MoFo’s State + Local Government Enforcement Newsletter

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 Attorneys General focus on antitrust enforcement
• Recent Supreme Court decisions create opportunity for state and local government on environmental issues
• California Attorney General signals intent to enforce California’s medical privacy laws on pharmacies and health data companies
• New York State Department of Financial Services issues new guidance for AI and insurance companies
• Democratic State Attorneys General defend ABA and corporate DEI programs
• U.S. Securities and Exchange Commission to coordinate with state and local governments on Interagency Securities Council

1. State Attorneys General continue aggressive focus on antitrust enforcement

State Attorneys General continue to be very active in the arena of antitrust enforcement. Historically, antitrust enforcement primarily was left to the federal government, specifically, the Federal Trade Commission or the U.S. Department of Justice. During the past several years, however, numerous State Attorneys General have invested in more robust antitrust enforcement capabilities. As a result, those States Attorneys General have become increasingly active antitrust enforcers, often in ways that diverge from federal antitrust enforcement efforts.

For example, earlier this year, the Washington and Colorado Attorneys General filed lawsuits to block the proposed merger between grocery store operators Kroger and Albertsons.[1] The proposed transaction, worth nearly $25 billion, would have created one of the largest grocery chains in the United States. Both Washington’s and Colorado’s suits claim that the proposed merger violates state antitrust laws and seek to permanently block the merger from going into effect nationwide. Washington Attorney General Bob Ferguson stated that the proposed merger would “severely limit shopping options for consumers and eliminate vital competition that keeps grocery prices low” and “Kroger would enjoy a near-monopoly in many markets in the state.” Kroger filed motions to dismiss in each suit, but both were denied.

The lawsuits also challenge Kroger’s and Albertson’s proposal to remedy the alleged anticompetitive effects of the transaction by divesting several distribution centers and several hundred retail grocery stores nationwide. Both states allege that the proposed remedy would not prevent the anticompetitive effects of the merger and claim that the proposed buyer has insufficient retail grocery experience and that the divestiture package does not include sufficient stores to allow the proposed buyer to effectively compete with Kroger post-merger.

Additionally, Colorado’s suit alleges that Kroger and Albertsons entered into unlawful no-poach and no-solicitation agreements after a 2022 strike at a grocery store chain owned by Kroger. The alleged agreements purportedly ensured that the employees at the striking grocer chain would not be hired by Safeway, which is owned by Albertsons, and that Safeway could not solicit customers from the Kroger-owned chain. Colorado Attorney General Phil Weiser’s complaint seeks $1 million in civil penalties from each of Kroger and Albertsons as relief for this alleged violation of state antitrust law.

 In prior antitrust enforcement actions against supermarket mergers, State Attorneys General typically coordinated closely with the FTC during the investigation phase and followed the FTC lead on any litigation to challenge the transaction. Here, Washington and Colorado Attorneys General have sought to maintain their own separate antitrust suits and filed before the FTC took any action. Businesses and consumers should expect to see continued aggressive enforcement by certain State Attorneys General and should expect to have to satisfy state as well as federal antitrust law enforcement agencies.

2. Recent Supreme Court decisions create opportunity for state and local government to embrace environmental leadership

With the recent Supreme Court decisions limiting federal regulatory power,[2] agencies such as the EPA now are grappling with the sea change in their ability to provide federal oversight. The recent Supreme Court decisions, coupled with the lack of congressional legislation addressing substantial environmental protection, has left a vacuum in national environmental protection. In response, state and local governments have actively been working to safeguard critical environmental resources through amending state constitutions, state statutes, and local regulations.

State constitutions have already been amended to include environmental protection provisions, including in New York. In 2022, Article I, Section 19, of New York’s Constitution was amended to guarantee that “[e]ach person shall have a right to clean air and water, and a healthful environment.” Moreover, existing state constitutional provisions, such as those in Pennsylvania,[3] Montana, and Hawaii, have been used to challenge statutes covering greenhouse gas emissions, fracking, and other energy policies.

For example, last year in Held v. Montana, 16 young Montanans won a lawsuit against the state arguing that its energy policies violated the state’s 1972 environment constitutional provision. Recognized as the first climate litigation to reach trial and the first judicial decision directly tying climate change to constitutional rights, Held demonstrated how constitutional protections may extend accountability to state governments for climate impacts. Additionally, last month, in response to Navahine F. v. Hawaii Department of Transportation, a lawsuit alleging that Hawaii’s state transportation system violated two state environmental constitutional provisions, a Hawaii state court approved a settlement in which Hawaii agreed to cut greenhouse gas emissions from transportation.

