Lawsuits & Settlements

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today sued Countrywide Financial, its chief executive Angelo Mozilo, and president David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market.

“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”

Brown alleges that Countrywide Financial used deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors. According to the lawsuit, the company marketed complex and difficult to understand loans with very low initial or “teaser” interest rates or payments. Countrywide employees, including loan officers, underwriters, and branch managers--who were under intense pressure to process a constantly increasing number of loans--misrepresented or obfuscated the fact that borrowers who obtained certain types of loans would experience dramatic increases in monthly payments.

In the past, lenders like Countrywide sold home loans to customers and held the loans in their own portfolio, an incentive to maintain strong underwriting standards. Countrywide, however, sold its loans to third-parties in the form of securities or whole loans, often earning more profit for riskier loans. The business model generated windfall profits for Countrywide.

The company pushed these loans by emphasizing a low “teaser” or initial rate, often as low as 1 percent for pay option ARMs. Countrywide obscured the negative effects--including rising rates, prepayment penalties and negative amortization--which would inevitably result from making minimum payments or trying to refinance. The company misrepresented or hid the fact that borrowers who obtained its home loans--including exploding adjustable rates and negatively amortizing loans--would experience dramatic increases in monthly payments.

In an effort to rope in as many customers as possible, Countrywide greatly relaxed and liberally granted exceptions to its mortgage lending standards. Traditionally, lenders required borrowers to document income and assets but Countrywide offered reduced or no documentation loan programs to increase its loan sales. Angelo Mozilo and David Sambol actively pushed for easing underwriting standards and granting exceptions to documentation requirements.

In Countrywide’s 2006 annual report, the company touted the massive growth of its loan production from $62 billion in 2000 to $463 billion in 2006--three times the increase of the U.S. residential loan production market, which tripled from $1.0 trillion in 2000 to $2.9 trillion in 2006. 26 percent of Countywide loans were for California properties. The company sold an ever-increasing number of loans in an effort to gain a 30 percent market share of loan originations and then sell its loans on the secondary market, as mortgage-backed securities or pools of whole loans. Countrywide’s securities trading volume increased from $647 billion in 2000 to $3.8 trillion in 2006.

Countrywide routinely sold loans based upon a borrower’s stated income and without verifying the information. Loan officers memorized scripts that marketed low payments by focusing on the potential customer’s dissatisfaction, saying, for example, “Which would you rather have, a long-term fixed payment, or a short-term one that may allow you to realize several hundred dollars a month in savings?” The loan officer did not state that the payment on this new loan would exceed the payment on the current loan.

Countrywide paid greater compensation to brokers for loans with a higher interest rates, as well as prepayment penalties, because it could sell those loans for higher prices on the secondary market. Countrywide also paid rebates to brokers who originated loans with prepayment penalties, adjustable rates and high margins.

Countrywide operated an extensive telemarketing operation in which it touted its expertise and claimed to find the best financial options for customers. Customer Service representatives at Countrywide call centers were required to complete calls within three minutes, often processing sixty-five to eight-five calls per day. Employees who did not meet quotas were terminated. The company’s deceptive marketing practices, designed to sell costly loans while hiding or misrepresenting the terms and dangers, included:

• Encouraging borrowers to refinance or obtain financing with complicated mortgage instruments like hybrid adjustable rate mortgages or payment option adjustable mortgages
• Marketing complex loan products by emphasizing a very low “teaser” rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization
• Dramatically easing underwriting standards to qualify more people for loans
• Using low or no-documentation loans which allowed no verification of stated income
• Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit
• Making borrowers sign a large stack of documents without provider time to read the paperwork
• Misrepresenting or hiding the fact that loans had prepayment penalties

As the secondary market’s appetite for loans increased, Countrywide further relaxed its standards to finance borrowers with ever-decreasing credit scores. Countrywide employees routinely overrode the company’s computerized underwriting system, known as CLUES, which issued loan analysis reports recommending or discouraging loans based on factors such as a consumer’s credit rating. As the pressure to produce loans increased, Countrywide set up an entire department in Plano, Texas, at the direction of Mozilo and Sambol, where employees could submit requests for underwriting exceptions. In 2006, 15,000 to 20,000 loans a month were processed through this exception process.

