Government Pre-Suit Investigative Powers:

Transcription

1 Presented: 2012 Advanced Texas Administrative Law Seminar August 30-31, 2012 Austin, Texas Government Pre-Suit Investigative Powers: A Survey of Common Issues Arising from Investigations by the Texas Attorney General and the Texas Department of Insurance James E. Davis Jon L. Gillum Author Contact Information: James E. Davis Locke Lord LLP Austin, Texas jdavis@lockelord.com Jon L. Gillum Locke Lord LLP Austin, Texas jgillum@lockelord.com

2 Government Pre-Suit Investigative Powers: A Survey of Common Issues Arising from Investigations by the Texas Attorney General and the Texas Department of Insurance Many statewide governmental bodies possess powerful tools to compel the production of information outside of a contested case or formal litigation. These tools often lack the discovery controls provided by the Texas Rules of Civil Procedure, the Rules of State Office of Administrative Hearings ( SOAH ), and the Administrative Procedures Act. As a result, presuit investigations often raise challenging issues regarding: (1) who is obligated to respond; (2) what information may be sought; (3) what the deadline is for responding; (4) what are the procedures to challenge the demand; (5) what are the consequences for failing to respond; and (6) how is confidential or privileged information treated. Moreover, because the targets of presuit investigations often have limited access to courts, there are few reported opinions that concern these powers. The purpose of this paper is to outline issues related to certain types of government presuit investigations and not to survey the various iterations of those types as applied throughout state government. For that reason, we 1 considered pre-suit investigative powers of the Texas Office of the Attorney General and the Texas Department of Insurance. The Office of the Attorney General was selected as the best example of a governmental body with authority to investigate civil law violations in unregulated industries. The Department of Insurance was selected as a representative state agency with a variety of investigatory tools for use with parties involved in licensed or regulated activity. Pre-Suit Investigative Powers of the Texas Attorney General The Texas Attorney General is empowered to investigate various potential violations of law governing business conduct and consumer rights. Generally, the Attorney General may seek information through procedures that superficially resemble discovery tools provided to private parties in civil litigation, such as requests for production, interrogatories and depositions. Upon closer review, however, the Attorney General powers stray from the common expectations of traditional discovery, creating a variety of pitfalls for unwary respondents. The Attorney General s investigation powers provided in the Texas Free Enterprise and Antitrust Act, Texas Deceptive Trade Practices Act and the Texas Business Organizations Code are described separately below. 1. Attorney General Antitrust Civil Investigative Demand The Texas Free Enterprise and Antitrust Act authorizes the Attorney General of Texas to issue a civil investigative demand (the Antitrust CID ) as part of a civil antitrust investigation. TEX. BUS. & COM. CODE 15.10(b). The Antitrust CID may be used to compel a person to 1 The authors would like to thank Lauren Fincher, Ryan Goldstein, Joel Thomason, Andrew McKeon, Todd Disher, Alexandra Smith and Sherwin Faridifar for their research, analysis, and other assistance in the preparation of this paper. Government Pre-Suit Investigative Powers Page 1

3 produce documents, answer written interrogatories, give oral testimony, or any combination thereof prior to the commencement of a civil proceeding. Id. The Attorney General may use this tool for the purpose of ascertaining whether a person is or has engaged in or is actively preparing to engage in activities that may constitute a violation of Texas or federal antitrust laws. Id. a. Recipient Limitations A party obligated to respond to an Antitrust CID may be the target of an investigation or merely a person that the Attorney General believes has relevant information. Id (b). Person is defined broadly to include a natural person, proprietorship, partnership, corporation, municipal corporation, association, or any other public or private group. Id (a)(5). However, the Attorney General may not issue a demand for documentary material on a proprietorship or partnership whose annual gross income does not exceed $5 million. Id (b). The statute does not similarly protect such a proprietorship or partnership from responding to written interrogatories or providing oral testimony. Id. Additionally, the statute provides no restrictions regarding the type of business or location of the respondent, though a recipient may have protections based on other grounds such as personal jurisdiction. In short, the Attorney General is given broad discretion to determine who is a reasonable subject for an Antitrust CID. The Attorney General must properly serve an Antitrust CID. Service on a natural person may be made by delivering an executed copy of the demand by registered or certified mail, return receipt requested at the person s residence, principal office or principal place of business. Id (e). For a party other than a natural person, service may be made by delivering an executed copy of the demand in a manner that would be appropriate under state law if the demand were process in a civil suit. Id. Proof of service is demonstrated by a verified return from the individual serving the demand setting forth the manner of service and, in the case of service by certified mail, the return receipt of delivery. Id. b. Subject Matter Limitations The scope of an Antitrust CID is limited to materials or information that would be discoverable under the Texas Rules of Civil Procedure or other state law relating to discovery. Id (d)(1). As such, the demand must describe the nature of the activities that are subject to the investigation and set forth each statute and section of that statute that may have been violated. Id (c)(1). For document demands, the Attorney General must describe the class of material to be produced with reasonable specificity so that the material demanded is fairly identified. Id (c)(2). Demands for answers to interrogatories must propound the interrogatories with definiteness and certainty. Id (c)(3). Demands for giving oral testimony, however, need only state a reasonable date, time, and place at which the testimony shall begin. Id (c)(4). The Dallas Court of Appeals, in Attorney General of Texas v. Allstate Insurance Company, considered whether an Antitrust CID adequately described the nature of the activities that were the subject of the investigation. See Attorney Gen. of Tex. v. Allstate Ins. Co, 687 S.W.2d 803 (Tex. App. Dallas 1985, writ ref d n.r.e.). In that case, the Antitrust CID stated that the Attorney General is investigating the possibility of a group boycott of certain providers Government Pre-Suit Investigative Powers Page 2

