Don Stenberg

While many major companies have lobbyists in Washington, D.C. and in state capitals to promote legislative interests, relatively few companies have a plan for managing issues with state Attorneys General. That can be a very expensive mistake.

The importance of working effectively with state Attorneys General offices can best be understood by considering what happens if you don't.

What can happen if you don't is a prominent news story about a lawsuit being filed by the state Attorney General. The headline might be "Attorney General Sues Your Company for Deceptive Trade Practices".

As is invariably the case, this news article is bad publicity for the company. The mere fact that the Attorney General is suing Your Company is bad publicity for the company.

There are usually several consequences to this type of news article. First of all, after reading the article, many consumers will conclude that they do not want to do business with a company being sued by the Attorney General, especially one accused of consumer fraud or deceptive trade practices. The company's business suffers.

Second, if the company is publicly traded, the Attorney General lawsuit will frequently result in a decrease in the stock price.

Third, there likely will be significant attorney fees involved in defending the lawsuit.

Fourth, there is the possibility of multi-million dollar penalties. Where a company deals with a large number of consumers, the potential penalties can be extremely large. In some states there are civil penalties of up to $25,000 per violation. Generally, each consumer represents a separate violation. If Your Company has only a thousand customers in a whole state, the potential penalties could be $25,000,000. If ten thousand consumers were involved, the potential penalty becomes $250,000,000. While many states have smaller civil penalties per violation ($2,000 or $5,000), when the number of potential violations is in the thousands or tens of thousands the potential penalties are generally in the millions of dollars. Therefore, substantial amounts of a company's money are potentially at risk.

It is helpful to understand how the consumer complaint process works in many Attorney General offices. An Attorney General's office receives a large number of consumer complaints each year. Even a small state may have over 10,000 consumer complaints a year. Larger offices will receive well over a hundred thousand consumer complaints each year.

Because of this large volume, most consumer complaints are initially handled by clerical staff or, in a number of states, by volunteers.

Typically, the clerical staff will send what is basically a form letter to the company along with a copy of the complaint asking for the company's explanation. If the Attorney General's office is satisfied with the response, the file is closed, although most state Attorney General offices will keep a running total of the number of complaints received against each company.

There are several things that can cause consumer complaints to go to a higher level in the Attorney General's office. One is if the company fails to respond to the letters it receives from the Attorney General's office.

The second is if the explanation by the company is entirely unsatisfactory.

A third is the number of complaints received against a particular company.

The number of complaints received against a particular company is quite important in terms of whether the matter goes to a higher level in the Attorney General's office. A company that has only two or three complaints against it in a year is very unlikely to be the subject of an Attorney General lawsuit unless the activity complained of is extremely egregious.

By the same token, if the Company has dozens or hundreds of complaints against it, and the complaints establish a pattern of conduct that the Attorney General's office considers questionable, then there is a much greater likelihood that the matter will be reviewed at a higher level in the Attorney General's office.

There are several things that you can do to reduce the odds that your company will be a defendant in a lawsuit filed by the state Attorney General, or worse, a group of state Attorneys General.

Always respond promptly to a letter from the state Attorney General office regarding a consumer complaint. If it will take some time to obtain all the necessary information for a substantive response, send an initial letter acknowledging receipt of the letter from the Attorney General's office, state that you are gathering the information necessary to respond and that you will make a substantive response within a specified period of time.

In preparing the substantive response, get all the information about the specific complaint, including previous correspondence with the customer, actions previously taken to satisfy the customer, the customer's responses and so forth. If the consumer has had telephone conversations with company representatives, those telephone conversations should have been documented by the person taking the call and should be reviewed in preparing the response.

If the Company has received similar complaints from other customers, and particularly if it has had similar complaints forwarded by a state Attorney General, you should review what the Company has told those consumers and what the Company has previously told the state Attorney General. If there are a significant number of complaints of the same type, consideration should be given to whether a company policy should be revised or better disclosure given to consumers.

In cases where a particular company employee has violated company policy in dealing with a consumer a personnel action should be considered. For example, if an employee (or outside contractor), uses profanity or threats in violation of company policy, an appropriate personnel action will help establish that the company is serious about the enforcement of its policies in dealing with consumers.

