Super Food or Super-Fraud? When the Attorney General Comes Calling

Have $80 million to spare? That was the judgment levied against a cluster of related businesses selling acai berry products, when the Federal Trade Commission joined state Attorneys General citing fraudulent marketing and false and misleading health claims, resulting in consumer fraud. Although the plaintiffs wound up paying only $1.5 million in fines instead of the initial $80 million judgment, the ramifications of this type of lawsuit can reach through corporate layers to strike closer to home: two individuals involved with the business were named in the lawsuit and were ordered to liquidate personal assets.

 As if increased consumer outcry and petitions on change.org weren't enough, lately it's become evident that the state Attorneys General(AGs) across the country have increased their activity and level of interest in food and beverage companies. A special legal contributor helps pinpoint what's behind this flurry of activity and advises companies on proactive steps to address issues before they find themselves in court.

Food, beverage and supplement manufacturers are under increased scrutiny by state Attorneys General. However, these industries aren't the only ones under fire from legal circles. In 2012, AGs, in conjunction with the federal government, settled allegations of foreclosure fraud with the five largest mortgage servicers for $25 billion. The acai berry lawsuits started in 2009, when state AGs in Arizona, Texas, Illinois and Florida sued various marketers of acai berry products for false advertising and consumer fraud, joined by the FTC in 2010. Increasingly, AGs are seeking multi-million dollar settlements from companies and many companies may wonder whether they are next in line.  Companies and various sectors of industry should be proactively identifying issues and developing relationships with the AGs to address issues early before its too late.   

Over the past 20 years, the AGs have become more active in seeking to correct perceived wrongs in the marketplace.  This trend can trace its modern roots to the settlement in the late 90s in which 46 AGs settled with many tobacco companies for more than $350 billion.  The ability of the AGs to force such a settlement highlights the power of collective action by the AGs to attack conduct of which they disapprove.  Actions involving companies in the food and beverage industries have included a letter signed by 39 AGs urging the Federal Trade Commission to take firmer action against the makers of an alcoholic beverage containing caffeine and require the company to reduce the amount of alcohol in the drink from the equivalent of 5 beers to 2 beers.  More recently, the California Attorney General filed a lawsuit against candy makers and sellers for allegedly having lead in their candy in violation of Californias Proposition 65.

The best way for companies in the dietary supplement, food and beverage industries to protect themselves from these types of state Attorney General actions is to be proactive and engage them.  An engagement strategy should have three main goals: (1) to develop relationships with the state Attorneys General and their staff; (2) to educate the state Attorneys General and their staff about the companies products; and (3) to identify potential issues and develop solutions proactively.   

Developing relationships with the AGs and their staff starts with meeting with them face-to-face.  Organizations such as the National Association of Attorney Generals (NAAG), the Conference of Western Attorneys General (CWAG), the Democratic Attorneys General Association (DAGA) and the Republican Attorneys General Association (RAGA) all hold regular meetings at which industries are able to meet and interact with the various Attorneys General, and they can even schedule private meetings with key AGs and their staff while there.  If there are key states in which a company operates, they can also schedule meetings at the AGs offices to have more time for in-depth conversations.  

Education of the AGs occurs in many ways.  At the conferences, finding time to talk one-on-one with them provides a quick and effective means of communication.  By becoming members and regular sponsors, companies and/or industries can also suggest topics to be discussed during the general sessions, potentially creating an opportunity to educate the AGs as a group during the conference.  Finally, meetings in the AGs offices provide significant, un-interrupted time to educate the AGs and their staff in depth about a company or a specific industry.  Companies and industry groups can take these opportunities to highlight the beneficial aspects of their products, debunk the myths surrounding them and highlight the types of regulatory hurdles, whether governmental regulations or industry standards, that the companies or industry already must leap to bring their product to market.  They can also discuss their efforts to be consumer friendly and responsive to complaints from their customers.  These discussions can create a favorable impression about the companies and their products in the minds of the AGs and their staff so that when complaints arise, they will be more likely to ask questions before just plunging head first into an investigation. 

Finally, companies and industry should always be identifying potential issues that may catch the attention of the AGs and their staff.  Once these issues are identified, they should be evaluated for importance and risk.  A decision should be made about whether to proactively engage the relevant AGs on the issue or whether to merely prepare for potential investigations.  There are many factors involved in the decision to bring a potential issue to the attention of any regulator that can only be evaluated on a case-by-case basis.  But having a relationship with the AGs and their staff lowers the risk of proactively doing so.  It provides an opportunity to try to address such issues amicably and even to ally with the AGs to develop a mutually acceptable resolution.

In deciding whether to engage the AGs, companies should evaluate their risk of becoming a target.  If they see that the risk is high, it may be advisable to hire someone to help them engage with the AGs.  When doing so, they should look for two key qualities in a consultant.  First, they should look to someone who understands their industry.  This is important because there are always intricacies in an industry that take time to learn and understand.  Having someone who already knows the industry eliminates the time and expense required to bring the consultant up-to-speed" and also brings someone with a depth of knowledge to identify the potential issues more efficiently.  Second, a good consultant looks for someone that already has relationships with the AGs and their staff.  They are the consultants who will be able to identify the right people to meet and facilitate introductions.  They will also be able to help a company identify issues that the AGs and their staff will care about because they have worked with them in the past.  Importantly, most decisions in the AGs offices start with the staff and make their way up the chain of command.  It is easier to stop an action from occurring at the staff level than at the AG level, because by the time the issue reaches the AG, the staff is advocating for the action. 

Proactively engaging with the AGs can be a very effective way for a company or an industry group to head off damaging and costly enforcement actions in the future.  Spending the time and money up front to develop relationships with the right people in these offices can help address problems without the adversarial and antagonistic engagement that often comes when an investigation ensues.  By creating that relationship, companies and industries ensure opportunities to work effectively with the AGs and staff.  This relationship provides ways to resolve concerns amicably and less publically, as opposed to becoming a target that is presumed in the court of public opinion to have done something wrong. 

Justin J. Prochnow is an attorney and Shareholder in the Denver office of the international law firm of Greenberg Traurig LLP. His practice concentrates on legal and regulatory issues affecting the food & beverage, dietary supplement and cosmetic industries. He can be reached at (303) 572-6562 or [email protected] and he can be followed on Twitter at @LawguyJP.

Geoffrey N. Blue is an Of Counsel attorney in the Denver office of the international law firm of Greenberg Traurig LLP. His practice focuses on civil litigation, civil investigations, health law matters, governmental affairs and regulatory and administrative law. Prior to joining the firm, he was deputy attorney general for legal policy and governmental affairs for the Office of the Colorado Attorney General and subsequently managed the relationships with the state attorneys general for a multinational financial firm.  He has developed relationships in state attorneys generals offices throughout the United States.  He can be reached at (303) 685-7478 or [email protected].

This article is issued for informational purposes only and is not intended to be construed or used as general legal advice.  The opinions expressed are those of the author exclusively.