Countrywide’s deceptive sales practices resulted in a large number of loans ending in default and foreclosure. According to Countrywide’s February 2008 records, a staggering 27 percent of its subprime mortgages were delinquent. Overall, approximately 20,000 Californians lost their homes to foreclosure in May 2008 and 72,000 California homes were in default, roughly 1 out of 183 homes.

Despite receiving numerous complaints from borrowers claiming that they did not understand their loan terms, Countrywide ignored loan officer’s deceptive practices and loose underwriting standards. Countrywide also pushed its borrowers to serially refinance, repeatedly urging borrowers to obtain home loans to pay off their current debt.

Today’s lawsuit, filed this morning in Los Angeles Superior Court, redacts confidential information Countrywide provided during the attorney general’s investigation. The attorney general is seeking the company’s consent to file an amended complaint that removes the redactions.

During the course of its investigation into Countrywide, state investigators reviewed hundreds of thousands of documents and interviewed scores of witnesses including consumers and former employees.

Consumers who believe they have been victimized by Countrywide Consumers should file a complaint by contact the Attorney General’s Public Inquiry Unit in writing at Attorney General's Office California Department of Justice Attn: Public Inquiry Unit P.O. Box 944255, Sacramento, California or through an online complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL

The case is People v. Countrywide, Los Angeles Superior Court case number LC081846.

SACRAMENTO--California Attorney General Edmund G. Brown Jr. today announced a $6 million settlement with MCM Construction, resolving allegations that the company was operating diesel cranes, pile drivers, and other portable engines without the required air district pollution permits.

“The company was operating construction equipment, without the necessary permits, which is potentially very damaging to the environment,” Attorney General Brown said. “Under today’s settlement the company will obtain the necessary permits and submit the equipment to careful inspection.”

Under California laws designed to protect air quality, construction companies must obtain a permit from local air pollution control districts before operating certain diesel engines over fifty horsepower. The California Attorney General’s Office alleged that MCM Construction operated dozens of engines at multiple locations without required permits on hundreds of days. Diesel exhaust contains carcinogens, particulate matter, and oxides of nitrogen.

The parties settled for $6 million in advance of trial, agreeing that MCM Construction will obtain necessary permits prior to operating any of its portable, diesel-burning equipment and will train its personnel to take precautions to protect rivers at bridge construction sites. The settlement, which is the largest ever environmental settlement involving portable engines, requires the company to pay $4 million in penalties and costs and an additional $2 million to replace some of its older engines with newer, cleaner-burning engines. The company will also adopt an internal environmental auditing process.

The Attorney General’s Office brought its legal action along with Mendocino County District Attorney Meredith Lintott, and Ventura County District Attorney Gregory D. Totten.

Mendocino District Attorney Meredith Lintott noted that her office was “extremely proud of the air district’s extraordinary proactive efforts to discover defendant MCM’s polluting conduct.”

“There is nothing more vital to the health and safety of Ventura County residents than having clean air to breathe,” said Ventura’s District Attorney, Gregory D. Totten. “This settlement helps rid our community of un-permitted high-polluting diesel engines, and is a step forward in preserving air quality for all Ventura County residents.”

In the past, MCM had been cited by local air district officials for not having necessary permits at dozens of prominent construction projects including the Noyo River Bridge in Fort Bragg, the Highway 101 Bridge over the Santa Clara River in Ventura County, and the Watt Avenue Bridge in Sacramento.

The state also alleged that MCM Construction damaged critical salmon spawning habitat while working at the Van Duzen River in Humboldt County. The company deposited debris, silt, and pollutants into the river, violations of the Clean Water Act.

The state’s complaint and the settlement document are attached.

SAN DIEGO--California Attorney General Edmund G. Brown Jr. today announced a “groundbreaking settlement” with Merck & Co. which requires the pharmaceutical manufacturer to obtain Federal Drug Administration approval before running any television drug advertisements for new pain medications.

“Merck’s aggressive television advertising convinced hundreds of thousands of consumers to seek Vioxx prescriptions before the drug’s risk were fully understood,” Attorney General Brown said. “Today’s groundbreaking settlement prevents Merck from releasing new television drug advertisements without obtaining federal approval.”

