States may sue AOL

The states of New York and Washington might take America Online to court if negotiations to bolster its spotty service record did not improve.

Today's statements marks a break from the conciliatory tone struck by 20 attorney generals and AOL after they met yesterday in Chicago to discuss the problem.

"AOL jumped out of the gate in December with a new pricing plan offering unlimited access for $19.95 a month," New York State attorney general Dennis Vacco said today in a statement. "Unfortunately for the company and even more unfortunately for its customers, it lacked the technological capacity to handle all of the traffic that this new offer triggered."

Vacco added that "consumers should not be penalized for the faulty projections of AOL."

Washington State is considering a range of options including a lawsuit, an official said Friday. "Obviously one of the options is to file a lawsuit and obtain relief through the courts," said senior assistant attorney general Sally Gustafson. "Another option is to negotiate a settlement to a lawsuit and file both at the same time."

Gustafson said Washington's Consumer Protection Act allows the state to seek court injunctions, civil penalties of up to $2,000 per infraction, consumer restitution and reimbursement of state costs.

AOL has five days to tell the state why it should not proceed with a lawsuit, accorinding to a spokesman for the New York state attorney general. But the state has not set a deadline for filing.

Vacco, who is also chairman of the consumer protection committee of the National Association of Attorneys General, said AOL was put on notice that its business practices have been "persistently and repeatedly deceptive and fraudulent." He also said AOL's difficulty has been particularly acute in New York.

AOL denies those charges and notes that it is spending $350 million to upgrade its network, among other improvements.

In an interview with CNBC today, AOL chief executive Steve Case called Thursday's meetings "constructive" and said there would be more meetings "in a few days." An AOL spokeswoman said refunds for dissatisfied customers would be considered on a case-by-case basis.

Reuters contributed to this report