Law

3M Sues Law Firm for Switching Sides, Aiding MN AG

3M cited “betrayal” motivated by “greed” as a reason for Covington & Burling’s move to help the Minnesota attorney general in a lawsuit against the Maplewood-based company.

3M Company—which was sued by the state last year over alleged damage caused by the disposal of chemicals—is reportedly suing one of its former law firms for switching sides and aiding the Minnesota attorney general in the lawsuit against the company.

In its suit against national law firm Covington & Burling LLP, Maplewood-based 3M alleges that “betrayal” motivated by “greed” led the firm to aid the attorney general after having worked with 3M in the past, the Pioneer Press reported.

3M reportedly alleges that the firm’s switch was motivated by the possibility of huge legal fees. The state’s deal with Covington says the firm would be paid 25 percent of the first $75 million collected from 3M, 20 percent of the next $75 million, and 15 percent of anything over $150 million, according to the Pioneer Press.

3M said that Covington worked for the company on and off from the 1980s to 2010, and during those years “more than 165 Covington attorneys billed 3M millions of dollars,” the St. Paul newspaper reported. At one point, the firm reportedly worked for 3M on legal matters involving PFCs, or perfluorochemicals, which are at the center of the suit against 3M.

3M claims that Covington went from arguing that trace amounts of PFCs did not pose a risk to humans to arguing that exposure to those same chemicals is dangerous, according to the Pioneer Press. (Read the full Pioneer Press story here.)

Covington, meanwhile, said in an e-mailed statement to Twin Cities Business that the state has “been a client of the firm in environmental matters for more than 15 years” and it agreed to represent the state after confirming that it “had no active matters for 3M and that there was no conflict based on any prior representation of 3M.”

“The 3M complaint against our law firm has the situation completely backwards in suggesting that the firm dropped a long-time client to represent the State,” Covington said. “To the contrary, the State, a long-time client, asked Covington to handle an important lawsuit on which it needed assistance. We reviewed the situation and appropriately decided to proceed with the representation.”

The firm added that it “takes its ethical responsibilities seriously and has acted in accord with all applicable ethical rules in connection with its representation of the State of Minnesota in litigation against 3M.” It intends to “defend itself vigorously against 3M’s lawsuit, which is without merit.”

—Jake Anderson
(janderson@tcbmag.com)

MTS Agrees to Pay $7.75M to Settle Federal Investigation

The Eden Prairie-based test system maker, which has been under investigation for more than a year, said that the deal must still be approved by the U.S. Department of Justice.

MTS Systems Corporation said Tuesday that it has agreed to pay a $7.75 million settlement to end a federal investigation into the company’s government contracting and exporting practices.

MTS, an Eden Prairie-based test system maker, has been under investigation by the U.S. Department of Commerce and the U.S. Attorney’s office in Minnesota for more than a year.

In March 2011, the company was temporarily barred from federal government contracting. MTS was suspended for not properly disclosing in regulatory documents that it had pleaded guilty to two misdemeanors for making false statements related to the planned sale of equipment, which could have been used to test nuclear weapons in India. The equipment was never shipped, but MTS employees creating export applications allegedly failed to disclose their knowledge about how it might be used, and the company was fined $836,000.

The company’s CEO, Laura Hamilton, in August resigned amid the ongoing investigation. Jeffrey Graves took the reigns as chief executive in May.

The settlement announced Tuesday, which must still be approved by the U.S. Department of Justice, would conclude the investigations by the U.S. Department of Commerce and the U.S. Attorney’s office, according to MTS.

“The resolution of this matter has been a top priority for the company,” Graves said in a statement. “We have invested significant resources to improve our government contracting and general compliance infrastructure during the last 18 months. As a result, we are a stronger company today and remain committed to meeting the government’s fully responsible contractor status.”

MTS, which was suspended from contracting between March and September of 2011, has said that it lost an estimated $15 million related to the investigation and lost market opportunities. The Air Force lifted the ban after MTS agreed to enhance its business ethics and compliance policies and procedures, expand employee training in those areas, heighten reporting obligations, and hire a compliance monitor. In October, MTS appointed Steven Mahon chief compliance officer.

