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 "capitalsourcclcnding@yahoo.com."'
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
capitalsoureelending@yahoo.com
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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