Federal Trade Commission v. Sterling Precious Metals, LLC et al
Filing
80
ORDER granting in part and denying in part 61 Motion to Compel Signed by Magistrate Judge William Matthewman on 4/9/2013. (nbt)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 12-80597-CIV-MARRA/MATTHEWMAN
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
STERLING PRECIOUS METALS, LLC, et al.,
Defendants.
______________________________________/
ORDER ON PLAINTIFF’S AMENDED MOTION TO
COMPEL PRODUCTION OF DOCUMENTS
THIS CAUSE is before the Court upon Plaintiff Federal Trade Commission (the
“FTC”)’s Amended Motion to Compel Production of Documents from Defendant Sterling
Precious Metals, LLC [DE 61]. Defendant Sterling Precious Metals, LLC (“Sterling”) has filed
a response [DE 67], to which Plaintiff has replied [DE 74].1 Sterling separately filed two
declarations in support of its opposition to the motion. See DE 75. A hearing was held on
March 22, 2013. In response to orders of the Court, the parties filed supplemental papers, see
DEs 78–79, and the matter is now ripe for disposition. For the following reasons, Plaintiff’s
motion is GRANTED in part and DENIED in part.
1
Plaintiff initially filed a reply brief at Docket Entry 68, but with leave of court, see DEs 72–73, later filed an
amended reply brief at Docket Entry 74. The Court has only considered the amended version in its determination of
this matter.
1
I.
Background
On June 4, 2012, the FTC filed a complaint against Sterling and three of its members.
The Complaint accuses the defendants of various violations of the FTC Act, 15 U.S.C. §45(a),
and the Telemarketing Sales Rule, 16 C.F.R. pt. 310, in connection with certain precious metals
investments that the defendants offered to the general public. The FTC also simultaneously
moved for the entry of a temporary restraining order and a preliminary injunction. DE 3. After
a hearing, the request for preliminary relief was denied. See DE 45.
On February 21, 2013, the
FTC filed the instant Amended Motion to Compel Production of Documents [DE 61]. The FTC
seeks to compel responses to its requests for production numbers 1 through 23.
II.
Legal Standard
In the federal courts, civil litigants
may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim
or defense—including the existence, description, nature, custody, condition, and location of
any documents or other tangible things and the identity and location of persons who know of
any discoverable matter.
Fed. R. Civ. P. 26(b)(1). Where, as here, the substantive cause of action is federal, the nature
and scope of any applicable privileges is determined by federal common law. See Fed. R. Evid.
501.
III.
Discussion
A. The Right to Financial Privacy Act
Sterling objects to a number of the FTC’s requests, primarily those dealing with customer
records, on the basis of the Financial Institutions Regulatory Act of 1978, otherwise known as
the Right to Financial Privacy Act, 12 U.S.C. §§ 3401–3422 (“RFPA”). The RFPA was enacted
2
in response to the Supreme Court’s decision in United States v. Miller, 425 U.S. 435 (1976),
which held that bank depositors have no reasonable expectation of privacy with respect to their
bank records, and therefore no constitutional standing to challenge the Government’s access to
those records. H.R. REP. NO. 95-1383, at 34 (1978). The RFPA “accords customers of banks
and similar financial institutions certain rights to be notified of and to challenge in court
administrative subpoenas of financial records in the possession of the banks.” SEC v. Jerry T.
O’Brien, Inc., 467 U.S. 735, 745 (1984). The RFPA applies only to “financial institutions.” See,
e.g., 12 U.S.C. § 3402. Sterling contends that it is a financial institution as defined by the RFPA,
and resists discovery of its customer records because the FTC has not obtained permission from
its customers pursuant to the RFPA.
1. It is Unclear Whether the RFPA is a Proper Objection to Discovery Requests in
Civil Actions
The parties here assume that the RFPA, standing alone, is a proper objection to a
discovery request within the context of a civil suit. The discovery rules allow a party to withhold
privileged matter. Although the RFPA does bind the Government in its pre-suit investigatory
posture (e.g. in the issuance of administrative subpoenas), at least one court has held that it does
not apply in the context of civil actions. See Clayton Brokerage Co., Inc. of St. Louis v. Clement,
87 F.R.D. 569, 570 (D. Md. 1980). (“The Financial Privacy Act is an express limitation on the
authority of government agencies to acquire records of an individual’s financial transactions.
