Securities and Exchange Commission v. Jupiter Group Capital Advisors LLC et al
Filing
70
ORDER GRANTING IN PART AND DENYING IN PART 61 PLAINTIFF'S APPEAL OF ENTRY OF PROTECTIVE ORDER: "On the basis of the foregoing, the SEC's Statement of Appeal of Entry of Protective Order, filed December 12, 2011, is HEREBY GRANTED insofar as this Court STAYS the applicability of Paragraph 21 of the Protective Order. The Appeal is DENIED as to the request to strike Paragraph 21. The Court ORDERS the parties to meet and confer regarding the applicability of 36 C.F.R. § 1230 .14(e). If the parties fail to agree upon a modified version of Paragraph 21 by March 8, 2012, this court will REMAND this matter to the magistrate judge for reconsideration in light of the authorities identified in this Order. IT IS SO ORDERED." ; Signed by District JUDGE LESLIE E. KOBAYASHI on February 29, 2012. (bbb, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
SECURITIES AND EXCHANGE
COMMISSION,
)
)
)
)
Plaintiff,
)
vs.
)
)
JUPITER GROUP CAPITAL
)
)
ADVISORS LLC, a Delaware
limited liability company,
)
and RICK CHO, an individual, )
)
)
Defendants.
_____________________________ )
CIVIL 11-00291 LEK-RLP
ORDER GRANTING IN PART AND DENYING IN PART
PLAINTIFF’S APPEAL OF ENTRY OF PROTECTIVE ORDER
On November 28, 2011, the magistrate judge issued his
Order Regarding Stipulated Protective Order (“Order”).
Attached
to the Order as Exhibit 1 is the Protective Order that the
magistrate judge adopted.
Plaintiff the Securities and Exchange
Commission (“the SEC”) filed its Statement of Appeal of Entry of
Protective Order (“Appeal”) on December 12, 2011.
Defendants
Jupiter Group Capital Advisors LLC and Rick Cho (collectively
“Defendants”) filed their Memorandum in Response to the Appeal
(“Memorandum in Opposition”) on January 12, 2012, and the SEC
filed its reply on February 7, 2012.
The Court finds this matter
suitable for disposition without a hearing pursuant to Rule
LR7.2(d) of the Local Rules of Practice of the United States
District Court for the District of Hawai`i (“Local Rules”).
After careful consideration of the Appeal, supporting and
opposing memoranda, and the relevant legal authority, the SEC’s
Appeal is HEREBY GRANTED IN PART AND DENIED IN PART for the
reasons set forth below.
BACKGROUND
The parties and the Court are familiar with the factual
and legal history of this case, and the Court will only discuss
the events that are relevant to the review of the Order and the
Appeal.
On October 24, 2011, the magistrate judge issued his
Order Granting Plaintiff Securities and Exchange Commission’s
Motion to Compel Responses to First Set of Requests for
Production to Defendant Rick Cho (“Discovery Order”).
57.]
[Dkt. no.
The Discovery Order required Defendant Cho to, inter alia,
prepare and serve revised written responses and produce
responsive documents to certain requests in the SEC’s Request for
Production of Documents to Rick Cho, dated May 11, 2011.
The
Discovery Order also directed the parties to meet and confer
regarding the entry of a stipulated protective order addressing
the discovery at issue.1
[Id. at 2.]
The parties, however, were not able to agree on a
1
In their memorandum in opposition to the Motion to Compel,
Defendants requested a protective order if the magistrate judge
ordered them to produce additional documents. [Defs.’ Mem. in
Response to Pltf.’s Motion to Compel (dkt. #36), filed 9/16/11
(dkt. no. 42), at 23-25.]
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stipulated protective order.
On November 15, 2011, the SEC and
Defendants each submitted a letter brief, with a proposed
protective order, to the magistrate judge.2
[Order at 1.]
The
magistrate judge noted, inter alia, that the SEC
refused to stipulate to a provision that required
all confidential materials to be returned to the
producing party or destroyed within thirty (30)
days after the conclusion of the action, in light
of, among other things, a National Archives and
Records Administration approved records retention
schedule for the SEC’s Division of Enforcement
stating that “Litigation Records” must be
maintained for a period of 25 years.
[Id. at 2.]
The magistrate judge ruled as follows:
After careful consideration of the letter
briefs, the proposed protective orders, and
exhibits attached thereto, and the record
established in this action, pursuant to Rule
26(c)(1) of the Federal Rules of Civil Procedure,
and with good cause therefor, the Court HEREBY
ADOPTS AS MODIFIED Defendants’ proposed protective
order, which is attached to the instant Order as
Exhibit “1”.