As of October 1, the end of MTS’s most recent fiscal year, the company employed roughly 2,000 workers and reported revenue of $467 million. Shares of the company’s stock were trading down about 1 percent at $43.02 during Wednesday morning trading.

—Jake Anderson
(janderson@tcbmag.com)

18 New Laws Take Effect in Minnesota

The new laws will affect various groups, including small businesses, energy companies, and law enforcement.

Eighteen new state laws took effect Wednesday and will affect a variety of businesses, ranging from energy companies to firearms dealers.

One law grants energy companies with high-voltage power lines the first chance to build new lines if a regional planning process calls for their construction. A recent federal law took that opportunity away from energy companies and gave states the power to choose who would build new lines, according to a release from the Minnesota House of Representatives. The new Minnesota law maintains the former status quo and gives energy companies the “right of first refusal” to build, own, and service new power lines.

Two new laws will benefit law enforcement and the firearms industry, the House of Representatives said. The first allows police to sell forfeited firearms to licensed gun dealers; previously, all forfeited firearms that weren’t used for training were required to be destroyed. Seventy percent of the proceeds from the sale will go to the law enforcement agency.

The second law allows licensed firearms dealers, importers, and manufacturers to demonstrate their guns using silencers, which partially suppress the sound of a gunshot. Before the new law was enacted, silencers had been prohibited except for use by some law enforcement and wildlife control agencies, according to the House of Representatives. The new law allows sellers to fully demonstrate a gun and silencer in order to sell either of the two parts for authorized activities. There are 25 federally licensed firearm manufacturers and 1,600 dealers in the state, according to the release.

Meanwhile, the Minnesota Petroleum Marketers Association, which represents small gas stations in Minnesota, submitted the proposal for a bill that established a new law for preventing “drive-offs” at gas stations. Small gas stations may now have a trade association act on their behalf to serve notices to and collect payments from customers who filled their tanks at a gas station and left without paying. The law also allows for an inference of theft to be made if a customer drives away without paying. 

Additionally, several changes to state law have been made regarding the sale and possession of synthetic drugs. The sale of synthetic drugs has been upgraded to a felony, and the list of illicit substances has been expanded. The Board of Pharmacy has also been given expedited rulemaking authority in dealing with future chemical formulas used by drug producers.

Other laws that took effect Wednesday involve a gardening program for prison inmates, increased stipends for military honor guards, harsher penalties for neglect of vulnerable adults, and the requirement of crossing arms on school buses.

To read the full list of new state laws, click here.

—Dominic Zahner
(dzahner@tcbmag.com)

Accretive to Pay $2.5M, Cease MN Work to Settle Suit

The company, which was accused of breaking privacy laws and using unethical debt-collection tactics, did not admit to any wrongdoing in its settlement agreement.

Chicago-based debt collector Accretive Health, Inc., will pay nearly $2.5 million and cease operations in Minnesota for at least two years in order to settle a lawsuit filed by Minnesota Attorney General Lori Swanson, who accused the company of breaking privacy and debt-collection laws.

Accretive has repeatedly denied Swanson’s allegations, and in its settlement agreement, the company did not admit to any wrongdoing.

Swanson sued Accretive in January, accusing the company of violating privacy laws after corporate laptops containing confidential data for Fairview Health Services and North Memorial Health Care patients were stolen.

Then, in a multi-volume report released in April, Swanson leveled new allegations against the company, claiming that it imposed quotas on hospital staff to collect money from patients—sometimes before treatment was provided. The report accused Accretive of using tactics “commonly utilized in high-pressure, boiler room-style sales atmospheres.”

Fairview cut ties with Accretive in April and subsequently chose not to renew the contract of CEO Mark Eustis, who, according to a report by the Star Tribune, was instrumental in hiring Accretive.

