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When Do FTC Civil Investigative Demands Justify Implementing a Litigation Hold?
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When Do FTC Civil Investigative Demands Justify Implementing a Litigation Hold?
Receiving a civil investigative demand (CID) from the Federal Trade Commission (FTC) can be concerning for any business. A CID is essentially a subpoena seeking information related to an FTC investigation into potential unlawful conduct. While receipt of a CID does not necessarily mean the FTC will file a lawsuit, it does warrant taking the demand seriously and considering implementing a litigation hold.
What is a CID?
According to the FTC, a CID is “a kind of subpoena – a legal document enforceable in court that seeks documents or other information related to an FTC investigation.[1] The FTC issues CIDs to obtain information from companies it suspects may have violated consumer protection laws or antitrust regulations. CIDs may also be sent to third parties not directly under investigation but who may have relevant information.
CIDs typically require the recipient to provide documents, tangible items, written reports, answers to interrogatories, and/or oral testimony. The demands have specified deadlines for compliance, with extensions needing to be negotiated with the FTC. Failure to adequately respond can result in the FTC seeking a court order to compel compliance.
When to Implement a Litigation Hold
One of the first steps upon receiving a CID should be to implement a litigation hold to preserve documents and information relevant to responding to the demand. As advised by legal experts, “It is important that the hold covers the full responsive period set-out in the CID as well ensuring all relevant individuals that may have responsive documents and information receive the litigation hold.”[9]
The purpose of a litigation hold is to prevent the destruction of any materials requested by the CID or that may be relevant to the FTC’s investigation. This includes suspending any routine document destruction policies. The hold should clearly indicate what types of documents need to be retained and the date range covered. Relevant personnel should be informed of their duty to preserve pertinent records.
Grounds for Challenge
The grounds for challenging CIDs in court are limited. Potential bases include that the demand:
- Lacks a legitimate purpose
- Requests information outside the FTC’s authority
- Is overly broad or unduly burdensome
- Fails to allow reasonable time for compliance
However, courts generally defer to the FTC’s discretion in issuing CIDs. Meetings with FTC staff provide the best opportunity to clarify and potentially narrow the scope of demands. Experienced legal counsel can assist with evaluating objection grounds and negotiation strategies.
Is a Lawsuit Likely?
While concerning, receipt of a CID does not necessarily mean the FTC intends to sue. As explained by FTC staff:
In some instances, once FTC staff has reviewed the documents a company provides in response to a CID, the agency will close the investigation without further action. In other instances, staff will approach the company about negotiating a possible legal settlement. If a company doesn’t reach a settlement agreement, the Commission may decide to file a lawsuit.[1]
Cooperating with the investigation and submitting a well-crafted white paper making the case for closing the inquiry may convince regulators that enforcement action is unwarranted.
If Sued, What Remedies?
In the event the FTC does file a complaint in federal court, the Commission has a range of remedies at its disposal, including:
- Monetary redress, like restitution or disgorgement of profits
- Equitable remedies such as injunctions, asset freezes, or appointment of a receiver
- Ongoing compliance monitoring
- Civil penalties up to $46,517 per violation
In some cases, the FTC may refer matters to criminal authorities if unlawful acts involve fraud or deceit.
Key Takeaways
In summary, while receipt of an FTC CID is not an automatic trigger for litigation, implementing a comprehensive litigation hold is a prudent safeguard to preserve documents and comply with the demand. Experienced regulatory counsel can help recipients assess the scope of the inquiry, raise viable challenges, craft persuasive responses, and negotiate with FTC staff – all with an eye toward avoiding subsequent enforcement litigation.
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The article covers key considerations around FTC civil investigative demands and litigation holds, including:
What a CID is and what information it seeks
When implementing a litigation hold is advisable
Limited grounds for challenging demands
Possibility of closing investigation or settlement
Remedies available if FTC files suit
Importance of experienced regulatory counsel
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