4 of health care services to workers compensation claimants in the State of Texas. Id. at 806. The Court adopted the federal court test for determining the adequacy of a CID description, which is: [W]hether the statement in the demand as to the nature of the conduct under investigation is sufficient to inform adequately the person being investigated and sufficient to determine the relevancy of the documents demanded for inspection. See id. at (citing Petition of Gold Bond Stamp Co., 221 F. Supp. 391 (D. Minn. 1963), aff d per curiam, 325 F.2d 1018 (8th Cir. 1964)) (emphasis in original). Based on that test, the Court concluded the Allstate Antitrust CID complied with the statutory requirements because the description was sufficient to allow Allstate to determine, in light of the fact that Allstate was an active workers compensation insurer in Texas, the relevancy of the documents demanded for inspection. See id. at 807. c. Deadline for Response The Attorney General is given wide discretion in determining the deadline for a response to an Antitrust CID. Unlike traditional civil discovery, there is no statutory deadline provided for respondents to a CID. Instead, for documents the Attorney General must provide a reasonable period of time within which the material is to be produced. Id (c)(2). Similarly, a demand for oral testimony must provide a reasonable date and time for taking the testimony. Id (c)(4). For interrogatories, however, the Attorney General needs only to prescribe a date or dates by which answers to interrogatories shall be submitted. Id (c)(3). There is no express statutory obligation that the response date be reasonable. However, the Attorney General s deadline discretion is somewhat limited regarding Antitrust CID document requests seeking a product of discovery. A product of discovery includes items produced, obtained or created in any judicial or administrative proceeding of an adversarial nature. Id (a)(6). That may include deposition transcripts, responses to interrogatories, documents produced in response to a request for production, results of an inspection of land or admissions obtained in any method of discovery. Id. Thus, this category of documents may include information discovered in a private lawsuit from a third party who is not the recipient of an Antitrust CID. The statute includes measures to address the interests of a third party who is not an Antitrust CID recipient but whose information may be part of a product of discovery requested by an Antitrust CID. First, no product of discovery may be produced until 20 days after the date the Antitrust CID is delivered to the third party whose information is at issue. Id (c)(5). Second, the third party may file a petition in district court, described in more detail below, for an order modifying or setting aside the Antitrust CID. Id (f). Seeking a protective order from the trial court in which the underlying litigation is pending may not be sufficient because an Antitrust CID seeking a product of discovery supersedes any court order, rule or provision of law restricting the disclosure of the information. Id (d)(2). Government Pre-Suit Investigative Powers Page 3

5 d. Challenging Antitrust CIDs and Penalties for Failure to Comply A party seeking to resist or limit an Antitrust CID may file a petition for an order modifying or setting aside the demand in Travis County District Court or the district court in the county of the person s residence or principal office. Id (f). The maximum deadline to file a petition is 20 days from the date of service. Id. However, if the return date of the CID is less than 20 days, the petition must be filed prior to the return date. Id. The basis for the petition may be the Attorney General s noncompliance with the Antitrust CID statute or any constitutional or legal right of the petitioner. Id. In ruling on the petition, the court is to presume, absent evidence to the contrary, that the Attorney General issued the demand in good faith and within the scope of his or her authority. Id. Importantly, the deadline to comply with the contested portions of an Antitrust CID does not run while the petition is pending. Id (g)(2). However, the respondent must comply with any portions of the Antitrust CID that are not subject of the petition to modify or set aside the Antitrust CID. Id. If a party fails to fully respond to an Antitrust CID, the Attorney General may seek to enforce the Antitrust CID by filing a petition in district court. Id (h)(1). Whenever a petition is filed, the court is granted jurisdiction to hear and determine the matter presented and to enter any order required to implement the provisions of the statute. Id (j). If the court orders compliance with a CID, failure to comply with the order is punishable as contempt. Id. However, any person who acts with the intent to evade a CID and removes, conceals, destroys, withholds, alters or falsifies documentary material or otherwise provides inaccurate information may be guilty of a misdemeanor and subject to a fine of not more than $5,000 or confinement in county jail for not more than one year. Id (h)(2). e. Responding to an Antitrust CID Responding to an Antitrust CID raises several practical concerns. However, as a general matter, compliance is worked out in cooperation with the Attorney General. As the Office of the Attorney General has noted: In contrast to adversarial discovery in private litigation, the Attorney General's office encourages private parties who receive a CID to work cooperatively with the State, and to provide comprehensive rather than grudging responses to the CID, in order to demonstrate the party s good faith desire to comply with the law. See Brief for the State of Texas as Amicus Curiae supporting denial of Supreme Court review, in The Supreme Court of Texas, Cause No , In re Memorial Hermann Healthcare Sys., filed November 24, Setting aside the potential practical reasons for a comprehensive and cooperative response, legal compliance with an Antitrust CID is specified by statute. For document requests, compliance requires making the material available for inspection and copying on the return date at the respondent s principal office or place of business during normal business hours. Id (g)(3)(A). The statute specifies that the Attorney General bears the expense of copying the material. Id. The responding party must also certify under oath that all of the requested material in the possession, custody or control of the respondent has been produced. Id (g)(3)(B). Government Pre-Suit Investigative Powers Page 4