In June, Swanson expanded her lawsuit to incorporate the accusations from the April report and tacked on sworn statements from hospital patients who claimed to be victims of the improper collection tactics.

Under the terms of the settlement, which was approved Monday by U.S. District Court Judge Richard Kyle, Accretive is required to cease operations in Minnesota by November and is barred from serving Minnesota clients for at least two years. If, during a four-year period following those two years, Accretive seeks to conduct business in the state, it must first reach an agreement with the attorney general regarding its operations.

Accretive’s only remaining Minnesota client is North Memorial Medical Center in Robbinsdale, according to a report by the Star Tribune.

The $2.5 million payment will go into a “restitution fund,” which will be used to compensate patients, according to a Monday press release from Swanson’s office. The settlement also requires Accretive to return all data about Minnesota patients to their respective hospitals.

“A hospital emergency room is a place of medical trauma and emotional suffering for patients and their families,” Swanson said in a statement. “It should be a solemn place, not a place for a financial shakedown of patients. It is good to close the door on this disturbing chapter in Minnesota health care.”

Accretive said the settlement lets it continue licensing its “revenue cycle” technology, which helps clients manage revenue collection, to clients that it served in Minnesota.

“Even though we believe the claims against us were either baseless or exaggerated, we have used this opportunity to carefully examine our own practices in order to ensure we are setting the very highest standards for our own performance and achieving the best possible outcomes for hospitals, patients, and communities,” Accretive CEO Mary Tolan said in a statement. “Entering into this settlement agreement allows our company to put this matter behind us and prevents further distraction from the important work that we do for our hospital clients.”

Tolan called Swanson’s actions “unnecessarily aggressive” and said they will “cost more than 100 Minnesotans their jobs.”

Mike Rothman—commissioner of the Minnesota Department of Commerce, which contributed to the investigation of Accretive’s practices—said in a statement that the settlement “attempts to rectify the damages inflicted on Minnesota consumers who were deceived, lured into a false sense of security, and then taken advantage of.”

“But no amount of restitution can repair the damage done to the trust and confidence of thousands of Minnesota patients who were subject to predatory collection practices at their most vulnerable moments,” Rothman added.

—Jake Anderson
(janderson@tcbmag.com)

MN Woman Charged with Embezzling Funds from Minnwest Bank

Barbara Kaye Rechtzigel is accused of stealing money from the CD accounts of customers of Minnwest Bank in Marshall.

A Minnesota woman is facing federal charges for allegedly embezzling “hundreds of thousands of dollars” from the bank where she worked, Minnesota’s U.S. Attorney’s office said Tuesday.

Barbara Kaye Rechtzigel, a 47-year-old woman from the southwestern Minnesota town of Belview, is accused of stealing funds from the certificate of deposit (CD) accounts of customers of Minnwest Bank in Marshall.

Rechtzigel is accused of stealing customers’ money over the course of more than a decade—1998 through June 2012—for her personal use. Court documents state that she’s accused of stealing “hundreds of thousands” of dollars; U.S. Attorney’s office spokeswoman Jeanne Cooney said Wednesday that investigators are still compiling evidence to calculate the exact amount of money that Rechtzigel allegedly embezzled, so the office is unable to provide a more specific dollar amount at this time.

Rechtzigel faces one count of embezzlement by a bank officer, and she was charged via information, which generally indicates that a plea agreement is expected. She faces up to 30 years in prison if convicted.

—Jake Anderson
(janderson@tcbmag.com)

Target Objects to $7.25B Settlement with Credit Card Cos.

Target said that a recently announced interchange fee settlement “would perpetuate a broken system, restrict retailers from any future legal action, and offer no long-term relief for retailers or consumers.”

About a week after a local law firm said it reached a $7.25 billion settlement in a class-action lawsuit against Visa, MasterCard, and some of the nation’s largest banks, Target Corporation has joined the list of retailers who are objecting to the deal.