Today’s settlement resolves 30 state lawsuits challenging Merck’s marketing practices for Vioxx, a non-sterodial anti-inflammatory drug used to treat symptoms of arthritis as well as chronic and acute pain.

In 1999 Merck launched an aggressive promotional campaign directed at both consumers and health care professionals in which the company allegedly misrepresented the cardiovascular dangers of Vioxx. In 2004, Merck admitted that Vioxx caused serious cardiovascular adverse events and withdrew the drug from the market.

California alleged that one of the problems with the Vioxx marketing campaign was that the direct to consumer advertising began when the drug was first released and before doctors had an opportunity to gain experience with the drug and its potential side effects. Under today’s settlement, Merck may not launch a television advertising campaign for a newly approved pain drug if the Federal Drug Administration recommends delaying such television advertising.

The settlement, which also requires Merck to pay $58 million in restitution to states, is the largest monetary settlement that a group of states have obtained in a pharmaceutical advertising case. California will receive $5.3 million of the settlement funds to pay attorneys’ fees, future enforcement and consumer education.

The settlement places other restrictions on Merck’s future conduct including:

• Prohibiting the use of deceptive scientific data when marketing new drugs to doctors
• Prohibiting Merck from “ghost writing” articles and studies for publication
• Requiring disclosure of conflicts of interest when Merck promotional speakers make presentations at supposedly independent Continuing Medical Education programs
• Requiring Merck to submit clinical trial results of FDA-approved Merck products to the National Library of Medicine

Merck’s principle place of business is One Merck Drive, Whitehouse Station, New Jersey. Merck advertised, sold, promoted and distributed the prescription drug rofecoxib, marketed under the name Vioxx, in California and nationwide.

Other states which participated in today’s settlement include: Arizona, Arkansas, Connecticut, Florida, District of Columbia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, and Wisconsin..

Please contact the attorney general's press office for a copy of the complaint and settlement

SAN DIEGO--California Attorney General Edmund G. Brown Jr. today announced that the San Diego Airport is taking “a key leadership role” in the fight against global warming by agreeing to reduce greenhouse gas emissions from its major airport expansion.

“Under this agreement, the San Diego airport will play a key leadership role in helping California meet its aggressive greenhouse gas reduction targets,” said Attorney General Brown who entered into the agreement today. “This agreement is another example of how, in the absence of federal action, local government is leading the fight against global warming,” Brown added.

“This agreement underscores the Airport Authority’s commitment to sustainability in overseeing airport operations and capital developments at Lindbergh Field,” said Alan D. Bersin, Chairman of the Airport Authority Board. “And we’re proud to be one of the first major airports in the country to have adopted a comprehensive Sustainability Policy – in February of this year – which also reinforces our commitment to becoming a more sustainable organization.”

The San Diego Airport is the busiest single-runway airport in the nation. Passenger travel at the airport is expected to grow approximately 2.8% per year for the next 25 years. To accommodate this growth, the airport is planning to construct ten additional gates, new overnight jet parking, expanded taxiways and a proposed 5,000 space parking structure.

In an effort to reduce some of the emissions from this expansion, the airport has agreed to incorporate measures, such as green building certification and alternative energy airport shuttles, into its thirty-year master plan. Some of the measures that the airport will adopt include:

• Groundside power at new and refurbished gates, hangars and cargo facilities to allow airplanes on the ground to use electricity without having to run on-board engines which emit diesel particulate, NOx and greenhouse gases.
• Replacement of aircraft pushback tractors, upon the end of their useful life, with electric or alternative-fuel vehicles.
• Transition of airport shuttles to electric or alternative-fuel vehicles.
• Use of cool roofs, solar panels and cool pavement for new buildings and paved areas.
• Assurance that new terminal facilities will obtain a green building certification from a third party appraiser.

The airport will also inventory all greenhouse gas emissions attributable to aircraft ground movements and commit to recommending ways to reduce those emissions 20% by 2015.

Under federal law, only the U.S. Environmental Protection Agency and the Federal Aviation Administration have authority to regulate the emissions from aircraft. In December, Brown filed a petition asking the EPA to regulate aircraft greenhouse gases but the agency has refused to take any action.

