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,

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Plaintiff,
v.

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NOIHII STAR FINANCE, LLC, l't ul.,

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()efendants.

Case No.: G.III-15-1339

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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 "[e-mail]."'

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 fi.mh 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 fi.lr 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
[e-mail]
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

[e-mail]
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