The Act, however, provides no justification for a bank’s noncompliance with a subpoena issued
in a civil action.”). Nonetheless, because no party here has challenged the propriety of the RFPA
as a discovery objection, the Court proceeds to reach the merits of the dispute.
3
2. The RFPA Does Not Apply to Sterling Because Sterling is Not a Consumer
Finance Institution
By its terms, the RFPA applies to financial institutions, which it defines as
any office of a bank, savings bank, card issuer as defined in section 1602(n) of Title 15,
industrial loan company, trust company, savings association, building and loan, or
homestead association (including cooperative banks), credit union, or consumer finance
institution, located in any State or territory of the United States, the District of Columbia,
Puerto Rico, Guam, American Samoa, or the Virgin Islands.
12 U.S.C. § 3401. Sterling concedes that it is not a bank or a credit union, but argues that it is a
“consumer finance institution” within the meaning of the RFPA. The FTC disputes this.
a. Sterling is Not a Consumer Finance Institution
It is axiomatic that the first stop in any journey of statutory interpretation is the plain text
of the statute. See Randall v. Loftsgaarden, 478 U.S. 647, 656 (1986); Harry v. Marchant, 291
F.3d 797, 770 (11th Cir. 2002) (en banc) (“As with any question of statutory interpretation, we
begin by examining the text of the statute to determine whether its meaning is clear.”). See also
United States v. Zuniga-Arteaga, 681 F.3d 1220, 1223 (11th Cir. 2012); CBS Inc. v. Primetime
24 Joint Venture, 245 F.3d 1217, 1225 n.6 (11th Cir. 2001) (“[T]he clear language of a statutory
provision holds a status above that of any other canon of construction, and often vitiates the need
to consider any of the other canons. Therefore, if the plain meaning rule is a canon of
construction, it is the largest canon caliber of them all.”). In interpreting statutory text, the Court
analyzes “the language of the provision at issue, the specific context in which that language is
used, and the broader context of the statute as a whole.” Zuinga-Arteaga, 681 F.3d at 1223
(citing Warshauer v. Solis, 577 F.3d 1330, 1335 (11th Cir. 2009)).
4
Here, the only relevant question is whether “consumer finance institution,” as defined in
the RFPA, includes precious metals brokers such as Sterling. “When a statute includes an
explicit definition, that definition must be followed, even if it varies from the term’s ordinary
meaning.” Harry, 291 F.3d at 771 (citing Stenberg v. Carhart, 530 U.S. 914, 942 (2000)). By
contrast, where the term at issue is not explicitly defined by the statute, the Court must look to its
common usage to determine its meaning. CBS Inc. v. Primetime 24 Joint Venture, 245 F.3d
1217, 1222 (11th Cir. 2001) (quoting Consolidated Bank, N.A. v. U.S. Dep’t of Treasury, 118
F.3d 1461, 1464 (11th Cir. 1997)). Because the RFPA does not explicitly define the phrase
“consumer finance institution,” the Court must interpret the phrase in light of its common and
ordinary meaning.
In determining such ordinary meaning, our Court of Appeals has found guidance in
dictionary definitions. See, e.g., CBS Inc., 245 F.3d at 1223. Recognizing this, the parties point
the Court to Black’s Law Dictionary, which defines a “finance company” as “[a] nonbank
company that deals in loans either by making them or by purchasing notes from another
company that makes the loans directly to borrowers,” BLACK’S LAW DICTIONARY 706 (9th ed.
2009), and further defines a “consumer finance company” as “[a] finance company that deals
directly with consumers in extending credit.” Id. The Court finds this definition to be consistent
with its common sense interpretation, in light of reason and experience, of the ordinary meaning
of the phrase “consumer finance company.” But the term used by the RFPA is not “consumer
finance company”—it is “consumer finance institution.”
In this context, an “institution” is defined as
5
....
