Cease and Desist

DEFINITION of 'Cease and Desist'

Cease and desist is an order given by a government administrative agency or the courts to stop any suspicious or illegal activities. Falling under the Financial Institutions Regulatory and Interest Rate Control Act of 1978, a cease and desist order places an injunction on a company or person, prohibiting the activities that are deemed suspect. For corporations or financial institutions, a cease and desist order may be issued to prevent risky banking practices or the sale of fraudulent securities.

BREAKING DOWN 'Cease and Desist'

A cease and desist letter is often the first formal step taken to ask a party to stop performing an illegal activity. The letter must comply with laws in the jurisdiction where it is sent. After notification is given, a hearing is usually called to determine whether any wrongdoing has occurred or if the action may continue. Failure to comply with a cease and desist order is punishable by the courts, although a cease and desist letter by itself is not a guarantee of a lawsuit. During the period of time between when the letter is served and the trial, an entity is required to suspend certain activities.

Ramifications of a Cease and Desist Letter

A cease and desist letter is not legally binding. It is an opinion of one individual, typically an attorney. In addition, the ABA Model Rules of Professional Conduct dictates that a lawyer “shall not present, participate in presenting, or threaten to present a criminal charge solely to obtain an advantage in a civil matter.” Such a legal threat has no legal significance other than being a negotiation tactic. Cease and desist letters often require a signature upon delivery. The letter is typically sent with a return receipt requested although this is not required.

Cease and Desist Cases and Examples

There are four major areas where the use of cease and desist letters are prevalent and justified. These letters may be sent in situations of defamation, slander, libel, trademark infringement, copyright infringement or patent infringement. Other suitable situations also include harassment, debt collection, or a breach of contract.

  1. Intellectual Property: Trademarks, copyrights, and patents are usually used to protect the work of an author or inventor. Someone who duplicates this work without authorization faces a high probability of receiving a cease and desist letter. For example, an owner of a website who plagiarizes and hosts content from another website without the right to access the content has opened himself up for copyright infringement charges and may be served with a cease and desist.
  2. Harassment: A person who repeatedly contacts or threatens another person can be given a cease and desist letter as a warning. According the Fair Debt Collections Practices Act (FDCAPA), third-party debt collectors cannot harass, oppress or abuse anyone in a bid to collect debt owed. A debt collector who consistently and frequently calls a debtor may find a cease and desist letter in his or her mailbox. Once the collector receives the letter, s/he can contact the debtor one final time via mail to acknowledge receipt and state what action s/he will take next. However, if the repeated calls persist, the debtor has the right to file a complaint to the Consumer Financial Protection Bureau (CFPB) and the state Attorney General.
  3. Character Defamation and Libel: Whether in print or verbally, it is illegal to make untruthful comments about another person that could be harmful to their reputation and business. An individual who engages in such behavior should not be surprised to hold a cease and desist in his or her hands. For example, an individual who spreads unfounded rumors about the products of a seller may be issued a cease and desist letter since his words may affect the ability of the seller to make sales.
  4. Contract Violations: Violating the terms of a contract where one party fails to abide by the contract rules may be reason for issuing a cease and desist letter. In the hedge fund sector, for example, employees usually have to sign a non-compete agreement. This means that in the event that the employee leaves the company, s/he cannot take the financial materials and clients of the hedge fund with him or her. In the case that an employee leaves to start his own fund and solicits clients from his previous employer, the previous employer can send a cease and desist, warning the employee of a potential criminal charge as a result of breaching the contract.

A cease and desist letter may be issued to force an entity to refrain from unfair labor practices or unfair compensation.

Preconditions for a Cease and Desist

A lawyer is bound by the ABA Model Rules of Professional Conduct. The rules prevent lawyers from presenting or participating in issuing criminal charges in order to gain advantage in a civil case. Three preconditions usually have to be met before an attorney may raise the prospect of charges without violating his professional conduct code.

First, the charges must be related to the civil matter at hand. Including a criminal charge that is unrelated to the civil claim in order to get an upper hand in the civil case is a deceptive tactic that is frowned upon by the legal system. An attorney that breaches trust by maliciously misrepresenting a case or making a false claim is deemed to be engaging in misconduct and would be severely penalized.

Second, the attorney must believe the civil claim and associated criminal charges are based on merit in relation to the law. A claim that is unfounded and without merit can expose the attorney to a potential counterclaim of allegations of embarrassment by the person who received the cease and desist letter. In addition to making frivolous claims, if the attorney obtains evidence that violates the right of the recipient of the letter, s/he will be found in violation of the Model Rules of Professional Conduct.

Finally, an attorney must not attempt to exert or improperly influence the criminal process. An attorney that tries to influence the legal outcome following a cease and desist letter, through illegitimate means such as bias, duress, or fraud, may be found to have tampered with the legal system. For example, an attorney who notifies a recipient that if s/he adheres to the client’s demands spelt out in the letter, the recipient will avoid criminal charges being brought. In legal terms, this notification could imply that the attorney has the ability to achieve results that violate the Rules of Professional Conduct. Since a lawyer must not appear to have authority over the potential judicial proceedings, s/he cannot make any promises.

A lawyer that is considering sending out a cease and desist letter on behalf of his or her client must satisfy the above preconditions so that his capability as a lawyer is not called into question.  

Anyone can send a cease and desist letter. As such, one does not need to have an attorney compose these formal letters. However, an attorney can advise the complainant on whether his or her rights have actually been violated and if s/he has legal and meritorious rights to send a cease and desist letter.