State Antitrust Enforcement

June 1, 1998 Published Work
Committee on State Antitrust Enforcement, American Bar Association, Section on Antitrust


Having spent twenty-one years in the service of the public, and the last four years in the private practice of law, I have taken on the task, perhaps quite presumptuously, of moralizing to two constituencies my current brethren and my former brethren.

I have chosen two distinct sets of problems:

(A) ineffective representation by some private practitioners before the office of state attorneys general; and

(B) the misuse of pre-complaint investigative demand authority by state attorneys general.

A. HOW TO COMMIT MALPRACTICE IN TWO EASY LESSONS

I believe that it is quite fair to conclude that many attorneys in private practice, acknowledged to be experts in the fields of antitrust and consumer protection law, simply do not provide their clients with either sound legal advice or with good value for the substantial dollars expended. As I have previously stated (with my usual tact and diplomacy) some counsel "don't have a clue about state law, haven't done their homework, are not familiar with state case law." (FTC:WATCH, No. 371, July 20, 1992.) Some practitioners combine the aforementioned ignorance with equal doses of arrogance, often exhibiting faulty strategic and tactical decision-making, resulting in truly unfortunate consequences for clients.

Understanding the state bureaucracy is just as important as "knowing the law." One would not both presume to deal with the FTC or the Antitrust Division without a thorough understanding of the inner workings of either agency. The same holds equally true when dealing with a state attorney general's office. The differences, in terms of both procedure and sophistication, from state to state are, in some cases, substantial. The wrong tactical approach can spell disaster for the client. I know because I have personally witnessed it happen over and over again.

Two classic errors are illustrated as follows:

  1. Embarrassing the staff in front of the attorney general or his/her first assistant by making it appear that staff is vindictive or incompetent, or both. This is sometimes done by counsel to impress the client, who has been granted an audience with the attorney general. Unless you are absolutely certain of your facts, and play the "humiliation" trump card as a last resort after having exhausted all alternative avenues available to you, and after explaining in detail the strategy to the client, counsel is doing nothing more than seriously endangering the client.
  2. Embarrassing the attorney general in front of the staff by not doing your homework. In one instance, counsel spent forty-five minutes telling the attorney general in excruciating detail, and with a condescending air, how silly the legal theory of the case was, apparently not realizing that the attorney general had personally analyzed the matter before suit was filed, and stood four square behind the case.
In both instances, the conduct of counsel was, at best, counter-productive.

Additionally, many counsel, even when they are respectful, simply underestimate state assistant and deputy attorneys general. The depth of knowledge and breadth of experience possessed by many state antitrust and consumer protection enforcers is truly remarkable. Many are the acknowledged leaders in their field, holding important positions in national, state and local bar associations, and litigating and winning very difficult cases utilizing innovative legal theories. After the many successes of the NAAG Multistate Antitrust Task Force and the comparable NAAG consumer protection working groups over the past several years, it does surprise me that some private practitioners are, in the argot of my fifteen year old daughter, "clueless."

Having said all this, I do believe that the situation is getting somewhat better. The prominence of the Task Force, the improved relationship by the states with both DOJ and the FTC, as well as with the organized bar, has done much to eliminate the worst examples of arrogance and underestimation. My observations should, of course, not be understood as a condemnation of an entire class of practitioners, but rather as an indictment of those who, while holding themselves out to clients as substantive law experts, simply do not possess the concomitant interpersonal skills to deal effectively with governmental attorneys.

I only hope that, as the years pass, those of us who came from state government remember the lessons we have sought to teach others over the past two decades.

B. DO THE RIGHT THING

Early on in my career I completely understood that perhaps the most important part of my job was the duty to recommend to the attorney general which persons the State of Connecticut would publicly accuse of violating the laws that we administered. It is not at all difficult for even a recent law school graduate (with a moral compass) to comprehend the incalculable harm that would be caused to any person, natural or otherwise, publicly accused in error by the government of violating the law. Moreover, no attorney general, usually an elected public official, can long survive embarrassing litigation defeats. Thus, for a host of reasons, based upon the convergence of ethical and political principles, governments do not ever wish to be wrong.

