Securities and Exchange Commission v. North Star Finance LLC et al

Filing 341

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 10/10/2017. (kns, Deputy Clerk)(c/m 10/10/17)

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___ ,FtiD ~ENTEREO IN THE UNITED STATES DISTRICT COURT--_,t.lOOJl __ FOR THE DISTRICT OF MARYLAND SOli them Divisio/l OCT 102017 ,flCEI'IED "'. un.£N~ElT C\.ERl< u.•. OllITPlICT COUll, DlSl1l&T O~ IIA!l'1t1J«l SECURITIES AND EXCHANGE COMMISSION, * * Plaintiff, v. * NOIHII STAR FINANCE, LLC, l't ul., * ()efendants. Case No.: G.III-15-1339 * * * * * * * * * * * * * * * MEMORANDUM OPINION & Exchange PlaintilTSecurities action against Defendant attempting Michael K. Martin ("Martin") to obtain Martin's a Motion to Stay Dise()\'ery. Motion to Reconsider ("SEC') brought the present enll)rCement Commission emails via discovery on May II. 2015. and has been since September 29.2016. when Martin Iiled ECF No. 211. Presently pending betllTe the Court is Martin's this Court's September 25.2017 Order holding Martin in contempt Illr failing to consent to the release of his emails by his service provider by sending an email granting authorization (the "Consent Email"). 105.6 (D. Md. 2016). For the lollo\\'ing ECF No. 336. No hearing is necessary. reasons. Defendants' See Loc. R. Motion for Rewnsideration is denied. I. BACKGROUND On December 29. 2016. the Court issued an Order directing Email to Yahoo. Inc" his email service provider. inll))')nation and certain ofMartin's authorizing Martin to send a Consent Yahoo to release Martin's emails to the SEC: specilieally.the acwunt Yahoo email aeconnt with the Yahoo ID ""' ECF No. 235. Martin did not comply with this Ordcr. and on February 3. 2017. the Court issucd anothcr Ordcr. dirccting Martin to show causc \\hy he should not be held in contempt. ECF No. 252. I'laintilTSEC endeavored has sincc to subpocna Martin's cmails Ii'om Yahoo dircctly. an cfTi.lI"t hich Yahoo has w opposed. See ECF No. 275. ECF No. 291. The Court hcld a motions hearing on Junc 30.2017 hcar argumcnt on thc administrativc to subpoena issuc. and Martin did not appcar. See ECF No. 307. On August 4. 2017. this Court again ordcrcd Martin to sign thc Conscnt Email sct in ECF No. 235. a copy of which was attached to that Ordcr. ECF No. 321. Thc Court warncd Martin that: If Martin fails to do so within tcn (10) days of this Ordcr. thc Court will hold Martin in contcmpt pursuant to Fcd. R. Civ. P. 37(b)(2)(vii). Furthcr. bccausc Dcfendants' funds havc bcen Irozen by the Court the bcnefit of the allegcd victims. a monctary finc would not effectively compcl production in this casc. Thcrcforc. ifthc Court holds iVlartin in contempt. it will also issuc an arrcst warrant and dircct that Martin be hcld by thc U.S. Marshals unlil he complics with this Order. Ill. at 2.1 On August 16.2017. during a telephonc status call \\'ith thc parties. Martin statcd that hc would comply with this Court's Ordcr and send thc Conscnt EmaiI.ECFNo.323.llowcver. August I~. 2017. the SEC provided this Court with a copy of an "Amendcd Authorization on fllr the Release of Yahoo Emails," which Martin had scnt to the SEC. Exhibit A. The SEC takes the position that the document "f~lils to comply with the Court's Order," and rclayed to thc Court that Yahoo's counsel "confirmed that Yahoo docs not decm the so-called authoriz.ation surticient to permit it to release the emails sought by thc Commission," Indeed. despite the Court's explicit instruction thai Martin send the Consent Email contained in ECF No. 235. Martin made a number of significant I Pin cites to documents changes before returning the document. tiled on the C01ll1"s electronic filing by that system. 