The Global Warming Solutions Act, AB 32, requires California to cut greenhouse gas emissions to 1990 levels by 2020, but the rules and market mechanisms will not take effect until 2012. Attorney General Brown has worked with local governments and businesses across California to help these entities reduce their greenhouse gas emissions thereby making it easier for the state to reach its reduction target.

Last year, Brown reached a landmark settlement with San Bernardino County which established a greenhouse gas reduction plan that identifies sources of emissions and sets reduction targets. Brown also reached an agreement with ConocoPhillips which offsets greenhouse gases attributable to an oil refinery expansion in Contra Costa County. The Port of Los Angeles also reached an agreement with the attorney general which identifies and reduces greenhouse gas emissions generated from port operations.

Attorney General Brown frequently updates the California Department of Justice Website to provide information that helps local agencies join the fight against global warming: http://ag.ca.gov/globalwarming/ceqa.php

Brown’s Memorandum of Understanding with the San Diego Airport Authority is attached.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. today sued Abbott Laboratories and French drug company Fournier for devising “an elaborate scheme” to block less expensive generic versions of TriCor, a drug that controls cholesterol.

“Through an elaborate scheme—involving multiple drug patents, baseless lawsuits, and market manipulation—Abbott and Fournier thwarted competition,” Attorney General Brown said. “These companies made billions of dollars in annual profits, while Californians were burdened with artificially high drug prices,” Brown added.

After the Food and Drug Administration approved TriCor in 1998, Abbott and Fournier immediately devised a complicated strategy to prevent generic companies from entering the market and driving down Tricor prices. Key elements of the company’s scheme included the following:

• First, the company made trivial changes to the formulations of TriCor, for example switching from a capsule to a tablet, and then withdrew the original drug from the market.
• Then, Abbott and Fournier aggressively marketed their slightly altered versions of TriCor—although these drugs did not offer new medicinal benefits.
• Next, Abbott and Fournier deleted references to the original forms of the drug from national drug databases to confuse pharmacies or health plans, consequently making it impossible for a generic version of TriCor to obtain generic status.

At the same time, Fournier got the U.S. Patent Office to issue a series of patents covering the minor variations of TriCor, and then filed meritless patent infringement lawsuits against generic companies that tried to compete.

Abbott and Fournier knew that their patents were unenforceable but the litigation triggered mandatory thirty-month periods in which the Food and Drug Administration could not approve generic versions of TriCor. These delays from litigation gave Abbott and Fournier enough time to deplete the market of the older versions of TriCor so that no generic company could compete.

All of these baseless lawsuits were ultimately terminated or dismissed by Abbott and Fournier after their market-switching schemes were completed.

The attorney general alleges that these practices violate California’s antitrust law as well as the Sherman Act and have caused Californians to pay artificially high prices for TriCor. California and its citizens pay more than $150 million on TriCor per year. Studies show that when generic competition to a branded drug becomes available, the price for the drug decreases between 50 and 80 percent.

The civil complaint, filed today in federal court in Delaware along with twenty three other states, seeks triple the amount of damages incurred by the state’s public health agencies and individual consumers. The reason for seeking these exemplary damages is due to the willful, egregious and repeated nature of these violations.

Abbott Laboratories develops, manufactures, and sells pharmaceuticals and health care products and services throughout the United States. The company’s principal place of business is 100 Abbott Park Road in Illinois. Fournier Industrie et Sante is a French corporation headquartered at 42, Rue de Longvic, 21300 Chenove, France. Laboratoires Fournier, S.A., a subsidiary, collaborated with Abbott for regulatory approval, production and sale of TriCor in the United States.

TriCor is a brand-name prescription drug that uses the active ingredient, fenofibrate, to regulate triglyceride and cholesterol levels. TriCor and other fenfibrate drugs lower triglyceride levels, reduce low-density lipoprotein cholesterol, and increase high-density lipoprotein cholesterol. TriCor is generally prescribed as a maintenance drug for long-term cholesterol problems.

Eighteen states joined California today in filing this lawsuit including: Arizona, Arkansas, California, Connecticut, District of Columbia, Florida, Iowa, Kansas, Maine, Maryland, Minnesota, Missouri, New York, Nevada, Oregon, Pennsylvania, South Carolina, Washington and West Virginia.

The complaint is attached.

