Federal Trade Commission v. Trudeau et al
Filing
21
ORDER denying GIN's 1 Motion to Quash the subpoena. Further, GIN's request for an order enjoining the FTC from issuing further post-judgment discovery request without providing GIN notice and compelling the FTC to provide them with any and all related post-judgment discovery requests in connection with the Trudeau litigation is Denied. Signed by Magistrate Judge Karen L. Litkovitz on 12/7/2012. (art)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
KEVIN TRUDEAU, et al.,
Defendants,
Case No. 1: 12-mc-022
Dlott, J.
Litkovitz, M.J.
ORDER
v.
GLOBAL INFORMATION NETWORK,
Movant.
This case originated the United States District Court for the Northern District of Illinois.
See FTC v. Trudeau, No. 03-cv-3904 (N.D. Ill.). Plaintiff, the Federal Trade Commission
(FTC), filed a civil contempt action against Kevin Trudeau (Trudeau), resulting in a $37.5
million sanction against Trudeau. As part of its investigation into Trudeau's assets and in an
attempt to collect on the judgment against Trudeau, the FTC filed a subpoena to Fifth Third
Bancorp (Fifth Third) seeking production of the bank records of movant Global Information
Network (GIN).
This matter is before the Court on GIN's motion to quash the FTC's subpoena to Fifth
Third to produce GIN's financial documents (Doc. 1); the FTC's response in opposition (Doc.
3); GIN's reply memorandum (Doc. 4); the FTC's notice of supplemental authority (Doc. 8); and
GIN's response. (Doc. 9). Pursuant to GIN's request, oral argument was held on June 4, 2012.
(Doc. 11). Following the hearing, the Court held the record open until July 2, 2012 to allow the
parties to submit additional authority and information in support of their respective arguments.
(Docs. 11, 16). The FTC filed its supplemental brief on June 18, 2012 (Doc. 13); GIN filed its
supplemental brief on July 2, 2012. (Doc. 17). GIN submitted additional evidence on
September 12,2012, regarding a related arbitration ruling. (Doc. 18). The FTC objected to
GIN's late supplementation as untimely. (Doc. 19). Nevertheless, the FTC further
supplemented the record on November 14, 2012, after the deadline set by the Court. (Doc. 20).
At the outset, the Court determines that while GIN's September 2012 supplementation
(Doc. 18) was beyond the date set by the June 20, 2012 Order (Doc. 16), the late
supplementation will be considered in the interest of having a complete record and deciding this
matter on the merits. For these reasons, the Court will likewise consider the FTC's November
2012 supplementation in making its ruling.
I. Background
In September 2007, the FTC filed a civil contempt proceeding against Trudeau for
violating a permanent injunction. See FTC. v. Trudeau, No. 03-cv-3904 (N.D. Ill.). Under the
terms of the injunction, Trudeau is prohibited from "producing or disseminating infomercials ...
[,]"other than advertising or promoting his own books or publications, provided he "[does] not
misrepresent the content of the book." FTC. v. Trudeau, 567 F. Supp.2d 1016, 1017-18 (N.D.
Ill. 2007). Trudeau was subsequently found to be in violation of this order and held in contempt
for materially misrepresenting the contents of a diet book he authored. !d. at 1023. Following
briefing and oral argument, the district court ordered Trudeau to pay a fine in excess of $3 7
million to compensate consumers ofthe book. FTC v. Trudeau, No. 03-cv-3904, 2008 WL
7874195, at *3 (N.D. Ill. Dec. 11, 2008). The ruling and sanction were eventually affirmed by
the Seventh Circuit. FTC v. Trudeau, 662 F.3d 947 (7th Cir. 2011), cert denied, 133 S.Ct. 426
(Oct. 9, 2012).
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Following Trudeau's assertion that he was unable to pay the sanction, the FTC initiated
post-judgment discovery in the form of a subpoena to Fifth Third. The subpoena commands
Fifth Third to produce documents related to bank accounts "held by or titled in the name of: (1)
Kevin M. Trudeau, and any account held for his benefit or for which he is a signatory or
authorized user; (2) Global Information Network FDN ... ; and (3) Nataliya Babenko ... and
any account held for her benefit or for which she is a signatory or authorized user." 1 (Doc. 9, Ex.
2 at 10). In response to the subpoena, GIN filed the instant motion to quash. (Doc. 1).
II. Standard of Review
Rule 45 ofthe Federal Rules of Civil Procedure governs motions to quash subpoenas.