In addition to provisions in state constitutions, new state statutory and regulatory measures are being used to establish regulatory protections. Both Hawaii and Massachusetts have adopted ambitious greenhouse gas reduction targets and renewable energy standards. New York’s Climate Leadership and Community Protection Act, passed in 2019, established aggressive targets for greenhouse gas emissions reduction and the transition to renewable energy sources.

As regulatory power continues to shift, and in the absence of federal action, companies should be mindful of state and local regulations targeting, among other things, the reduction of greenhouse gas emissions and promoting energy-efficiency

3. California Attorney General signals intent to enforce California’s medical privacy laws on pharmacies and health data companies

On June 26, 2024, California Attorney General Rob Bonta announced that his office had sent letters to eight major pharmacies doing business in California and five health data companies, reminding them of their obligations to protect patient privacy under the California Confidentiality of Medical Information Act (CMIA) and new amendments strengthening the law, which went into effect this July 1, 2024.

The CMIA requires the following:

1. that providers of healthcare plans and contractors seek patient authorization before disclosing medical information;
2. that medical information be stored in a specific manner; and
3. that health care providers not comply with a law enforcement subpoena or request for medical information when the purpose of such action interferes with a person’s ability to choose an abortion.

The new amendment, proposed through Assembly Bill 352, introduces a host of security measures meant to limit access to patient medical information, including segregating medical information related to abortion and contraception and prohibiting healthcare providers from providing any patient medical information involving abortion-related services to individuals or law enforcement located in another state, unless a warrant is served.

The California Attorney General’s letters request that companies provide that office with their policies on maintaining medical information, whether they have formalized warrant requirements before disclosures of information are made to law enforcement, and whether they enforce shared obligations with their contractors. Parallel to the broader federal trend of lawmakers interested in holding companies that store patient data to a high standard—especially in their disclosure policies to law enforcement, in light of increased state regulation of abortion—the California Attorney General’s interest signals a new front for data privacy compliance.

As California law places new requirements on pharmacies and companies that store healthcare data and as the California Attorney General has signaled a particular interest in investigating providers and enforcing California’s medical privacy laws, companies in California that store medical data are advised to proactively implement policies and procedures consistent with these developments.

4. New York State Department of Financial Services issues new guidance for AI and insurance companies

On July 11, 2024, the New York State Department of Financial Services (DFS) published its final guidance on the use of artificial intelligence (AI) in underwriting and pricing insurance policies. The guidance, which outlines the Department’s expectations for all insurers authorized to write insurance in New York, focuses on the risks of unlawful discrimination presented by an insurer’s use of artificial intelligence systems (AIS) and external consumer data and information sources (ECDIS). The final guidance reminds New York insurers that the “Department may audit and examine an insurer’s use of ECDIS and AIS” pursuant to New York state law. The DFS Superintendent Adrienne Harris expressed that the goal of the guidance is to “ensur[e] that the implementation of AI in insurance does not perpetuate or amplify systemic biases that have resulted in unlawful or unfair discrimination, while safeguarding the stability of the marketplace.”

The guidance outlines three main areas for insurance provider diligence:

1. data sources and models used to support AIS and ECDIS assessments;
2. unfair and unlawful discrimination generated by use of external information or artificial intelligence; and
3. policies on the use of AIS and ECDIS in insurance decisions and notice requirements to consumers.

DFS has clarified that an insurance provider may be held liable under state and federal laws prohibiting insurance discrimination involving protected classes of individuals when an insurance provider’s model utilizes protected characteristics. DFS also detailed a three-step approach for assessing whether an insurance underwriting or pricing guideline derived from ECDIS or AIS amounts to unlawful discrimination and indicated that insurers “should not use ECDIS or AIS in underwriting or pricing” unless insurers can complete comprehensive assessments on the lawful use of such models. Notably, the guidance clarifies that insurers are responsible for the ECDIS or AIS deployed by third-party vendors and must ensure that third‑party use is compliant with all applicable laws. The final guidance builds on a previous letter DFS published in 2019, which provided guidance limited to the use of external consumer data and information sources (ECDIS) by insurance providers and the risks of unlawful discrimination.

Given New York’s finalized framework for the use of AI and external information in insurance decisions, insurance companies operating in the state are advised to proactively assess their use of such models alongside the new guidance.