2 system Specifically. (Cl\l'ECF) Martin's "Amend cd refer to the page numbers generated Authorization" gives his "protested signature" Exhibit A willi Exhibit B. Furthermore. rather than his "express consent." he gives Yahoo permission to "disclose only logs. containing names and addresses received and sent without attachments" induding ddeted emails.togetherwiththeirattaehments."COlllflOl''' ('OIl/fllII'" rather than ..,a Jil emails. Exhibit A \I'illl Exhibit B. Finally. Martin states that he "doles] not hold harmless Yahoo Illr the disclosure:' whereas the Consent Email provided that he should "agree to hold harmless .. , Yahoo I"orthe disclosure:' COlli/WI''' Exhibit A \filll Exhibit B. On September 25. 2017. the Court held Manin in contempt 01" court and ordered that an arrest warrant would be issued I()r Martin. to be held in abeyance until 12 noon on October 2. 2017: the Coun ordered that il"Manin complied with the Court's order and signed the Consent Email prior to that time. the court would indelinitely Rather than complying I(lr Reconsideration. with this Order. however. on September 26.2017. lOCI' No, 336. In his Motion Ill[ Reconsideration. Court to "deny the ... ISECrs Martin's stay the arrest warrant. ECF No. 335 at 3. Yahoo email account:' application I()r mandated/compelled Idat 1. Speeilically. Martin Iiled a Motion Manin generally asks the disclosure 01" DetCndant Manin makes a litany 01" arguments- which are at times di rticult to parse through - ineluding that the compelled emails violates his Fourth and Fifih Amendment S"" hi. at 4. 6-16. On September production 01" his rights. along with his Attorney-Client 27, 2017. the SEC Iiled an Opposition to Martin's Motion. arguing that Martin "merely rehashes arguments that this Court previously rejected:' Martin is not entitled to a reconsideration II. STANDARD Privilege. and that ol"the Court's prior orders. ECF No. 338 1.4. OF' REVIF:\V Although Martin does not cite to a particular Federal Rule permitting reconsideration the Court's prior decision. because no Iinaljudgment , ,I has been entered in this case. Martin's 01" Motion is controllcd by Rule 54(b) of the Federal Rules ofCivill'roeedure, That rule providcs. in rclcvant part: IAlny order or other dccision. however dcsignated. that adjudicates 1C\I'er than all the claims or the rights and liabilities of fewer than all the parties, , , may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities, Fed, R. Civ. P. 54(b): see also Ce::air \', .J1',l/orgall Chase Balik. NA .. No. CIV.A, DKC 132928.2014 WI. 4955535. Commercial Builders. the appropriate Rule 54(b)."). at * 1 (D. Md. Sept. 30. 2(14) (citing Fayelle!'ille IlIc .. 936 F,2d 1462. 1469-70 (4th Cir. 1991)) ("It is well-established Rule under which to tile motions l()r reconsideration of an interlocutory The power to grant relief under Rule 54(b) "is committed district court." Am, ('alloe Ass "I \', (citing Moses H. COile Mem, liosp, IIIl'eslors \', that order is to the discretion of the Murphy Farms. IIIC,. 326 FJd 505. 515 (4th Cir. 2(03) I', ,l/erclIIY COIISI, CIII'l'.. 460 U.S, I. 12. 103 S,C!. 927 (1983)), The United States Court of Appeals standard governing a motion for reconsideration 1472. Courts in this district have. however. Rules 59(e) and 60(b) tor guidance at *I (citing Ake\'({, I.LC Thus. "[mlost interlocutory situations: cvidence lor the Fourth Circuit has not detined the precise 1'. under Rule 54(b), See Fayellel'i1le. 936 F.2d at Ji'equently looked toward the standards in considering articulated such motions, See Ce::air. 2014 WI. 4955535. Adidas Am" IIIC,. 385 F, Supp, 2d 559. 565-66 (M,D,N.C, 2(05)). courts hm'e adhered to a fairly narrow sct of grounds on which to reconsider ordcrs and opinions. Courts will reconsider (I) there has been an intervening that was not previously would work manifest injustice." available: in an intcrlocutory change in controlling their order in the 1()lIowing law: (2) there is additional or (3) the prior dccision was based on clear error or Ake\'({. 385 F. Supp. 2d at 565-66: Regellls o/'lhe Ullil', -")'.1, o{Md .. 121 F. Supp, 3d 504. 