6 Note that the statute does not expressly allow a respondent to object to a request in an Antitrust CID and withhold documents based on the objection, although that right may exist based on other provisions of the statute as discussed below. Interrogatories must be answered separately and in writing with a sworn certificate affirming that all of the requested information in the possession, custody, control, or knowledge of the respondent has been set forth fully and accurately. Id (g)(4). However, unlike demands for documents, the statute expressly provides that the respondent may object to an interrogatory, in which case the basis for the objection must be set forth in lieu of an answer. Id (g)(4)(A). The statute also sets various procedures for taking oral testimony demanded by an Antitrust CID. Testimony is given under oath and, at the expense of the Attorney General, shall be recorded stenographically and may be transcribed. Id (g)(5)(A). Unless otherwise agreed to by the parties, the testimony is taken in the county where the witness is located. Id (g)(5)(B). The respondent may be accompanied, represented, and advised by counsel during the examination. Id (g)(5)(C). Additionally, during the oral testimony the respondent may object to any question on the grounds that the respondent is entitled to refuse to answer the question based on a constitutional or other legal right or privilege. Id (g)(5)(E). However, neither the respondent nor his or her counsel may otherwise object, refuse to answer any question or interrupt the examination. Id. In the event the witness refuses to answer a question, the Attorney General may petition the local district court for an order compelling an answer. Id. Upon completion of the examination, the witness is given 15 days to review, correct and sign the transcript if the testimony is transcribed. Id (g)(5)(F). Upon request, the Attorney General shall provide a copy of the certified transcript to the witness. Id (g)(5)(G). The Antitrust CID statute authorizes a state district court, at the request of the Attorney General, to grant a person immunity from criminal prosecution and compel compliance with an Antitrust CID over an assertion of the Fifth Amendment privilege against self-incrimination. Id (a), (b). Moreover, such an order may be issued in advance, but is not effective until the person asserts the privilege and is informed of the order. Id (c). A person who testifies in compliance with the court s order may not be criminally prosecuted for any act, transaction, matter, or thing about which he or she is ordered to testify or produce. Id (d). On the other hand, a person who fails to testify in compliance with the court s order may be punished for contempt. Id. f. Treatment of Privileged and Confidential Information The Antitrust CID statute appears to provide some measures to protect the public disclosure of information provided in a response, but it also carves out large exceptions that undermine common expectations that responsive information will be confidential. The statute does not allow a responding party to withhold information that it considers confidential or constitutes a trade secret. Rather, a responding party must identify in writing documents produced that contain confidential or trade secret information. Id (g)(3)(A). Given the Government Pre-Suit Investigative Powers Page 5

7 expansive scope of the Antitrust CID, a responding party may be compelled to produce the most sensitive information in its possession. As a general rule, responses to an Antitrust CID may not be made available to others or used by any person without the consent of the party who produced the materials except as provided by the statute or ordered by a court for good cause shown. Id (i)(1). As a result, information provided in response to an Antitrust CID is generally exempt from disclosure under the Public Information Act, which excepts from disclosure information considered to be confidential by law. See TEX. GOV T CODE ; see also Tex. Att y Gen Op. No. OR (2009) (determining documents requested in an open records request that were produced in response to an Antitrust CID are exempt from disclosure based on the confidentiality provisions of the Antitrust CID statute). The exceptions to the general rule, however, allow potentially wide disclosure. The Antitrust CID statute allows the Attorney General to make information provided in a response available as he or she determines may be required by the state in the course of any investigation or judicial proceeding in which the state is a party. Id (i)(2). Furthermore, the Attorney General may disclose the responsive information to any other officer of the state or the United States charged with the enforcement of state of federal law other than criminal law enforcement. Id (i)(3). To the extent the responding party identified information as confidential or containing trade secret information, the Attorney General must give the party notice of the intent to disclose the information at least 15 days prior to the disclosure. In turn, the responding party may petition a district court for a protective order limiting the terms under which the Attorney General may disclose the confidential information. Note that there is arguably no statutory notice requirement or protection for confidential information that was not properly designated at the time of production. Aside from disclosure by the Attorney General, Antitrust CID responses have the potential to be discoverable in civil litigation. A party in litigation against the Attorney General may seek the discovery of third-party Antitrust CID responses based on a showing of good cause. The Supreme Court of Texas has construed the meaning of good cause as used in the Antitrust CID statute. See State v. Lowry, 802 S.W.2d 669 (Tex. 1991). In Lowry the Attorney General sued a group of insurance companies for alleged antitrust violations. See id. at 670. The defendants sought to discover information produced to the Attorney General by third parties in response to Antitrust CIDs. See id. The Attorney General produced only the material it intended to use at trial. See id. at The defendants sought to compel the production of the remaining information on the basis that the defendants had a substantial need for the materials and were unable without undue hardship to obtain the substantial equivalent of the materials by other means. See id. at 673. The Court concluded that a sufficient factual showing on that basis constitutes good cause and affirmed the trial court order compelling the production. See id. Additionally, in private litigation matters, a party who responds to an Antitrust CID could later be exposed to a request to produce its CID materials in the litigation. In a private antitrust lawsuit against Memorial Hermann, the plaintiff requested and the trial court ordered the production of documents previously produced by Memorial Herman to the Attorney General in Government Pre-Suit Investigative Powers Page 6

