February 8, 2023 – Companies generally try to avoid public litigation against a state attorney general at all costs, as it can be catastrophic. (“Developing a strategy for settling multistate AG investigations,” Reuters Legal News, Nov. 10, 2022) In those instances where a confidential regulatory investigation precipitated the filing of a complaint, the state attorney general’s lawsuit makes public the previously unknown regulatory investigation.
That, in turn, usually prompts negative press, customer or consumer inquiries, regulatory scrutiny from other states or federal agencies, and — depending on the focus — consumer class actions by the plaintiffs’ bar. It can also torpedo pending business opportunities, harm employee recruitment efforts, cause a loss of goodwill in the marketplace, drag down company valuations, and potentially trigger a shareholder derivative lawsuit in the case of publicly traded companies.
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Yet, increasingly in recent years, targeted companies have had no choice but to reject the onerous settlement terms demanded by a state attorney general, whether it be because the company cannot afford to pay the stiff monetary demand embedded in the settlement offer or because the injunctive relief terms would cripple the challenged business practice in such a manner that the business unit could not remain viable. When faced with such draconian realities, a company may have no choice but to dig in and prepare for battle.
A common mistake, however, that many companies and their outside counsel make is that they only arm themselves with the same tactics they employ for typical litigation against the plaintiffs’ bar or commercial competitors. They will rely on their tried-and-true strategies for responding to the complaint, such as engaging in motions practice under Rule 12(b), managing discovery, attempting to mediate the case, filing a motion for summary judgment, challenging opposing experts, and eventually