Emily Myers, NAAG Antitrust and Powers and Duties Chief Counsel
Authority to Represent State
The attorney general’s authority to represent the state was reaffirmed in three cases earlier this year. In Colorado, the control of litigation on behalf of the state once again gave rise to litigation between the executive and the attorney general. The Colorado attorney general filed three federal lawsuits against the federal government, challenging rules promulgated by the U.S. Department of the Interior and the Environmental Protection Agency, that the governor did not support. The governor filed a petition in the Colorado Supreme Court, seeking a ruling on the authority of the attorney general to sue the federal government without the consent of the governor. Colorado statutes state that the attorney general “shall appear for the state and prosecute and defend all actions and proceedings, civil and criminal, in which the state is a party or is interested when required to do so by the governor.”1
The governor argued that the governor is the supreme executive of the state and that his decision is therefore binding on the attorney general; that the language of the statute limited the attorney general’s authority to sue to situations in which the governor requested her to do so; and that by, undertaking these lawsuits against his wishes, the attorney general created a conflict of interest that prevents her from advising the governor on issues involved in the cases.
In response, the attorney general noted that an earlier decision by the Colorado Supreme Court, which involved a similar situation, had already established that the executive power of Colorado is intentionally diffused, rather than hierarchical, as the governor argued; that the Colorado attorney general, in addition to powers conferred by statute, has common law powers which have not been specifically repealed by any statute; and that, “the Attorney General must consider the broader institutional concerns of the state even though these concerns are not shared by an individual agency or officer.”2 The attorney general noted that, in prior cases where the governor had disagreed with the attorney general, he had filed an amicus brief expressing his views as governor.
Although the court did not address any of these arguments specifically, citing its prior decision, it held that the governor had an “adequate alternative remedy” and denied the governor’s petition. In re: Hickenlooper v. Coffman, No. 2015SA296 (Colo. Dec. 3, 2015).
Florida’s Court of Appeal took the opportunity to describe the attorney general’s status within state government and the bases of the attorney general’s authority in a recent qui tam suit. The court held that Florida’s attorney general may dismiss a pending qui tam action even though she previously declined to intervene in the action. The plaintiff (relator in the qui tam action) filed a state False Claims Act action against Motorola. Pursuant to the provisions of the Act, the state received a copy of the qui tam complaint, investigated, and declined to join the qui tam action. The relator prosecuted the case on his own for three years. The attorney general then filed a notice of voluntary dismissal without formally intervening in the case. The trial court held that the attorney general could file a voluntary dismissal without regard to any objections by the relator. The relator appealed, arguing that allowing the attorney general to dismiss the case would undermine the purpose of the False Claims Act, which is to combat fraud against the government.
The court of appeal affirmed the lower court’s ruling, citing four bases for its decision. First, the plain language of the statute supports the attorney general’s authority. Section 68.084(2)(a) of the state False Claims Act states: “The department may voluntarily dismiss the action notwithstanding the objections of the person initiating the action.” The court characterized the overarching principle of the federal False Claims Act is that the rights of all parties, other than the attorney general, are limited by the statute, and there is no common law right to file a qui tam case. Second, the case law interpreting the Act supports the attorney general’s authority to dismiss the action. Third, the court analyzed the Florida False Claims Act and determined that the attorney general is the real party in interest, and the relator is an assignee of the state’s substantive right to prosecute a qui tam action. That right is substantive, rather than procedural, because “it defines and creates the property right to maintain a qui tam action.” The state’s authority to terminate the action is thus substantive.
Finally, the court held that the Florida Constitution’s strict separation of powers requirement also requires that the attorney general be authorized to terminate a qui tam proceeding. The Florida attorney general is designated by the state’s constitution as the state’s chief legal officer and the attorney general serves as one of three members of the governor’s cabinet. The attorney general thus possesses the state’s executive authority. Florida statutes authorize the attorney general to “appear in and attend to, in behalf of the state, all suits or prosecutions, civil or criminal or in equity, in which the state may be a party, or in anywise interested.” The common law also provides the attorney general the authority to intervene in matters of “compelling public interest.”
The court noted its earlier decision in Bondi v. Tucker,3 in which the attorney general was not permitted to appeal a decision because she had not intervened in the lower court. In this case, however, the attorney general is exercising her authority under the plain language of the state False Claims Act and terminating an action brought in the name of the state. “Conducting and terminating legal actions brought in the name of and for the benefit of the State is the sine qua non of the State’s chief legal officer. . . . A State’s chief legal officer without the authority to conduct the State’s litigation would be no legal officer at all.” The court then quoted past decisions to support the proposition that “the Attorney General of Florida is invested with several powers of the Executive Branch; thus, she is far more than only the State’s chief legal officer.” The court held that the attorney general’s dismissal of the qui tam action, without having previously intervened, was proper. Barati v. Florida, 2016 Fla. App. LEXIS 2658 (Fla. Ct. App. Feb. 23, 2016).