The proposed deal would settle a seven-year case in which merchants accused Visa and MasterCard of engaging in anti-competitive practices and of fixing prices when setting interchange fees—the fees retailers pay to banks to process the credit card transactions made by their customers.

Minneapolis-based Robins, Kaplan, Miller & Ciresi L.L.P., which represents a class of about 7 million retailers in the case, announced earlier this month that it had reached a deal with the banks and credit card companies, and the $7.25 billion settlement is believed to be the largest-ever settlement in a private, class-action antitrust case.

But not all retailers view the settlement as a clear victory. The National Association of Convenience Stores (NACS), one of the plaintiffs, was reportedly the first to reject the settlement, saying that it doesn’t go far enough.

Minneapolis-based Target joined the opposition, issuing the following statement on Friday: “Target believes the proposed interchange fee settlement is bad for both retailers and consumers. The proposed settlement would perpetuate a broken system, restrict retailers from any future legal action, and offer no long-term relief for retailers or consumers. In addition, Target has no interest in surcharging guests who use credit and debit cards in order to allow Visa and MasterCard to continue charging unfair fees. We will continue to explore our options while working toward a solution that represents true reform.”

And Target isn’t alone in its opposition: More than two dozen merchants have joined the NACS in opposition to the proposal, according to a report by the Star Tribune.

The proposed settlement comprises $6.05 billion in damages, as well as about $1.2 billion in relief that retailers will experience as the credit card companies are required to temporarily reduce their interchange fees.

The settlement also requires the defendants to modify their practices. For example, Visa and MasterCard must negotiate with groups of retailers to establish interchange fees—a move that enables businesses to pressure them to reduce fees, according to Robins, Kaplan, Miller & Ciresi.

The 113-page settlement can be downloaded here.

—Jake Anderson
(janderson@tcbmag.com)

Mpls. Law Firm Leads 7M Retailers to $7.25B Settlement

Robins, Kaplan, Miller & Ciresi represented about 7 million individuals and businesses in an antitrust case against two major credit card companies and many major banks.

A Minneapolis-based law firm representing millions of people and businesses in a lawsuit against credit card companies and banks said Friday that it reached a historic $7.25 billion settlement in the seven-year case.

Robins, Kaplan, Miller & Ciresi L.L.P., was one of three law firms appointed by the U.S. District Court in New York to represent approximately 7 million individuals and businesses in the class-action lawsuit.

The plaintiffs include people and companies that accept Visa and MasterCard credit and debit cards as payment for goods or services. They accused the two credit card companies of engaging in anti-competitive practices and of fixing prices when setting interchange fees—the fees retailers pay to banks to process the credit card transactions made by their customers.

In addition to Visa and MasterCard, the lawsuit named among its defendants 14 card-issuing banks and bank-holding companies: Bank of America, Barclays Financial Corporation, Capital One Financial Corporation, JPMorgan Chase & Company, Citigroup, Inc., Fifth Third Bancorp, First National Bank of Omaha, HSBC Finance Corporation, National City Corporation, SunTrust Banks, Inc., Texas Independent Bancshares, Inc., Wachovia Corporation, Washington Mutual, Inc., and Wells Fargo & Company.

St. Louis Park-based Traditions Classic Home Furnishings was among the original plaintiffs in the lawsuit, which grew to encompass millions of retailers. Other Minnesota companies named as plaintiffs in the suit include Coborn’s, Inc., and CHS, Inc.

According to Robins, Kaplan, Miller & Ciresi, the $7.25 billion settlement is believed to be the largest-ever settlement in a private, class-action antitrust case. It comprises $6.05 billion in damages, as well as about $1.2 billion in relief that retailers will experience as the credit card companies are required to temporarily reduce their interchange fees.

The settlement also requires the defendants to modify their practices. For example, Visa and MasterCard must negotiate with groups of retailers to establish interchange fees—a move that enables businesses to pressure them to reduce fees.

The changes will “provide additional value to merchants of many billions of dollars” and will allow retailers to make more transparent to consumers the cost of accepting various payment methods, according to Robins, Kaplan, Miller & Ciresi.