Fed. R. Civ. P. 45. Courts must quash subpoenas requiring "disclosure of privileged or other
protected matter, if no exception or waiver applies .... " Fed. R. Civ. P. 45(c)(3)(A)(iii). "[T]he
burden of persuasion in a motion to quash a subpoena ... is borne by the movant." US. v. Int'l
Bus. Mach. Corp., 83 F.R.D. 97, 104 (S.D.N.Y. 1979). See also In re Smirman, 267 F.R.D. 221,
223 (E.D. Mich. 2010); Recycled Paper Greetings, Inc. v. Davis, No. 1:08-mc-13, 2008 WL
440458, at *3 (N.D. Ohio Feb.13, 2008). In reviewing a motion to quash, the court may consider
"whether (i) the subpoena was issued primarily for the purposes of harassment, (ii) there are
other viable means to obtain the same evidence, and (iii) to what extent the information sought is
relevant, nonprivileged, and crucial to the moving party's case." Bogosian v. Woloohojian
Realty Corp., 323 F.3d 55, 66 (1st Cir. 2003) (citing cases). "If the documents sought by the
subpoena are relevant and are sought for good cause, then the subpoena should be enforced
unless the documents are privileged or the subpoenas are unreasonable, oppressive, annoying, or
1
Neither GIN nor Nataliya Babenko is a party to F. T.C. v. Trudeau, No. 03-cv-3904 (N.D. Ill.). GIN is a
multi-form foundation formed in the country of Nevis-St. Kitts; Ms. Babenko is Trudeau's spouse. Notably, in
February 2012, Ms. Babenko filed a similar motion to quash which was denied by this Court. See Babenko v.
F.T.C., No. 1:12-mc-6 (S.D. Ohio Mar. 22, 2012) (Bowman, M.J.).
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embarrassing." Recycled Paper Greetings, No. 1:08-mc-13, 2008 WL 440458, at *3 (internal
quotations and citations omitted).
III. Analysis
GIN seeks to quash the instant subpoena asserting that it exceeds the permissible scope of
post-judgment discovery and, further, that the information sought is irrelevant as Trudeau "is not,
and never has been, an owner, manager, officer or director of GIN." (Doc. 1 at 3). GIN asserts
that, as a non-party, the Federal Rules of Civil Procedure do not permit discovery of its assets.
!d. at 4. Further, GIN contends that the FTC has exceeded the sanctioned boundaries of postjudgment discovery by issuing the subpoena and is engaging in a fishing expedition aimed at
gathering information to damage GIN. !d. GIN asks this Court to quash the subpoena; enjoin
the FTC from issuing further post-judgment discovery requests without providing it notice; and
compel the FTC to disclose all other post-judgment discovery requests issued in connection with
the Trudeau litigation.
In response, the FTC argues that the subpoena should be enforced in light of evidence
demonstrating that Trudeau and his wife, Ms. Babenko, have significant financial ties to GIN. In
support, the FTC cites to evidence that: Ms. Babenko is a signatory on GIN's bank account with
Fifth Third; Trudeau is a founding member of GIN and a member of its council; and that
Trudeau exercises control over GIN to the extent that he has authority to waive membership
and/or initiation fees. Given this evidence, the FTC contends that the information sought by the
subpoena is relevant to its investigation into Trudeau's purported inability to pay his contempt
sanction. Further, the FTC asserts that, as a non-party, GIN is not entitled to advance notice of
its post-judgment discovery requests regarding Trudeau.
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A. GIN is not entitled to prior notice of the FTC's discovery requests.
GIN claims that the FTC's failure to serve it with notice of the subpoena deprived it of
the right to object before Fifth Third produced the requested information. In support of this
argument, GIN cites to Rule 45, which requires that a copy of the subpoena be delivered "to the
named person .... " Fed. R. Civ. P. 45(b)(1). Further, GIN contends that because the FTC
failed to serve it with a copy of the subpoena prior to its return date, the time requirements
provided by Rule 45 for filing a motion to quash are inapplicable. GIN's arguments are not welltaken.
Rule 45 provides that "[s]erving a subpoena requires delivering a copy to the named
person" and that prior notice must be given to each party where a subpoena commands the
production of documents. Fed. R. Civ. P. 45(b)(l) (emphasis added). Here, GIN did not learn
about the subpoena until after the requested documents had been produced by Fifth Third.
However, the "named person" in the subpoena is Fifth Third and not GIN. In addition, by its
own assertion, GIN is not a party to the underlying action. Thus, by the Rule's plain language,
GIN was not entitled to notice ofthe subpoena. See FTC v. Trudeau, 5:12MC35, 2012 WL
5463829, at *3 (N.D. Ohio Nov. 8, 2012) ("[N]othing in the rules required the FTC to serve
movants with the subpoena or give them notice thereof. In any event, even if movants were
entitled to notice or service, they have failed to demonstrate any legally cognizable basis upon
which they could have challenged the subpoena .... ").
