Pet-leasing firm pays $190,000 for charitable purposes to end state Department of Justice probe

OREGON LEGISLATURE - Hannah the Pet Society founder Scott Campbell, shown during 2015 legislative testimony in which he said the firm had obtained pets from about 80 nonprofits and shelters. DOJ investigators looking at alleged deceptive marketing and complaints of questionable veterinary care later that year clamed the company actually was buying them from breeders using a single bogus nonprofit the company set up, characterizing the money spent as donations.Customers who've obtained dogs or cats from a Portland-area pet-leasing and care company could soon learn where they came from, under a settlement with the Oregon Department of Justice.

Hannah the Pet Society, which at times has been controversial because of its unusual business model, last month signed an agreement with Oregon DOJ that concludes litigation and a long-running consumer protection investigation.

Under the deal, the company admits no wrongdoing but also agrees to clearly inform consumers about its products and services while abiding by state laws governing deceptive marketing.

Fred Wich, the company's CEO, said of the deal, "There was no finding of any wrongdoing, there was no fine or penalty imposed.

"There are some minor things we need to do which we could have fought for another two years and spent another million dollars," he said. "We're happy to get it behind us and move forward."

The firm was founded eight years ago by Scott Campbell, a veterinarian-turned-entrepreneur with significant connections in Salem. He's expanded 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.

Those plans hit an obstacle more than two years ago. DOJ launched its 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.

Based on complaints accusing the company of poor care and of not fulfilling promises made when it signed up customers, the investigation expanded into the company's business model. Hannah operates as a "pet leasing" company, taking ownership of the animals to bypass insurance laws as well as regulations such as veterinary standards. It competes with pet insurers while operating as sort of a pet HMO.

DOJ never finalized its investigation. But after interviewing former employees and reviewing documents, the department cited evidence in court that it said suggests the firm misled customers, provided spotty veterinary care, and set up a bogus nonprofit as a go-between to conceal a longstanding practice of buying dogs from commercial breeders — rather than getting them from shelters, as the company had repeatedly and publicly claimed it did.

Hannah called the DOJ claims "unproven allegations with which we vehemently disagree," and threatened a lawsuit over the state's attempt to regulate the company like an insurer.

The settlement signed Jan. 11 is called an Assurance of Voluntary Compliance. It follows a standard Department of Justice format and is in effect for five years. It includes no admission of wrongdoing by Hannah, but exposes the company to large fines if it violates Oregon laws such as the Unfair Trade Practices Act — a statute barring deceptive marketing that underlay the state's investigation.

The agreement also covers two nonprofits set up by Hannah the Pet Society — called the Pet Animal Welfare Society and Hannah's Helping Hands — that DOJ suspected were set up to purchase animals from breeders. The agreement requires them to shut down.

The deal requires that within 30 days Hannah must inform all its customers who received a dog or cat that was purchased from a breeder of its origin. They then will have the option to return the animal and receive a refund of their enrollment fee.

The deal also requires that Hannah:

• Clearly and accurately describe the veterinary services it provides its members in marketing materials.

• Change the name of its "Pet Nurse Hotline to the "Hannah Help Line" and appropriately train the people staffing it.

• Not make misleading statements about the food it provides members, the source of their pets or about their pets' medical history.

• Clearly and conspicuously inform customers of the fee they'll pay if they decide to adopt or purchase their pet back from Hannah.

• Clearly inform customers that Hannah is the owner of all pets and has sole power to determine what treatment it provides, and also that Hannah's care of animals is not subject to the laws and regulations governing veterinary care in Oregon.

• Pay $95,000 to the Oregon 4H Foundation, and another $95,000 to place pets free of charge with veterans, group homes, senior facilities or for other charitable purposes.

Hannah has 60 days to rewrite its policies, procedures and marketing materials to comply with the settlement.

The company still will not be subject to insurance regulations or other enhanced consumer protection measures that the state had proposed for Hannah. Rep. Brian Clem, D-Salem, an influential lawmaker who calls Campbell, the Hannah owner, a personal friend, did not include those protections in legislation last year that ensured the company wouldn't be treated as an insurer, saying he thought the state's investigation was overbroad and unfair.

Wich, the CEO, says he thinks informing customers whose pets came from breeders is "going to be a non-event."

And he said he's hopeful that plans to attract national investors can proceed. "It's still our plan to expand this concept. It's a great concept. It's hard to do that when you have that DOJ overhang on you. That's one of the reasons why we are so delighted that ... it is over. We can move forward with the next steps in our strategic plan."

Clem, the lawmaker, said "This seems like a reasonable solution," adding that the settlement requirement that consumers be more clearly warned about the company's legal obligations "is all good stuff, I think, from a consumer protection standpoint."

You count on us to stay informed and we depend on you to fund our efforts. Quality local journalism takes time and money. Please support us to protect the future of community journalism.

Have a thought or opinion on the news of the day? Get on your soapbox and share your opinions with the world. Send us a Letter to the Editor!