8 response to an Antitrust CID. See In re Memorial Hermann Healthcare Sys., 274 S.W.3d 195, (Tex. App. Houston [14th Dist.] 2008, pet. denied). The court of appeals concluded that the Antitrust CID statute does not make documents provided in response to a CID confidential; rather, it limits the Attorney General s authority to disclose the contents of the response. Id. at 199. The court further concluded that the trial court did not abuse its discretion in overruling objections that the requests were overbroad, noting the fact-based nature of such an inquiry. Id. at 204. Thus, Memorial Hermann was compelled to produce its Antitrust CID response to the plaintiffs in the private lawsuit. Id. 2. Attorney General Deceptive Trade Practices Civil Investigative Demand The Texas Deceptive Trade Practices Act ( DTPA ) authorizes the consumer protection division of the Office of the Attorney General to seek the production of information through a civil investigative demand (the DTPA CID ). TEX. BUS. & COM. CODE Unlike the Antitrust CID, the DTPA CID may only require the production of documentary information. Id (a). The DTPA CID does not empower the Attorney General to propound interrogatories or take oral testimony. A separate provision of the DTPA, described in the next section, provides measures to obtain testimony prior to litigation. While the DTPA CID has similar features to the document request features of the Antitrust CID, a DTPA CID respondent has fewer protections and more potential pitfalls. a. Recipient Limitations The Attorney General is empowered to issue a DTPA CID to any person the consumer protection division believes may have possession, custody or control over any documentary material relevant to an investigation of a possible DTPA violation. Id (a). Person includes an individual, partnership, corporation, association, or other group, however organized. Id (3). The DTPA provides no restrictions regarding the location of the respondent or the type of business activities at issue, though a recipient may have protections based on other grounds such as personal jurisdiction. As with the Antitrust CID, the Attorney General is given wide discretion to determine who will be the subject of a DTPA CID. Service of the DTPA CID is accomplished merely by delivering an executed copy to the person directed to respond or to the respondent s principal place of business in the state. Id (d). Service also may be accomplished by registered or certified mail to the respondents principal place of business in the state, or if the person has no place of business in Texas, to the person s principal office or place of business. Id (d). Finally, a DTPA CID may be served to a partner, officer or agent authorized to receive service of process on behalf of the respondent. Id. b. Subject Matter Limitations The DTPA CID may demand any documentary material the Attorney General deems relevant to the investigation of possible DTPA violations. Id (a). Documentary materials include any tangible document or recording, wherever situated, whether an original or a copy. Id (7). The CID must state the general subject matter of the investigation, the statute and section under which the alleged violation is being investigated, and the class of Government Pre-Suit Investigative Powers Page 7