5. Democratic State Attorneys General defend ABA and corporate DEI programs

On June 20, 2024, 19 Democratic State Attorneys General[4] sent a letter to the ABA and Fortune 100 companies, re-affirming the legality of diversity programs and the “narrow reach” of the Supreme Court’s recent affirmative action decision. The letter was in response to a June 3, 2024, letter from 21 Republican State Attorneys General[5] urging the ABA to stop requiring law schools to support diversity and inclusion in their student bodies and faculties and claiming that such practice was illegal following the Supreme Court’s holding in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College.[6]

The June 20 Attorneys General letter defends both the ABA’s accreditation requirement that law schools demonstrate “a commitment to diversity and inclusion” and corporate diversity, equity, and inclusion programs. The Democratic Attorneys General stated that their Republican counterparts’ letter stretched the holding of Students for Fair Admissions beyond the Court’s holding and claimed that “their challenges are intended to contort and weaponize antidiscrimination statutes to undo decades of progress.” The letter goes on to state that the holding of Students for Fair Admissions “does not require that higher education in institutions [be] barred from undertaking recruitment efforts to encourage a diverse applicant pool, or from creating non‑hostile educational environments for underrepresented groups.” The Attorneys General argue that the majority opinion in Students for Fair Admission made clear that the reach of the opinion extended to college admissions and therefore recruitment efforts and aspects of the admissions process that do not determine admittance are not implicated by the holding. The 19 Democratic Attorneys General also cited to a recent decision by the Supreme Court to decline to rule on a case that argued for a more expansive application of Students for Fair Admission in other admissions contexts

The letter also addressed other challenges to DEI, including a number of lawsuits filed against corporations and law firms over their DEI efforts and programming. The Democratic Attorneys General restated their interpretation of Students for Fair Admission, specifically that the Court’s holding did not address or govern the behavior of private-sector businesses. The Democratic Attorneys General argued that the law as it relates to business had not changed and companies have wide latitude to ensure their applicant pools are diverse and their workplaces are equitable and inclusive. Moreover, companies have an obligation under Title VII to “ensure that their workplaces are equitable, including an obligation to ensure that their workplaces are not hostile environments for racial minorities or other types of protected classes.” The Democratic Attorneys General also dismissed recent litigation challenging DEI initiatives and noted that “[c]ourts have decisively dismissed other arguments challenging corporate DEI programs, holding that companies retain business judgment as it relates to DEI efforts.”

Given the ongoing legal challenges and government officials on both sides of the aisle focused on DEI issues, companies should continue to monitor developments in this area and be prepared to adjust their DEI strategies and initiatives as required or needed.

6. U.S. Securities and Exchange Commission to coordinate with state and local governments on Interagency Securities Council

On July 19, 2024, the U.S. Securities and Exchange Commission (SEC) launched the Interagency Securities Council (ISC), a working group for federal, state, and local regulatory and law enforcement to meet quarterly to discuss joint objectives and investigation trends. Described as “a forum for unified efforts in combatting financial fraud,” the ISC was established to improve communications and connections across governments. Responding to the increased complexity of financial crimes, the ISC was launched with the purpose of helping government actors share innovative investigative techniques, discuss ongoing investigations, and encourage discussion on emerging threats. The ISC launched in July with representatives from more than 100 departments and agencies, including federal agencies, state attorneys general’s offices, and local law enforcement. It will be interesting to watch whether the ISC leads to better coordinated federal, state, and local securities law investigations.

[1] The FTC followed up with its own suit on February 26, 2024, which has since been joined by the Attorneys General of Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia.

[2] Read more on the impactful decisions from this term in the following client alerts: Loper Bright v. Raimondo and Relentless, Inc. v. Department of Commerce and Corner Post, Inc. v. Board of Governors of the Federal Reserve System. Taken together, Loper Bright and Corner Post substantially impact administrative law and the powers of regulatory agencies.

[3] In 2013, in Robinson Township v. Commonwealth, the Pennsylvania Supreme Court held as unconstitutional major parts of Pennsylvania’s “Act 13,” a 2012 oil and gas law, including its implementation of statewide zoning standards for oil and gas operations. The court determined that these amendments were inconsistent with the state constitution’s Environmental Rights Amendment. The decision greatly expanded judicial review over all legislative and government actions that have any arguable impact on Pennsylvania’s natural or historical resources.

[4] The letter was signed by the Attorneys General of California, Colorado, Connecticut, District of Columbia, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont, and Washington.

[5] The letter was signed by the Attorneys General of Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia.

[6] 600 U.S. 181 (2023).