The Federal Trade Commission has broad authority to investigate advertising-related conduct and to initiate enforcement actions against violations of a variety of consumer protection statutes. There are numerous strategies for defending FTC consumer protection investigations.
A civil investigative demand (CID) is a type of subpoena. It is a legal document enforceable in court that seeks documents or other information related to an FTC investigation. The FTC sends CIDs to obtain information from companies it thinks may have violated the law. The FTC also sometimes sends CIDs to obtain information from others who are not the subjects of investigation, but who may have information related to the subjects of ongoing investigations.
According to the FTC Rules of Practice, within a specified period of time after you are served with the CID you may file a petition to limit or quash. In other words, you may ask that the CID be narrowed or withdrawn altogether. The FTC will review the petition and either: (i) grant the petition and limit or quash the CID; or (ii) deny the petition.
The procedure is explained in the FTC’s Rules of Practice at 16 C.F.R. § 2.10.
Any petition to limit or quash a CID shall be filed within 20 days after service of the CID or, if the return date is less than 20 days after service, prior to the return date. Petitions shall set forth all assertions of protected status or other factual and legal objections to the CID, including all appropriate arguments, affidavits, and other supporting documentation. Extensions to time may also be available within which to file petitions to limit or quash a CID, and for compliance as to the portion or portions of the challenged specifications or provisions.
Petitions to limit or quash FTC CIDs are rarely filed for two primary reasons.
First, they are not typically granted.
Second and with limited exception, petitions to limit or quash CIDs and all FTC orders in response to those petitions become public, while the regulatory investigation might otherwise remain confidential.
However, the failure to exhaust available administrative remedies – such as filing a petition to quash – can serve as a waiver of arguments asserted as a defense in a subsequent CID enforcement proceeding.
Consider FTC v. Tracers Information Specialists, Inc., No. 8:16-mc-00018-VMC-TGW, 2016 WL 3896840, (M.D. Fla. June 10, 2016) (enforcing CID).
In Tracers, FTC CID attorneys issued to Tracers Information Specialists, Inc., a civil investigative demand to answer interrogatories, produce documents and provide oral testimony in connection with its investigation regarding whether Tracers' acquisition or sale of personal and consumer report information violates federal law. Tracers refused to fully comply with the CID, objecting to many areas of inquiry on the grounds of confidentiality, irrelevance, and undue burden.
However, Tracers did not file a petition to limit or quash the CID, or seek additional time to do so. Nor, according to the FTC, did Tracers timely assert objections at the parties' meet and confer. Consequently, the FTC argued that such objections were barred.
The court ruled that the substantive objections to the CID would not be considered because Tracers failed to exhaust its administrative remedies or comply with the prescribed administrative procedure provided by the statute and the implementing regulations.
The doctrine of exhaustion of administrative remedies is well established in the jurisprudence of administrative law. The doctrine provides that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.
Particularly, judicial review may be hindered by the failure of the litigant to allow the FTC to make a factual record, or to exercise its discretion or apply its expertise. In addition, other justifications for requiring exhaustion in cases of this sort have nothing to do with the dangers of interruption of the administrative process.
Certain very practical notions of judicial efficiency come into play as well.
A complaining party may be successful in vindicating his rights in the administrative process. If he/she is required to pursue his/her administrative remedies, the courts may never have to intervene. And notions of administrative autonomy require that the agency be given a chance to discover and correct its own errors.
Finally, it is possible that frequent and deliberate flouting of administrative processes could weaken the effectiveness of the FTC by encouraging people to ignore its procedures.
Takeaway: Developing a strategic response plan with experienced FTC CID defense counsel should always include careful evaluation of available administrative remedies and the proper preservation of appropriate objections.