MoFo’s State + Local Government Enforcement Newsletter
MoFo’s State + Local Government Enforcement Newsletter
Morrison Foerster’s State + Local Government team is pleased to provide our bimonthly newsletter summarizing some of the most important and interesting developments from state attorneys general across the country, with links to primary resources, as well as local government agencies and legislative bodies. This edition’s topics include:
As ESG continues to evolve and take on increasing significance for investors and their advisors, state attorneys general have been increasingly active in investigating how ESG practices are being stated and implemented. The impact of these investigative activities can be dramatic, including the costs and burden of responding to government information requests and, more broadly, because the investigations can raise the public profile of corporate actors that may have a reputational impact.
Given the increasing public debate about how ESG considerations should impact corporate conduct and investment practices, attorneys general-led investigations likely also will increase both in scope and in number.
The significant turmoil in the cryptocurrency markets has drawn intense scrutiny from regulators and enforcers at the federal and state levels. NYAG’s recent enforcement action against the former chief executive officer of a failed cryptocurrency concern makes clear that the NYAG will be an active and aggressive enforcement agency in the digital asset realm. Companies in the digital asset space who have been adversely impacted by the market downturn can expect that, in addition to facing questions from concerned investors, they may also be called to respond to inquiries from enforcers like the NYAG.
State attorneys general have remained active at the intersection of consumer protection and data privacy. In certain jurisdictions, recently enacted legislation has expanded the scope of their enforcement authority. Additionally, attorneys general have used their existing authority to combat what they believe are misleading or deceptive practices to initiate investigations and litigations and reach settlements aimed at data privacy issues. The broad scope of these actions makes plain that companies in a diverse array of industries and sectors may face scrutiny from state enforcers on data privacy issues.
Since its inception in 2011, the CFPB has been active in an array of areas from debt collection to consumer finance practices. The CFPB also has been a lightning rod for controversy and repeatedly has been the subject of litigation challenging the scope of its regulatory authority. The recent Fifth Circuit decision in Community Financial Services Association of America Ltd. v. CFPB (the “Decision”) addressed the constitutionality of the CFPB’s funding mechanism. The court concluded that the CFPB’s funding mechanism constituted an unconstitutional violation of the Appropriations Clause, and that this unconstitutional structure was a sufficient basis to invalidate the payday lending rule challenged by the plaintiff in the underlying suit. The reverberations of the Decision have been far reaching. For financial institutions regulated by the CFPB, the Decision creates a roadmap for additional litigation challenging other CFBP rules and regulations. More broadly, the challenge to the CFPB’s authority creates a measure of regulatory uncertainty in the highly regulated financial sector.
Seeking to address this uncertainty, two sets of Attorneys General have urged the U.S. Supreme Court to grant certiorari and review the Decision, with each group urging the high court to reach a different outcome.
Twenty-two Attorneys General filed an amicus brief urging the Supreme Court to find that the CFPB’s funding mechanism is constitutional. They further asked that the Court to reverse the Decision’s vacatur of an “an otherwise lawfully promulgated regulation,” noting that any question regarding the CFPB’s funding stream was an insufficient basis to challenge the enforcement and regulatory authority. Sixteen distinct state Attorneys General simultaneously filed an amicus brief on the same day, urging the Supreme Court to grant the petition for certiorari and affirm the Decision and focusing on the potential conflict between the Decisions and a prior ruling from the Court of Appeals in the District of Columbia. These 16 Attorneys General argued that the circuit split on the issue “complicates state efforts to regulate financial markets and protect consumers and businesses alike” and has left states operating under conflicting guidance while “determin[ing] how to engage with an agency whose constitutionality is a matter of open dispute.” On Monday, February 27, 2023, the Supreme Court granted certiorari but declined to fast-track the proceeding. The case likely will be argued in the fall with a decision to follow sometime in 2024.
In recent months, the airline industry has come under increasing scrutiny about its performance and, more specifically, its treatment of consumers. The public outcry and related media attention have spurred state attorneys general to action. On December 16, 2022, a bipartisan coalition of 34 state Attorneys General sent a letter urging the U.S. Department of Transportation (“USDOT”) to strengthen regulations on flight cancellations and customer refunds. Responding to USDOT’s proposed rules relating to additional protection for airline customers and ticket refunds, the Attorneys General urged more aggressive action and set forth additional policy recommendations aimed at providing relief to airline passengers whose flights are canceled and reducing the rate of airline cancellations overall. The Attorneys General further noted that issues surrounding the airlines’ cancellation and refund practices were not new and have been the subject of repeated communications to the USDOT from individual attorneys general and larger bipartisan groups, including the requests for federal legislation to empower state attorneys general “to enforce state and federal consumer protection laws governing the airline industry.”
The advocacy by attorneys general for new consumer protections and additional regulation is significant to industry participants for multiple reasons. The regulations proposed by the state Attorneys General in their letter would create significant new compliance costs for industry participants, both by creating new compensation rights for consumers and new reporting requirements to the attorneys general. Moreover, airline consumer protection is traditionally the province of the federal government through the Department of Transportation and the push from these attorneys general may expand the limited authority of state attorneys general in holding airlines accountable towards consumers. Further, even if state attorneys general are unsuccessful in their push to broaden their own enforcement power in regulating the airline industry, they have considerable “megaphones” at their disposal, which can create public and political pressure for the USDOT to further strengthen its proposed regulations (and for industry participants not to oppose those regulations).
 The other Attorneys General plaintiffs in the suit are Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, Tennessee, Texas, Utah, Virginia, Wyoming, and West Virginia.
 Attorneys General in New York, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington, and Wisconsin signed the brief in support of the CFPB.
 Attorneys General in Alabama, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia, and West Virginia signed the brief urging the Supreme Court to affirm the Fifth Circuit’s holding.