If possible, it is generally desirable to have one person handle all of the consumer complaints that are forwarded from a state Attorney General's office. If that is done, it is quite effective if that person meets periodically with the head of consumer protection or other key staffer in the Attorney General's Consumer Protection office. The purpose of these meetings is to establish a clear point of contact between the Attorney General's office and the Company and someone the Attorney General's office can go to who can and will resolve consumer complaints on behalf of the Company in a fair and expeditious manner.

Do what you say you will do. If you tell an Attorney General's office or a consumer that something will be done, then make sure that it is done. If you represent to the Attorney General's Consumer Protection staff that a certain charge will be cancelled, it is important that that be done.

But what if an Attorney General, or group of Attorneys General, have already filed a lawsuit against your company?

Every situation is different and needs to be assessed individually. Considerations include the strength of a company's legal position, the views of the attorney general(s) involved and the staff involved, the likelihood other states may become involved, the potential for and seriousness of adverse publicity, whether a particular settlement will lead to increased demands from others, and so on.

Another area where state Attorneys General are becoming increasingly involved is the review of corporate mergers. These reviews are generally undertaken by a group of states with one state principally responsible for coordinating the joint review. Some states may also review a proposed merger jointly with the U.S. Justice Department. As the Microsoft case demonstrates, a settlement with the federal government does not assure a settlement with all the participating states. In these situations it is important to not only work with the federal anti-trust reviewers, but the states as well.

One of the things that some companies are starting to do is to put together a comprehensive strategy for heading off legal difficulties with state governments.

The strategy I recommend includes (i) meetings of high level company representatives with individual Attorneys General and key staff to let them know that the company wants to do the right thing and offering a point of contact if issues arise; (ii) meetings with key regulatory staff in each state for the same purpose; and (iii) developing creative settlements when legal issues do arise.

I will discuss each of these briefly. In large organizations there will from time to time be an employee who, contrary to company policy, will take actions that are legally questionable. By meeting periodically with state Attorneys General and/or their key staff, lines of communication can be developed. The goal is that if a problem comes to the attention of the Attorney General's staff that the matter will be brought to the attention of company management so that corrective action can be taken without the need for legal action against the company by the Attorney General.

Outside of the consumer protection and anti-trust areas, state Attorneys General generally will only take action when a matter is referred by a regulatory agency for legal action. This is generally true in most states on insurance matters, banking matters, environmental matters and other issues where there is a regulatory agency with primary jurisdiction. Meetings with key staff of these regulatory agencies serve the same purpose of opening the lines of communication and will hopefully allow issues to be resolved before they go to the Attorney General's office.

In situations where some employees of the company have acted inappropriately, or even where the company believes it has acted appropriately but an Attorney General threatens legal action or has taken legal action, settlements can sometimes be devised to minimize damage to the company. One of these is a settlement in which a company may agree to a set of best practices for the company, which the Attorney General will promote as a new standard for the industry. Properly handled, this can provide positive news coverage for a company and minimize the amount of money that must be paid in settlement. It can also help avoid lawsuits by other state Attorneys General and, at least going forward, reduce the threat of private class action lawsuits.

It is fair to say that not every lawsuit by an Attorney General can be avoided. Sometimes an Attorney General will take legal action based on what the company believes is an unsupportable legal position on a matter of great economic importance to the company. In that situation, the company may decide that litigation is the only option. That situation, while it does happen, is probably the exception. Most potential difficulties with state Attorneys General can be avoided or resolved satisfactorily without undue adverse publicity if properly handled.

Don Stenberg served as Nebraska's Attorney General from 1991 to 2003 and is a member of the Washington Legal Foundation's Policy Advisory Board. He is a cum laude graduate of Harvard Law School and holds an MBA degree from the Harvard Business School. He is presently Of Counsel to the Omaha, Nebraska law firm of Erickson & Sederstrom where he focuses on assisting clients on matters involving state Attorneys General.



	Don Stenberg 10330 Regency Parkway Drive Omaha, Nebraska 68114-3761 Telephone: (402) 390-7120 Facsimile: (402) 390-7130 Email Address: donstenberg@eslaw.com Websites: www.donstenberg.com and www.eslaw.com