506-07 ,lee also IlIlIes \', Btl. oJ' (D, Md, 2(15) (applying this three-part test when evaluating motion to reconsider a motion for reconsideration "a is not proper where it only asks the Court to rethink its prior decision. or presents a hetter or more compelling argument that the party could have presented in the original lJoykin Allchor Co. \'. Wong. NO.5: IO-CY -591-FL. 2012 WI. 937182. at *2 hriefs on the matter:' (E.D.N.C. under Rule 54(h)). Importantly. Mar. 20. 2012): ct: I/lI/chi/l.l"On \'. Sill/Oil. 994 F.2d 1076. 1082 (4th Cir. 1993) (noting that "mere disagreement". with the court"s ruling does not support a motion to alter or amend thc judgment). III. DISCUSSION Martin's controlling Motion fllr Reconsideration law" or "additional Motion fiJr Reconsideration would work manifcst cvidcnce does not raisc any "intcrvcning that was not previously has mcrit only ifthc Court's injustice:' availablc:' A. The Court has the authority As such. t\.1artin's prior ruling was "hased on clcar error or Martin raises a numher ofargumcnts ruling violates his rights. which the Court addresses change in allcging that thc Court's in turn. to order Mal.tin to consent to the release of his emails As an initialmattcr. the Court notes that it possesscs clcarly established Martin to consent to thc releasc of his cmails by Yahoo as a discovcry Rulc of Civil Proccdurc other categorics of items that arc "in the rcsponding R. Civ. 1'. 34(a)(I). information:' communications 34(a). a party may rcqucst the production authority sanction. Undcr Fedcral of documcnts party's possession. and various custody. or control:' The items that may bc sought under thc Rulc includc "clcctronically Fcd. R. Civ. 1'. 34(a)( I). which plainly cneompasses and archivcd copics of such communications form. sec Fed. R. Civ. 1'. 34. Advisory fJ'lIrhllrg HC 217 F.R.D. 309.317 Committee Fcd. storcd both clectronic that arc prcservcd Notc to 2006 Amcndmcnts: in clectronic luhlllllkc nn. 36-38 (S.D.N. Y.2003), A rcqucst fllr production 5 to order \', UIJS undcr Rulc 34 "nccd not bc con lined to documents or othcr itcms in a party's posscssion. but instcad may properly extend to itcms that arc in that party's 'control. ... Flagg \', ('ily o(Delroil. F.R.D. 346. 353 (E.D. Mich. 2008) (quoting Fed.R.Civ.P. 34(a)( I )): see a/so Cooper Illduslries. IIIC, \'. Brilish Aero.IJUlce, !Ill'.. 102 F.R.D. 918. 919 (S.D.N, Y .1984) ("Documents the posscssion ofa party to be discoverablc. disclosure or discovcry," movc for an ordcr compclling to rcspond that inspcction Rule 34," Fcd. R. Civ.l'. sign consent I(11'111S ... 37(a)(3)(B)(iv). authorizing the emails through discovery, obligations. . , if. , . a party I[lils to produce documcnts -- or fails to pc I'mit inspcction It is wcll-cstablishcd the rclcase ofthcir For instancc. "a party may mo\'C I()I' an Fed. R. Civ. P. 3 7(a)( I ). Spcci lically. thc party "may production, will bc pcrmitted nccd not bc in they nccd only be in its custody or control.") Wherc a party Hlils to comply with its discovcry order compelling 252 -- as rcqucstcd or lails undcr that COlitis may compcl parties to cmails whcrc thosc parties rcfuscd to producc in Lite Techn%gies COll' .. a magistratc judgc issucd a consent dircctivc to a dclendant who had refused to produce emails in disco\'cry. Uti! Techs, C"r", \', Uti! Tecl1s. Cor".. Mag. Rcp, and Rccommcndations. 9.2014). Civ. Casc No, 8: IOcv3527. ITF No. 122 (.Ian. adopled hy. Ordcr. IOcr No. 132 (Mar. 4. 2(14) (Titus . .I.), This typc o I'discovery tool has been utilizcd or recognizcd in a numbcr ofothcr courts. See S.E.c. 2 (D.D.C. 1994) ("An ordcr to compcl dclcndants of obtaining that discovcrable conscnt does not abrogate inlormation detendants' I'. Co/!. BO/l/lel.Inc .. 155 F.R.D. I. to sign a conscnt form is a pcrmissiblc in a civil contcxt. provided that thc Fitih Amcndmcnt 1(11'111 court "could order thc [party] to conscnt to [their cmail providcr] disclosing 8483246. at *2-3 (D.D.C. order" the dctendant .. ):s.E.C.\ .. KarroulJI.No. Dcc. 9. 