Morrison Foerster’s State and Local Government Task Force is pleased to provide our bimonthly newsletter summarizing some of the most important and interesting developments from state attorneys general across the country and local government agencies and legislative bodies, with links to primary resources. This month’s topics include the following:
- State AGs’ joint effort with the U.S. Department of Transportation to investigate complaints of alleged violations of consumer protection laws by airlines and ticket agents
- Texas AG’s challenge to a manufacturer’s DEI initiatives based on alleged adverse effect on product safety
- Massachusetts AG’s advisory guidance to users of AI regarding obligations under consumer protection and data security laws
- California AG’s renewed focus on criminal antitrust enforcement
- NYS Department of Financial Service’s new guidance on climate risk management
1.State AGs’ joint effort with the U.S. Department of Transportation to investigate complaints related to alleged violations of consumer protection laws by airlines and ticket agents
On April 16, 2024, U.S. Transportation Secretary, Pete Buttigieg, alongside Colorado Attorney General, Phil Weiser, announced the launch of the bipartisan Airline Passenger Protection Partnership. Comprised of 18 State AGs, this partnership with the U.S. Department of Transportation (DOT) will investigate airlines and ticket agents and seek to hold them accountable for alleged violations of aviation consumer protection laws. Prior to this partnership, State AGs were limited in their ability to pursue consumer complaints of unfair or deceptive practices by airlines because they were pre-empted by federal law.
Pursuant to this partnership, DOT and 18 State AGs will work together in a variety of ways. First, the participating State AGs will take the lead in investigating complaints against airlines and ticket agents for allegedly unfair or deceptive practices. Second, in order to ensure that airlines cooperate with the State AGs’ investigations, State AGs are empowered to report airlines to DOT for any failure to respond to any of the State AGs’ requests for information. Third, the partnership creates a fast-track action system to prioritize potential misconduct investigation referrals. Once a State AG has made an initial determination that an airline allegedly has violated the law, that matter will be referred to DOT for priority review and, if appropriate, enforcement action. Finally, DOT will provide State AGs with access to its revamped consumer complaint system so that the State AGs will be able to investigate those complaints as well as the ones they receive directly.
This partnership greatly expands the State AGs’ jurisdiction as well as provides DOT with increased resources by having the State AGs conduct investigations. To date, Secretary Buttigieg has memorialized this partnership with the attorneys general for 15 states, the District of Columbia, the Northern Mariana Islands, and the United States Virgin Islands. Another seven attorneys general have expressed an interest in signing on to this initiative, so the industry can expect a significant increase in active investigations of consumer complaints related to aviation consumer protection.
2. Texas AG’s challenge to a manufacturer’s DEI initiatives based on alleged adverse effect on product safety
On March 28, 2024, Texas Attorney General Ken Paxton opened an investigation into Spirit AeroSystems Holdings, Inc. after reports of alleged defects in airplane parts it manufactured for Boeing Co. Among other requests, AG Paxton sought documents from Spirit AeroSystems related to its diversity, equity, and inclusion (DEI) commitments and announced that his investigation will examine whether those commitments are unlawful or are compromising the company’s manufacturing process.
This request is part of a larger effort by certain State AGs to question and challenge corporate DEI practices in the wake of the United States Supreme Court’s decision in June 2023 prohibiting affirmative action in college admissions. America First Legal, a conservative advocacy group, also sent the U.S. Equal Employment Opportunity Commission a series of letters in late summer 2023 requesting probes into the DEI practices at more than 30 major companies. Around this same time, 13 State AGs issued a warning letter to the CEOs of Fortune 100 companies, threatening “serious legal consequences” regarding their respective DEI policies. Other State AGs issued a letter in support of those companies DEI practices and DEI policies more generally.
Regarding the investigation of Spirit Aerosystems, on May 2, 2024, it filed a federal lawsuit to block AG Paxton’s request for documents, calling the investigation “unreasonable and unlawful.” Spirit argued that AG Paxton’s demands violated its “Fourth and Fourteenth Amendment rights to be free from unreasonable searches and seizures” and sought a declaratory judgment that the Texas Request to Examine statute pursuant to which AG Paxton made the documents request is unconstitutional, a preliminary injunction to halt the statute’s operation, and a permanent injunction against the use of this statute moving forward.
While this lawsuit is in its early stages, it is expected that other similar efforts will be undertaken by certain State AGs to challenge corporate DEI policies by arguing that such policies are causing product or other business-related deficiencies and are harmful to the company and/or consumers.
3. Massachusetts AG’s advisory guidance to users of AI regarding obligations under consumer protection and data security laws
Massachusetts Attorney General Andrea Joy Campbell issued an advisory to provide guidance to developers, suppliers, and users of AI regarding their obligations under Massachusetts state law. The advisory clarifies that existing state laws, such as state consumer protection, anti-discrimination, and data security laws, apply to AI systems and any other emerging technology.