2a. A custom, practice, relationship, or behavioral pattern of importance in the life of a
community or society: the institutions of marriage and the family. b. Informal One long
associated with a specified place, position, or function. 3a. An established organization
or foundation, especially one dedicated to education, public service, or culture. b. The
building or buildings housing such an organization. c. A place for the care of persons
who are destitute, disabled, or mentally ill.
AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 909 (5th ed. 2011). See also
BLACK’S LAW DICTIONARY 869 (9th ed. 2009) (defining “institution” as “An established
organization, esp. one of a public character . . . .”). In other words, in this circumstance,
institution means an established organization that is dedicated to or primarily established for a
particular cause or purpose. To be sure, a company can come within the definition of “an
established organization,” and a company can be an institution. But Congress’s use of the word
“institution”—especially in light of its usage of “company” elsewhere in the same statute—
indicates that it meant to define “institution” as something more than a company that only
tangentially engages in financing. See generally Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 574
(1995) (“[A] word is known by the company it keeps.”).
By way of example, the Ford Motor Company was founded over a century ago and has
grown into a multibillion-dollar automobile manufacturer that sells cars to consumers all over the
world. See generally Ford Motor Co., PROFITABLE GROWTH FOR ALL: 2012 ANNUAL REPORT 1–
3 (2013). When consumers go to purchase a Ford automobile from their local dealer, few of
them can afford to purchase one outright. A significant portion of customers who finance their
new Ford automobile do so through Ford Motor Credit Company LLC (“Ford Credit”), a wholly
owned subsidiary of Ford Motor Company. Ford Motor Credit Co. LLC, Annual Report (Form
6
10-K) 1–3, 21 (Feb. 19, 2013). In addition to providing consumer financing, a substantial
amount of Ford Credit’s financing comes from providing lines of credit to Ford dealers to allow
those dealers to purchase new and used vehicles from Ford which the dealers, in turn, sell to
consumers. See id. at 4–5.
Few would doubt that Ford fits into the common meaning of, say, an “automobile
manufacturing institution.” Additionally, it is arguable that Ford Motor Company, through its
subsidiary Ford Credit, comes within the ambit of a broad definition of “consumer finance
company.” But the fact that it incidentally makes consumer loans through a subsidiary in
connection with the sales of its automobiles does not render the Ford Motor Company itself a
consumer finance institution. If the FTC were investigating the manner in which Ford Motor
Company marketed its automobiles, for example, Ford would be hard-pressed to use the RFPA
as a broad shield against discovery requests for its transaction records or the contact information
of its customers.
So with Sterling. Sterling, by its own admission, acted simply as a broker for Worth.
Def.’s Resp. in Opp. 4, DE 67. As Sterling’s co-defendant and principal Francis Zofay described
it, “we contact consumers in relations [sic] to precious metals, and we offer them the ability to
take physical delivery or use our finance program.” Tr. of TRO Hrg. 163:17–19, Jun. 11, 2013,
DE 23. Once they had agreed to purchase precious metals from Sterling, Sterling’s customers
had two options: they could either purchase physical metals which would then be delivered to
them, or they could make a leveraged investment, paying approximately 20 to 35 percent of the
total metals purchase upfront and financing the rest through Worth. Id. at 171:20–172:3. The
7
record does not reflect that Sterling earned any revenue from the financing of the precious metals
it sold consumers. Rather, Sterling buttered its bread with the levy of an administrative fee of up
to 15 percent of the consumers’ total purchases. See id. at 179:24–180:14, 184:1–184:8. Worth
was the company that financed the precious metals, and earned interest on that financing.2 See
id. at 165:14–16 (“Q: Okay. And is it effectively Worth that’s extending credit? A: Correct.”).
Sterling’s connection to the financing aspect of the overall transaction was tenuous at best.3
In further support of its position, Sterling directs the Court to the Bank Secrecy Act of
1970, 31 U.S.C. §§5311–5330, which defines “financial institutions” as including “a dealer in
precious metals.” According to Sterling, the Court should interpret “financial institution” in the
RFPA to include precious metals dealers as well, because “[t]here is a presumption that Congress
uses the same term consistently in different statutes.” Nat’l Treasury Employees Union v.