The Pennsylvania attorney general’s authority to hire outside counsel on a contingent fee basis was upheld by the Pennsylvania courts. The attorney general hired an outside firm, Cohen Milstein, to investigate whether a group of long-term care facilities had fraudulently misrepresented their services in their billing and marketing practices. The targets of that investigation (petitioners) filed a declaratory judgment action arguing, among other things, that the attorney general exceeded her authority because the applicable statute (the Health Care Facilities Act) vests exclusive jurisdiction in the Department of Health; thus, the attorney general was not able to delegate her authority to Cohen Milstein or use state funds to pay them. Further, they argued that the attorney general’s subpoenas were issued for the purposes of litigation, in violation of state law.
The court noted that the Department of Health did have authority to establish and enforce regulations about minimum standards for safe, adequate, and efficient facilities and protection of patients. However, the Department does not have the authority to “investigate the consumer marketing and billing practices of skilled nursing and long-term care facilities or to initiate litigation to correct illegal acts in this regard.” The attorney general has authority to restrain and obtain restitution for illegal acts, which include deceptive representations with regard to the characteristics, uses, benefits, or quantities of services. In this case, the investigation is directly related to unfair or deceptive acts or practices with regard to minimum staffing levels at petitioners’ facilities, rather than the minimum staffing levels themselves. Petitioners’ claims were, therefore, dismissed.
Turning to the question of outside counsel retained by the attorney general, the court analyzed section 103 of the Commonwealth Attorneys Act, which provides that no party to an action, other than the state agency being represented, may challenge the authority of the agency’s legal representation. Citing earlier decisions, the court stated, “in addressing the authority of Commonwealth attorneys, [the legislature] intended that no party but the affected agency should be heard to complain about so fundamental an executive matter as the identity of the lawyers representing Commonwealth entities.” The court therefore dismissed the petitioners’ claims for lack of standing. GGNSC v. Kane, 2016 Pa. Commw. LEXIS 44 (Pa. Commw. Ct. Nov. 18, 2015).
Civil Investigative Demands
Attorneys general were challenged on their use of civil investigative demands (CIDs), with mixed results. A federal court in Maryland declined to block a civil investigative demand issued by the attorney general of Alaska to Lupin Pharmaceuticals, a company operating in Maryland. The attorney general issued a CID, requesting documents relating to potentially anticompetitive patent settlements (“pay-for-delay”) involving the drugs Loestrin and Effexor, to determine whether settlements violated Alaska antitrust law. Although Alaska law provides that the party receiving a CID may challenge the CID in Alaska Superior Court, Lupin did not do so. Instead, it filed a case in federal court in Maryland seeking an injunction restraining the attorney general from issuing the CID, arguing that the issuance of CIDs to Lupin was unconstitutional. The attorney general filed a petition in Alaska state court for an order to show cause why Lupin should not be held in contempt and filed a motion to dismiss in the Maryland case.
The Maryland federal court first addressed Younger abstention. Under that doctrine, federal courts should abstain from exercising jurisdiction to enjoin ongoing state criminal prosecutions, “state civil proceedings akin to criminal prosecutions,” or state proceedings “that implicate a State’s interest in enforcing the orders and judgments of its courts.” The attorney general argued that its case in Alaska fulfills both of the latter categories. The district court agreed that the Alaska proceeding implicates a state’s interest in enforcing the orders and judgments of its courts.
Lupin argued that the CIDs here are administrative in nature, and cited Google v. Hood4 for the proposition that Younger abstention does not apply. The court distinguished that case, noting that there was no pending attempt to enforce the subpoena in Hood. Thus, the Alaska action satisfies the third Younger prong. Lupin next argued that the Alaska proceeding is not a parallel proceeding that allows a decision on the jurisdictional and constitutional issues raised in this case. However, the Supreme Court’s Younger jurisprudence requires that the federal court “assume that state procedures will afford an adequate remedy.” Lupin presented no evidence that its defenses would not be heard in Alaska superior court, so the court dismissed the petition. Lupin Pharmaceuticals, Inc. v. Richards, No. 1:15-cv-01281 (D.Md. July 2, 2015).