AG Campbell acknowledged the exciting opportunities that AI and algorithmic decision‑making systems bring to the marketplace. However, she noted that AI systems may also create certain risks to consumers related to potentially false information or alleged bias or discrimination.
The advisory describes specific acts and practices related to AI that the Massachusetts AG believes would be “unfair and deceptive” within the meaning of the Massachusetts Consumer Protection Act and related regulations, including:
- Falsely advertising the quality, value, or usability of AI systems
- Supplying an AI system that is defective, unusable, or impractical for the purpose advertised
- Misrepresenting the reliability, manner of performance, safety, or condition of an AI system
- Offering for sale or use an AI system in breach of warranty, in that the system is not fit for the ordinary purposes for which such systems are used, or that is unfit for the specific purpose for which it is sold where the supplier knows of such purpose
- Misrepresenting audio or video content of a person for the purpose of deceiving another to engage in a business transaction or supply personal information as if to a trusted business partner as in the case of deepfakes, voice cloning, or chatbots used to engage in fraud
- Failing to comply with Massachusetts statutes, rules, regulations, or laws, meant for the protection of the public’s health, safety, or welfare
The advisory also notes that Massachusetts’s anti-discrimination laws prohibit the use of AI to discriminate against individuals based on legally protected characteristics. AI systems also need to comply with the state’s data privacy laws and safeguard personal data as well as the need for companies who operate AI systems to comply with the state’s data breach notification requirements.
As the use of AI continues to proliferate and evolve, it is not surprising that State AGs have become active in this space as well and will look to apply a wide range of state laws to regulate the use of AI.
4. California AG’s renewed focus on criminal antitrust enforcement
On March 6, 2024, Senior Assistant Attorney General Paula Blizzard announced that the California Office of the Attorney General (“California AG”) Antitrust Section is renewing its focus on its criminal antitrust program by actively seeking to enforce the California Cartwright Act.[1] This focus is significant as the California AG has not brought a criminal Cartwright Act prosecution in more than 25 years.
While speaking on a panel about criminal antitrust enforcement at the ABA National Institute on White Collar Crime in San Francisco, Ms. Blizzard emphasized that the Cartwright Act covers “broader” conduct than its federal counterpart, the Sherman Act,[2] highlighting that even third parties supplying information in furtherance of a conspiracy may constitute actionable “furnish[ing of] information” under Section 16755 of the Cartwright Act. She also posited that pleading a Cartwright Act violation does not require meeting the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. She further emphasized that the significant penalties authorized by the Cartwright Act should serve as an important deterrent.
Ms. Blizzard also announced that the California AG intends to coordinate with the U.S. Department of Justice Antitrust Division (DOJ), as well as California district attorneys, who have independent authority to charge offenses under the Cartwright Act. In doing so, the California AG is likely to evaluate and potentially borrow elements from the DOJ’s existing criminal enforcement program, such as creating its own leniency program.
Given the California AG’s renewed interest in criminal enforcement of the Cartwright Act, companies doing business in California should proactively consider the Cartwright Act when developing effective antitrust compliance programs.
5. NYS Department of Financial Service’s new guidance on climate risk management
Late last year, the New York State Department of Financial Services (NYDFS) published final guidance regarding financial institutions’ assessment and management of material climate‑related financial and operational risks. This sweeping guidance applies to all New York state‑regulated banking organizations, state-licensed branches and agencies of foreign banking organizations, and state-regulated mortgage bankers and servicers. While this guidance does not set an implementation timeline, NYDFS will request information from regulated institutions this year with respect to their progress and plans to assess and manage their climate-related financial and operational risks.
NYDFS expects regulated institutions to make the following key strategic changes to their operations in order to mitigate potential risks associated with climate change. First, a regulated institution’s management and board should establish a governance framework to ensure there is a process in place for identifying, measuring, monitoring, and controlling that institution’s material financial and operational risks associated with climate change. Second, regulated organizations should incorporate climate-related financial and operational risks into their internal control frameworks to ensure comprehensive identification, management, and control of climate-related risks. Third, regulated institutions should identify, monitor, and control climate-related risks through their existing risk management frameworks and climate‑related financial risks should be embedded in existing risk categories, not set aside as a standalone risk. Fourth, regulated institutions should ensure that their processes for aggregating data and for internal reporting are adequate for monitoring climate-related financial risks and to produce timely information to facilitate executive decision-making. Finally, regulated institutions should consider using a range of climate scenarios based on assumptions regarding impact of climate-related financial risks over different time horizons.
Though the final implementation date is still undetermined, regulated institutions should review the changes necessary to comply with NYDFS’s guidance and begin implementing these when possible.
[1] Cal. Bus. & Prof. Code § 16700 et seq.
[2] 15 U.S.C. §§ 1-7.
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