Chertoff, 452 F.3d 839, 857 (D.C. Cir. 2006). Assuming, without deciding, that this presumption
is the law of this Circuit, Sterling’s reliance on it is misplaced, as any presumption would be
overcome by the explicit words of the statute. As noted above, where Congress explicitly
defines a term in a statute, the Court is bound by that definition. The RFPA defines “financial
institution” one way, and the Bank Secrecy Act defines it another way. The Court must assume
that “Congress says what it means and means what it says.” Kehoe v. Fidelity Fed. Bank &
Trust, 421 F.3d 1209, 1216 (11th Cir. 2005). Sterling asks the Court to swap a definition in one
2
The record reflects that Worth earns approximately 80 percent of its total revenue through the finance of precious
metals. Decl. of Eugenia Mildner ¶ 7, attached as Ex. 1 to Def. Sterling Precious Metals, LLC’s Notice of Filing,
DE 75.
3
Additionally, despite Sterling’s claims, see Def.’s Supplemental Br. in Opp. to Pl’s. Am. Mot. to Compel Produc.
of Docs. 9–10, DE 79, the mere fact that the agreement between Sterling and Worth appears to impose some liability
upon Sterling for certain loans made by Worth does not alter this conclusion.
8
statute for the explicit definition in another. Such a substitution would run contrary to
established principles of statutory interpretation.
Finally, Sterling’s definition of “consumer finance institution” is inconsistent with the
canon of noscitur a sociis, which dictates that “a word is known by the company it keeps.” See
Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307 (1961) (noting that “noscitur a sociis … while
not an inescapable rule, is often wisely applied where a word is capable of many meanings in
order to avoid the giving of unintended breadth to the Acts of Congress”). Here, “consumer
finance institution” appears in a list with the likes of credit unions, banks, industrial loan
companies, savings bank, and card issuers. The entities in the definitional provision of the RFPA
all appear to have financing as a core aspect of their business. Sterling’s inclusion in such a list
would be a non sequitur. Accord CFTC v. Worth Bullion Grp., No. 12 C 2431, 2012 U.S. Dist.
LEXIS 132592, at *4 (N.D. Ill. Sept. 17, 2012), stayed, 2012 U.S. Dist. LEXIS 160689 at *7–*8
(N.D. Ill. Nov. 8, 2012). In toto, the plain language of the statute, its specific context, and the
broader statutory context of the RFPA make it clear that Sterling is not a consumer finance
institution, and thus not a financial institution within the meaning of the RFPA.4
b. Sterling is Not an Agent of Worth
In a final effort to convince the Court that it comes within the ambit of the RFPA,
Sterling argues that even if it cannot independently be described as a “financial institution”
within the meaning of the statue, it is an agent of Worth, which it claims is covered by the RFPA.
4
In light of this conclusion, it is unnecessary for the Court to consider the RFPA’s legislative history. See Harry,
291 F.3d at 772 (“Where the language of a statute is unambiguous, we need not, and ought not, consider legislative
history”); United States v. Veal, 153 F.3d 1233, 1245 (11th Cir. 1998) (“Review of legislative history is unnecessary
unless a statute is inescapably ambiguous.”).
9
See,e.g., 12 U.S.C. §3403(a) (“No financial institution . . . or agent of a financial institution, may
provide to any Government authority access to or copies of, or the information contained in, the
financial records of any customer except in accordance with the provisions of this chapter.”).
The term “agent” is not defined by the RFPA, so the Court must again look to its ordinary
meaning. In its purest sense, “[a]gency is the fiduciary relationship that arises when one person
(‘a principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the
principal’s behalf and subject to the principal’s control, and the agent manifests assent or
otherwise consents so to act.” Restatement (Third) of Agency § 1.01 (2006). Under Florida
law, “(1) acknowledgment by the principal that the agent will act for him, (2) the agent's
acceptance of the undertaking, and (3) control by the principal over the actions of the agent” are
all essential preconditions to the existence of a principal-agent relationship. Goldschmidt v.
