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What Corporate Counsel Should Remember When the State Attorney General Calls

Summary Understand the Power of the Office Evaluate Exposure – and Make Sure You're Right Work to Secure a Quick and Sensible Settlement Beware of Collateral Litigation Recognize the Reality of Politics Conclusion Additional Resources Rate this QuickCounsel

Summary

The state attorneys general sometimes take on the role of the cool-handed law man on the western frontier. Putting on the proverbial white hat, they promise to enforce the law with impartiality, and use the great power of their office to protect the weak, punish evildoers, and put an end to injustice and graft. In most cases, the public is grateful for the attorney general's work. But that's not always the way companies feel when they get caught in the crosshairs of the state's top cop. In fact, they often feel like they are the victims, and that there's no one who will come to their rescue. For companies in this position, the attorney general's white hat can look very black.

State attorneys general have the power and authority to bring business to a standstill and force huge financial settlements. How should corporate counsel advise and assist company leadership when faced with a state investigation or suit? Although there are no easy answers to these questions, there are five general points you should remember when the state attorney general pursues an action against your company.

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Understand the Power of the Office

The first thing to understand about the state attorney general is the broad and historical power of the office, which is recognized or mentioned in most state constitutions, and further defined through statutes and case law, common law, and historical custom. The great majority of state attorneys general are elected to their position through a statewide election, and will hold their offices for four-year terms. Once elected, the attorney general's first and primary role is to serve as the chief law officer for the state. Although the precise definitions of this responsibility will vary from state to state, it will always involve three core roles: to enforce the laws of the state in the interests of the public, to represent state officers and departments in defensive and affirmative litigation, and to supervise and manage an office of assistants or deputies.

In addition to these core functions, many state attorneys general supervise separate law enforcement agencies, such as a Bureau of Investigation or a State Police force. They also regularly join forces with their colleagues to pursue multi-district litigation and to co-author amicus briefs to various appellate courts, including the Supreme Court of the United States. Finally, state attorneys general routinely submit jointly authored policy letters to the Congress and President on a range of issues, including consumer protection and environmental protection.

Your company should be especially aware of the attorney general's affirmative litigation authority. In almost every state, the attorney general's role as the chief law officer includes the prerogative to pursue state or federal enforcement actions against private or public entities under a range of statutes and common law causes of action. A complete catalog of these responsibilities is far beyond the scope of this piece, but the most common areas of enforcement include: antitrust, consumer law, charitable trusts, civil rights, environmental law, bankruptcy, Medicaid fraud, labor law, and securities. Adding to this arsenal of affirmative litigation power, the attorney general will in most cases possess the authority to initiate criminal and civil investigations, complemented by broad powers to issue and enforce subpoenas. The attorney general also possesses the power of statewide press and communications, access to key legislators and state leaders, and a broad standing before the public as the state's top cop. Once you understand the scope of these powers, you'll be in a better position to assist your client when it faces an investigation or suit initiated by the attorney general.

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Evaluate Exposure - and Make Sure You're Right

At some point, your company may receive a telephone call or a letter from the attorney general raising concerns about a business practice or making specific allegations of potentially illegal or criminal activity. What do you do next? First, recognize at the outset that the officeholder may have a whole collection of evidence and first-hand knowledge of your company's business activities, and will probably know a lot more about the issue than you do. Second, carefully evaluate your company's exposure to liability by performing a comprehensive examination of the alleged wrongdoing. Once you identify potential issues or defenses, perform a second level of due diligence to make sure that your evaluation is correct. This is not the time for short cuts. If you try to move too quickly, you may miss important facts and evidence that the attorney general may request through a subpoena or the discovery process.

Finally, find out what statute or common law cause of action the attorney general may be advancing. Once you identify the basic theory of the attorney general's investigation or complaint, analyze the evidence at hand and develop a strategic plan and theory of the case for the company's defense. Make sure to clearly define the areas where concessions should be made, and the areas that should be contested. Do your homework early and well, and your company should be in a better posture to proceed to settlement or full-scale litigation.

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Work to Secure a Quick and Sensible Settlement

Getting into a full-scale litigation battle with a state attorney general is usually a losing proposition—especially where the officeholder commits his power and resources to deal with an alleged public wrong committed by a business. In most cases, the best course of action is to work from your strategic defense plan and try to secure a quick and sensible settlement with the attorney general. There are two reasons for taking this approach. First, a company's best interests are usually not well-served by fighting with a public official in the press and the courtroom. Your company may have terrific outside counsel, but the budget you have for defensive litigation will probably be a fraction of the budget that the attorney general has for any number of cases or investigations. This has been the experience of many large and small companies, especially in states like California and New York.

Second, unlike private litigants, the attorney general is generally not motivated by securing compensatory damages to remedy a financial harm. Rather, the officeholder usually takes a case or begins an investigation to address an alleged wrongdoing that has caused injury to the public interest. The citizens elected him to office for that purpose, and they will fully support his expenditure of tax dollars to pursue a case against your company. This means that the attorney general's main objective is to prove a point and secure some form of legal relief that will demonstrate to the public that the officeholder has enforced the laws of the state. In these circumstances, the best thing you can do is to find a way to reach a sensible settlement with the attorney general that allows him to claim victory without bankrupting the company or generating a set of shareholder suits. Extended litigation should be a last resort.

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Beware of Collateral Litigation

After you've taken care to advise your client about the risks and realities described above, make sure to beware of collateral litigation pursued by the plaintiff's bar. Well-connected plaintiff's attorneys and their supporting organizations often introduce potential case work or complaints to the state attorney general so that the government can pursue a suit for damages and /or injunctive relief. Once a case settles or goes to a judgment in the State's favor, they will often pursue a related suit or class action complaint in a different state. If this occurs, your company's relief in a state settlement may only be temporary; the big cases will come soon after. And that's when a fistful of dollars won't be enough.

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Recognize the Politics

Attorneys General swear to uphold the Constitution and the laws of the nation, and to diligently pursue justice without regard to political pressures or perceived constituencies. But in most cases, they are also elected officials. And that can make a big difference for your company. For starters, the attorney general usually campaigns for office by making promises to aggressively prosecute public corruption, street crime, and environmental degradation. As the campaign process unfolds, the candidate will take donations and solicit support from various constituent groups. Like it or not, these groups usually expect the attorney general to act on previously stated priorities. They will often remind the attorney general of this fact when he or she seeks re-election or higher office.

In addition to these election dynamics, it is important to recognize that the attorney general is usually vested by the state constitution or statute with a large amount of prosecutorial discretion. For that reason, the officeholder's decision to pursue an investigation or lawsuit will often involve discretionary determinations that are predicated on value and judgments—not simple legal issues. Don't be surprised if an attorney general's suit presents cutting-edge policy arguments with little or no legal support, and don't be tempted to seek public vindication or sanctions if a court dismisses a suit for failure to state a claim. As many businesses can testify, the courts and the public will often defer to the officeholder's discretion, and view his case as a good faith effort to protect the public interest. Your company's costs are part of the process.

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Conclusion

Companies faced with an investigation or suit initiated by a state attorney general should carefully evaluate their exposure to liability, and decide on a course of action informed by the powers of the attorney general's office, the realities of politics, and the risks of collateral litigation advanced by the plaintiff's bar. With proper planning and sound strategic guidance, corporate counsel can help their clients respond to these actions with maximum information and sound recommendations for the correct course of action.

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ADDITIONAL RESOURCES

ACC Resources

Other Resources

Contact author David M. Verhey at Holland & Knight LLP, Washington D.C.

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