9 material to be produced with reasonable specificity so as to fairly indicate the material demanded. Id (b). The DTPA CID is arguably limited to items that would be discoverable under the Texas Rules of Civil Procedure, but that protection in not clear under the statute. The DTPA provides: A civil investigative demand may contain a requirement or disclosure of documentary material which would be discoverable under the Texas Rules of Civil Procedure. Id (c). By contrast, the Antitrust CID clearly limits the scope of a CID to discoverable information: A demand may require the production of documentary material... only if the material or information sought would be discoverable under the Texas Rules of Civil Procedure or other state law relating to discovery. Id (d)(1). Compared to the language of the Antitrust CID, the DTPA CID reference to the Rules of Civil Procedure could be construed as an additional grant of power, not a restriction as in the Antitrust CID. However, the DTPA reference to the Rules of Civil Procedure is generally understood as a limit on the scope of DTPA CIDs. c. Deadline for Response The Attorney General has discretion to set the deadline for a response to a DTPA CID. Nothing in the statute expressly restricts the Attorney General from setting any particular deadline. Unlike the Antitrust CID, there is not even a stated requirement that the Attorney General provide a reasonable period of time for the material to be produced. As discussed in more detail below, a respondent may file a petition seeking an order extending the return date. d. Challenging Requests and Penalties for Failure to Comply The DTPA CID recipient may file a petition in district court to extend the return date or modify or set aside the DTPA CID. Id (g). Such a petition must be filed in district court where the respondent resides or in Travis County. Id. As with the Antitrust CID, the deadline to file a petition challenging a DTPA CID is the earlier of the return date or 20 days from the date of service. Id. As a result, a respondent may have very little time to evaluate his or her options for how to proceed after receiving a DTPA CID. One critical difference in the DTPA, however, is that filing a petition does not toll the deadline to respond to the DTPA CID. Instead, the respondent must comply with the DTPA CID regardless of filing a petition unless the court issues an order to the contrary. Id (g). Thus, to effectively resist a DTPA CID, a respondent may wish to file a petition and get a favorable order before the return date, which may be only a few days from the date of service. If a person fails to comply with a DTPA CID, the Attorney General may file a petition for an order to enforce the DTPA CID. Id (b). Additionally, the Attorney General may seek an order to compel the surrender of the requested material if the Attorney General is unable to Government Pre-Suit Investigative Powers Page 8

10 satisfactorily copy or reproduce it. Id. After the court orders compliance with a DTPA CID, failure to comply with the order is punishable as contempt. Id (c). On the other hand, as with the Antitrust CID, if a person with the intent to avoid, evade, or prevent compliance, in whole or in part conceals, withholds, destroys, alters or by any means falsifies documentary material, the person may be guilty of a misdemeanor and subject to a fine of not more than $5,000 or confinement in county jail for not more than one year. Id (a). e. Responding to a DTPA CID To minimally comply with a DTPA CID, the responding party must produce the responsive documentary material for inspection and copying during normal business hours at the respondent s principal office or place of business. Id (e). Note that the DTPA does not address the expense of copying documents, where the Antitrust CID statute expressly requires the Attorney General to bear the expense. Nevertheless, the respondent and Attorney General may, and in practice generally do, reach agreements on alterative times and locations for the production of documents. Id (e). Given the Attorney General s powerful remedies under the DTPA, many DTPA CID respondents are interested in resolving investigations cooperatively and expeditiously. Whether a respondent may object to a particular request within a DTPA CID and withhold information based on the objection appears to be an open issue. The statute does not provide an express right to serve objections as part of a response. However, as discussed above, the DTPA CID powers may be limited to information that would be discoverable under the Texas Rules of Civil Procedure, which may implicitly contemplate the right to object on grounds provided in the rules. To the extent the Attorney General files a petition to enforce the DTPA CID, the court is granted jurisdiction to hear and determine the matter presented and to enter any order required to implement the provisions of the statute. Id (c). Thus, the court arguably has jurisdiction to consider an objection to a DTPA CID. However, there is no express right to object to a request in a DTPA CID and there are no reported opinions addressing this issue. As a result, a respondent who is unable to negotiate with the Attorney General to modify the DTPA CID may wish to file a petition to modify the DTPA CID and seeking an order prior to the response date or 20 days from service if earlier. f. Treatment of Privileged and Confidential Information Like the Antitrust CID, the DTPA CID raises concerns regarding the confidentiality of the response. As a general rule, the DTPA provides that no documentary material produced pursuant to a DTPA CID shall be disclosed to any person other than an authorized employee of the Attorney General s office without out the respondent s consent or a court order based on good cause shown. Id (f). Thus, information provided in response to a DTPA CID is generally exempt from disclosure under the Public Information Act, which excepts from disclosure information considered to be confidential by law. See TEX. GOV T CODE ; see also Tex. Att y Gen Op. No. MB-2311 (1999) (determining documents produced in response to an DTPA CID are exempt from disclosure based on the confidentiality provisions of the DTPA CID statute). However, the statute also authorizes the Attorney General to use the responsive information as it determines necessary in the enforcement of the DTPA, including presentation before any court. Id. Government Pre-Suit Investigative Powers Page 9