LOS ANGELES--California Attorney General Edmund G. Brown Jr. and Secretary for Resources Mike Chrisman today sued the United States Forest Service for adopting “illegal forest management plans” that permit road construction and oil drilling in California’s largest national forests.

“The United States Forest Service adopted illegal forest management plans that threaten California’s pristine national forests with road construction and oil drilling,” Attorney General Brown said. “The Forest Service should scrap these destructive forest plans and protect California’s natural areas as required by law.”

The Forest Service's plans allow road construction on more than 500,000 acres of roadless area within the Angeles, Los Padres, Cleveland and San Bernardino National Forest. California’s lawsuit alleges that the Forest Service's plans ignore California’s moratorium on road construction in pristine areas of the national forests.

The four national forests include over 3.5 million acres of federally-managed public land, from Big Sur to the Mexican border. The forests have great geologic and topographic diversity including chaparral, oak woodlands, savannas, deserts, alpine areas, and specialized habitat niches. The forests provide habitat for 31 threatened and endangered animals and 29 plants as well as 34 animal species and 134 plants recognized as sensitive.

The Los Padres National Forest, which is one of the state’s largest national forests, also provides habitat for the California Condor and is the site of the principal effort to bring this species back from the brink of extinction.

Brown charged the Forest Service with illegally violating the federal National Forest Management Act and the National Environmental Policy Act, which requires the agency to develop its forest plans in coordination with state laws and policies. California’s policy is that there should be a moratorium on any plan that could permit construction in roadless areas in national forests.

The attorney general is representing the People of California, the California Resources Agency and the California Department of Forestry and Fire Protection to challenge the forest plans.

In 2005 and 2006, the Forest Service assured the Resources Agency, in writing, that it would not allow road construction on California’s roadless areas. Secretary for Resources Mike Chrisman today criticized the Forest Service for not honoring this agreement.

“Time and again we have tried to hold the Forest Service to their word on the roadless policy. They have failed to live up to their promises,” Secretary Chrisman said.

“The Forest Service failed to even acknowledge state policy on roadless areas in national forests in California, let alone attempt to coordinate with those protections,” Brown asserts in the lawsuit.

The Forest Service also ignored public recommendations, including comments from qualified scientists, recommending that one million acres of the forest land be designated as wilderness. Instead the final plans only recommended protecting half that amount, without providing adequate scientific rationale for the reduction.

The plans also fail to properly evaluate the harm to the California Condor and its habitat that will be caused by oil and gas exploration and drilling. Specifically, the plans allow oil drilling on more than 52,000 acres in or adjacent to the Los Padres National Forest—areas which include critical habitat areas for the endangered California Condor.

Los Padres National Forest, which encompasses nearly 1.8 million acres that stretch 220 miles from north to south, is one of the state’s largest national forests. San Bernardino National Forest, which abuts the Inland Empire, is 665,700 acres. Angeles National Forest, near Los Angeles, is 663,000 acres. Cleveland National Forest contains 420,000 acres of natural space in Orange and San Diego Counties. Over twenty million Californians live within one hour’s drive of at least one of these four forests.

California’s lawsuit, filed today in the United States District Court for the Northern District of California, is attached.

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LOS ANGELES—California Attorney General Edmund G. Brown Jr. today settled an antitrust lawsuit that charged Barr Pharmaceuticals with taking $20 million for keeping off the market a cheaper, generic version of the oral contraceptive Ovcon.

“Barr illegally kept its generic drug off the market in exchange for $20 million from Warner Chilcott, thereby keeping drug prices higher,” Attorney General Brown said. “Today’s agreement ensures that these pharmaceutical companies will not collude to keep affordable medications away from consumers,” Brown added.

In 2005, California and thirty-three other states and the District of Columbia sued Barr Pharmaceuticals and Warner Chilcott for entering into an illegal arrangement by which Barr agreed not to sell generic Ovcon for five years in exchange for $20 million. The states’ alleged that the agreement violated state and federal antitrust laws and artificially inflated the price of Ovcon.

Non-competition agreements, as well as pharmaceutical industry practices including efforts to steer consumers to more costly medications, have increased the average retail price of prescription medications 8.3% annually, triple the rate of inflation.

In 2003, Warner Chilcott made approximately $61 million from sales of brand name Ovcon. In 2005, the company reported a 16% increase in annual revenue from Ovcon sales.

