Civil investigative demands (CIDs) are powerful investigative tools that federal agencies use to gather information in support of a broad range of charges. Identifying the federal agencies that issued a civil investigative demand will provide some insight into the allegations at issue, but subpoena recipients will need to do more to determine what they need to do to defend themselves successfully.
While many civil investigative demands target violations of the False Claims Act (these CIDs typically come from the U.S. Department of Justice (DOJ)), this is just one of the numerous statutes that may be implicated in a federal civil investigation. Along with the DOJ, the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) also issue civil investigative demands, and these agencies can investigate violations of laws and regulations ranging from the Clayton Act (which prohibits anticompetitive business practices) to the implementing regulations of the Do-Not-Call Registry legislation.
With this in mind, successfully defending against a civil investigative demand requires a careful and strategic approach. Targets and their defense counsel must work quickly to discern the scope and nature of the allegations at issue, and they must equally prioritize responding to the civil investigative demand (CID) itself. Missteps or oversights in either of these two key areas can have significant negative ramifications—up to and including facilitating civil (or even criminal) prosecution when charges could have been avoided.
“Civil investigative demands present significant risks for their recipients. Not only can the investigation itself lead to civil charges, but failing to comply with the demand can lead to contempt or obstruction charges as well. Additionally, even if a federal investigation is initially civil in nature, it can lead to criminal charges if the investigating agency uncovers evidence of intentional fraud or other misconduct.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
10 Defense Strategies for Recipients of Federal Civil Investigative Demands
Successfully defending against a civil investigative demand requires a multi-step and multi-faceted approach. Here are 10 defense strategies that can be used in concert to protect against civil (or criminal) charges:
1. Institute a Legal Hold
Upon receiving a civil investigative demand, the recipient must promptly institute a legal hold. Not only is this a requirement under federal law, but failing to preserve responsive records can also raise questions and lead to further scrutiny from the investigating agency.
The steps involved in instituting a legal hold will depend on the size of the company as well as the volume and storage locations of responsive records and data. In addition to ensuring the preservation of hardcopy and electronic files internally, CID recipients may also need to promptly engage their cloud storage providers, document shredding companies, and other third-party vendors. Companies should work with their legal counsel to identify all pertinent data sources, as overlooking even a single source can lead to “spoliation” of responsive files and possible allegations of contempt or obstructing the government’s investigation under 18 U.S.C. Section 1505.
2. Assemble a CID Response Team
Due to the breadth of civil investigative demands, recipients will promptly need to assemble a coordinated response team. This response team should include appropriate internal personnel (i.e., records custodians and subject matter experts) as well as the company’s legal counsel, defense attorney and outside defense consultants. Each member of the team should have a set of clearly defined responsibilities, and all members of the team should coordinate their response efforts with the company’s counsel. Any communications with the DOJ, FTC, or CFPB regarding the civil investigation should flow through the company’s legal counsel as well.
3. Examine the Legality of the Civil Investigative Demand
One of the first steps that the recipient’s legal counsel or defense attorney should take is to examine the legality of the civil investigative demand. While the DOJ, FTC, and CFPB have broad authority to issue civil investigative demands in support of their law enforcement efforts, this authority is not absolute. Various issues can render a CID invalid (whether in whole or in part), and filing a motion to quash can serve multiple strategic purposes.
In some cases, however, an even more strategic approach may be to address any issues related to the CID’s legality directly with the investigating agency. Taking a cooperative, rather than adversarial, the approach can be beneficial in many circumstances; and, if a CID recipient’s cooperative efforts prove fruitless, its legal counsel can still file a motion to quash in court.
4. Prepare to “Meet and Confer”
The first formal opportunity to discuss a civil investigative demand with the investigating agency may come during the “meet and confer” process. If a CID recipient must meet and confer, he should prepare for this meeting thoroughly. This includes preparing any arguments about the legality of the CID, substantiating any planned requests for modifications or a deadline extension, and otherwise working with legal counsel to ensure that the meet and confer process is as productive and harmless as possible.
5. Identify Privileged Records
One of the most important steps any CID recipient can take is to identify privileged records that are not subject to disclosure. The attorney-client privilege protects communications with the company’s legal counsel as well as legal counsel’s work product—and this can potentially account for a significant portion of the universe of responsive documents. In any case, identifying and protecting privileged records is critical for preserving the attorney-client privilege on an ongoing basis, as even a minor inadvertent disclosure can trigger an argument that the CID recipient has waived its privilege entirely.
6. File a Motion to Quash
After conferring with the investigating agency and beginning the process of identifying, collecting, and redacting responsive documents and records, a CID recipient’s legal counsel should be able to make a strategic decision about whether to file a motion to quash. Any motion to quash filed under the federal district court must cite valid grounds, and it is important to note that filing a motion to quash won’t necessarily stay the recipient’s obligation to respond.
It is also important to note that federal judges give substantial deference to the DOJ’s, FTC’s, and CFPB’s investigative authority and decision-making. If an investigation serves a legitimate purpose and a CID seeks information that is relevant to that purpose, this is generally enough for the CID to stand—unless the issuing agency failed to follow the required administrative procedures or the CID seeks information already in the government’s possession.
7. Maintain a Dialogue with the Investigating Agency
In most circumstances, it will be in a CID recipient’s interest to maintain a dialogue with the investigating agency. This is the only way to achieve a favorable pre-charge resolution outside of litigation, and investigating agencies and CID recipients will often share a mutual interest in coming to terms. Whether this means terminating the investigation without liability or agreeing to a settlement will depend on the circumstances involved; and, here too, if efforts to cooperate fail for any reason, resorting to litigation remains a viable option.
8. Negotiate Necessary Modifications to the CID
While we touched on this above, the topic of negotiating the CID bears revisiting at this stage. Oftentimes, the DOJ, FTC, and CFPB will be reluctant to consider requests for modifications or extensions early in the process, as these requests will often appear to come as a matter of course rather than being triggered by specific concerns. By delaying negotiations, CID recipients can often improve their chances of a favorable outcome.
With that said, CID recipients need to assess the scope of their response obligations and identify any concerns as early as possible. Responding to a CID is almost always a time-intensive and resource-intensive process, and unnecessary delays can adversely affect a recipient’s defense. Importantly, CID recipients must avoid assuming that the investigating agency will grant any concessions, and they must be prepared to show good-faith efforts to comply.
9. Submit a Timely and Compliant Response
Submitting a timely and compliant response is critical, and it also has strategic implications. If a CID recipient misses its deadline or fails to disclose responsive information, this will give additional leverage to the investigating agency. Conversely, by devoting the time and resources necessary to comply with a civil investigative demand (while also protecting privileged information), the recipient can show that it is prepared to work with the investigating agency to bring the matter to a favorable resolution.
10. Cooperate with the Investigating Agency as Warranted
This brings us back to the subject of cooperation. Due cooperation will be an effective defense strategy for many CID recipients, as (i) their options for challenging the legitimacy of the inquiry is likely to be limited; and, (ii) when conducting civil investigations under the False Claims Act and other statutes, the DOJ, FTC, and CFPB will keep going until they have uncovered what they need to know. Even if a CID recipient has violated federal law, working with the investigating agency to settle the matter will often be preferable to litigation, though recipients should not prematurely push viable defense strategies off of the table.
These are just examples of strategies companies can use to defend themselves upon receiving a civil investigative demand from the DOJ, FTC, or CFPB. Each case requires a careful evaluation and individualized approach, and the best approach to fending off federal charges must be determined on a case-by-case basis.