“The reforms achieved by this case and in this settlement will help shift the competitive balance from one formerly dominated by the banks, which controlled the card networks, to the side of merchants and consumers,” K. Craig Wildfang, co-lead counsel in the case and a Robins, Kaplan, Miller & Ciresi partner, said in a statement. “Over time, the reforms induced by this case and in this settlement should help reduce card-acceptance costs to merchants, which in turn, will result in lower prices for all consumers.”

The 113-page settlement agreement can be downloaded here.

While the settlement represents a victory for retailers, the controversy surrounding interchange fees appears far from over, according to a report by the Star Tribune. The defendants are expected to appeal the case, and the National Association of Convenience Stores, one of the plaintiffs, is rejecting the settlement as one that doesn’t go far enough, the Minneapolis newspaper reported.

In addition to Robins, Kaplan, Miller & Ciresi, law firms Berger & Montague, P.C., of Philadelphia, and Robbins Geller Rudman & Dowd LLP, which is based in San Diego, represented the plaintiffs in the case.

Robins, Kaplan, Miller & Ciresi is among Minnesota’s 10 largest law firms based on licensed Minnesota attorneys, of which there were 167 as of mid 2011.

—Jake Anderson
(janderson@tcbmag.com)

State Fines Local Remodeler $68.5K, Revokes License

Brown Brothers Remodeling was penalized for taking down payments from customers for work never performed and for failing to pay subcontractors for completed projects.

A Faribault-based remodeling firm and its owners have been fined $68,533 for allegedly taking down payments from multiple customers and failing to perform contracted work or return the funds.

The Minnesota Department of Labor and Industry imposed the fine in an order issued May 30 against Brown Brothers Remodeling, LLC, and its co-owners, John Brown and David Brown. The department disclosed the order this week in a list of recent enforcement actions.

In addition to levying the $68,533 fine—which represents the largest monetary penalty that the department has issued against a contractor since 2010—the state revoked the company’s residential building contractor license, which was set to expire next year.

The state began investigating Brown Brothers in April after receiving a complaint from New Prague-based BIL’s Construction, LLC, a subcontractor that had performed work for Brown Brothers. BIL’s Construction alleged that Brown Brothers owed it $2,112 and failed to pay despite having received payment from the homeowner.

The state contacted Brown Brothers regarding the allegation, but the company failed to meet a May 18 deadline for providing the requested information. Around the time of that deadline, the state began receiving complaints from homeowners regarding Brown Brothers, and it learned of additional customer complaints through the Better Business Bureau.

The state’s order details the complaints of eight homeowners, each of whom signed contracts with Brown Brothers and made down payments of between $1,402 and $13,550. In each case, no work was performed, and Brown Brothers allegedly refused to communicate with them or return the money.

Several homeowners who attempted to visit Brown Brothers’ offices found them vacated, and the company’s phone number has been disconnected, according to the order. A Wednesday online search confirmed that the company’s website has been taken down.

In addition to BIL’s Construction, another subcontractor, Vetsch Plumbing Services, Inc., also has outstanding bills, according to the order. The company billed Brown Brothers for nine completed jobs performed at five properties and is owed $2,383.

The state’s order allotted 30 days for Brown Brothers to schedule a hearing to contest the decision, but the company failed to do so, Minnesota Department of Labor and Industry Communications Director James Honerman said Wednesday.

—Jake Anderson
(janderson@tcbmag.com)

MN Condo Assn. Accused of Unlawfully Prohibiting Children

A condominium association for Greenbrier Village in Minnetonka and association management firm Gassen Company are accused of discriminating against potential homeowners and renters by enforcing an adults-only policy.

The U.S. Department of Housing and Urban Development (HUD) said Monday that it has charged a Minnetonka-based condominium association and its management company with an alleged violation of a federal housing law for prohibiting the sale or rental of units to families with children.