After the states filed their lawsuit Warner Chilcott voided its agreement with Barr, opening the door to competition between the two companies. Within one month of restoring competition in late 2006, the Ovcon price dropped 18%, from $39 to $32. As of May 2007, Ovcon prices were down to $20, a total drop of nearly 50%.

Under today’s settlement, Barr will not enter into non-competition agreements with companies that sell brand name drugs. In addition, a ten-year consent decree with California requires Barr to provide the state with copies of any future related agreements. Without the consent decree such agreements have traditionally been kept secret between the companies. Barr will also pay California approximately $500,000 in statutory penalties and attorneys fees.

Previously, California reached a similar settlement with Warner Chilcott, which bars the company from entering non-competitive agreements with generic drug manufacturers.

Americans spent $275 billion on prescription drugs in 2006, expenditures which will grow about 8% per year. Between 1994 and 2005, the total volume of drugs prescribed grew 71% according to a Kaiser Family Foundation analysis.

The multi-state settlement agreement is attached.

Los Angeles--California Attorney General Edmund G. Brown Jr. and Capital Research and Management Company, the investment adviser to the American Funds family of mutual funds, today entered into an agreement to withdraw their three-year-old lawsuits against each other involving disclosure of broker compensation practices, sometimes referred to as “revenue-sharing.”

Revenue-sharing refers to mutual funds paying extra cash to brokers in exchange for having the fund placed on preferred or recommended lists and receiving heightened visibility within the broker’s sales system. In 2005, the attorney general’s office filed a lawsuit alleging that Capital Research violated antifraud provisions of California’s Corporate Securities Law by not adequately disclosing its broker compensation practices.

“This agreement ends all litigation between the attorney general’s office and Capital Research,” Attorney General Brown said.

Under today’s agreement, the attorney general notes that American Funds and other fund families have improved disclosure of their broker compensation practices and have taken other voluntary measures. These developments have resolved the state’s concerns. Among the voluntary measures are the following:

• Capital Research waived 10 percent of its management fees, saving shareholders an aggregate of approximately $1 billion
• Capital Research has improved its corporate governance practices and internal supervision of its sales staff
• Capital Research eliminated the practice of directed brokerage and will add disclosures regarding revenue sharing practices to all its prospectuses.

The agreement notes that American Funds’ investors currently enjoy among the lowest expenses in the mutual fund industry. The agreement notes that investigations by the California attorney general, the Securities and Exchange Commission and other regulators have resulted in positive changes in the mutual fund industry that have benefited shareholders. Some of the improvements include:

• Repeal of the federal rules that permitted funds to utilize directed brokerage
• Adoption of rules that clarify the use of brokerage to pay for research services
• Improved disclosure by fund companies of their revenue-sharing arrangements
• Improved disclosure regarding board approval of investment advisory contracts
• Disclosure of fund expense ratios in advertising.

Capital Research is also promoting use of the Internet for delivering fund prospectuses and annual reports to reduce the use of printed documents, potentially saving shareholders up to $20 million by slashing printing and delivery costs. Capital Research will reimburse the Attorney General’s office for $2.5 million in costs and attorneys’ fees associated with the attorney general’s lawsuit and investigation.

“Neither California taxpayers, nor investors in American Funds, will bear the costs of these lawsuits and investigations,” said Brown.

The agreement to discontinue the litigation is attached.

SAN DIEGO--California Attorney General Edmund G. Brown Jr. today announced a multi-million dollar settlement with Caremark, resolving allegations that the prescription management company tricked doctors into switching
patients to different brand name drugs in exchange for “secret rebates from drug manufacturers.”

“Caremark received secret rebates from drug manufacturers in exchange for convincing doctors to switch patients to different brand name drugs,” Attorney General Brown said. “Under today’s settlement, the company must disclose the payments it receives for recommending certain drugs.”

Caremark provides prescription drug services to approximately 2,000 health care plans nationwide. California alleged that Caremark engaged in deceptive business practices by convincing doctors to switch patients to different brand name drugs in exchange for secret rebates from pharmaceutical companies.

Health plans were financially harmed by these practices and some patients were forced to pay higher co-payments for the new drugs that they received. Under today’s settlement, Caremark must reimburse patients for any out-of-pocket expenses related to drug changes and inform patients if switching drugs will increase co-payments.

