Consumer Advocacy Groups: Legal Power That Can Target Your Business

Consumer advocacy groups operate through legal and quasi-legal mechanisms that expose corporations to regulatory enforcement actions, class action lawsuits, and reputational damage, and the corporation that understands these mechanisms and has a proactive legal strategy is far better positioned to manage the risks that advocacy group campaigns create.

Consumer advocacy groups serve as the primary organizational catalyst for class action litigation because they have the investigative resources, technical expertise, and established relationships with plaintiffs' attorneys needed to identify systematic corporate misconduct, document the scope of consumer harm, and assemble the factual record needed to support a class action complaint, and the public report that a well-resourced advocacy group publishes after a comprehensive investigation of a corporation's practices is often the single most important document in the subsequent class action litigation. Class-action-litigation and consumer-class-actions counsel can evaluate whether a consumer advocacy group's investigation contains factual findings that create a credible basis for a class action lawsuit, assess whether the advocacy group's evidence is legally sufficient to support class certification under Federal Rule of Civil Procedure 23, and advise on the most effective legal strategy for challenging class certification.

The class action complaint that follows a consumer advocacy group investigation typically alleges violations of one or more state consumer protection statutes under which a successful plaintiff can recover statutory damages that can aggregate to an enormous total liability when multiplied by a class of thousands or millions of consumers, and the Class Action Fairness Act allows these state law class actions to be removed to federal court when the amount in controversy exceeds five million dollars and the class has at least one hundred members. Federal-class-action and cafa counsel can advise on the specific legal requirements of the Class Action Fairness Act and Federal Rule of Civil Procedure 23 applicable to a consumer class action filed in federal court, assess whether the proposed class satisfies the numerosity, commonality, typicality, and adequacy requirements for certification, and develop the defense strategy for challenging the class action at the earliest procedurally appropriate stage.

The CFPB, established by the Dodd-Frank Act in 2010, has broad supervisory and enforcement authority over banks, credit unions, and nonbank financial companies that offer consumer financial products and services, and consumer advocacy groups have historically played a major role in directing the CFPB's investigative and enforcement priorities by filing formal complaints, submitting research documenting consumer harm, and participating in the CFPB's rulemaking processes as commenters and advocates for stronger consumer protections. Consumer-protection-disputes and dodd-frank counsel can advise on the specific CFPB enforcement and supervisory authorities created by the Dodd-Frank Act, assess whether the CFPB's investigation or enforcement action is within the bureau's statutory jurisdiction, and develop the legal strategy for responding to a CFPB investigation, civil investigative demand, or enforcement action.

The table below identifies the four principal mechanisms through which consumer advocacy groups impose legal pressure on corporations, classifies each mechanism by its legal character, identifies the corporate liability trigger associated with each mechanism, and describes the law firm's primary defense focus for each mechanism.

Ftc and cfpb counsel can advise on the specific legal standards applicable to an FTC investigation triggered by a consumer advocacy group's complaint, assess whether the company's conduct satisfies the FTC Act's prohibition on unfair or deceptive acts or practices, and develop the response strategy for managing the FTC investigation and minimizing the risk of a formal enforcement action.

The consumer advocacy group that has successfully established a large class can file a motion for a preliminary injunction requiring the corporation to immediately cease the challenged practice while litigation proceeds, and the threat of a preliminary injunction is often more financially damaging to the corporation than the prospect of an eventual damages award because the injunction can require immediate and costly operational changes before any liability has been established and before the corporation has had a full opportunity to present its defense. Injunctive-relief-class-action and mdl counsel can advise on the specific legal standards applicable to a motion for preliminary injunction filed in connection with a consumer class action, assess whether the plaintiff class's claims satisfy the legal requirements for injunctive relief, and develop the legal strategy for defeating the injunction application and consolidating related class actions through multi-district litigation proceedings.

Punitive damages are available in consumer class actions under many state consumer protection statutes when the plaintiff can demonstrate that the corporation's conduct was malicious, oppressive, or in conscious disregard of consumer rights, and consumer advocacy groups specifically structure their investigations to develop evidence of corporate knowledge of the harmful practice, which is the most important element for establishing the conscious disregard standard required for punitive damages. Punitive-damages-lawsuit and civil-litigation-evidence counsel can advise on the specific legal standards applicable to punitive damages in a consumer class action, assess whether the company's conduct satisfies the legal standard for an award of punitive damages under the applicable state law, and develop the legal strategy for limiting the company's punitive damages exposure through early settlement or constitutional challenge.

The consumer advocacy group that documents anticompetitive market conduct can trigger an antitrust investigation by the Department of Justice, the Federal Trade Commission, or a state attorney general, and the parallel antitrust investigation can significantly expand the corporation's legal exposure beyond the immediate consumer protection claims by introducing a distinct set of legal theories under which the corporation's market conduct can independently violate both federal and state antitrust law. Antitrust-and-competition and business-compliance counsel can advise on the specific legal standards applicable to an antitrust claim brought by a consumer advocacy group based on the company's market conduct, assess whether the company's pricing, distribution, or competitive practices create legal exposure under the Sherman Act or applicable state antitrust law, and develop the compliance program for reducing the company's antitrust risk profile.

The corporation that faces a coordinated advocacy campaign must resist the temptation to address each component in isolation, because the regulatory complaints, class action litigation, media campaign, and legislative lobbying that a well-resourced advocacy group can orchestrate are mutually reinforcing elements of a unified strategy designed to impose maximum legal, financial, and reputational pressure on the target corporation, and the most effective corporate defense strategy responds to all components in a coordinated manner. Complex-ltigation and civil-damages-lawsuit counsel can advise on the full range of legal strategies available to a corporation facing a coordinated consumer advocacy campaign that is simultaneously pursuing regulatory complaints, class action litigation, and adverse publicity, assess the relative legal risks of each component, and develop the integrated legal and communications strategy for protecting the corporation's legal and reputational interests.