June 29, 2017

State AG’s Issuing Subpoenas: The Whys and Wherefores of Civil Investigative Demands

The Financial Fraud and Consumer Protection Section of the Oregon Attorney General’s office received over 47,580 consumer contacts in 2013. It was a normal year. Businesses first learn they are under scrutiny when enforcement officers from the Section ask businesses to respond to a consumer complaint. Complaints can escalate into investigations. Sometimes the Section joins investigations with other public agencies including other state Attorney General offices. The cases are extremely diverse and include the prosecution of businesses for violations of trade practices covering debt collections, mortgages, auto sales, telemarketing, antitrust, health care, education fraud, elder fraud, and privacy violations.

Consumer Complaints and Civil Investigative Demands

To obtain evidence, the Section will serve a civil investigative demand (CID) on a business. Many businesses misunderstand the nature of the CID, which is a creature of statute under the authority of the Attorney General’s Office (AGO). For instance, the Oregon AGO can issue CIDs to investigate antitrust matters, allegations of false claims, or for consumer protection purposes. The Financial Fraud Section of the Oregon AGO routinely issues CIDs for all these case types. For investigations of consumer protection violations, the statute authorizes the “prosecuting attorney” to

execute in writing and cause to be served an investigative demand upon any person who is believed to have information, documentary material or physical evidence relevant to the alleged or suspected violation.

Or. Rev. Stat. § 646.618(1).

For this reason, before responding to anything resembling an AGO demand for evidence, recipients should ask the basic threshold question: what is it?

What Is a CID?

It is a mistake for a business to presume a CID is analogous to a criminal or civil subpoena issued from a law firm or district attorney’s office. To be sure, most state Attorney General offices use these tools.

For regular criminal proceedings, the authority to issue subpoenas is often identical to a district attorney (DA). In fact, in many states the AGO does not have original criminal jurisdiction and cannot bring a criminal action without a special prosecutor appointment from the DA, with the state as the client. When this occurs, the DA’s office sometimes issues subpoenas on behalf of the prosecutor. Under the special appointment, the common criminal procedure rules govern the subpoenas used for grand jury process, hearings, and trials.

Noncompliance with DA-issued criminal subpoenas may result in the state seeking a warrant for the arrest, for instance, of a subpoenaed witness who fails to appear. Similarly, the state may seek an order to seize evidence not produced. Of course, opposing counsel may move the court to quash a subpoena. If the state prevails, however, the court may issue an order for production alongside the subpoena, with contempt as the remedy for noncompliance.

For regular civil subpoenas, AGO authority also is restrained by the rules of civil procedure. Whether the AGO acts as plaintiff or defendant, noncompliance with a civil subpoena poses the same risks found in the regular civil litigation process. The noncompliant side may find itself facing a motion to compel, sanctions, or evidence spoliation problems.

The CID is a lesser known—and even less understood—subpoena-like tool used by consumer protection offices like the Financial Fraud Section of the Oregon AGO. A CID tends to be expansive and may resemble a lengthy subpoena duces tecum, for specified documents. The scope is investigatory, broader than civil discovery. The CID often provides an extensive list of items or documents to produce and may pose interrogatories or testimony under oath. A lawsuit is not required; as the name implies, it is served during an investigation. The receiving party may not be the investigation target, but frequently is. The investigation does not automatically become a lawsuit, but frequently can. Keeping this in mind, some guidelines are helpful.

Guidelines When Served with a CID

The CID Is a One-Way Street. In other words, a business that receives a CID is not entitled to engage in a reciprocal discovery battle. This was recently tested in the ongoing investigation of Innovation Ventures, LLC et al. regarding its 5-Hour ENERGY product. No. 1312-17876 (Multnomah Cnty. Cir. Ct. 2014). After receiving a CID from the Oregon AGO Financial Fraud Section, counsel for Innovation Ventures issued its own requests for production to the State of Oregon. The Oregon CID statutes, however, identify only the AGO or a DA as the “prosecuting attorneys” that have the authority to issue a CID and enforce noncompliance. In granting the Attorney General’s motion to quash, the court said that Innovation Ventures did not have a “right,” in proceedings under the CID statute, to discovery against the Attorney General. It is therefore important to not treat a CID as analogous to a subpoena under the rules of civil procedure.

Nonproduction May Result in an Injunction. If a business ignores a CID the court may enjoin further business activity. Such was the fate of J&W Consultants, LLC. No. 13C19591 (Marion Cnty. Cir. Ct. 2013). The Financial Fraud Section investigated J&W, an Arizona business engaged in telemarketing in Oregon. Based on consumer complaints, J&W allegedly engaged in fraud by misrepresenting the nature of the work-at-home businesses they were selling—mostly to seniors. The Section issued and served a CID for business records on J&W as part of its investigation. J&W ignored the CID and failed to show up to the hearing when the Section sought an injunction on further business activity in Oregon because of nonproduction. The court ordered, in part, that J&W

[b]e enjoined from engaging in any business in the State of Oregon in which Defendant sells, markets, advertises, or otherwise promotes consumer goods or services, until such time as Defendant complies with the Investigative Demand . . . .

It goes without saying that the costs for nonproduction can exceed the benefits of continued business operations.

Asserting a Right Against Self-Incrimination May Trigger an Injunction as well as an Adverse Presumption. Essentially, most consumer protection law seeks to redress transactions in which a consumer loses money by some type of deception. In many states this is close to the elements of the crime of “theft” by deception. For this reason, when individually named business principals receive a CID, the principals sometimes assert a right against self-incrimination. This is established, with varying degrees of nuance, in the extensive case history, following United States v. Morton Salt, 338 U.S. 632 (1950), and Oklahoma Press Publ. Co. v. Walling, 327 U.S. 186 (1946). With that being said, the Financial Fraud Section has successfully asserted that the right against self-incrimination cannot be both a sword and a shield when responding to a CID.

This was the outcome for Signet Financial Group when it asserted a right against self-incrimination against complying with a CID. Signet Financial Group, No. 1107-08553 (Multnomah Cnty. Cir. Ct. 2011). The Financial Fraud Section received consumer complaints alleging that Signet misrepresented that it would refund a service contract purchased when the consumers bought cars from the dealer. In response, the CID issued by the Financial Fraud Section demanded Signet provide its consumer lists and contracts. Signet asserted its right against self-incrimination. Not only did the court enjoin Signet’s continued business activity in Oregon, the court ordered a “presumption” of adversity if Signet subsequently produced responsive documents. In other words, an assertion of the right against self-incrimination can lock a business into a disadvantage in future litigation.

How to Respond to a CID?

After it is clear what a CID is, the next threshold question a receiving party should ask is how they should respond. First, counsel for the receiving party also can pick up the phone and contact the Financial Fraud attorney who signed the CID. In this call, the attorneys may broach any subject; the merits of the case, the possession of the testimony or evidence, compliance, the means of compliance, modifying the deadline or the scope of production, or motions to quash the CID. During such a call the AAG and counsel for the subpoena recipient can certainly negotiate new or different production terms.

For instance, confidentiality is a commonly negotiated CID term. Both parties have reason to protect medical records or personal identifiers in any records obtained. Less mutual is the desire to protect trade secrets or proprietary business information. The parties can negotiate a confidentiality agreement or stipulated protective order. Regardless of such agreements, counsel for the party receiving a CID should understand the Attorney General cannot agree to violate public records laws.

In summary, when a business receives any instrument from an Attorney General’s office, it is important to understand the legal authority of the instrument. If it is a CID seeking evidence as part of a consumer protection investigation, the AGO authority is expansive. Responding properly is therefore critical for both the business and the AGO.