The Protective Order that the magistrate judge adopted
[Id.]
states, in pertinent part:
21. Within thirty (30) days after the
conclusion of the Action, including all appeals,
any and all originals and copies of Discovery
Materials maintaining a “Confidential” designation
shall, at the option of the Producing Party, be
returned to the Producing Party or destroyed.
2
The SEC’s letter brief and proposed protective order are
attached to the Appeal as Exhibit 1 to the Declaration of
Lynn M. Dean in support of the Appeal (“Dean Declaration”).
[Dkt. no. 61-1 at 8-28.] Defendants’ letter brief and proposed
protective order are attached to the Dean Declaration as Exhibit
2. [Id. at 30-48.]
3
Notwithstanding the previous sentence, outside
counsel of record for each party in this Action
may maintain in their files one copy of documents
filed with the Court, written discovery requests
and responses, and attorney work product, provided
that any corresponding exhibits containing
Confidential Information are returned to the
Producing Party or destroyed, again at the option
of the Producing Party. Upon request from any
party to this Action or Producing Party, a party
shall provide written certification that it has
complied with this Paragraph. . . .
[Protective Order at 12-13 (“Paragraph 21”).]
I.
The SEC’s Appeal
In its Appeal, the SEC seeks relief from Paragraph 21
and asks that this Court strike Paragraph 21 from the Protective
Order.
The SEC acknowledges that Paragraph 21 is a standard
provision in protective orders entered in cases involving private
litigants, but the SEC argues that the provision is inappropriate
in the instant case because requiring the SEC to comply with
Paragraph 21 would contravene the SEC’s document retention
obligations under the Federal Records Act of 1950 (“Records Act”)
and the National Achieves and Records Administration (“NARA”)
regulations promulgated pursuant thereto.
The SEC argues that
Defendants did not establish good cause requiring the inclusion
of Paragraph 21 in the Protective Order.
II.
Defendants’ Memorandum in Opposition
In their Memorandum in Opposition to the Appeal,
Defendants argue that the magistrate judge had good cause to
enter the Protective Order because of the SEC’s prior disregard
4
for Defendants’ legitimate confidentiality concerns.
As to
Paragraph 21, Defendants argue that protective orders routinely
include similar return-or-destroy provisions, and the SEC has
agreed to and operated under similar provisions in protective
orders issued in other cases.3
Further, even if the confidential
discovery in this case constitutes “records” subject to NARA
retention schedules, there is an established mechanism for the
destruction of records in advance of such schedules pursuant to
court order.
Defendants also argue that, to the extent there is
conflict between either the Protective Order and the NARA
regulations or between Rule 26 and the federal statutes governing
record retention, the Protective Order and Rule 26 controls.
Defendants emphasize that it is the SEC’s burden to show that the
magistrate judge’s inclusion of Paragraph 21 in the Protective
Order was clearly erroneous or contrary to law.
Defendants urge
the Court to affirm the magistrate judge’s Order because the SEC
has not carried that burden.
III. The SEC’s Reply
In its reply, the SEC emphasizes that it is not
appealing the entry of the Protective Order itself; the only
issue in the Appeal is whether this Court should strike Paragraph
3
Defendants attached six protective orders from cases
outside of the District of Hawai`i as exhibits to the Declaration
of Michael M. Merley, which Defendants filed with their
Memorandum in Opposition on January 12, 2012. [Dkt. nos. 65-1 to
65-6.]
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21 from the Protective Order.
The SEC notes that, pursuant to
Rule 26(c), Defendants had the burden of showing a particular and
specific need for the Protective Order that they requested,
including Paragraph 21.
Although Defendants allege that the
provision is necessary because of the economic harm and the harm
to Defendant Cho’s reputation that the SEC allegedly caused,
Defendants have not articulated any specific harm.
The SEC
reiterates that Paragraph 21 contravenes its document retention
obligations, and the SEC argues that the protective orders
entered in other cases have no relevance to the instant case.
The SEC also argues that the Records Act and the NARA regulations
do not conflict with Rule 26.
STANDARD
Pursuant to 28 U.S.C. § 636(b)(1)(A), a
district judge may designate a magistrate judge to
hear and decide a pretrial matter pending before
the court. The decision of the magistrate judge
on non-dispositive matters is final. Bhan v. NME
Hosp., Inc., 929 F.2d 1404, 1414 (9th Cir. 1991).
