Hannah the Pet Society threatens lawsuit against state over probe

Company says state not being fair in investigation of consumer complaints claiming deceptive practices

Embattled local company Hannah the Pet Society is threatening legal action over a state consumer protection investigation, while lawmakers move to shield the company from being regulated as an insurance company.

The Oregon Department of Justice launched a probe of the firm in mid-November 2015 based on consumer complaints that became louder after the company euthanized some of its pets later that month. Some critics claimed the pets didn't need to be put down.

The investigation has expanded into the company's unique model: Hannah operates as a "pet leasing" company, taking ownership of the animals to avoid regulations such as veterinary standards. It competes with pet insurers while operating as sort of a pet HMO.

DOJ hasn't finalized its investigation. But after interviewing former employees and reviewing documents, the department has cited evidence in court that it says suggests the firm has misled customers, provided spotty veterinary care, and set up a bogus nonprofit as a go-between to conceal a long-standing practice of buying dogs from commercial breeders — rather than getting them from shelters, as the company had repeatedly claimed it did.

Hannah, for its part, has called the DOJ claims "unproven allegations with which we vehemently disagree."

The dispute marks the latest chapter of the firm's history, founded seven years ago by Scott Campbell, a veterinarian-turned-entrepreneur who has cultivated significant connections in Salem. He's grown the Portland-area company, with outlets in Washington and Clackamas counties, to more than 6,000 customers, and hopes to attract investors to take it national.

His main obstacle now: state officials. The company earlier this month issued a formal lawsuit threat to the state of Oregon, saying the DOJ probe "has significantly interfered with Hannah's ability to attract customers and raise working capital."

In 2012, the state assured Hannah the Pet Society that it did not appear to be operating as an insurance company and therefore would not need massive operating reserves — a boon that has allowed the Hannah model to thrive while competing directly with pet insurance companies.

Last July, as the DOJ investigation proceeded, state insurance officials informed Hannah it might be subject to their oversight in light of the company's demonstrated intent to offer services similar to pet insurance.

Hannah's June 16 lawsuit threat calls it inconsistent that the state is asserting the company is an insurer while accusing it of violating the Unfair Trade Practices Act — a law prohibiting misleading or deceptive business tactics that does not apply to insurance companies.

"Our tort claim notice was simply to note that it's not possible under the law for us to be regulated both as insurance .... (and) under the (Unfair Trade Practices Act) because the UTPA exempts insurance from its regulation," said Bill Gary, the lawyer for Hannah who submitted the lawsuit threat.

One of those problems now appears to be going away. Rep. Brian Clem, D-Salem, has taken a strong interest in DOJ's treatment of Campbell, whom he calls "a very close personal friend."

Since January, Clem has floated legislation to rein in DOJ's investigative powers, sent emails to state officials seeking information about the move to regulate Hannah, and organized meetings between state officials and Hannah representatives, documents show.

Most recently, Clem helped negotiate an amendment to House Bill 3283 that would clarify that Hannah is not subject to the state's insurance law, as DOJ had been asserting.

Clem says he isn't doing the company any favors, but instead is trying to keep the state from losing big in a lawsuit and protecting businesses from what seems like bureaucratic overreach using unsavory tactics. He noted that he is the House Agriculture Committee chair, and said other animal-leasing operations could be affected by the situation, such as those involving cattle.

"My job is not to look out for Hannah's, my job is to look out for the public policy aspects of this," Clem said.

However, the language shepherded by Clem doesn't include state officials' preferred language, floated in December, that would have established consumer protections for pet-leasing companies such as ensuring adequate veterinary care.

Shown the proposed legislation, Sharon Harmon, executive director of the Oregon Humane Society, said it looks like something the group woudl have supported.

The bill doesn't go as far as Nevada, which recently banned pet-leasing because of controversy over a company there. But Clem says he considered Oregon officials' proposal a nonstarter, in part because Campbell called the idea "DOA" in an email to him in December. Clem also doesn't feel the agency that would have regulated Hannah, the Department of Consumer and Business Services, does a good job.

Another email to Clem that month from CEO Fred Wich explained why the company opposed legislation. "We are trying to build a national business — we can't be forced into needing state-by-state legislative blessings."

That said, the new language facilitated by Clem fits the company's objectives of not being considered insurance, and not being subject to any new regulations, said Bill Gary, the company's lawyer.

The revised bill passed out of a joint House and Senate conference committee June 22.

The remaining obstacle for the company will be the DOJ investigation. The company's lawsuit threat suggests negotiations for a settlement involving voluntary restrictions on its practices already are underway. According to the letter, "DOJ is threatening to initiate enforcement action unless Hannah's agrees to abide by a detailed (agreement) ... and pays DOJ hundreds of thousands of dollars to resolve the matter."