How approaches in state attorney general actions differ from typical litigation

How approaches in state attorney general actions differ from typical litigation

February 8, 2023 – Companies generally try to avoid public litigation against a state attorney general at all costs, as it can be catastrophic. (“Developing a strategy for settling multistate AG investigations,” Reuters Legal News, Nov. 10, 2022) In those instances where a confidential regulatory investigation precipitated the filing of a complaint, the state attorney general’s lawsuit makes public the previously unknown regulatory investigation.

That, in turn, usually prompts negative press, customer or consumer inquiries, regulatory scrutiny from other states or federal agencies, and — depending on the focus — consumer class actions by the plaintiffs’ bar. It can also torpedo pending business opportunities, harm employee recruitment efforts, cause a loss of goodwill in the marketplace, drag down company valuations, and potentially trigger a shareholder derivative lawsuit in the case of publicly traded companies.

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Yet, increasingly in recent years, targeted companies have had no choice but to reject the onerous settlement terms demanded by a state attorney general, whether it be because the company cannot afford to pay the stiff monetary demand embedded in the settlement offer or because the injunctive relief terms would cripple the challenged business practice in such a manner that the business unit could not remain viable. When faced with such draconian realities, a company may have no choice but to dig in and prepare for battle.

A common mistake, however, that many companies and their outside counsel make is that they only arm themselves with the same tactics they employ for typical litigation against the plaintiffs’ bars or commercial competitors. They will rely on their tried-and-true strategies for responding to the complaint, such as engaging in motions practice under Rule 12(b), managing discovery, attempting to mediate the case, filing a motion for summary judgment, challenging opposing experts, and eventually heading toward trial.

Relying on only these typical tactics from the traditional rulebook, however, usually costs companies in the end because litigation initiated by state attorneys general bears little resemblance to litigation initiated by private plaintiffs. While the former might look like the latter from afar, it is a much different beast up close.

In this first of two articles on litigation with state attorney general, we walk through three ways state attorney general actions differ from typical litigation and why understanding those differences — and building a litigation strategy that accounts for them — is pivotal in surviving a state attorney general action. In the second article, we discuss two more differences.

1. Unlike private plaintiffs, state attorneys general can and usually do investigate companies before filing a lawsuit

When initiating litigation, plaintiffs rarely have the information they need to back defendants into a corner with their factual or legal arguments. Instead, they generally rely on allegations from their client, public information, and perhaps confidential information from a whistleblower. This sort of starting point may help generate publicity at the time a lawsuit is filed but leaves plaintiffs vulnerable to early dispositive motions.

State attorneys general complaints, on the other hand, tend to rely on documents and information acquired from the target or third parties via earlier civil investigative demands (CIDs), from consumer complaints, or from aggrieved market competitors who have brought the challenged conduct to the attention of the regulators.

Where documents and information obtained directly from a target are reproduced in a complaint, the defendant faces substantial pressure once inside the courtroom. Indeed, such information typically results in a well- explained complaint, making a successful dispositive motion at the pleading stage less likely than usual.

Because the allegations tend to be more detailed, the media outlets that paraphrase the complaint have more to say than when conveying the contents of the conclusive complaints common in typical litigation. Also, it is important to appreciate that any lawsuit by a state attorney general will typically grab the headlines; news editors patrol new filings with a keen eye directed at litigation that contains the attorney general’s name in the case caption.

2. State attorneys general are motivated by public policy considerations.

Whereas the attorneys for plaintiffs in typical litigation answer only to their clients, state attorneys general are necessarily sensitive to public policy considerations. That difference accentuates the contrasts in strategic approaches that defendants well-versed in typical litigation are often witnesses when litigating with a state attorney general for the first time.

Plaintiffs’ attorneys usually pursue strategies and tactics they hope will maximize the value of their clients’ cases and position them to resolve those cases quickly for as large a recovery as possible. A common refrain often repeated in consumer class litigation — at least by the defense bar — is that plaintiffs’ attorneys want the maximum payout for the least amount of work. Plaintiffs’ attorneys are incentivized not to drag out litigation any longer than is necessary to achieve their goals.