However, a district judge may reconsider a
magistrate’s order on these non-dispositive
pretrial matters and set aside that order, or any
portion thereof, if it is “clearly erroneous or
contrary to law.” Fed. R. Civ. P. 72(a); 28
U.S.C. § 636(b)(1)(A); LR 74.1; see Rivera v.
NIBCO, Inc., 364 F.3d 1057, 1063 (9th Cir. 2004);
see also Osband v. Woodford, 290 F.3d 1036, 1041
(9th Cir. 2002).
. . . .
“A decision is ‘contrary to law’ if it
applies an incorrect legal standard or fails to
consider an element of the applicable standard.”
Na Pali Haweo Cmty. Ass’n v. Grande, 252 F.R.D.
6
672, 674 (D. Haw. 2008); see Hunt v. Nat’l
Broadcasting Co., 872 F.2d 289, 292 (9th Cir.
1989) (noting that such failures constitute abuse
of discretion).
Hasegawa v. Hawaii, CV No. 10–00745 DAE–BMK, 2011 WL 6258831, at
*1-2 (D. Hawai`i Dec. 14, 2011).
DISCUSSION
At the outset, the Court notes that the standard
applicable to an appeal of a magistrate judge’s non-dispositive
order is highly deferential.
In the present case, however, this
Court cannot accord the usual deference to magistrate judge’s
Order because this Court cannot determine what law the magistrate
judge applied to his decision to include Paragraph 21 in the
Protective Order.
Although the Order acknowledged the parties’
dispute about the inclusion of a return-or-destroy provision in
the Protective Order and the magistrate judge clearly ruled in
Defendants’ favor on that issue, the Order includes no
explanation of the legal analysis behind the ruling.
The Order
concludes only that, pursuant to Rule 26(c)(1), there is good
cause for the Protective Order in general.
The Court therefore
GRANTS the SEC’s Appeal insofar as this Court cannot conduct a
meaningful review of the magistrate judge’s ruling on the
inclusion of Paragraph 21 in the Protective Order.
The Court notes that U.S.C. Title 44, Chapter 33,
governing the disposal of records, defines the term “records” as
including
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all books, papers, maps, photographs, machine
readable materials, or other documentary
materials, regardless of physical form or
characteristics, made or received by an agency of
the United States Government under Federal law or
in connection with the transaction of public
business and preserved or appropriate for
preservation by that agency or its legitimate
successor as evidence of the organization,
functions, policies, decisions, procedures,
operations, or other activities of the Government
or because of the informational value of data in
them. . . .
44 U.S.C. § 3301.
Section 3302 authorizes the Archivist4 to
promulgate regulations establishing “procedures for the disposal
of records authorized for disposal[.]”
44 U.S.C. § 3302(2).
The
Archivist examines lists and schedules of records selected by
agency heads for disposal pursuant to 44 U.S.C. § 3303, and
[i]f the Archivist determines that any of the
records listed in a list or schedule submitted to
him do not, or will not after the lapse of the
period specified, have sufficient administrative,
legal, research, or other value to warrant their
continued preservation by the Government, he may,
after publication of notice in the Federal
Register and an opportunity for interested persons
to submit comment thereon-(1) notify the agency to that effect;
and
(2) empower the agency to dispose of
those records in accordance with regulations
promulgated under section 3302 of this title.
44 U.S.C. § 3303a(a).
Further, the Archivist promulgates records
disposal schedules “authorizing the disposal, after the lapse of
specified periods of time, of records of a specified form or
4
The NARA is under the supervision and direction of the
Archivist. 44 U.S.C. §§ 2101(3), 2102.
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character common to several or all agencies if such records will
not, at the end of the periods specified, have sufficient
administrative, legal, research, or other value to warrant their
further preservation . . . .”
§ 3303a(d); see also 36 C.F.R. §
1227.10 (“General Records Schedules (GRS) are schedules issued by
the Archivist of the United States that authorize, after
specified periods of time, the destruction of temporary records
or the transfer to the National Archives of the United States of
permanent records that are common to several or all agencies.”).
The procedures for record disposal prescribed in Chapter 33 are
the exclusive methods for the destruction of the federal
government’s records.
44 U.S.C. § 3314.
The SEC has submitted
evidence that the current NARA schedule for records of SEC
enforcement actions requires record retention for twenty-five
years.