Assuming, arguendo, that GIN was entitled to notice, GIN's assertion of untimely notice
does not require the subpoena be quashed. "Rather, where a party has failed to comply with the
notice requirements of Rule 45(b)(1), courts have declined to quash subpoenas or to exclude
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materials where the aggrieved party was not prejudiced by the delay." GMAC Mortg., LLC v.
McKeever, No. 08-459-JBC, 2010 WL 1141226, at *2 (E.D. Ky. Mar. 22, 2010).
GIN has failed to provide any evidence that it was prejudiced by the lack of notice from
the FTC regarding the instant subpoena. GIN admits that it received actual notice of the
subpoena from a second-hand source. See Doc. 1 at 5 (GIN learned about the subpoena "through
second-hand information."). Further, GIN has had an opportunity to be heard on its objections to
the subpoena as evidenced by the instant ruling. In light of these facts, the Court is unable to
conclude that GIN was prejudiced by the lack of notice from the FTC and GIN's motion to quash
the subpoena for lack of notice is denied.
B. The subpoena should be enforced as it seeks documents relevant to the FTC's
investigation into Trudeau's assets.
GIN contends the subpoena must be quashed as it exceeds the permissible scope of postjudgment discovery by seeking information relating to its financial affairs that is irrelevant to the
litigation against Trudeau. GIN's argument is premised upon the assertion that Trudeau does not
have sufficient ties with GIN to justify the discovery as "Trudeau is not, and never has been, an
owner, manager, officer or director of GIN." (Doc. 1 at 3). For the following reasons, the
undersigned finds that GIN's claims are insufficient to warrant quashing the subpoena.
"In aid of the judgment or execution, the judgment creditor ... may obtain discovery
from any person ... as provided in these rules .... " Fed. R. Civ. P. 69(a)(2) (emphasis added).
"In the absence of any contrary agreement between the parties, the scope of post-judgment
discovery is broad ... and includes the right to obtain discovery from non-parties." GATX Corp.
v. Appalachian Fuels, LLC, No. 09-41, 2011 WL 4015573, at *2 (E.D. Ky. Sept. 9, 2011) (citing
US. v. Conces, 507 F.3d 1028, 1040 (6th Cir. 2007)). Judgment creditors are entitled to "utilize
the full panoply of federal measures provided for under federal and state law to obtain
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information from parties and non-parties alike, including information about assets on which
execution can issue or about assets that have been fraudulently transferred." Magna/easing, Inc.
v. Staten Island Mall, 76 F.R.D. 559, 561 (S.D.N.Y.1977). However, there are limits to postjudgment discovery regarding third parties and "[t]he party seeking such discovery must make 'a
threshold showing of the necessity and relevance' of the information sought." Michael W.
Dickinson, Inc. v. Martin Collins Surfaces & Footings, LLC, No. 5:11-CV-281, 2012 WL
5868903, at *2 (E.D. Ky. Nov. 20, 2012) (quoting Trs. ofN Fla. Operating Eng'rs Health &
Welfare Fundv. Lane Crane Serv., Inc., 148 F.R.D. 662,664 (M.D. Fla. 1993)). Although
discovery of non-party assets is ordinarily not contemplated by Rule 69(a), such discovery is
permitted where "the relationship between the judgment debtor and the non-party is sufficient to
raise a reasonable doubt about the bona fides ofthe transfer of assets between them." Id
(quoting Magna/easing, Inc., 76 F.R.D. at 562).
Here, the FTC contends that the subpoenaed documents relating to GIN's financial
accounts are relevant to its investigation into Trudeau's finances because both Trudeau and his
wife have strong ties, financial and otherwise, to GIN. The FTC has provided the following
evidence to support its contention: (1) Trudeau is a founder of GIN (Doc. 3, Ex. 2,
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(Declaration of FTC Investigator Ronald Lewis) 2 ; (2) Trudeau has represented that he is a
member ofthe GIN council in emails to prospective GIN members and in radio interviews (!d. at
8-9 (Trudeau's email No. 1); !d. at 21-22 (transcription of Trudeau's radio interview); (3)
Trudeau exercises financial control over GIN by having authority to waive its initiation fees (!d.
at 10-12) (Trudeau email No.2); (4) Trudeau has knowledge of GIN's supposedly anonymous
members (!d. at 13-14) (email from GIN discussing Trudeau's speaking appearance at a GIN
2
Mr. Lewis is a Supervisory Investigator at the FTC working in the Enforcement Division of the FTC's
Bureau of Consumer Protection in Washington D.C. !d.,~ I. In conjunction with this work, Mr. Lewis is involved
in the FTC's investigation of Trudeau and businesses with which he is associated, including GIN. !d.,~ 2.
