are entitled to an additional hour of pay if they have less than an eight-hour break between shifts. Workers were also denied overtime pay. State law requires employers to pay overtime (time and a half) to employees who work more than ten hours a day.

In addition, many of the workers were paid in cash below the minimum wage without a written statement of hours worked, rate of pay or deductions taken, also a violation of state labor laws. After working long hours in the fields, workers were often forced to wait up to two hours for their paycheck.

Stories of the Field Workers

Feliciano Sepulveda and his wife Sonia worked between 14 and 16 hours a day and, like other workers, slept in the fields. He and his wife regularly worked split shifts without premium pay or overtime, despite the long days. When the Sepulvedas collected their wages at the end of the day, Munoz rounded down to the lower dollar amount. During the 2009 harvesting season, neither of the Sepulvedas received training on the warning signs of heat exhaustion and often found the water cans empty during the hottest part of the day.

Mario Gomez and his wife, Araceli Ramos, worked on the same wage ticket, a violation of California labor laws, which require the work done by two individuals to be reported for each worker. Both worked approximately 15 hours a day, but neither of them received overtime or premium pay for split shifts. When calculated, Gomez’s and Ramos’ earnings totaled less than $8 an hour with no deductions or taxes withheld from their wages.

Nicolas Salinas worked 12 to 14 hours a day, 7 days a week, but was never paid overtime or premium pay. At the end of the day, Salinas waited more than two hours to be paid and often received only between $4 and $7.50 an hour. On Salinas’ paystub, his hours worked were often incorrect, and no deductions were taken out for taxes.

The federal minimum wage is $7.25/hour, and the state minimum wage is $8.00/hour.

Today’s lawsuit alleges that Munoz violated California’s unfair competition laws. The lawsuit seeks:
• A permanent injunction;
• Civil penalties;
• Restitution to the field workers; and,
• Other legal costs.

A copy of the complaint is attached.

San Diego—Attorney General Edmund G. Brown Jr. today joined the Federal Trade Commission (FTC) and 34 other attorneys general to announce a settlement against LifeLock, Inc. that prevents the company from “misrepresenting and overstating” the identity theft protection services it offers to consumers.

“LifeLock sold Californians a false sense of security against identity theft with advertisements that were chock full of inflated claims and promises,” Brown said. “Today’s settlement prevents the company from misrepresenting and overstating its services and reimburses LifeLock subscribers who were misled.”

Last year, Brown joined the FTC and numerous attorneys general to jointly investigate LifeLock’s business practices. The investigation followed a number of misleading advertisements from the company that included a testimonial from the CEO in which he gave out his social security number to demonstrate his confidence in LifeLock’s services.

Brown’s complaint contends that LifeLock falsely led customers to believe that they would be protected against all forms of identity theft, reimbursed directly for losses tied to identity theft and telephoned prior to any new credit being issued under their name. None of these claims were accurate.

LifeLock advertisements also implied that any fraudulently obtained personal information would be removed from criminal websites, when in fact the company only notified consumers when their information had been compromised.

Today’s settlement prevents LifeLock from misrepresenting that its services:

• Provide complete protection against all forms of identity theft;
• Constantly monitor activity on each of its customers’ consumer reports;
• Prevent unauthorized changes to customers’ address information; and
• Ensure that a customer always receives a phone call from a potential creditor before a new credit account is opened in the customer’s name.

LifeLock also agreed to pay $11 million in restitution to its subscribers and $1 million to cover the costs of the states’ investigation. Brown’s office and the FTC will jointly send letters over the next two weeks to customers in California that subscribed to LifeLock between April 1, 2005 and March 30, 2009, notifying them of the agreement and how they can opt-in to the settlement. LifeLock typically charged consumers $10 a month to subscribe to its identity theft protection services.

Under the terms of the agreement, LifeLock must also stop overstating the risk of identity theft to consumers. In the past, LifeLock sent direct mailers to individual consumers that featured warnings such as, “You’re receiving this because you may be at risk of identity theft,” without knowledge or facts to substantiate these claims.

A number of the services offered by LifeLock are available free-of-charge to consumers including, placing a fraud alert on a credit record and requesting an annual credit report to review credit history and identify errors and inaccuracies. Both services can be completed by contacting one of the three major credit reporting agencies. Consumers are also best-positioned to monitor their own bank accounts and credit card statements for unauthorized withdrawals or charges.

Other states participating in today’s agreement include: Alaska, Arizona, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington and West Virginia.

The complaint and judgment, which will be filed concurrently today in San Diego County Superior Court, are attached.