11 The scope of the Attorney General s authority to disclose the responsive information is not entirely clear. The plain language of the statute suggests the disclosure authority is broader than using the information as evidence in court. Notably, the DTPA does not include the Antitrust CID statute s specific authority for the Attorney General to disclose the information to other agencies, states or the federal government. On one hand, the exclusion of that specific disclosure authority could allow the DTPA CID statute to be construed as more restrictive on the Attorney General because that authority is not expressly granted and was apparently necessary to specify in the Antitrust CID statute. On the other hand, the Antitrust CID statute may be viewed as more restrictive by identifying specific circumstances the Attorney General may disclose information, where the DTPA grants the Attorney General broad discretion to make that determination. The DTPA also addresses the treatment of trade secret information. To the extent the respondent produces trade secret information in response to a DTPA CID, the Attorney General may not present the trade secret material to a court without court approval after adequate notice to the respondent. Id (f). Adequate notice is not defined, unlike the 15-day notice provision in the Antitrust statute. The DTPA statute does not require any particular method of designating information as containing trading secrets, and there is no provision that expressly requires the responding party to designate documents as trade secrets at the time of production. Note also that, as discussed above, the DTPA does not provide an express right to withhold information based on an objection to a request in a DTPA CID, although that right may exist. Importantly, the protection appears to be limited only to trade secret information and not other information considered privileged or confidential. However, given that this provision governs the presentation of documents to a court, the responding party should be able to use civil procedure tools to protect its confidential and privileged information. Notably, the DTPA CID statute, unlike the Antitrust laws, does not require the Attorney General to give notice of the disclosure of trade secret information when that disclosure is made outside of a judicial proceeding, to the extent such a disclosure is ever authorized. Respondents should be aware that they might be asked to produce the content of their DTPA CID response to plaintiffs in private litigation. Applying Memorial Hermann, a court may conclude that the DTPA CID statute does not make responsive documents confidential; rather, it limits the Attorney General s power to disclose the contents of the response. See In re Memorial Hermann Healthcare Sys., 274 S.W.3d 195, (Tex. App. Houston [14th Dist.] 2008, pet. denied) (concluding same under the similarly worded Antitrust CID statute). However, there may be good reasons to conclude that DTPA CIDs and Antitrust CIDs should be treated differently. Moreover, given the broad scope of the Attorney General s authority to demand information under the DTPA compared to a private party s right to discovery, requesting a respondent s complete response to a DTPA CID is almost certainly overbroad. The contents of a DTPA CID response may also be ordered to be disclosed by a court based on a showing of good cause. Id (f). The Supreme Court of Texas has construed the meaning of good cause as used in the Antitrust CID statute. See State v. Lowry, 802 S.W.2d 669 (Tex. 1991). In that case the defendants in a lawsuit filed by the Attorney General sought to discover third-party Antitrust CID responses. See id. at The defendants argued that they had a substantial need for the materials and were unable without undue hardship to obtain the Government Pre-Suit Investigative Powers Page 10

12 substantial equivalent of the materials by other means. See id. at 673. The Court concluded that a factual showing on that basis constitutes good cause and affirmed the trial court order compelling the production. See id. A respondent should keep in mind that documents produced to the Attorney General may be maintained by the Attorney General indefinitely. Nothing in the DTPA statute provides record retention guidance or restrictions. Moreover, the DTPA CID statute, unlike the Antitrust CID statute, does not provide a process for the return of produced information after the close of an investigation. See TEX. BUS. & COM. CODE 15.10(i)(6). 3. Attorney General DTPA Demand for Reports and Examinations As described above, the Attorney General s powers under the DTPA to demand documents and testimony prior to litigation are separated into two statutes, unlike the Antitrust CID statute, which authorizes both. The power to demand sworn testimony is found in section of the DTPA (the Demand ). As described below, the vastly limited protections associated with a Demand arguably make this investigation tool meaningfully different from the related Antitrust CID demand for interrogatories or oral testimony. a. Recipient Limitations The Attorney General s consumer protection division is authorized to send a Demand to any person in connection with an investigation of a possible violation of the DTPA. Id Person includes an individual, partnership, corporation, association or other group, however organized. Id (3). The DTPA provides no restrictions regarding the location of the respondent or the type of business activities at issue, though a recipient may have protections based on other grounds such as personal jurisdiction. Unlike the DTPA CID statute, there is no express requirement that the consumer protection division has a reasonable belief that the person has relevant information, although it would be a fair expectation based on the statute as a whole. Notably, the Demand is silent as to service of the Demand or notice to the witness. b. Subject Matter Limitations The subject matter of a Demand is based on the Attorney General s investigation of a potential violation of the DTPA. The Attorney General s consumer protection division may issue a Demand when it has reason to believe a person is engaging in, has engaged in, or is about to engage in any act or practice declared to be unlawful under the DTPA. Id The division may also issue a Demand when it believes it is in the public interest to investigate whether any person is engaging in, has engaged in, or is about to engage in any such act or practice. Id. The Attorney General has access to various investigation methods as part of a Demand that shape the subject matter of the Demand. First, a Demand may require a person to return answers to written questions, under oath or otherwise, as to all the facts and circumstances concerning the alleged violation and such other data and information the consumer protection division deems necessary. Id (1). Second, the Attorney General may examine under oath any person in connection with the alleged violation. Id (2). Government Pre-Suit Investigative Powers Page 11