In contrast, state attorneys general answer to the general public, not only because they are elected officials, but also because one of their central responsibilities in that office is to carry out the role of parens patriae (literally, “parent of the nation”) , responsible for protecting the public interest. This reality can impact the litigation process because state attorneys general may not just want to secure the largest recovery possible; they might pursue alternative objectives.

For example, there are times when a state attorney general endeavors to make an example out of a defendant to deter others from engaging in the same alleged wrongdoing. State attorneys general must also consider the policy impact of their litigation decisions on entire segments of the economy.

Thus, once a lawsuit has been filed, defendants and their counsel need to be prepared for a state attorney general to engage in aggressive advocacy that supports the policies of the office — even where, were a traditional private plaintiff involved, it might seem to make economic sense to accept a settlement offer at the same point in the case. Many defense counsel is new to litigating a state attorney general action find such decision-making anathema and are unable to explain to their clients the rationale behind an attorney general office’s response. But that is because they fail to grasp all the other atmospherics surrounding the case that is absent in other cases.

3. Changes within state attorneys general offices can affect the direction of a suit.

In typical litigation, plaintiffs’ attorneys generally do not change course in litigation strategy unless new information or an intervening change in the law causes them to do so. Once a lawsuit begins, the defendants know they are in for a long fight if their dispositive motions do not succeed and the parties remain far apart in their settlement valuations or framework.

However, the nature of cases against state attorneys general offices can lead to an immediate and unexpected pivot in litigation strategy — which could occur for reasons entirely outside the purview of the given case. As an example, when new state attorneys general assume office, they and their advisors review and analyze all current pending litigation to determine whether they want to turn up the heat, dial it back, or maintain the current course. Indeed, there have been situations where state attorneys general have abandoned cases their predecessors prioritized or reignited cases their predecessors had no interest in pursuing. This phenomenon occurs more frequently when the political party controls an office switches.

Of course, these changes can have profound effects on litigation strategy. When a potential change of officeholder is on the horizon, defense counsel will need to consider the timing of scheduling orders, motions, discovery, and other notable events in the litigation process to ensure these events occur when a state attorney general is in office as their presence could lead to a more favorable outcome.

Defense counsel will also need to make judgment calls regarding tactics that might backfire, such as a strong motion to dismiss that might cause a new attorney general who would otherwise be inclined to drop a case, to instead dive in for a fight.

A different approach for a different kind of litigation

Given these three differences between state attorney general actions and typical litigation, defending a lawsuit brought by a state attorney general requires different litigation strategies than those employed in typical litigation for the reasons discussed above. In-house or outside counsel who approaches these high-stakes lawsuits the way they would approach typical litigation could find themselves at a significant strategic disadvantage.

Ketan Bhirud, a counsel at the firm, contributed to this article.

Ashley Taylor is a regular contributing columnist on attorney general investigations for Reuters Legal News and Westlaw Today.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Ryan Strasser

Ryan Strasser is a first-chair trial lawyer and a litigation partner at Troutman Pepper Hamilton Sanders LLP’s regulatory investigations, strategy and enforcement (RISE) practice group. He focuses his practice on the representation of clients at the intersection of enforcement actions, investigations, and civil litigation. He is based out of the Richmond office and can be reached at [email protected].

Amy Pritchard Williams

Amy Pritchard Williams is a partner with the firm and focuses her practice on consumer financial services, government enforcement and bankruptcy. She represents lenders and other companies in complex commercial litigation, consumer class actions, and related matters in connection with the False Claims Act (FCA) and Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) actions, internal investigations, subpoena responses and government investigations. She is based in Charlotte, North Carolina, and can be reached at [email protected].

Ashley Taylor

Ashley Taylor is a partner at the firm and co-chair of its state attorneys general team where he focuses on federal and state government regulatory and enforcement matters involving state attorneys general, and often involving the Consumer Financial Protection Bureau and the Federal Trade Commission. He was previously a deputy attorney general and has a consumer practice, advising debt buyers, debt collectors, payment processors, credit reporting agencies and auto finance companies on regulatory and compliance issues. He is based in the Richmond, Va., office and can be reached at [email protected].

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