Holman, 571 So.2d 422, 424 n.5 (Fla. 1990).5
Accordingly, as the FTC points out, under the common law understanding of agency,
Sterling cannot claim to have been an agent of Worth unless and until both parties have indicated
a desire to create an agency relationship. Sterling has not come forward with any information to
demonstrate that Worth ever consented to have Sterling operate as its agent. Moreover, the
parties have produced the account agreement between Sterling and Worth. Attach. A to App. 2
to Pl.’s Supplemental Br. in Supp. of its Am. Mot. to Compel Produc. of Docs., DE 78; Ex. A to
Def.’s Supplemental Br. in Opp. To Pl’s. Am. Mot. to Compel Produc. Of Docs., DE 79. That
agreement, which was executed by both Sterling and Worth, reads in part:
5
This Court, of course, is not bound by Florida law in its interpretation of a federal statute. See generally Erie R.
Co. v. Tompkins, 304 U.S. 64 (1938). The Court looks to Goldschmidt only in aid of its determination of the
ordinary meaning of “agent.”
10
4.2 Role of Worth. Worth acts as a principal and as such sells to and buys from
customers on its own behalf. This means that Worth is a market maker and dealer in
precious metals. Worth is not an exchange or brokerage house. Neither Worth nor any
of its employees acts as an agent or fiduciary for any of Worth’s customers. Worth does
not offer managed accounts.
Id. at 2 (emphasis added). Other parts of the agreement between Sterling and Worth make it
clear that Worth did not consent to have Sterling operate as its agent. As Worth’s “retailer,”
Sterling was advised that “[i]n the process of selling precious metals to, and buying precious
metals from, you, you should assume that the interests of Worth and its representatives conflict
with your interests . . . . You are solely responsible for all purchasing, selling, and borrowing
decisions from your account.” Id. at 11. Finally, Sterling acknowledged that both it and its
customers were “sophisticated investor[s] who understand[] that precious metals products can be
purchased from and sold to competitors of Worth and that you have the alternative of doing
business with these Worth competitors.” Id. This last point is important here because it
underscores that the relationship between Worth and Sterling was more akin to suppliercustomer than principal-agent. For these reasons, the Court finds that Sterling has not presented
sufficient evidence to show that it acted as an agent of Worth.6
3. Even if Sterling Was a “Financial Institution” within the Meaning of the RFPA,
the Law Enforcement Exception is Applicable Here
But even if Sterling did come within the RFPA’s definition of “financial institution,”
either independently or as an agent of Worth, the FTC argues the present circumstances fit within
one of the RFPA’s many exceptions. One of the exceptions to the RFPA is that
6
In light of this finding, the Court declines to decide here whether Worth itself fits within the RFPA’s definition of a
financial institution, an issue that is currently pending before the United States Court of Appeals for the Seventh
Circuit. See CFTC v. Worth Bullion Grp., Inc., No. 12-3372 (7th Cir.).
11
Nothing in this chapter (except sections 3403, 3417, and 3418 of this title) shall apply
when financial records are sought by a Government authority—
(A) in connection with a lawful proceeding, investigation, examination, or inspection
directed at a financial institution (whether or not such proceeding, examination,
or inspection is also directed at a customer) or at a legal entity which is not a
customer; or
(B) in connection with the authority’s consideration or administration of assistance to
the customer in the form of a Government loan, loan guaranty, or loan insurance
program.
12 U.S.C. § 3413(h)(1) (the “law enforcement exception”). Additionally, when the Government
seeks records pursuant to this exception, it must first certify to the target financial institution that
it has complied with the applicable provisions of the RFPA. Id. §§ 3403(b); 3413(h)(2). The
FTC has provided Sterling with such a certification. See Att. H to Pl.’s Am. Reply in Supp. of its
Mot. to Compel, DE 74. Moreover, the parties do not dispute that the FTC qualifies as a
“Government authority.” Accordingly, the FTC argues that even if Sterling is a “financial
institution” within the meaning of the RFPA, Sterling cannot withhold its customer records
because of this exception.
Sterling, however, contends that the FTC’s reading of the exception leaves out the
language “(except for sections 3403, 3417 and 3418 of this Title).” Section 3403 prohibits a
financial institution from giving “to any Government authority access to or copies of, or the
information contained in, the financial records of any customer except in accordance with the
provisions of this chapter.” 12 U.S.C. §3403(a). Since various parts of the RFPA require
customer notification, Sterling claims, the compliance certification does not absolve the FTC of
its prior notification requirements.