[Reply, Decl. of David Brown (“Brown Decl.”),5 Exh. 1.]
Further, at least one court has recognized that
agencies’ document retention obligations must be considered in
fashioning protective or confidentiality orders.
The Federal Records Disposal Act (“FRDA”)
prohibits destruction of government records except
according to its requirements. 44 U.S.C. § 3314
(“[R]ecords of the United States Government may
not be alienated or destroyed except under this
chapter.”). . . . Courts must exercise caution
when issuing confidentiality orders so as not to
5
Mr. Brown is the SEC’s “Archivist in the Office of [the
Freedom of Information Act], Records Management, and Security.”
[Brown Decl. at ¶ 1.]
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demand that the [Equal Employment Opportunity
Commission (“EEOC”)] destroy government documents,
including notes and memoranda, in conflict with
the EEOC’s duty to obey the requirements of the
FRDA.
EEOC v. Kronos Inc., 620 F.3d 287, 303-04 (3d Cir. 2010).
The NARA regulations, however, do include a procedure
for the disposal of records in advance of NARA schedules when
required by court order.
When required by court order (i.e., order for
expungement or destruction), an agency may destroy
temporary records before their NARA-authorized
disposition date. In accordance with § 1230.14 of
this subchapter, an agency must notify the
National Archives and Records Administration . . .
when permanent or unscheduled records are to be
destroyed in response to a court order. If the
records have significant historical value, NARA
will promptly advise the agency of any concerns
over their destruction.
36 C.F.R. § 1226.14(e).
Permanent record means any Federal record
that has been determined by NARA to have
sufficient value to warrant its preservation in
the National Archives of the United States, even
while it remains in agency custody. Permanent
records are those for which the disposition is
permanent on SF 115, Request for Records
Disposition Authority, approved by NARA on or
after May 14, 1973. The term also includes all
records accessioned by NARA into the National
Archives of the United States.
. . . .
Temporary record means any Federal record
that has been determined by the Archivist of the
United States to have insufficient value (on the
basis of current standards) to warrant its
preservation by the National Archives and Records
Administration. This determination may take the
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form of:
(1) Records designated as disposable in
an agency records disposition schedule
approved by NARA (SF 115, Request for Records
Disposition Authority); or
(2) Records designated as disposable in
a General Records Schedule.
Unscheduled records are Federal records whose
final disposition has not been approved by NARA on
a SF 115, Request for Records Disposition
Authority. Such records must be treated as
permanent until a final disposition is approved.
36 C.F.R. 1220.18.
In light of the foregoing, the Court ORDERS the parties
to meet and confer to discuss the applicability of § 1226.14(e)
and to try to reach an agreement regarding a modified version of
Paragraph 21.
For example, the parties may be willing to
stipulate that the SEC will apply to the Archivist to have the
records in this case designated as temporary records so that the
records subject to the Protective Order may be disposed of
pursuant thereto.
If the parties are able to reach an agreement
regarding a modification to Paragraph 21, the parties shall
submit a stipulation to the magistrate judge for approval.
If the parties are unable to reach an agreement, i.e.
if they fail to submit their stipulation to the magistrate judge,
by March 8, 2012, this Court will REMAND this matter to the
magistrate judge for reconsideration of Defendants’ request for
the inclusion of Paragraph 21 in the Protective Order in light of
the authorities identified in this Order.
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Thus, at the present
time, the Court DENIES the SEC’s request to strike Paragraph 21
from the protective order.
CONCLUSION
On the basis of the foregoing, the SEC’s Statement of
Appeal of Entry of Protective Order, filed December 12, 2011, is
HEREBY GRANTED insofar as this Court STAYS the applicability of
Paragraph 21 of the Protective Order.
the request to strike Paragraph 21.
The Appeal is DENIED as to
The Court ORDERS the parties
to meet and confer regarding the applicability of 36 C.F.R. §
1230.14(e).
If the parties fail to agree upon a modified version
of Paragraph 21 by March 8, 2012, this court will REMAND this
matter to the magistrate judge for reconsideration in light of
the authorities identified in this Order.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, February 29, 2012.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
SECURITIES AND EXCHANGE COMMISSION V. JUPITER GROUP CAPITAL
ADVISORS LLC, ET AL; CIVIL NO. 11-00291 LEK-RLP; ORDER GRANTING
IN PART AND DENYING IN PART PLAINTIFF’S APPEAL OF ENTRY OF
PROTECTIVE ORDER
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