Yes, You Do Need To Respond To Civil Investigative Demands

Saturday, September 1, 2007 - 00:00

Editor: What is a Civil Investigative Demand ("CID")?

Nolan: A Civil Investigative Demand is a demand for information by the Texas Attorney General's Office ("Attorney General"). Through a CID, the Attorney General can demand much of the same information that would be subject to pre-trial discovery in civil litigation, including requests for production of documents, interrogatories, and oral statements (which are similar to depositions). The Attorney General uses CIDs to request information related to an investigation being conducted by the Attorney General. The Attorney General can send a CID to the target of an investigation as well as other companies the Attorney General believes have knowledge relevant to the investigation. The Texas Business and Commerce Code grants the Attorney General authority to issue CIDs to investigate allegations of unlawful restraints of trade (Section 15.10) and violations of the Deceptive Trade Practices Act ("DTPA") (Section 17.61). In an antitrust investigation, the Attorney General can request production of documents, interrogatories, and/or oral statements. For a DTPA investigation, the Attorney General can only request production of documents.

Editor: What experience does Winstead PC have in responding to CIDs?

Nolan: Winstead represents a large number of clients in regulated industries - insurance, financial services, securities, healthcare, environmental, telecommunications, and energy - in responding to inquiries, investigations and complaints brought by regulatory agencies and state and federal attorneys general. I am part of the firm's practice group focused on Government Enforcement and Regulated Industries Litigation. Many of the attorneys in this practice group have experience working both for the Texas Attorney General and now representing clients in responding to Attorney General investigations.

I was an assistant Attorney General in the 1980s; another Austin shareholder, Stewart Whitehead, was an assistant Attorney General in the 1990s; and Austin shareholder Mary Keller, a former first assistant Attorney General, recently joined Winstead. Other members of our practice group, including Austin attorneys Linda Burgess and Melissa Lorber, also have extensive experience assisting clients in responding to CIDs in both antitrust and DTPA investigations. Retired Texas Supreme Court Justice Craig Enoch is also a member of our practice group and actively participates in representing Winstead's clients in Attorney General investigations.

Editor: If a company is not part of a regulated industry, does it still need to be concerned about CIDs?

Nolan: Almost any company doing business in Texas should be knowledgeable about CIDs. While our clients in regulated industries are more accustomed to investigations by governmental officials, almost any company that does business in Texas and interacts with consumers - either directly or indirectly - could receive a CID. CIDs can be issued to companies as varied as those who provide advertising, mailing, healthcare, cellular phone, or insurance-related services. Additionally, CIDs are frequently issued to companies that do business with other companies that are targets of an Attorney General investigation. Any company the Attorney General believes may have knowledge about anti-competitive behavior or behavior in violation of a consumer protection law may receive a CID.

Editor: If a company gets served with a CID, will it be told whether it is a target of an investigation? How much information about the investigation will the Attorney General provide?

Nolan: In a CID, the Attorney General will state in general terms what activities or practices it is investigating and what statute may have been violated by the activities or practices. The CID will state that the Attorney General believes your company has information relevant to the investigation. The CID will then specify what information it is requesting from your company. In a manner similar to discovery requests in a civil lawsuit, the CID will list each category of documents requested and each interrogatory request. The name and address of the assistant Attorney General handling the investigation will be provided, as will the date by which responsive documents and information must be produced to the Attorney General. The deadline for providing responsive documents or information must be at least 20 days after the CID is served on the company from whom discovery is requested. The CID will also inform that an intentional failure to comply with any provision in the CID is a misdemeanor "punishable by a fine of not more than $5,000, or confinement in county jail for not more than one year, or both."

Editor: It sounds like the CID should be taken seriously. What is the first thing corporate counsel should do if his or her company receives a CID? Are there traps that they should be aware of?

Nolan: If your company is served with a CID, it is a good idea to hire an attorney who has experience working with the Attorney General and responding to CIDs. Your attorney should promptly contact the assistant Attorney General handling the investigation to discuss whether your company is a target of an investigation or a potential witness. The assistant Attorney General will not disclose anything about the investigation that would jeopardize his or her ability to gather information, but he or she will generally disclose whether your company is a target. The assistant Attorney General is also often willing to discuss what information he or she is hoping to obtain from your company.

