Defending Government Investigations in Texas

Finding out that you are under investigation by the State can be surprising and worrisome. You may not know where to begin, and may be scared of making an administrative misstep to the detriment of your business.

Certainly, the statutory authority of the Attorney General to conduct pre-lawsuit investigations has plenty of bureaucratic complexity. This blog post aims to simplify these intricacies by providing you essential information about the Attorney General’s ability to compel production of documents and oral testimony.

DTPA Civil Investigative Demands

The Basics

A Civil Investigative Demand (“CID”) represents a tool the Attorney General uses to gather pre-suit investigatory information from businesses and individuals. In the context of the Texas Deceptive Trade Practices Act (“DTPA”), the Attorney General’s consumer protection division has broad authority to issue a CID so long as the division “believes that any person may be in possession, custody, or control of the original copy of any documentary material relevant to the subject matter of an investigation of a possible violation. . . .” Tex. Bus. & Com. Code § 17.61.

Your Next Steps

Upon being served with a CID, it is imperative that you promptly preserve all documents related to the CID and seek legal help, as there are many factors that must then be considered. For starters, the CID must meet the following four requirements:

• state the statute and section under which the alleged violation is being investigated, as well as the general subject matter of the investigation;
• describe the class or classes of documentary material to be produced with reasonable specificity so as to fairly indicate the material demanded;
• establish a return date within which the documentary material shall be produced; and
• identify the persons authorized by the consumer protection division to whom the documentary material is to be made available for inspection and copying.

The CID also may seek documentary evidence, oral testimony, or both. Your attorney additionally may advise you on the best manner to produce the material since no format is explicitly required.

Although the deadline to respond to the CID is generally provided for in the Attorney General’s demand, a skilled attorney can help you to seek an extension of your response time—whether that be through an agreement with the Attorney General or by filing a petition to extend the return date for the CID in Travis County District Court. Objecting to the CID or seeking to have it set aside are additional options your counsel can help you pursue.

Penalties for Non-Compliance

If a person does not comply with a CID, then the Attorney General’s Office may file a petition to enforce the CID or enforce the request for testimony under Tex. Bus. & Com. Code § 17.60. Such petition must be filed in the district court where the person resides, is found, or transacts business. Additionally, if the person transacts business in multiple counties, the petition must be filed in the county where the person maintains his principle place of business, unless the parties agree otherwise.

If a court then upholds the CID, you may be placed in contempt of court. As criminal penalties go, the DTPA also lays out a stiff misdemeanor provision. Specifically, “[a]ny person who, with intent to avoid, evade, or prevent compliance, in whole or in part, with Section 17.60 or 17.61 of this subchapter, removes from any place, conceals, withholds, or destroys, mutilates, alters, or by any other means falsifies any documentary material” is subject to a penalty of $5,000 or confinement in county jail for not more than a year, or both.

Antitrust Civil Investigative Demands

Your Next Steps

Like the DTPA CIDs, upon receipt of an antitrust CID, be sure to institute a document preservation policy. And again, make sure to engage experienced legal help to focus on the specific facts of your case. For example, the CID must meet multiple requirements, which can vary based on the type of information sought. Tex. Bus. & Com. Code § 15.10, et seq.

Because the Attorney General has broad authority to issue antitrust CIDs, you should endeavor to find counsel knowledgeable about ways to challenge the CID. Some potential grounds you may have for challenging the CID include:

• the demand meeting specific statutory antitrust definitions; and
• your company’s corporate structure and annual gross income.

Your attorney also may advise you with regard to the following items:

• the best way to produce the documentary material and other legal nuances associated with presenting the production;
• details regarding response date requirements;
• responding to the CID with any objections and privilege issues that you would otherwise make in civil litigation; and
• petitioning the court to change or set aside the CID.

Penalties for Non-Compliance

“Deliberate noncompliance,” can lead to a possible misdemeanor conviction including confinement in county jail for up to a year, a fine of $5,000, or both. Because of the risks associated with failing to comply or failing to comply completely, it is imperative to engage knowledgeable counsel to guide you through this process.

Requests to Examine

The Basics

Hand in hand with its CID authority, the Attorney General’s Office has the power to examine the books and records of foreign and domestic filing entities. Tex. Bus. Orgs. Code § 12.151, et seq.

Requirements for Requests to Examine are slightly more straightforward than those for CIDs. The request simply needs to be in writing and to a managerial official, and officials must “immediately permit the attorney general to inspect, examine, and make copies of the records of the entity.”

Your Next Steps

Although arguably less intricate than CIDs, to ensure that you are properly complying with Requests to Examine, implementing a document preservation policy and seeking counsel remain imperative. An attorney can help you determine what information constitutes “records of the entity” and thus fall under the statutory purview of the Attorney General. Your counsel also should contact the Attorney General’s Office to discuss a deadline for the response and advise you regarding any possible bases for seeking a declaratory judgment.

Penalties for Non-Compliance

Failure to comply with a Request to Examine can adversely affect your business. It can result in forfeiture of your company’s right to do business in Texas and a revocation or termination of its registration or certificate of formation. Additionally, it can result in a Class B Misdemeanor (up to 180 days in jail and/or a $2,000 fine) for the “managerial official or other individual having the authority to manage the affairs of a filing entity or foreign filing entity” who resists the Request.

Find Experienced Counsel to Ensure Compliance

The idea of the State scrutinizing your corporation’s every move is not a pleasant one. However, if you have been issued a CID or Request to Examine, knowledgeable counsel can make the process less daunting.