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Weighing the Risks of Settling With the FTC Early On Versus Fighting a Civil Investigative Demand
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Weighing the Risks of Settling With the FTC Early On Versus Fighting a Civil Investigative Demand
When a company receives a civil investigative demand (CID) from the Federal Trade Commission (FTC), they have an important decision to make – settle early or fight back against the demand. Both options come with risks and benefits that must be carefully weighed.
What is a Civil Investigative Demand?
A CID is an administrative subpoena issued by the FTC to obtain information and documents during an investigation into potential violations of consumer protection laws. The FTC has broad authority to issue CIDs without court oversight.[1] Once a company receives a CID they face short deadlines to produce materials or face court-ordered compliance actions.
Key Facts About CIDs:
- Seeks large amounts of documents, data, testimony
- Issued without court approval
- Short response timeline – often only 20-30 days
- Limited grounds to fight or modify
- Noncompliance risks substantial penalties
Weighing the Option to Settle Early
When hit with a CID, some companies opt to settle quickly instead of challenging the FTC’s demands. There are advantages and disadvantages to early settlement.
Potential Benefits of Early FTC Settlement
- Avoids costs of prolonged investigation and litigation
- May secure more favorable settlement terms
- Limits reputational damage from ongoing probe
- Provides certainty instead of leaving case open-ended
Settling immediately can save a company money and headaches down the road. It also gives them certainty instead of leaving things open and ongoing.
Risks of Settling Too Early With the FTC
- Could leave money on the table in negotiations
- Limits ability to challenge overreach by FTC
- May establish unfavorable legal precedent
- Hampers ability to uncover exculpatory evidence
On the other hand, jumping to settle right away also has disadvantages. The company loses leverage and oversight, while the FTC gains a precedent to extract settlements from others.[2]
Fighting Back Against an FTC Civil Investigative Demand
Instead of rushing to make a deal, some companies decide to fight an FTC CID. While challenging demands is difficult, it can pay off in certain situations.
Grounds for Challenging a CID
The courts grant agencies like the FTC broad CID authority, so quashing them is extremely difficult. But recipients can file petitions arguing that demands are:[3]
- Overly burdensome or broad
- Seek irrelevant information
- Issued for improper purpose
- Violate attorney-client or other privilege
While rare, courts have agreed to modify civil investigative demands in some cases when recipients can demonstrate meaningful overreach.
Strategic Reasons to Challenge an FTC Demand
- Shows unwillingness to blindly accept FTC overreach
- Fighting some aspects can strengthen negotiating position
- Uncovering exculpatory evidence to undermine allegations
- Establishes favorable precedent for future cases
There are also strategic motivations for challenging demands. Pushing back signals the company won’t just roll over, while seeking evidence could undermine the FTC’s core allegations.
Key Factors to Consider
There are compelling cases to be made for either settling quickly or challenging FTC civil investigative demands. There is no one-size-fits-all approach. When hit with a CID, keep these key factors in mind:
Settlement Considerations
- Strength of FTC’s initial allegations
- Risk of reputational and financial harm
- Ability to negotiate favorable terms
- Legal costs of prolonged fight
Fighting Considerations
- Merits of potential defenses and challenges
- Strategic benefits of resisting overreach
- Risks of establishing bad precedent
- Value of additional evidence gathering
Carefully weighing these risks and benefits will lead to the most informed decision when faced with the daunting choice of how to respond to an FTC civil investigative demand.
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