2(15) (rcasoning that a tedcral the contcnts ofthcir 15-590 (.IEBIDAR). that ..the Collti certainly to sign an ordcr "which spcci Iicd that [the dclcndant 6 ofthc or due proccss rights"): In re Suhpa<'l1a Du('('s TecuIJI 10 AUL. Ue. 550 F. Supp. 2d 606. 614 (E.D. Va. 20(8) (rcasoning e-mailsunderthcpainofsanctions mcthod 2015 WI. has thc authority I must conscnt to to having his Internet Service Provider (ISP) turn over his emails to the SEC"), In fact. eventhc Electronic Frontier Foundation. out that the SEC could "compel sanctions," brief in this case. EC I' No. 300-1. pointed which liled anolllie/ls compliance with its [discovery I requests" through "litigation ECF No, 300.1 at 11. As such. the Court finds that it was not outside the authority of the Court to order Martin to sign the Consent Constitutional Email. The Court next looks to whether the Court's rights or Attorney-Client B. The Court's rights Throughout his Motion for Reconsideration. The Sell:'-Incrimination compelled privileges. order docs not violate Martin's him to violate his Filih Amendment Fifth Amendment Constitutional Martin argues that the Court's right against sell~inerimination." Clause of the Fitih Amendment in any criminal order violates Martin's .\'rr ECF No, 336 at 10, provides that "[nJo person. case to be a witness against himself:' that ..the privilege protects a person only against being incriminated compelled testimonial (citing Se!llllaha , , shall be The Supreme Court has explained communications," order !iJrces by his own Fis!la \" Vlli/rd Slalrs. 425 U.S, 391. 409 (1976) \', Coli(iJrnio. 384 U.S. 757 (1966): Ulli/rd Slalrs \', Wodr. 388 U.S. 218 (1967): and Gi/hrrt \', Co/!fiJrnio. 388 U.S. 263 (1967)). Where a court compels a party to sign a consent directive. such an order may violate the Fitih Amendment the form is a .testimonial communication, clear that the required production "compel the [reeipienlj only if ..the act of executing ... Doe \', Vlliled Sloles. 487 U,S. 201. 207 (1988), It is of documents "does not compel oral testimony," to restate. repeat. or aflinn nor would it the truth of the contents of the documents Martin also makes relerences to a violation of his Fourth Amendment rights. 5;1;'(' ECF 10.336 at I. 4-9.12. I.t. 1I00\"cvcr. MaJ1in"s Fourth Amendment argument appears to be in reference to the administrative subpoena that the SEC previously issued to Yahoo. Set.' id at 7. At issue here is Mm1in"s lailure to comply with his discovery ! obligations. and the validity of the administrative subpoena is a separate this time. 7 issue which the C01ll1 will not consider at sought:' Fisher. 425 U.S. at 408-09. Emails are "pre-existing. which are not covered by the Fi fih Amendment." S. E. C. \'. voluntarily K(l/TOUIIl. prepared documents. No. 15-590 (.IEB/DA R). 2015 WI. 8483246. at *3 (D.D.C. Dec. 9. 2015). "[1 In order to be testimonial. communication information. an aeeused's must itself. explicitly or implicitly. relate a factual assertion or diselose Only then is a person compelled to be a '\\'itness' against himself:' Doe. 487 U.S. at 210. Where the parties already know that certain accounts and documents exist. the controlling party's compelled disclosure of those accounts and documents lilctual assertion or disclose inl()J'Jllation. See 3d 472 (S.D.N.Y. 2017) ("[Blecause //1 likely docs not communicate a re Vl/rious C;rl/lld ./tIlY Suhpoe/1l/s. 248 F. Supp. the parties already kno\\' that such accounts do exist violation arising Irom ... a Ilawed consent dircctive potential risk of a Fifih Amendment the is mi tigated. "). Hcre. it is beyond dispute that the Yahoo email account with Yahoo ID Motion l(lr Reconsideration. No. 336 at I. Furthcrmore. communications he describes the account as "Martin's Yahoo email account:' ECF Martin has uscd this samc account numcrous timcs in email with thc COln1. As Martin docs not contest that thc eapitalsoureclending@yahoo.eom testimonial is Martin's email account. under his control. In Martin's own is his account. his signing of the Consent Email is not as it does not "relatc a factual assertion or diselose in!