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event); and (5) Ms. Babenko is an authorized signatory on GIN's bank account (Doc. 3, Ex. 1)
(documents from Fifth Third's submitted in response to the subpoena). Further, in its first record
supplementation, the FTC submitted evidence of money transfers from GIN accounts to the
accounts of other business entities controlled by Trudeau. (Doc. 13, Ex. 2) (financial records
from Fifth Third demonstrate that checks in the amounts of$8,000, $103,000, and $150,000
were written from GIN's account and that on these same days deposits for identical amounts
were made into accounts controlled by Trudeau).
GIN argues that the FTC's evidence fails to demonstrate Trudeau's financial ties with
GIN are sufficient to justify the subpoena. In its July 2012 supplementation, GIN submitted the
affidavit of Marc J. Lane, its attomey. 3 Pursuant to the Nevis Multiform Foundation Ordinance,
a multiform foundation like GIN must have: (1) a registered agent; (2) a management board; and
(3) a secretary. (Doc. 17, Ex. 1 at 7-99). Mr. Lane attests that Trudeau is not and never has been
a registered agent of GIN, a member of its management board, or its secretary as demonstrated
by the provided flowcharts. (Doc. 17, Ex. 1 at 2-4, ~~ 3, 8). Relying on this evidence, GIN
argues that the FTC's evidence purporting to show that Trudeau has control over GIN is
"baseless." The undersigned disagrees.
First, the Court notes that at oral argument, counsel for GIN was unable to define or
identify the organizational structure of GIN, explain any of the mechanisms regarding its
formation, or identify who owns and/or controls it. (Doc. 11 at 3). While GIN's
supplementation provides the governing laws for forming a multiform foundation in Nevis, see
3
Attached to Mr. Lane's affidavit are the following exhibits: documents outlining the laws of Nevis governing the
formation of multiform foundations (Doc. I7, Ex. I at 7-99); June 20I2 correspondence between the FTC and GIN's
counsel regarding the FTC's refusal to participate in the Nevis arbitration (Id. at IOl-107); the St. Christopher and
Nevis Arbitration Act (!d. at I09-II); the United Kingdom Arbitration Act (!d. at I 13-44); and several one-page
flowcharts respectively titled "GIN Structure," "GIN Checks," "Babenko Transactions," and "GIN Transactions."
(!d. at I38-44).
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Doc. 17, Ex. 1 at 7-99, the Court is unable to conclude from the provided materials that Trudeau
has no control over GIN's financial dealings. The flowcharts provided by GIN fail to provide
any illumination as to who owns or controls GIN except to identify that Trudeau is not a
registered agent, secretary, or board member of GIN. See Doc. 17, Ex. 1 at 138. None ofthe
information provided by GIN addresses Trudeau's role in GIN or the role of GIN's "council," of
which Trudeau is a self-described member. In the absence of any evidence or even explanation
about the ownership, control or management of GIN, the FTC's evidence indicating that Trudeau
is a "founder" and "council" member of GIN who exercises control over GIN remains
unrebutted.
GIN also takes issue with the admissibility of the FTC's evidence regarding Trudeau's
self-acclaimed status as a founding GIN member and financial records demonstrating asset
transfers between GIN-controlled and Trudeau and/or Babenko-controlled bank accounts. (Doc.
17 at 6-7, 7-13). To the extent that GIN argues this evidence is unpersuasive because it is
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unauthenticated and inadmissible, this argument misses the mark. The instant matter concerns
the discoverability of the information sought by the subpoena. At this stage, it is not necessary
that the evidence presented be admissible. See Fed. R. Civ. P. 26(b)(l) ("Relevant information
need not be admissible ... if the discovery appears reasonably calculated to lead to the discovery
of admissible evidence."). See also FT.C. v. Trudeau, 2012 WL 5463829, at *5. The evidence
4
In its July 2012 supplementation, GIN attacks the evidence submitted by the FTC obtained from Fifth Third
pursuant to the subpoena on the basis that it is inadmissible under Fed. R. Evid. 901 based on lack of authentication.