The Court agrees that the law enforcement exception explicitly excludes Section 3403.
12
But the savings clause of Section 3403(a), namely “except in accordance with the provisions of
this chapter,” means just that. “The provisions of this chapter” include the exceptions to the
notification requirement that are set forth in other parts of the RFPA. Sterling’s argument in this
regard is ultimately without merit. Sterling’s interpretation would effectively read the
“exception” part of the law enforcement exception out of the RFPA. The FTC, a Government
authority, seeks the financial records of Sterling’s customers in connection with a lawful
proceeding (this lawsuit) directed at a financial institution (assuming Sterling is one). Moreover,
the FTC has provided the required certification. Accordingly, this situation fits squarely within
the RFPA’s law enforcement exception.
In sum, (1) Sterling is not subject to the RFPA; (2) Sterling is not an agent of Worth; and
(3) even if Sterling were subject to the RFPA, the FTC’s investigation in this context falls within
the law enforcement exception. Accordingly, Sterling’s RFPA objections are overruled, and
Sterling will be required to produce its customer account information.7
B. Sterling Cannot Be Compelled to Turn Over Discovery It Does Not Have
Sterling also responded to a number of the FTC’s requests saying that it did not possess
the requested information or that it had provided the FTC with all the relevant information it
possessed.
At the hearing on this matter, the FTC told the Court that it was suspicious that a
supposed legitimate business such as Sterling would not have customary business records, such
7
Sterling repeatedly notes its concern that its former customers are individuals who would be very concerned about
the Government getting their personal financial information. In particular, Sterling intimates that its former
customers are especially uneasy about the FTC sharing their information with other Government agencies, including
the Internal Revenue Service and the Federal Bureau of Investigation. See, e.g., Def.’s Supp. Br. in Opp. 6–7, DE
79. Yet, aside from its objections pursuant to the RFPA, Sterling has not availed itself of any other tools which may
be available to minimize such information sharing, such as a request for a protective order. See Fed. R. Civ. P.
26(c).
13
as employment applications. The Court agreed and ordered Sterling to file an affidavit detailing
its efforts to locate and search for the material. Sterling did so. See Zofay Decl., DE 77.
The rules require only that a litigant turn over that which is within its “possession,
custody, or control.” Fed. R. Civ. P. 34(a)(1). In light of Sterling’s sworn affidavit and with
nothing contrary in the record, the court must take Sterling’s representations at face value. The
Court cannot order Sterling to turn over that which it does not have, and accordingly, the Court
must deny the FTC’s request to compel production of Requests 1, 2, 3, 4, 5, 6, 7, 14, and 16.8
C. Sterling’s Website (Request 17)
In Request 17, the FTC requests
An operable copy (including all underlying code) of each version of all websites used by any
Defendant to market, sell, or promote, any good or service including, but not limited to,
precious metals, gemstones, or investments or, if any Defendant does not have an operable
copy of any website (including underlying code), a signed authorization identifying and
directing the web host or other person in possession of such copy to permit Plaintiff to
inspect, copy, test, or sample the website.
Pl.’s Am. Mot. at 14, DE 61. Sterling claims it does not have an operable copy of the website,
but objects to being compelled to submit a signed authorization to the FTC because, according to
Sterling, the civil rules do not allow for such an imposition. The Court requested and has
reviewed supplemental briefing on this issue. As noted above, the discovery rules require a party
to turn over anything in its “custody, possession, or control.” Fed. R. Civ. P. 34(a)(1) (emphasis
added). “Control is defined not only as possession, but as the legal right to obtain the documents
requested upon demand.” Searock v. Stripling, 736 F.2d 650, 653 (11th Cir. 1984).
The Court has been unable to locate any binding authority that deals directly with the
8
The Court reminds Sterling that it has an ongoing, good-faith obligation to produce all responsive documents. If
these documents turn up during the course of this litigation, Sterling must produce them immediately.
