A lot has been written about the impact of the Supreme Court’s AMG decision on the Federal Trade Commission’s (FTC) future law enforcement approaches and strategies. One option is more administrative litigation, but that process can take many years and requires the FTC to demonstrate that the challenged practices were “dishonest or fraudulent.” Another option is to allege a violation of a rule that allows for civil penalties and possibly redress pursuant to Section 19 of the FTC Act. But a lot of conduct that the FTC wants to challenge is not covered by current rules, and there is a knowledge requirement that the FTC would also have to meet. A third option, which we will explore today, is the FTC teaming up with a state or multiple states to bring either a joint action or contemporaneous but separate actions. In such scenarios, the FTC would generally focus on obtaining injunctive relief and the states would primarily focus on monetary relief, since the states’ ability to get money under their own “mini FTC Act” and unfair and deceptive trade practices laws was not curtailed by the AMG decision. So instead of one law enforcer, you may have to deal with many, each with the power to extract significant fines.
So let’s start by talking about some of the cases in the recent past in which the FTC has partnered with states. And to be clear, working with the states is not something new for the FTC, which has a long history of working cooperatively with states on enforcement, outreach and education. And this applies to FTC staff in both Washington, D.C. and the eight regional offices that are ideally situated to partner with states. But get ready to see more of this. You don’t have to take our word for it: FTC Chair Lina Khan confirmed at a December 2021 National Association of Attorneys General forum that she intends to invest more resources in the FTC’s regional offices and that the FTC intends to work more closely with state attorneys general in light of AMG.
There have been quite a number of charity fraud cases in which the FTC has partnered with dozens of states. Most recently, the FTC and 38 states got together to shut down a massive telefunding operation. That case settled before the complaint was filed. But another charity case went to litigation and involved the FTC and all 50 states (and technically 58 different law enforcement partners). It was a joint complaint with a caption that went on for 14 pages, no exaggeration. That one settled a year after the complaint was filed in federal court with an order of dissolution and a ban on future charitable fundraising for the company’s president.
But not every FTC/state partnership will be such a mammoth undertaking. In many instances, the FTC partners with one key state that has a particular interest in the matter. In 2019, the FTC partnered with New York in the case alleging that Google and YouTube violated the Children’s Online Privacy Protection Act. More recently, in June 2021, the FTC filed a joint complaint with the state of Arkansas against an alleged pyramid “blessing loom” scheme. The matter is still in litigation, and the complaint noted that the state of Arkansas had previously targeted a similar scheme. In 2018, the FTC teamed up with the state of Minnesota to go after a money-making operation that was based out of Minnesota. And Florida is a pretty regular FTC partner, as evidenced by this 2019 imposter case.
Sometimes, the FTC will partner with a handful of interested states. In another active litigation, last year the FTC, along with six states, sued Frontier Communications, alleging that in many instances the company failed to deliver the promised Internet speeds.
Although each of the cases discussed above had a single complaint for all the law enforcement plaintiffs, occasionally separate actions are filed in the same case, as evidenced by the 2016 Ashley Madison data security case. In that memorable case involving a company for folks “looking to have a discreet affair” (hey, this is a no-judgment zone), the FTC filed its own solo complaint and the states filed separately, but the actions were all announced together at a joint event. Heck, even Canada and Australia got into the action in that case.
What does this mean going forward? The FTC’s current leadership has made it clear that “no money” settlements are highly disfavored, so finding state partners is pretty much a no-brainer if there are matters in which the agency lacks a viable independent monetary theory. So one of the unfortunate side effects of the AMG decision could be that instead of facing one law enforcement agency, you may instead be facing 50 plus the District and territories. If the matter settles or litigates to conclusion, you may well end up with multiple law enforcers monitoring your business for compliance with whatever order gets issued. And, of course, allegations and legal theories may differ, as different states have different laws and different priorities.
Another thing to keep in mind is timing. An investigation by one law enforcer can take quite some time to wrap up, but that can also be magnified when you are dealing with multiple enforcers with conflicting investigative requests, priorities and resources. You may encounter situations in which one of the enforcers is ready to start settlement discussions, but you need to wait months until the other agencies are ready. No one enjoys this scenario, but it’s a likely one.
And finally, you will need to think long and hard about strategy and reconsider the temptation to play one enforcer off the other. Once in a while, that strategy might work if you encounter a rogue enforcer, but generally, law enforcers are pretty good at coordinating, cooperating and maintaining a united front. Similarly, if you have separate counsel dealing with different enforcers, you will want to make sure that they are similarly united and cooperating.
There really is no one-size-fits-all approach when you are confronted with an investigation by both the FTC and a state or many states. But it appears likely that this is a scenario that will occur more frequently — so don’t be surprised if you have been dealing with the FTC for a while on a matter and you suddenly find that you now also have to deal with multiple states on the same matter. We do live in interesting times.