Because governments, even in a civil context, need to "never be wrong," antitrust and consumer protection enforcers are under extraordinary pressure to investigate a matter thoroughly before a suit is ever filed, utilizing the attorney general's extensive pre-complaint investigative powers. In most circumstances, judicious use of the government's pre-complaint investigative powers properly shields the innocent from public ridicule. I personally operated under the principle-do not bring a case that cannot be won-and to the credit of each of the five attorneys general whom I served, I was never told "file it away" ( which I would not have done). It is simply not enough for government enforcers to "get past Rule 11" or survive a motion to dismiss or a motion for summary judgment. Indeed, the media attention that often comes immediately after the filing of a suit by an attorney general can easily drive a company out of business even before the answer to the complaint is due.

The need to "never be wrong" carries with it other unintended consequences, however. Many state antitrust and consumer protection enforcers, particularly those without any private practice experience, do not appreciate the extraordinary expense that companies incur during confidential pre-complaint subpoena compliance proceedings, and the strategic decision-making which such expense compels. It is often the cost of subpoena compliance, alone, that reluctantly compels early resolution of some matters for small and medium-sized companies.

Because a properly drafted pre-complaint subpoena or civil investigation demand issued by an attorney general is rarely capable of being successfully challenged in court, it is very easy to be over-inclusive. The "canned" first wave subpoena is often very comprehensive. This is particularly true during the course of industry-wide investigations, when the government wishes to assure itself that companies are in compliance with the law. Such inquiries often are not premised upon a "reason to believe" standard, but rather upon inquisitorial powers of the sovereign, with respect to corporations, that reach to the outer limits of the Fourth Amendment itself. Not only does the Fourth Amendment have very little impact upon corporate document subpoena compliance, the Fifth Amendment, of course, does not apply at all to corporate documents, even when such documents incriminate the person who holds them. Inevitably, enforcers obtain more data than they can possibly absorb, unless they are willing to accept less information that they originally asked for.

There is no easy solution to this problem. Courts have been very hesitant to rein in government agencies for fear of forcing the government to prove during the investigatory stage what it should not be compelled to prove until the investigation is over, i.e., the existence of a violation of law. This coupled with the concomitant concern, previously expressed, that a rush to suit will, itself, subject the innocent to public embarrassment and economic harm. Finally, respondents who elect to challenge an overly-broad pre-complaint subpoena are faced with the reality that such a challenge will convert a confidential inquiry into a very public piece of litigation.

Notwithstanding my concern that I have grossly oversimplified a very complex issue, I do offer the following two pieces of advice to government enforcers.

Government enforcers must not use the pre-complaint process, itself, as a weapon to force settlement or resolution of a matter, a strategy often utilized during discovery in private litigation. It is easy to use the subpoena duces tecum as a weapon; it is often a very successful strategy; and it is just plain morally wrong.

Government enforcers must always be mindful that pre-complaint investigative powers can easily be misused, even when one does not intend to do so. The drafting of narrowly tailored document requests, in the long run, will better serve the interests of both the attorney general and the public.

The even-handed enforcement of a state's antitrust and consumer protection law is unquestionably pro-business, because such enforcement both

  1. creates an environment in which honest business can thrive; and
  2. cleanses the marketplace of dishonest companies.
The indiscriminate, imprecise, or injudicious use of the pre-complaint subpoena is, however, potentially quite harmful to honest businesses. Rather than creating a level playing field, overreacting subpoena issuance causes serious economic dislocations. Companies settle because they cannot afford to do otherwise.

There are no bright line tests to determine when you are doing the right thing. You have only your own moral compass to guide you. It is not enough simply to win. You need to win for the right reasons.