It is important to carefully review the document requests and interrogatories in the CID. Often the requests are overbroad, unclear, or request burdensome production of documents. Through informal discussions with the assistant Attorney General handling the investigation, it is possible to reach an agreement to limit or redefine the discovery requested. For example, the Attorney General may agree to limit the time period of a request, withdraw a request that is not likely to result in relevant information, or limit the number of employees from whom responsive information must be gathered and produced. This is usually more successful after your attorney has a good understanding of and can discuss with the assistant Attorney General what responsive documents the company may have, whether the responsive documents will be in hard copy or electronic form, how many employees may have responsive documents, and why certain requests are overbroad or burdensome.

This conversation should take place as soon as possible, since CIDs generally provide only about 20 days before responsive documents and information must be produced. Often, during the informal discussions, your attorney will also be able to reach an agreement with the assistant Attorney General for an extension of the deadline for responding to the CID.

If your attorney is unable to informally reach an agreement with the Attorney General about the scope of the CID or the response deadline, your company needs to file a lawsuit petition asking the court to modify or set aside the CID. The lawsuit must be filed within 20 days after the CID is served. It should be filed in state court, in either the county where your company's principal place of business is located or in Travis County (Austin). Unless otherwise directed by a court, your company must comply with the terms of the CID.

If the CID requests documents or information that contain trade secrets or other confidential information, you should mark each document as "confidential." The Attorney General cannot disclose any documents designated as "confidential" without first providing 15 days notice to your company. Your company can then file a lawsuit petition asking the court to limit the terms under which the Attorney General may disclose the confidential documents or information.

Editor: What can I do if the Attorney General requests extensive searches for electronic data or asks me to freeze computers that we need to use in our daily operations?

Nolan: Often the Attorney General will request electronic information contained on your company's computers or email servers. Occasionally, the Attorney General will even demand that you freeze your company's computers so that hard drives can be copied. So that this request does not bring your company to a standstill, it is important to discuss this issue with the assistant Attorney General as soon as possible.

The assistant Attorney General will usually be willing to reach an agreement that will protect electronic data from being deleted or changed, but also allow the company to continue operating and using the computers. For example, the Attorney General may agree that it is sufficient that the company send a hold notice directing all employees not to change or alter any potentially responsive documents. The Attorney General may then allow hard-drives to be copied on weekends or other times that would not disrupt the company's operations.

If your attorney can identify the employees most likely to have responsive documents or information on their computers, the assistant Attorney General may also agree to limit its demand to only copying those employees' computers. It is also often possible, through informal discussions, to reach an agreement narrowing the Attorney General's request for production of electronic data, particularly if your attorney can show that searching for and producing all the requested electronic data would be expensive, burdensome, or extremely voluminous. The assistant Attorney General may, for example, agree to a list of search terms to assist in identifying potentially relevant documents and may also agree to limit the number of employees whose computers must be searched for electronic data. In order to reach a realistic agreement with the assistant Attorney General, your attorney should first discuss with your company's IT department how long it would take to search for and copy the requested electronic information and whether the information could be produced in the format requested by the Attorney General.

Editor: So I guess you are saying, take the CID seriously, contact a knowledgeable attorney, and respond quickly. Is there anything else companies should know?

Nolan: Yes, it is important to keep in mind that the way your company responds to the CID can influence whether the Attorney General's investigation turns into a lawsuit or concludes successfully. If you appear non-responsive, combative or secretive, the investigation will likely continue. Instead, you should protect the company's rights firmly, but in a way that does not antagonize the assistant Attorney General with whom you are working.

Peter Nolan is a Shareholder in the Government Enforcement and Regulated Industries Litigation Section of the Austin Office of Texas law firm Winstead PC. He represents Fortune 500 companies, local businesses, and individuals in responding to civil investigations and defending against civil and administrative actions brought by federal, state and industry regulators, including defending spin-off civil suits or arbitrations brought by non-governmental parties.

Please email the interviewee at pnolan@winstead.com with questions about this interview.