The charge was issued against Greenbrier Village Condominium III Association, the condo association for a building at the Greenbrier Village community in Minnetonka. (Different associations establish policies for each of the six buildings that comprise Greenbrier Village, according to HUD.) The charge also names Gassen Company, Inc., an Eden Prairie-based condo association management company, and two Gassen-employed property managers for Greenbrier Village.

According to HUD, Greenbrier III’s residency policy stated: “No apartment may be sold, leased, or rented to any person who has a child under the age of 18,” nor may a child stay at a residence for more than 14 days a year. The Fair Housing Act, however, dictates that only condos designed specifically for seniors may enforce such a policy. (To meet the federal requirements for senior housing, at least one family member age 55 or older must reside in at least 80 percent of the households at a property.)

The charge states that a husband and wife, who purchased a unit at Greenbrier Village in June 2011, were informed of the policy prohibiting children, but they were not required to verify that they had a household member who was at least 55 years old. The couple claims that the adults-only policy hindered its ability to rent out the unit.

HUD interviews revealed that there was no verification process in place to ensure that seniors were living in the units, and the property did not qualify as senior housing, according to the charge.

A Gassen property manager, who declined to provide her name, said Monday that the company is not commenting on HUD’s allegations.

The charge will be heard by an administrative law judge, unless an involved party chooses to bring the case to U.S. district court, HUD said. If an administrative judge concludes that the Greenbrier Village association and/or Gassen violated the Fair Housing Act, he or she may “impose a penalty of up to $16,000 to vindicate the public interest” and award damages to those who were negatively affected, HUD said.

“Condo associations that don’t meet federal requirements as housing for older persons don’t have the right to turn away families with children,” HUD Assistant Secretary for Fair Housing and Equal Opportunity John Trasviña said in a statement. “HUD will continue to take action against homeowners associations that violate the Fair Housing Act by imposing restrictive residency policies.”

—Jake Anderson
(janderson@tcbmag.com)

Accretive: AG’s Latest Allegations Are “Simply Wrong”

Accretive Health moved to dismiss an amended lawsuit filed last month, which accuses the company of overly-aggressive debt-collection tactics and includes sworn statements from hospital patients.

Chicago-based Accretive Health, Inc., is again defending itself against allegations that it broke privacy and debt-collection laws while under contract with Fairview Health Services—stating that Minnesota’s Attorney General is “just plain wrong” and her lawsuit should be thrown out.

Attorney General Lori Swanson sued Accretive in January, accusing the company of violating privacy laws after corporate laptops containing confidential data for Fairview Health Services and North Memorial Health Care patients were stolen.

In a multi-volume report released in April, Swanson leveled new allegations against the company, claiming that it imposed quotas on hospital staff to collect money from patients—sometimes before treatment was provided. The report accused Accretive of using tactics “commonly utilized in high-pressure, boiler-room-style sales atmospheres.”

Accretive has repeatedly denied those allegations and in May asked that Swanson’s original lawsuit be dismissed.

Then last month, Swanson amended her original lawsuit against the company, adding in the accusations raised in the April report and tacking on a series of sworn statements from hospital patients who claim to be victims of the improper collection tactics.

Accretive has now moved to dismiss that amended complaint, arguing that it fails to raise a new issue for the court to consider, according to a report by the Pioneer Press.

In its court filing, Accretive said that many of the lawsuit’s “so-called ‘facts’ are simply wrong,” adding that they “amount to a rehashing of allegations already publicized by the Attorney General as a part of her ongoing media campaign against Accretive Health,” the Pioneer Press reported.

Following the release of Swanson’s April report, Fairview cut ties with Accretive and subsequently chose not to renew the contract of CEO Mark Eustis, who, according to a report by the Star Tribune, was instrumental in the hiring of Accretive.

In its motion to have Swanson’s amended lawsuit dismissed, Accretive reportedly argued that none of the patients whose statements appear in the suit were asked for payments by Accretive employees; rather, each one “complains about practices at Fairview hospitals.”

—Jake Anderson
(janderson@tcbmag.com)