Caremark must also inform physicians of the company’s financial incentives for making certain recommendations and must inform physicians if sales presentations are funded by pharmaceutical manufacturers. Caremark is barred from promoting a drug switch if the new drug exceeds the cost of the originally prescribed medication.

Under today’s settlement, Caremark will pay $38.5 million to 29 states for costs of litigation and programs to benefit patients. $22 million of this amount is a cy pres payment which will fund a prescription medication program for low income, disabled or elderly consumers and a program to educate consumers about important differences between similar medications. Caremark will pay up to an additional $2.5 million in reimbursements to patients who paid extra because they were switched from one cholesterol-controlling drug to another.

California will receive approximately $3.4 million for charitable organizations that provide elderly and low income people with free prescription medications.

Maryland and Illinois led the investigation into Caremark’s drug switching practices. Twenty-eight other states participating in today’s settlement include: Arizona, Arkansas, Connecticut, Delaware, District of Columbia, Florida, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia and Washington.

In 2006, Caremark’s net revenues were $36.8 billion, making it one of the nation’s largest pharmacy benefit management companies. Caremark also administers mail order pharmacies, which sold 516 million prescriptions to patients in 2006.

The complaint and the agreement are available at www.ag.ca.gov/newsalerts

LOS ANGELES—California Attorney General Edmund G. Brown Jr. today sued Interwall Development Systems, one of Los Angeles’s largest drywall contractors, for employing a “sophisticated and heartless scheme” to cheat hundreds of its employees out of at least $5 million in wages and benefits.

“Interwall employed a sophisticated and heartless scheme, involving multiple businesses, to cheat its employees out of overtime and mandatory break periods,” Attorney General Brown said. “Today’s lawsuit sends a strong message that California will not tolerate companies that rip off their employees.”

Brown’s lawsuit alleges that Interwall denied overtime pay, did not provide itemized wage statements, and did not allow its employees to take breaks during afternoon shifts. The company slashed its labor costs in an effort to underbid competition for at least 150 drywall installation projects in Los Angeles, San Bernardino, Riverside, Orange and San Diego Counties. The company maintains offices in Irvine and Laguna Beach.

Investigators found that Interwall employees worked Monday through Saturday, up to twelve hours per day, and received no overtime payments. Interwall also denied rest breaks to employees during their afternoon shifts. Under California law, workers are entitled to ten minute breaks every four hours and overtime pay for working more than eight hours per day or 40 hours per week.

To avoid paying overtime, Interwall set up a complex business operation with affiliate companies that paid employees, at regular pay rates, for the extra hours. In one case, an employee worked 68 hours for Interwall but was paid for 40 hours by Felts Construction Company and 28 hours by Cinco Construction. ANCCA Corporation dba N-U Enterprise was also involved in the various payment schemes.

Workers who labored for the drywall company suffered substantial monetary losses and are entitled to approximately $2.5 million for unpaid overtime and $2.5 million for working through mandatory breaks. The attorney general brings this lawsuit to halt the company’s illegal practices and get restitution for the workers who lost wages. Brown sued Interwall under Business & Professions Code, section 17200, which expressly prohibits unlawful or unfair business practices. Specifically, Attorney General Brown seeks:

• An injunction against Interwall to get the company to stop denying overtime and other benefits
• Restitution payments to the employees who lost thousands of dollars in wages
• Civil penalties of up to $2,500 for each violation of Business and Professions Code section 17200

The attorney general enforces California laws that require fair business practices in order to protect working men and women and ensure a level playing field where all businesses adhere to the same rules of conduct.

In December, Brown sued two janitorial companies, Excell Cleaning & Building Services and MO Restaurant Cleaning Services, for committing flagrant violations of California’s basic wage and hour laws. Brown also sued Brinas Corporation, a Southern California drywall contractor that was paying workers below minimum wage and also denying overtime wages. Brown also sued PacifiStaff, a company that was teaching construction companies how to avoid providing state mandated workers’ compensation benefits.

The Attorney General has other ongoing investigations into employment, payroll and record-keeping practices of various businesses and construction companies across California.

The state’s lawsuit against Interwall is attached.