()J'Jllation:' Martin's act of signing the Consent Email does not reveal anything that the parties did not already know. The documcnts themselves arc "pre-existing. by the Fifih Amendment:' voluntarily prepared documents. which arc not covered As such. the Court's order directing Martin to sign the Conscnt Email docs not violate the Fi fih Amendment. C. The Court's order docs not violate Martin's Attorney-Client privile~e Martin tinallv~..... the ar~ument that the Court's order direetin~••... Martin to si~nthe makes ••... Consent Email violates attorney-client documents. privilege, as it is liJreing him to rcleased privileged ECl' No. 336 at 12. The Court tinds that the SECs protocol is suftieient to safeguard Martin's attorney-client proposed document review privilege rights. The Commission suggested, and the Court adopted. that once Martin's emails are released to the SEC: The emails would then be subjected to a ..tilter team" review process that would ensure that only non-privileged. relevant emailsweresecnbythcCommission.slitigation and investigation team. The Commission has already proposed search terms to Martin on several occasions and invited his commems on them. Because he has not responded to these requests. the Commission requests that the Court allow these scarch terms to be used to identity responsive emails. ECF No. 224 at 10. In the similar case of S.EC. \', Kal'l'OlIlII. No. 15-590 (.IEBIDAR). 2015 WI. 8483246. at *3 (D.D.C. Dee. 9, 2(15), the defendant also resisted the rclease of his emails, arguing that the documents attorney-client were privileged. There, the SEC suggested that "it will safeguard his and marital privileges by including any emails between [the defendant] and one of his attorneys or his spouse in the list of emails to be screened by a team of attorneys not associated appropriate with the investigation," It/. The court found ..this proposed course of action \\holly in balancing Karroum's right to assert these privileges against the SEC's statutory subpoena authority and interest in conducting given Martin's lack of cooperation its investigation," It!. Here. the Court agrees thaI. with the SEC in producing his emails. this produce-and-tilter protocol is the best way of balancing the SECs right to discovery and Martin's privileges. As such, the Court tinds that Martin's attorney-client privilege will not be violated by his signing of the Consent Email. 9 D. Request for Interlocutory Appeal Martin requests that "11'the Court cannot grant my motions Defendant the case and order allowing Appeals'" him to a make an interlocutory appeal to the Fourth Circuit Court of ECF No. 336 at 15. Under 28 U.S.C. ~ 1292(b). the Court may certif)' an "Interlocutory decision" as appealable where "such order involves a controlling as to which there is substantial ground for difference fi'om the order may materially advance the ultimate termination tinds that there is not substantial for an interlocutory IV. is seeking a stay of question of law of opinion and that an immediate ground lor difference of the litigation'" appeal The Court of opinion, and will not certilY this issue appeal. nor will the Court issue a stay. CONCLUSION For the foregoing reasons. the Court finds that its initial orders directing the Consent Email were not in clear error. and did not violate Martin's attorney-client privilege. new evidence previously Martin to sign constitutional As Martin has not raised any instances of a change in controlling unavailable. in the Court's 335. will issue on Friday. October unless at that time Martin is in complete Orders. Date: October {b. law or the Court hereby denies his Motion fiJI' Reconsidcration. ECF No. 336. The arrest warranlmentioned with the Court's rights or 13.2017. September 25. 2017 Order. ECF No. compliance i\ separate Order shall issue. &/{- 7017 GliORGE.I.IIi\I'.EL United States District .Judge 10

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