13 Third, the Attorney General may examine any merchandise or sample of merchandise deemed necessary and proper. Id (3). Last, the Attorney General, when authorized by court order, may impound any sample merchandise produced by the respondent and retain it until the completion of all proceedings related to the investigation. Id (4). c. Deadline for Response The DTPA is silent as to the timing of a response to a Demand or any standards conditioning the Attorney General s exercise of discretion regarding deadlines. d. Challenging Requests and Penalties for Failure to Comply The DTPA provides no express process for a recipient of a Demand to object to the Demand or seek a court order to modify, limit, or postpone a Demand. Even the limited protections available to resist a DTPA CID seeking documents arguably are not available for the Demand seeking testimony. The right, if any, to affirmatively challenge a Demand arguably must come from other sources of law. The Attorney General, on the other hand, has the same remedies to address a failure to respond to a Demand as is available for a DTPA CID. The Attorney General may file a petition for an order to enforce the Demand. Id (b). If the court orders compliance with a Demand, failure to comply with the order is punishable as contempt. Id (c). On the other hand, as with the Antitrust CID and the DTPA CID, if a person with the intent to avoid, evade, or prevent compliance, in whole or in part conceals, withholds, destroys, alters or by any means falsifies documentary material, the person may be guilty of a misdemeanor and subject to a fine of not more than $5,000 or confinement in county jail for not more than one year. Id (a). e. Responding to a DTPA Demand The Demand powers are obviously broad. Unlike the Antitrust CID, there is no guidance on important protections for the witness. For example, the Demand does not address whether oral testimony must be recorded, or whether a copy of the testimony will be made available to the witness. Similarly, unlike the Antitrust CID, there is no stated right for a witness to be represented by an attorney during the testimony or to object to questions during an oral examination. Likewise, there are no express provisions for the protection of trade secret, privileged or confidential information. Furthermore, there is no expressly stated access to judicial relief to limit, modify or otherwise resist the Demand. Whether a respondent may object to a particular question or procedure within a Demand appears to be an open issue. The statute does not provide a right to raise objections as part of a response. Moreover, there is no stated requirement that the information requested be limited to information that would be discoverable under the Texas Rules of Civil Procedure. However, in the event the Attorney General files a petition to enforce the CID, the court is granted jurisdiction to hear and determine the matter presented and to enter any order required to implement the provisions of the statute. Id (c). Thus, the court arguably has jurisdiction to consider an objection to a Demand. Government Pre-Suit Investigative Powers Page 12

14 f. Treatment of Privileged and Confidential Information The DTPA does not expressly provide protections for confidential information produced in response to a Demand. The Attorney General s Open Records Division has interpreted to mean that information obtained pursuant to is not deemed confidential by the statute and therefore may be subject to disclosure in response to an open records request. See Tex. Att y Gen. Op. No. AC-1007 (2001). Any information provided to the Attorney General under 17.60, absent a court order or agreement, has the potential of being disclosed by the Attorney General for any reason and available to the public, litigants, media, and other regulatory bodies through the Public Information Act. Obviously, the open nature of the response to a Demand creates significant tension when the Attorney General seeks information that the respondent considers confidential, privileged or otherwise sensitive. 4. Attorney General Requests to Examine Corporate Records The Texas Business Organizations Code authorizes the Attorney General to examine the books and records of any Texas-charted corporation, non-profit corporation, limited liability company and other charted business associations (a Request to Examine ). Likewise, the Attorney General may do the same for foreign corporations that register in Texas. This power, first granted to the Attorney General in 1907, was arguably intended to allow oversight of statecreated business associations compliance with their governing documents and state law. To promote compliance, a business entity that fails to comply with a Request to Examine may forfeit its right to conduct business in Texas. a. Recipient Limitations The Request to Examine applies to all filing entities and foreign filing entities in the state. TEX. BUS. ORGS. CODE A filing entity is any entity formed under the Texas Business Organizations Code that is a corporation, limited partnership, limited liability company, professional association, cooperative, or real estate investment trust. Id (18), (22). A foreign filing entity is an out-of-state entity that registers or is required to register as a foreign entity under the Code. Id (29). b. Deadline for Response A Request to Examine is triggered by a Visitorial Letter in which the Attorney General communicates the intent to examine records to the respondent s managerial official. Id The respondent must immediately permit the Attorney General to examine the requested records. Id. The Request to Examine statute does not provide any express mechanism to seek judicial relief to modify the scope or timing of the examination. c. Subject Matter Limitations Through a Request to Examine, the Attorney General may inspect, examine, and make copies of any of the entity s records the Attorney General considers necessary. Id Records include minutes, books, accounts, letters, memoranda, documents, checks, vouchers, telegrams, constitutions, and bylaws. Id. The Attorney General may examine records maintained in Texas or any other state. Id The Attorney General may use the Government Pre-Suit Investigative Powers Page 13

