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State Attorneys General wield considerable influence through their bully pulpits, which they utilize in various ways to impact policy and corporate behavior. This article delves into a recent trend of State AGs publicizing when they initiate an investigation. As State AGs shift from traditional confidential inquiries to public disclosures, companies must adapt to mitigate potential repercussions.
Traditionally, State AGs kept confidential their investigations into private companies and only publicized the existence of an investigation when the issues involved a substantial emergency or when a lawsuit had been filed or a settlement had been reached. In fact, many states have codified this custom by rendering subpoena responses exempt from open records laws, despite the presumption that records should generally be made available to the public.
State AGs have recently voiced frustration with this traditional process. Keeping investigations confidential may result in companies not taking the investigations seriously and may limit the State AGs’ ability to share with constituents (i.e., voters) the actions being taken to protect them. Conversely, many State AGs believe that attention from publicizing an investigation incentivizes companies to respond and to prioritize a quick settlement.
Revealing a State AG’s accusations can increase a company’s public relations exposure, thereby forcing a company to choose between cooperation or the risk that accusations of bad corporate behavior become a self-fulfilling prophecy. Such incentivized cooperation has led to prompt settlements in several cases. For example, the Texas AG publicly announced its investigation (https://bit.ly/470WXAZ) into General Mills for allegedly misrepresenting certain products were “healthy,” and it quickly resulted in a settlement (https://bit.ly/3V1nIOc) just one month after the announcement.
Publicizing an investigation typically occurs via a press release and perhaps an accompanying press conference. Texas and Montana are among the states that have recently followed this strategy. In fact, their releases include a link to the subpoenas and timelines by which the investigated party must respond.
Publicizing an investigation is not always a winning strategy. State AGs can only publicize an investigation once, and publicizing right away means they lose the leverage to publicize (or threaten to publicize) later. Further, if a State AG announces an investigation, a company may presume that the state has already reached a conclusion about its actions, which may disincentivize a company’s cooperation.
Managing and mitigating the impact of public investigations
The increasing trend of publicizing investigations highlights the political nature of State AG offices. State AGs are powerful figures, but they routinely leverage their positions as stepping stones to higher office. Consequently, so long as State AGs remain political figures, we expect them to use every tool available, including publicizing investigations, to advance their causes.
Parties on the receiving end of this tactic must move quickly to minimize the fallout. Below are a few recommendations for managing such crises.
1. Understand the goals of the investigating state
Before taking any action, a company must understand why a State AG believed that it was appropriate and necessary to publicize an investigation. With this information, a company can better strategize its response, ensuring that it is responsive to the office’s actual concerns.
For instance, a company’s responses differ if an investigation is prompted by a more policy-oriented issue as compared to an investigation driven by an increase in consumer complaints. The source of the concern can also allow a company to assess the regulator’s goals. Therefore, the company can determine whether such concerns are limited to that state (e.g., a hospital merger), whether the concerns will be prioritized by other regulators of the same political party (e.g., ESG), or whether the concerns are a nationwide issue (e.g., consumer protection).
2. Evaluate the broader regulatory landscape
Companies should assess whether similar issues have attracted attention from other State AGs, federal agencies, or international regulators. Additionally, analyzing recent trends in enforcement actions and settlements in the industry can provide insights into how regulators are likely to respond.
By gaining a comprehensive view of the regulatory environment, companies can better anticipate challenges and opportunities, allowing them to craft a defense strategy that minimizes risks and aligns with broader compliance goals.
3. Ensure confidentiality of productions
When a state announces that it has opened an investigation, third parties, such as plaintiff’s counsel, are likely to issue public records requests seeking the contents of the investigation — both during the investigation and after a resolution is reached. Accordingly, investigated companies must proactively determine the confidentiality protections that state law affords them. Numerous state statutes guarantee the confidentiality of subpoena responses, but the strength of those protections vary.
For instance, some state laws require a State AG to keep subpoena responses confidential, while others provide the State AG with discretion to share the responses. In many states, the confidentiality protections afforded to a company’s responses during the course of an investigation do not exist after the investigation concludes. This is why negotiating confidentiality agreements, prior to the production of responsive documents, is so important.
Insisting on a confidentiality agreement provides an opportunity to negotiate an array of confidentiality issues, including who can view the responsive documents, with whom those documents may be shared, and what notice the company receives before any information is shared.
Confidentiality agreements also provide the company an opportunity to tease out whether other investigations are occurring under the surface. When negotiating a confidentiality agreement, companies should consider the possibility that this information may be shared with other regulators and, in turn, used to facilitate additional investigations without the company’s knowledge.
4. Reduce contagion
Even if a company negotiates an airtight confidentiality agreement, a state’s publication of an investigation means additional scrutiny from federal, state, and local regulators. It also means private lawsuits, where applicable, are likely to follow.
Companies benefit by proactively establishing a plan to defend against lawsuits and investigations on multiple fronts, mindful that responses to one action may impact the outcome in others.
5. Obtaining global peace (if a resolution is contemplated)
Companies may find it more difficult to reach a resolution when a State AG publicizes an investigation and additional scrutiny follows. This is because if a company agrees to make changes or reach a resolution, other regulators and the plaintiff’s bar may interpret that concession as proof that the investigation has merit and/or that the company is not inclined to vigorously litigate the issue.
If a resolution is contemplated, the foremost goal is to assess the likelihood that such resolution will make it more or less likely that the company is able to achieve global peace. As a result, when entering into a settlement, a company should prepare a risk matrix of all regulators and private plaintiffs that could take subsequent action. This risk matrix should analyze the relevant statutes of limitation and historical instances where that regulator has entered into a settlement that post-dates an initial settlement from another regulatory body.
Chris Carlson is a partner at Troutman Pepper Locke LLP. He advises clients on regulatory, civil, and criminal investigations and litigation. With a background as an assistant attorney general, he provides practical guidance to clients with matters involving state attorneys general and federal regulatory agencies. He is based in Richmond, Virginia, and can be reached at chris.carlson@troutman.com. Blake Christopher is an associate at the firm. He collaborates with clients on matters related to government contracting, investigations, and disputes. His senior-level government experience generates insights and strategies for clients across a variety of industries. He is based in Washington, D.C., and can be reached at blake.christopher@troutman.com. Kyara Rivera Rivera is an associate in the firm’s regulatory investigations, strategy and enforcement practice group. She is based in Richmond, Virginia, and can be reached at kyara.riverarivera@troutman.com.
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