Handling State Attorney General Advertising Cases: Substantive and Procedural Considerations
Presented by the Consumer Protection and State Enforcement Committees
Session Chair and Moderator: Kevin J. O’Connor, Godfrey & Kahn SC, Madison, WI
William Brauch, Director, Consumer Protection Division, Iowa Attorney General’s Office
Jurisdiction is broad, including business-to-business and nonprofit/charitable solicitation. National Ass’n of AGs issues a monthly report on cases, to which one can subscribe.
Multistate actions in recent years (they date to the 1970s) have several common themes. Several involve big pharma: offlabel uses or misleading claims in general—Zyprexa, Celebrex, Yaz, cold remedies. Also: Enviga claims to burn 60-100 calories from drinking the beverage; Miller’s caffeinated alcohol beverage, Sparks (now no longer contains caffeine). Health consequences are of particular concern, such as potential misperceptions that people can avoid the inebriating effects of alcohol by adding caffeine.
Lifelock: protection of consumer financial information; settlement included restitution of $11 million—this is a harbinger of future FTC-state collaboration. Financial: top priority over past few years is mortgage lending. Numerous cases against foreclosure rescue operations, the vast majority of which appear to be outright scams. People spend thousands up front and get little or nothing for it. Illinois probably leads the country in cases filed, but many states have done so, participating in an FTC sweep. Similar area: debt settlement/management, targeting desperate consumers and squeezing their last dollars through fraud.
Real estate sales: states help each other. PA AG alerted FL AG to a Pennsylvania-based owner of a Florida real estate company; ended in Florida lawsuit.
Traditional areas: automobile cases. Effort in recent years to pursue false auto ads, promoted by “agencies” that offer services to new car dealers to promote used inventory—ads falsely represent that someone is bringing used vehicles/repos/cars from bankrupt company and thus bear a good price. But in fact those are the usual used car inventory from no particular source; scam also often includes specialized sales staff that strongarm consumers. Free gas as another deceptive practice: consumers who attempt to use the coupon find out there’s no free gas—dealers often end up feeling ripped off too, though they should have known better than to hire such an “agency.”
Electronic smoking: with fun flavors like chocolate, banana, etc. and a promotional video with Howard Stern saying “kids love ‘em.” Targeting kids gets AGs’ attention, as does targeting seniors.
There are also the traditional cases of generally deceptive conduct. Lifestyle Lift: in NY, gone after for posting fake consumer reviews. Verizon: settled charges over charges for ringtones marketed as free—traditional enforcement activity. Settlement over tax “refunds” (advertised) versus refund anticipation loans (delivered)—a pretty classic case.
O’Connor: how can a competitor alert the AGs to a problem?
Paul L. Singer, Assistant Attorney General, Consumer Protection and Public Health Division, Texas Attorney General’s Office
Complaints start a case; we’re all consumers, so things we/people in our offices see may start a case. (1) There’s a common misconception that for state regulators to bring a case there has to be a certain number/type of consumer complaints. It’s a common defense that there are no complaints. But state UDAP laws give authority to bring a case when there’s a potential violation of the law, regardless of specific complaints: proactive. (2) Process varies from state to state. Only 17 states left only accept complaints by mail; the rest take them online. This allows an increase in complaints, but they tend to be less specific because people can’t easily attach documents/ads. So we can struggle to figure out the underlying issue.
Q: doesn’t the lack of complaint show that a reasonable consumer isn’t being misled? When you do get complaints, what if there are a million transactions and 12 complaints—what’s de minimis?
Singer: That’s relevant. But there are a lot of industries where, because of the sensitivity of the transaction or other features, consumers may be unwilling to file complaints: debt settlement for example. It’s not because consumers weren’t misled or because the service worked, it’s because they’re embarrassed. Percentage is worth considering, but complaints are always just the tip of the iceberg, especially since complaints go to other places like the BBB as well.
Braich: predatory lending—transactions can be so complex that consumers don’t understand what went wrong. Ameriquest settlement was one of the biggest frauds he’d seen, but consumers hadn’t complained much.
Robert M. Langer, Wiggin and Dana LLP, Hartford, CT
To get AG attention, get an editorial about the practice in the NYT! That will attract interest. Malpractice in 2-3 easy lessons: fail to understand how to approach AG/Consumer Protection office—he wrote an article about this some years back. General rule: no surprises. To the extent one knows that there’s a request/civil investigative demand/other indication of state interest, you need to understand the issue, whether it’s likely to generate multistate/FTC interest—very rare that one can sit back and say a prayer, hoping it goes away.
Singer: Before the demand stage: while most every state offers some complaint mediation, it’s not true that every complaint received by every office gets to the company automatically—in Texas, use is generally internal rather than being passed on. A proactive effort to check in with the AG can be a preemptive effort to avoid the next step.
Q: What determines whether you send it on to the complainee?