Turning to Google v. Hood, cited above, a decision was rendered in April by the Fifth Circuit Court of Appeals. NAGTRI Journal readers will remember that the Mississippi attorney general had issued a CID to Google, alleging that the Internet service provider had allowed third-party creators of obnoxious, tasteless, and criminal content to publish that content on its search engine without taking action to prevent such publication. The district court granted a preliminary injunction.
On appeal, the court first determined that the district court had federal question jurisdiction over Google’s complaint. The court noted that Google had alleged various violations of federal law and rejected the attorney general’s argument that the claims were really artfully pleaded defenses. The Fifth Circuit cited one of its recent decisions holding, “when a plaintiff seeks both declaratory and injunctive relief from allegedly unconstitutional state action, the well-pleaded complaint rule as adapted to declaratory actions “does not prevent that plaintiff from establishing federal jurisdiction.”
The court also found that Younger abstention did not apply. With respect to civil actions, the doctrine only applies, for purposes of this case, to certain “civil enforcement proceedings.” The Fifth Circuit held that “an executive official’s service of a non-self-executing subpoena creates an ‘ongoing state judicial proceeding.’” The mere existence of an investigation does not require Younger abstention.
However, the court of appeals held that the administrative subpoena issued by the attorney general was not ripe for adjudication by the district court because it was non-self-executing, and the attorney general could not himself sanction non-compliance. Instead, he would need to bring an enforcement action, at which time Google could raise its objections to the administrative subpoena. The court also noted that considerations of comity make it less willing to intervene “when there is no current consequence for resisting the subpoena and the same challenges raised in the federal suit could be litigated in state court.”
The court of appeals also held that the district court should not have enjoined the attorney general from “bringing a civil or criminal charge against Google under Mississippi law for making accessible third-party content to internet users.” The court characterized this injunction as prohibiting a “fuzzily defined range of enforcement actions that do not appear imminent.” The court concluded “invocation of the First Amendment cannot substitute for the presence of an imminent, non-speculative irreparable injury. And we cannot say at this early stage of a state investigation that any suit that could follow would necessarily violate the Constitution.” Google, Inc. v. Hood, No. 15-60205 (5th Cir. Apr. 8, 2016)
Separation of Powers
In an unusual case invoking the separation of powers doctrine, an Arizona voter challenged the election of the attorney general, not because the attorney general failed to satisfy the qualifications for office, but because the Arizona Supreme Court’s oversight of the state bar and the election of a member of the bar as attorney general violates the separation of powers doctrine. The district court dismissed the case because the voter’s challenge was brought under a statutory provision that permits challenges on the ground that the person elected “was not at the time of the election eligible to the office,” and there was no allegation that the attorney general was ineligible. In affirming the lower court, the Arizona Court of Appeals held, “those allegations in general seem to be based on the proposition that the legal requirements for election to the office of attorney general themselves are illegal or unconstitutional. An election contest is not the proper means by which to challenge the existence or legality of those requirements.” The court considered the case so frivolous that it imposed costs and attorneys’ fees on the plaintiff because the appeal was “totally and completely without merit.” Camboni v. Brnovich, 2016 Ariz. App. Unpub. LEXIS 127 (Ariz. App. Feb. 2, 2016).
Several mandamus actions against the Illinois attorney general were dismissed earlier this year. In the first case, the plaintiff had demanded that the attorney general investigate his claims that his civil rights were being violated by employees of the correction system; when she did not do so, he filed a mandamus action, citing the Illinois Civil and Equal Rights Enforcement Act. That Act provides that the attorney general’s office “shall investigate all violations of the laws relating to civil rights and the prevention of discriminations against persons by reason of race, color, creed, religion, sex, national origin, or physical or mental handicap, and shall, whenever such violations are established, undertake necessary enforcement measures.” The plaintiff argued that the word “shall” in the statute meant that the attorney general lacked discretion in investigating those claims and could thus be subject to a mandamus action. The lower court dismissed the case, and the plaintiff appealed.
The Illinois appellate court first stated that the question of whether the attorney general has a duty in this case turns not on the wording of the statute, but on whether the statute is mandatory or directory. A statute is mandatory if “the intent of the legislature dictates a particular consequence for failure to comply with the provision.” In this case, the Enforcement Act does not include any “consequence for non-compliance.” The court noted that a prior Act, since repealed, “empowered the trial court to appoint a special assistant AG to prosecute the cause when the AG fails to act within a reasonable time.” Because there is no consequence for failure of the attorney general to investigate discrimination claims under the Enforcement Act, there can be no mandamus claim. The court also noted that the Illinois attorney general does not represent private individuals, but “represents the interests of all the people of the State of Illinois as a whole.” The attorney general therefore had no duty to act in this case. Cebertowicz v. Madigan, 2016 IL. App (45h) 140917 (Ill. App. Ct. 2016).