15 information obtained in a Request to Examine to investigate whether the entity is or has been engaged in acts that violate its governing documents or any state law. Id In 1952, Humble Oil challenged the Attorney General s authority to examine its records. See Humble Oil & Refining Co. v. Daniel, 259 S.W.2d 580 (Tex. Civ. App. Beaumont 1953, writ ref d n.r.e.). At the time, Humble was involved in a tax suit against Montgomery County and the Attorney General. See id. at 581. One month before trial the Attorney General sent Humble a Visitorial Letter demanding inspection of books and records for the purpose of obtaining evidence for the upcoming trial. See id. at Humble filed suit seeking a declaratory judgment on the basis that the Attorney General undertook the Request to Examine for an unauthorized purpose. See id. at The trial court denied Humble s request, determining the Attorney General was acting within the scope of his authority. See id. at 584. On appeal, the Beaumont Court of Appeals held that the text of the Request to Examine statutes at that time granted the Attorney General an unlimited and unrestricted right to examine the books and records of a corporation. See id. at 589. However, the court also concluded that the statutes as worded limited the Attorney General s authority to copy records to matters involving the violation of the corporation s charter rights, a regulatory statute enacted for the purpose of controlling the corporation or a penal statute. See id. at 590. Thus, the court concluded that the Attorney General was free to inspect Humble s records, but could not copy and use the records in the pending tax lawsuit. See id. at 591. Notably, the Request to Examine statutes were subsequently amended to add the right to copy records into the provision that the court concluded gave the Attorney General unrestricted access to examine records. TEX. BUS. ORGS. CODE No reported opinion has construed the amended statutory language. Later in the same decade the Eastland Court of Appeals addressed the use of Visitorial Letters to a finance company for the purpose of investigating allegations of usury. See Chesterfield Fin. Co. v. Wilson, 328 S.W.2d 479 (Tex. Civ. App. Eastland 1959, no writ). The court noted that the Attorney General was authorized to file suit to enjoin any corporation engaged in usury. See id. at 482. Such a lawsuit would involve a violation of the corporation s charter rights and violations of laws enacted for the purpose of controlling corporations. See id. Thus, the court concluded the Attorney General has unrestricted power to examine and copy records pursuant to a Request to Examine for the purpose of investigation potential usury. See id. at d. Challenging Requests and Penalties for Failure to Comply The Request to Examine statute provides no express mechanisms to challenge the Attorney General s authority to examine records. The right, if any, to affirmatively challenge a Request to Examine must come from another source of law, such as a declaratory judgment action. See Humble Oil & Refining Co. v. Daniel, 259 S.W.2d 580, 588 (Tex. Civ. App. Beaumont 1953, writ ref d n.r.e.) (granting partial relief under a declaratory judgment action challenging a Request to Examine). An entity that fails to permit the Attorney General to examine or make copies of records is subject to forfeiture of its right to do business in Texas and revocation of the entity s registration or certificate of formation. Id Moreover, an officer or a governing person of the entity who refuses to permit an Attorney General examination personally commits a Class B misdemeanor. Id Government Pre-Suit Investigative Powers Page 14

16 e. Responding to a Request to Examine Upon sending a Request to Examine, the Attorney General may inspect, examine, and make copies of any record of the entity. Id The Attorney General is authorized to investigate whether the entity has been or is engaged in violations of its governing documents or any state law. Id The examination may include documents located in other states. Id f. Treatment of Privileged and Confidential Information Information held by the Attorney General and obtained in the course of a Request to Examine is not public information and not subject to disclosure under the Public Information Act. Id The Attorney General, however, may disclose the information: (1) in a judicial or administrative proceeding in which the state is a party; (2) in a suit by the state to revoke the entity s registration or collect penalties for a violation of state law; or (3) to provide information to any officer of the state charged with enforcement of its laws. Id. The Attorney General s right to examine records does not make all submissions to the Attorney General in response to an inquiry confidential. For example, the Attorney General sent a letter to loan servicers asking for information regarding foreclosures, and the loan servicers responded with information. Tex. Att y Gen. OR A. Subsequently, the Attorney General received public information requests seeking the loan servicers responses to the Attorney General. Tex. Att y Gen. OR A. Certain loan servicers opposed the public disclosure of their responses, arguing that some information was exempted from disclosure as a response to a Request to Examine. Id. The Attorney General s Open Records Division determined that the Attorney General s letter to the loan servicers contained no representation that the request for information was made under the Request to Examine statutes. Thus, the confidentiality provisions associated with Requests to Examine did not apply, and the material was subject to public disclosure. Id. Pre-Suit Investigative Powers of the Texas Department of Insurance The Texas Insurance Code provides the Texas Department of Insurance ( TDI ) with four main types of pre-suit investigative powers. First, TDI may issue requests for information under Texas Insurance Code Section Second, TDI s Commissioner may issue a request for information under Texas Insurance Code Section Third, TDI may issue subpoenas pursuant to Texas Insurance Code Chapter 36. Fourth, Texas Insurance Code Section allows TDI to engage in certain informal investigations. Each of these pre-suit investigative powers is discussed separately below. 2 2 This section focuses on TDI s powers to investigate particular disputes prior to the commencement of a SOAH proceeding or other litigation. The Insurance Code does not expressly limit the use of these powers to prelitigation investigations and, in fact, TDI s subpoena power is regularly used in the midst of a contested case. TDI may also use some of its powers particularly Section in industry-wide-examinations that are not focused on a particular dispute or company. See TEX. INS. CODE ; see also TEX. INS. CODE Ch These additional topics litigation discovery tools and market conduct examinations are beyond the scope of this paper. Government Pre-Suit Investigative Powers Page 15