Singer: If we’re looking at someone and want to see the response; if there’s something unique about the complaint and we’re trying to figure out what’s going on. It’s not necessarily a bad sign, but we want some answers if you get a batch of complaints from your office. Might be worthwhile to pick up the phone.
Langer: Look at the complaints. If you believe that the complaints are simply wrong, and you can back that up, you can let the AG know. Before things fester, talk about it. Unfiltered complaints v. investigated complaints: do client a big favor (and the AG too) by providing input early on.
Braich: in most states complaints and responses are open records. So the last thing a company wants is an unresponded-to complaint; Texas is perhaps unusual in not passing them on routinely.
Singer: if there’s a significant issue with real consumer impact, a competitor’s message can be well-received. But if the company does fieldwork and comes in with a packet of ads and consumer complaints, it’s not a competitor complaint any more, and that’s likely to be better received.
Langer: competitors can prepare documentation and legal analysis, providing an overview/explanation.
Statutory basis: Most states apply the FTC Cliffdale Associates standards (likely to deceive a reasonable consumer acting reasonably), though a few continue to apply the tendency to capacity or deceive standard. As a practical matter there’s almost no analytical difference, and multistate there’s a common approach. Other than private causes of action requiring causation/intent, there aren’t differences. You know deceptiveness when you see it.
Unfairness is a much more complicated concept. The FTC follows a substantial injury standard (that can’t be reasonably avoided by the consumer), but states vary: violation of statute or common law; some other standard of bad behavior. 16 states that have a Little FTC Act continue to follow the older FTC rule barring immoral/unscrupulous/unethical behavior; 4 have adopted Section 5(n) of the FTC Act’s substantial injury. 6 states don’t seem to have looked at the issue. Maryland has adopted the FTC policy statement by judicial decree. In Connecticut alone, dozens of cases focus on immoral/unscrupulous/unethical behavior as the sole basis for finding a violation—the law is more complicated than with respect to deception.
Patricia A. Conners, Associate Deputy Attorney General, Florida Attorney General’s Office
Oversees a lot of different enforcement units. States are taking a real interest in enforcing federal statutes—Consumer Protection Safety Act authority just achieved in Florida; TILA. Continuing trend from CAN-SPAM act and other provisions of federal law, where perhaps before there was local/state focus—perhaps due to the internet, where the AGs all start to see the same thing at the same time.
Trends: more states focusing on internet fraud and cybersafety, because that’s not going to go away. NY has an internet fraud unit, and Florida has a cybercrime subunit. Florida did “free” ringtones as part of this—cellphone companies had to treat this as their problem, because they made 40% of the profit from the ringtone companies for whose behavior the cellphone companies had previously disavowed responsibility.
UDAP statutes are really broad; in a lot of cases a violation of some specific regulatory statute (insurance, etc.) is also a violation of the UDAP law. Will work with other state agencies to ensure more aggressive enforcement where an agency is thinking like a regulator rather than an enforcer.
Braich: concealed harm, where something in the stream of commerce can hurt you can be unfair—Firestone tires; lead in products. The ability to enforce federal law is not so much about expanding jurisdiction, because UDAP is so broad, but giving us strategic opportunities—generally couldn’t join together before except in isolated circumstances. Ability to enforce HIPAA, for example, in federal court, is new and promising.
Langer: Some law out there already that under CAFA even state AG actions for restitution may be removable. Waiting for a 2d Circuit case on the issue. State AGs would go ballistic, though.
Conners: CAFA had a draft provision exempting state AGs, but was taken out, but with assurances to the state AGs that it was not intended to be interpreted as applying to the AGs.
Comment from audience: we had a case in 11th Circuit where the AG was unable to secure a remand.
Connors: Compared to the states, the FTC creates more transparency with guidelines; constantly revising and seeking comments on policy statements and guidelines to help industries. Telemarketing rule; negative option rule; etc.
Braich: compared to FTC, our injunctions tend to be more detailed: a really specific behavior we want to stop. Class actions: we don’t like it when a settlement says that consumers won’t complain to state AGs—we will go after that every time.
Conners: Pharma offlabel marketing cases have strong injunctive provisions in them. Likewise sales of tobacco products to minors.
Braich: note that if a company doesn’t respond to a civil investigative demand, a number of states allow the AG to sue on that ground alone and suspend the ability to do business in the state.
Singer: In Texas failure to respond is even a criminal offense.
Panel was asked how far up the chain you need to go to start process—answer, not very far. Singer: before we issued a demand, our executive administration would approve the general investigation.
Conners: As the 3d largest state, we have almost 100 consumer protection lawyers and 5 offices; division director in Talahassee has a lot of discretion.
Braich: same in Iowa—individual lawyers don’t seek specific authority to investigate/issue a CID, though there’s generally knowledge & approval.
Langer: some states don’t use the AG as the principal administrator of the consumer protection law, but the AG can still issue an investigatory letter. Issues: whether the AG has that authority. In-house counsel assume that the AG’s request means the AG has authority to issue a subpoena, but it’s sometimes not true. That means the information you supply might not be subject to any confidentiality requirements and could end up on the front page. Need to investigate!