In another mandamus action against the Illinois attorney general, the plaintiff was convicted of first degree murder and served 22 years in jail. He was then granted habeas corpus relief and released. The state declined to retry him. He filed a civil rights action in state court against McFatridge, the state’s attorney who was involved in his prosecution. McFatridge requested attorney general representation in connection with this suit, and the attorney general declined, “stating that the claims pending against McFatridge contain allegations of acts and omissions of intentional, willful and wanton misconduct.” The case was eventually resolved through a consent judgment, which contained findings that McFatridge had acted within the scope of his employment and his actions were intended to serve the people of Illinois. The plaintiff received $375,000 from the county’s insurer in partial satisfaction of a judgment against McFatridge of $2 million. McFatridge assigned his claim for indemnification from the state to the plaintiff. The plaintiff made a demand on the state, and the attorney general rejected the demand on the grounds that the acts upon which the judgment was based were intentional, willful, or wanton and the attorney general had not approved the settlement; therefore, McFatridge had no right to indemnification. The plaintiff filed a mandamus action. The trial court dismissed, agreeing that McFatridge had no right to indemnification.
The appellate court first discussed the structure of the State Employee Indemnification Act. Under the Act, if the attorney general declines to defend the state employee, the state employee may employ his own counsel, which was the case here. The statute provides, “[w]here the employee is represented by private counsel, any settlement must be so approved by the Attorney General and the court having jurisdiction, which shall obligate the State to indemnify the employee.”5 In this case, the attorney general did not approve the terms of the consent judgment, although it was approved by the court. The court therefore dismissed the mandamus action because the attorney general had no non-discretionary duty to certify payment to the plaintiff. Steidl v. Madigan, 2016 IL App (1st) 150040 (Jan. 8, 2016).
Authority Under Fraud Statute
Finally, the authority of the New York attorney general to bring a case under the state’s fraud statute was clarified. The New York attorney general filed suit against Donald Trump and several business entities in connection with the operation of Trump University, LLC, which allegedly instructed small business owners and individual entrepreneurs in real estate investing by way of seminars and mentoring programs,. In August 2013, the attorney general began a proceeding under Executive Law § 63(12) for injunctive relief, restitution, disgorgement, damages, and civil penalties, alleging that between 2005 and 2011, the defendants operated an unlicensed, illegal educational institution, that, through various fraudulent practices, respondents intentionally misled more than 5,000 students nationwide, including over 600 New York residents, into paying as much as $35,000 each to participate in live seminars and mentor programs with real estate experts that the students thought were picked by Donald Trump himself, which proved untrue. Specifically, the attorney general filed causes of action under New York statutes for fraud, fraudulent and deceptive practices, and false advertising; among other claims.
The defendants moved to dismiss the statutory fraud claims as outside the applicable three-year statute of limitations and argued that the attorney general had not sufficiently pleaded common-law fraud (which has a six year statute of limitations). The trial court applied the three-year statute of limitations to the statutory claims and held that the attorney general had adequately pleaded common law fraud. The trial court dismissed the attorney general’s first claim, which alleged fraud under section 63(12) of the Executive Law, because prior New York case law held that the statute does not provide a standalone cause of action for fraud. The appellate court reversed, overruling the prior case.
The statute states:
Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts [and] directing restitution and damages . . . and the court may award the relief applied for or so much thereof as it may deem proper.
“Fraud” is defined as “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pre-tense, false promise or unconscionable contractual provisions.” In People v.Charles Schwab & Co., 109 AD3d 445, 971 N.Y.S.2d 267 (N.Y. App. 2011), the appellate court held that this section “does not create independent claims, but merely authorizes the Attorney General to seek injunctive and other relief on notice prescribed by the statute in cases involving persistent fraud or illegality.”
The current appellate court overruled Charles Schwab, stating that the case “did not comport with prevailing authority, and in fact, acts to limit the power that the Attorney General has long been exercising under §63(12).” The court thus held, “As one jurist has observed, [T]here is no requirement that a patent judicial mistake be allowed to age before it may be corrected [citations omitted]. Hence, we hold that the Attorney General is, in fact, authorized to bring a cause of action for fraud under Executive Law § 63(12).” People of New York by Schneiderman v. The Trump Entrepreneur Initiative LLC, 26 N.Y.S.3d 66 (NY App. Div. 2016).