14
question of whether a party may compel the opposing party to produce a signed authorization for
website code. Yet, similar cases provide some guidance. A number of courts have held that
parties may not be compelled to sign an authorization for the release of medical records. See
Klugel v. Clough, 252 F.R.D. 53, 54–55 (D.D.C. 2008); Clark v. Vega Wholesale, Inc., 181
F.R.D. 470, 471 (D. Nev. 1998); Becker v. Securitas Sec. Svcs. USA, Inc., No. 06-2226-KHVDJW, 2007 WL 677711, at * 3 (D. Kan. Mar. 2, 2007) (“Rule 34 contains no provision requiring
a party to sign a release or authorization so that the requesting party may obtain a document
directly from a non-party.”). See also Chase v. Nova Southeastern Univ., No. 11-61290-CIV,
2012 WL 1936082, at *1 (S.D. Fla. May 29, 2012) (“This Court agrees with the courts that have
ruled that they do not possess the authority to routinely require a plaintiff to execute a release for
medical records.”).
On the other hand, in Flagg v. City of Detroit, 252 F.R.D.346 (E.D. Mich. 2008), the
defendant City refused to authorize its mobile telephone provider SkyTel to produce certain text
messages that the plaintiff sought in the course of discovery. The Flagg court reasoned that
because Detroit and Skytel had a contractual relationship under which Detroit was allowed to
permit or block the disclosure of text messages to a third party, Detroit had a “legal right to
obtain” the text messages. Id. at 354–55. Accordingly, the messages were within Detroit’s
control under Rule 34 and therefore subject to disclosure. Similarly, in Tomlinson v. El Paso
Corp., 245 F.R.D. 474 (D. Colo. 2007), the court confronted an ERISA action where the
defendants refused to produce electronic records that were in the possession of its third-party
record keeper. Because the defendants had a non-delegable statutory duty to maintain the
15
requested information, and they had the authority and ability to obtain that information, the court
found that it was within their control for discovery purposes. Id. at 477.
The undersigned finds the Flagg court’s reasoning to be persuasive. In the present case,
the FTC is not asking for information proprietary to the web host. Rather, it only requests that
compartmentalized information relevant to the operation of Sterling’s website. As a customer of
its web host, Sterling surely has the contractual right to obtain that data. Accordingly, that
information is within its control under Rule 34 and must be provided to the FTC. Moreover, the
Court notes that in this context, complying with the request would not impose any great burden
on Sterling. Accordingly, the FTC’s motion will be granted as to Request 17. Sterling may
either obtain the information from its web host and then turn it over to the FTC, or alternatively,
provide the FTC with written consent to obtain its code from the relevant party(ies).
D. Costs/Attorneys’ Fees
The FTC’s motion also requests costs and attorneys’ fees pursuant to Rule 37. Because
the motion is granted in part and denied in part, and because the Court finds that Sterling was
substantially justified in its position, the Court will deny this request. See Fed. R. Civ. P.
37(a)(5). See also Devaney v. Continental Amer. Ins. Co., 989 F.2d 1154, 1163 (11th Cir. 1993).
IV.
Conclusion
For the foregoing reasons, it is hereby
ORDERED that Plaintiff Federal Trade Commission’s Amended Motion to Compel [DE
61] is GRANTED in part and DENIED in part; and it is
FURTHER ORDERED that within 10 days of the date of this order, Defendant Sterling
16
Precious Metals, LLC shall provide responsive documents, to the extent it has those documents
within its possession, custody, or control, to Requests 1, 8, 9, 10, 11, 12, 13, 15, 18, 19, 20, 21,
22, and 23; and it is
FURTHER ORDERED that within 10 days of the date of this Order, Defendant Sterling
Precious Metals, LLC will make a good-faith effort to obtain the underlying code of its website
from its webhost and turn that information over to Plaintiff Federal Trade Commission, or, in the
alternative, execute and deliver a written release to Plaintiff allowing it to access the code from
the relevant party(ies); and it is
FINALLY ORDERED that Plaintiff Federal Trade Commission’s request for sanctions
is DENIED.
DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,
Florida, this 9th day of April, 2013.
WILLIAM MATTHEWMAN
United States Magistrate Judge
17
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