O’Connor: let’s talk multistate initiatives.
Connors: Multistate initiatives get formed for several reasons. A handful of states are typical initators, asking around for other states’ interest. If there is common conduct, states would ask each other what they’re doing. NAAG allows people to keep each other apprised. Toyota: much in the news. Is multistate relief more appropriate? Strong injunctive relief, for example, in offlabel pharma cases—means that each state may need to get a consent order in its own courts.
O’Connor: then don’t you end up with multiple different courts, since the standards for relief are different?
Langer: that can be like herding cats.
Connors: with settlements, there’d be a standard agreement negotiated by an executive committee made up of 3-4 states. But if you litigated it out, yes, it would have to be state by state.
Braich: usually there’s an executive committee or a lead state that does most of the work (and may end up with a larger share of the relief).
Singer: sometimes a group of states have all sent subpoenas. But other times one/small group will be doing the investigation and figuring out ways to meet confidentiality obligations while sharing information. One key factor for multistates: it’s a balance between efficiency/coordination problems—a longer process—and a global resolution.
O’Connor: how confidential is the state investigative process? How do you deal with state open records laws?
Singer: Texas has a confidentiality statute: specifically designates documents as confidential, limited to producing party and AG’s office. But the AG can use documents in any way to enforce, including in court. Just means they can say no to an open records request. But if the info is provided voluntarily then that restriction doesn’t apply. If it’s not produced in response to a civil investigative demand, it may not be protected, even if it’s produced in response to a follow-up to a CID. Practice: one lawyer provides a notice with every followup document that it’s produced in response to a CID (even though Singer thinks this is sometimes not true).
Braich: Opposite of Texas: if we compel it, we have less ability to keep it confidential against an open records request than if we get it voluntarily. But we can provide notice and opportunity for target to go to court. We won’t assert confidentiality on behalf of complying party, but we will withhold it and let them litigate.
Langer: If we produce something to Texas that is confidential then send it on to Florida, Florida will respect the Texas confidentiality. Other possibility: give it to repository (private law firm) and ask Florida AG to review it off government property.
O’Connor: what if party asks for no sharing with another state?
Braich: we’d try to work out a solution that fits the states.
Singer: states wouldn’t agree to subvert their open records laws with confidentiality agreements—that’s actually against the law.
Langer: private practitioners can easily commit malpractice. You’d better know who’s involved with the investigation, and in what states.
Connors: Florida’s public records law are only applicable in consumer protection context, not antitrust. Anything produced through a subpoena is public information. But if we get it from another state that deems it confidential, we can keep it confidential. A subject of a subpoena can go to court and get a protective order for trade secrets or other confidential information. Like Iowa, AG won’t assert confidentiality on target’s behalf, but won’t fight. There are no resources for reviewing confidentiality: good advice is for the target to pick a small pile of documents and ask for protective order where the need for confidentiality is clear; otherwise that litigation will take on a life of its own and tick off the AG.
O’Connor: focus, early on, on negotiating confidentiality if you’re dealing with a multistate process.
O’Connor: what is the end game?
Braich: Deterrence and public education. Generally we can’t recover damages, only restitution. Outright scams, we want out of business.
Singer: sometimes you can tell that a guy is a real bad actor—may have 500 domain names and a clear intent to change the name and the details and start all over again.
Conners: Rural sheriffs are stumbling on foreclosure schemes where houses are being bought for use as grow houses—the rescue is a front to get houses to grow pot in! You have to go to criminal law enforcement.
A couple of panelists suggested that they might show a business a draft press release before putting it on the AG’s site, as incentive for compliance. General agreement that the AG's public statements might credit a business for cooperation, assuming that was true.
Langer: better know what the AG will say publicly before you settle. If you go through a process in good faith and end up excoriated as part of the settlement, the client may well be unhappy.
O’Connor: AGs have to issue press releases; it’s part of communicating with constituency.
Singer: you need to make sure you’re talking with the right people in the office. He’s often asked to show targets the press release. But Singer has no authority to do this, and he does not have control over the people in the press office.
Connors: Multistate—they share template press releases. So generally you know the flavor of the press release in any given state. But in certain cases there have been understandings with defense lawyers that there won’t be an announcement until a certain time. On occasion, companies get cute and jump the gun—e.g., talk to the WSJ—to get the story spun their way. That is not forgotten in the next interaction with the company or with the lawyers.
Q: ever filed your own suit because the class action settlement was so bad?
Connors: we get CAFA notices at the eleventh hour and we don’t know what they’re about. We’d have to conduct a whole investigation to figure out whether to do that (though objecting to settlements is a different matter on occasion). We talk to the lawyers, who tend to say that the merits are weak enough to justify a small settlement; we’d have to roll out a full investigation to say yea or nay to that.
Singer: it’s not uncommon for us to issue a CID that is “give us all the discovery produced in this action”—allows us to check what we’ve heard from class counsel.
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