State attorneys general regularly pursue consumer fraud cases. A Santa Fe jury’s eye-popping $375 million verdict against Meta is a recent reminder of how consequential those cases can be. Snell & Wilmer attorneys Joseph Kanefield, Michael Kron and Cole Craghan explain how state consumer protection enforcement works and why it reaches further than businesses realize.
In March, a Santa Fe jury reached a landmark verdict imposing $375 million in civil penalties against Meta for misleading the state’s consumers about the safety of its platforms and endangering children in violation of New Mexico’s consumer protection laws.
Aside from the eye-catching number, this case is just one of many consumer protection enforcement actions brought weekly by state attorneys general against large and small businesses. Consumer fraud laws bestow enormous power on these officials, most of whom are elected and have every incentive to pursue consumer cases.
Protecting consumers from fraudulent and deceptive business practices is a top priority of every state attorney general. As in the Meta case, the headlines are hard to miss. Businesses are often ordered to pay millions of dollars — sometimes hundreds of millions — for violating state consumer protection laws and may find themselves subject to agreements or court orders that restrict or even outright ban their future business.
If you’re curious whether these laws govern your business; chances are pretty good they do. Enforcement of state consumer protection laws is one of the most powerful and effective tools of state AGs. Every business, large and small, should familiarize itself with these laws and know how to respond should the attorney general come knocking.
Consumer protection powers
While state definitions of consumer fraud can vary somewhat, the laws generally cover deception of any kind, along with unfair acts and practices, by a seller or advertiser of goods and services. Examples include failure to disclose fees, false advertising, bait and switch and misrepresenting goods or services.
State attorneys general can demand restitution, disgorge profits and impose monetary penalties for each individual violation of the consumer protection laws. They can subject a business to legally binding orders about how they will conduct business in the future and can even obtain injunctions that prohibit a business and its owners from continuing to operate.
Attorneys general decide which consumer fraud matters their offices will pursue and how to pursue them. This model is similar to criminal law, where prosecutors pursue cases on behalf of the state. Attorneys general are given wide latitude — plus powerful legal tools — to pursue consumer matters.
Of course, those tools aren’t always needed. Most attorney-general inquiries about consumer fraud matters start when a consumer complains to the attorney general about a business. In such cases, the attorney general’s office typically sends an initial letter that summarizes the complaint and asks the business to respond. Consumer complaints often can be resolved through this back and forth. But not always.
And not all cases begin with consumer complaints. In fact, many of the largest consumer protection matters are undertaken at the initiative of the attorney general’s office, often after seeing a story in local or national media.
Regardless of whether a matter originates from a consumer complaint or from the attorney general’s office, the AG has significant investigative power. Specifically, the attorney general may issue a civil investigative demand, which is a legally enforceable administrative subpoena.
The demand can require the recipient to provide the attorney general with records or, in some cases, make representatives available to be interviewed under oath. Unlike the normal discovery tools in civil litigation, attorneys general can issue civil investigative demands before deciding whether to file a lawsuit.
If a business receives a civil investigative demand, it is a clear sign that an investigation is underway. The demand — and the underlying matter — should be taken seriously. The time to respond to such a demand, or to ask a court to intervene, is often short, and specific deadlines vary from state to state.
Patchwork of rules
States also can have very different rules about the confidentiality of investigations and, crucially, about the confidentiality of information that businesses turn over during the investigation. Even in states where the investigation stage is confidential, an attorney general may decide to pursue enforcement. If that happens, a business may be surprised to find information they turned over appearing in a court complaint or other public document.
Because of this possibility, businesses may want to negotiate specific confidentiality provisions with the attorney general’s office when responding to a civil investigative demand. If they are unable to do so, they may even want to ask a court to intervene, especially before turning over business records they consider to be trade secret or proprietary.
In addition to powerful investigative tools, state AGs often enjoy longer deadlines to file consumer protection lawsuits than private parties. This combination usually means that attorneys general have the time and tools to build strong cases.
Beyond these legal advantages, AGs devote a significant amount of time and resources to protecting consumers. They employ experienced teams of attorneys, investigators and support staff. After all, every attorney general enjoys the publicity and goodwill generated by helping consumers who are harmed by businesses behaving badly. The New Mexico attorney general wasted no time after the Meta jury returned its verdict issuing a news release headlined “New Mexico Department of Justice Wins Landmark Verdict Against Meta.”
Though New Mexico was the sole plaintiff state in the $375-million Meta case, the largest consumer fraud recoveries usually come when consumers have been harmed across state lines, leading to a multistate attorney general action. In multistate cases, attorneys general work together to maximize their investigatory powers and their negotiating positions. Multistate-attorney-general actions have generated enormous, headline-grabbing settlements in areas like opioids, tobacco, off-label pharmaceutical marketing and automobile advertising.
Between the money those cases bring into their states and the positive publicity, attorneys general have many incentives to aggressively pursue multistate consumer protection cases. To that end, they have developed robust training programs and open lines of communication that have helped them take on large multinational corporations and win.
Dealing with consumer protection laws
When the attorney general comes knocking, businesses should respond immediately and take steps to address the complaint. In the event of an inquiry that goes beyond a single consumer transaction or in the event of a civil investigative demand — usually a sign that the attorney general is taking an adversarial posture — many businesses wisely engage counsel.
Although the headlines associated with the Meta verdict represent one of the more extreme consumer fraud judgments, no business wants to see their name publicly displayed in this manner.
Joseph Kanefield
Michael Kron
Cole Craghan