See Doc. 17 at 5-6. Federal Rule of Evidence 901(a) provides that "the requirement of authentication or
identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a fmding that the
matter in question is what its proponent claims." GIN has not set forth any reasons for questioning the authenticity
of the bank records submitted by the FTC. The circumstances surrounding their production, i.e., pursuant to a
subpoena to Fifth Third, as well as their appearance and content, persuade the Court that the documents are what
they purport to be. See Fed. R. Evid. 902(9) ("Commercial paper, signatures thereon, and documents relating
thereto to the extent provided by general commercial law" are self-authenticating); Fed. R. Evid. 901(b)(4)
(documents can be authenticated by their "appearance, contents, substance, internal patterns, or other distinctive
characteristics, taken in conjunction with the circumstances"); Alexander Dawson, Inc., v. NLRB, 586 F.2d 1300,
1302 (9th Cir. 1978) (holding "the content of a document, when considered with the circumstances surrounding its
discovery, is an adequate basis for [its authentication]").
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submitted by the FTC is relevant to its investigation and is likely to lead to the discovery of
admissible evidence. Consequently, GIN's evidentiary argument is not well-taken.
GIN also argues that the FTC's evidence of money transfers between GIN's bank account
and other business accounts is merely evidence of monetary transactions made in the ordinary
course of business. However, GIN has provided no evidence to support this claim or to
contradict the FTC's supported inference that Trudeau has unreported GIN-related assets that it
may rightfully discover. The FTC has provided evidence which raises a "reasonable doubt about
the relationship between movant[] and Trudeau and his companies and the bona fides of the
transfers between these entities." FTC v. Trudeau, 2012 WL 5463829, at *5. Specifically, the
evidence demonstrating same-day monetary transfers in identical amounts from GIN accounts to
accounts controlled by Trudeau, his wife, and/or Trudeau-controlled business entities raises a
reasonable doubt about the bona fides of Trudeau's unreported financial dealings with GIN. ld
See also Magnaleasing, Inc., 76 F.R.D. at 562. 5 The FTC's evidence implies that GIN's
business transactions with those entities are not "totally independent from Trudeau, but may have
been created to evade the contempt sanction and conceal Trudeau's assets. " FTC. v. Trudeau,
2012 WL 5463829, at *5. Therefore, GIN's bank records are relevant to determining whether
Trudeau has used GIN to conceal his assets. ld
GIN has also provided evidence of an arbitration ruling against Mr. Lewis in Nevis
holding that Mr. Lewis violated the terms of GIN's membership agreement by failing to disclose
that he was an FTC investigator in seeking to join GIN. (Docs. 9, 18). To the extent that GIN
seeks to quash the instant subpoena or exclude documents obtained by Mr. Lewis on the basis of
5
The minimalistic flowcharts provided by GIN fail to contradict the FTC's evidence; rather, they seem to serve no
purpose aside from illustrating the evidence received by the FTC regarding these account transfers. See Doc. 17,
Ex. 1 at 4-5, ~~ 8-11; Doc. 17, Ex. 1 at 138-44.
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the Nevis arbitration ruling against him, GIN's request is denied. GIN has cited no authority to
support a finding that an arbitration ruling from Nevis is binding on this Court. Likewise, GIN's
argument that the investigatory materials obtained by Mr. Lewis should be excluded from the
instant proceedings on a "fruit-of-the-poisonous-tree" rationale as they were obtained in
violation of GIN's membership agreement is of no consequence. GIN has not provided any legal
authority supporting the application of a criminal evidentiary doctrine in a civil proceeding such
as this. Moreover, the Supreme Court has "repeatedly declined to extend the exclusionary rule to
proceedings other than criminal trials." Penn. Bd of Probation and Parole v. Scott, 524 U.S.
357, 363-64 (1998). Consequently, the undersigned is not persuaded that the materials submitted
by GIN require the Court to quash the subpoena.
In consideration of the briefings and arguments of the parties and upon review ofthe
complete record, the Court finds that the FTC has demonstrated that there is "reasonable doubt
about the bona fides" of Trudeau's relationship with GIN. Magna/easing, Inc., 76 F.R.D. at 562.
The FTC has provided sufficient evidence establishing that GIN's bank account records are
relevant to its investigation into Trudeau's undisclosed assets and are sought for good cause. See
Recycled Paper Greetings, No. 1:08-mc-13, 2008 WL 440458, at *3. Accordingly, GIN's
motion to quash is denied.
IV. Conclusion
For the above reasons, GIN's motion to quash the subpoena (Doc. 1) is DENIED.
Further, GIN's request for an order enjoining the FTC from issuing further post-judgment
discovery requests without providing GIN notice and compelling the FTC to provide them with
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any and all related post-judgment discovery requests in connection with the Trudeau litigation is
DENIED.
IT IS SO ORDERED.
~X~Karen L. Litkovitz
United States Magistrate Judge
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