Federal Trade Commission v. Noland, Jr. ( 2020 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Federal Trade Commission, No. CV-20-00047-PHX-DWL 10 Plaintiff, ORDER 11 v. 12 James D. Noland, Jr., et al., 13 Defendants. 14 Nonparties Jeffrey and Amber Wright (collectively, “the Wrights”) seek to quash a 15 subpoena pursuant to the Right to Financial Privacy Act of 1978 (“RFPA”). (Doc. 234.) 16 For the following reasons, the motion will be denied. 17 BACKGROUND 18 The background of this case is set out more fully in the Court’s February 27, 2020 19 order. (Doc. 106.) In a nutshell, the FTC alleges that Defendants operated Success by 20 Health (“SBH”) and related enterprises as an illegal pyramid scheme. (Id. at 1-6, 26-27.) 21 On January 8, 2020, the FTC filed a complaint seeking a permanent injunction and 22 other equitable relief against Defendants. (Doc. 3.) That same day, the FTC filed an ex 23 parte motion for a temporary restraining order (“TRO”) with an asset freeze and the 24 appointment of a temporary receiver. (Docs. 7, 8.) On January 13, 2020, the Court granted 25 the TRO, including the asset freeze, the appointment of a receiver, and other forms of relief. 26 (Doc. 19.) On February 27, 2020, after briefing and oral argument, the Court granted a 27 preliminary injunction providing for, inter alia, the continuation of the asset freeze and the 28 1 repatriation of assets located abroad. (Docs. 106, 109.) 2 The parties are currently engaged in fact discovery, which is set to close on 3 December 23, 2020. (Doc. 211.) 4 On November 10, 2020, the FTC mailed a package to the Wrights that included 5 subpoenas to the Wrights and an RFPA notice stating that the FTC sought to subpoena 6 America First Credit Union (“America First”) for information concerning the Wrights’ 7 financial accounts. (Doc. 234, Ex. 1; Doc. 237-2 at 1.) 8 On November 20, 2020, the Wrights filed a motion to quash the America First 9 subpoena under the RFPA. (Doc. 234.) On November 25, 2020, the FTC filed a response. 10 (Doc. 237.)1 On December 7, 2020, the Wrights filed a reply. (Doc. 246.) On December 11 10, 2020, the FTC filed an unauthorized sur-reply (Doc. 247), which the Court did not 12 consider when ruling on the motion. 13 DISCUSSION 14 I. Legal Standard 15 The RFPA authorizes the government to subpoena financial institutions for records 16 in their possession if certain requirements are met. 12 U.S.C. § 3402(4). The subpoena 17 must be “authorized by law” and there must be “reason to believe that the records sought 18 are relevant to a legitimate law enforcement inquiry.” Id. § 3407(1). Also, a copy of the 19 subpoena must be “served upon the [financial institution’s] customer or mailed to his last 20 known address” on or before the date of service of the subpoena alongside a notice stating 21 “with reasonable specificity the nature of the law enforcement inquiry.” Id. § 3407(2). 22 The RFPA allows the customer to file a motion to quash the subpoena within ten 23 days of service or fourteen days of mailing of the subpoena. Id. § 3410(a). When deciding 24 whether to grant the motion, the court considers three questions: “(1) [i]s there a legitimate 25 law enforcement inquiry; (2) are the subpoenaed bank records relevant to the inquiry; and 26 (3) has the government agency complied with the requirements of the RFPA?” In re 27 1 Ordinarily, the court first determines whether the customer’s motion to quash complies with the RFPA, and, if so, the court “shall order the Government authority to file 28 a sworn response.” 12 U.S.C. § 3410(b). Here, the FTC filed its response without being ordered to do so. 1 Blunden, 896 F. Supp. 996, 999 (C.D. Cal. 1995) (citations and internal quotation marks 2 omitted). “The court must deny the motion if ‘there is a demonstrable reason to believe 3 that the law enforcement inquiry is legitimate and a reasonable belief that the records 4 sought are relevant to that inquiry.’” Gewerter v. SEC, 2016 WL 4074117, *1 (D. Ariz. 5 2016) (quoting 12 U.S.C. § 3410(c)). “The ultimate burden of showing that the records 6 sought are relevant to a legitimate law enforcement inquiry is on the government.” 7 Neuhaus v. SEC, 2007 WL 1322340, *3 (E.D. Cal. 2007) (internal quotation marks 8 omitted). 9 II. Analysis 10 The Wrights do not dispute that the FTC’s law enforcement inquiry is legitimate. 11 The Court therefore assesses the relevance of the sought-after records and the FTC’s 12 compliance with the RFPA’s procedural requirements. 13 A. Relevance 14 The Wrights argue that the America First records are not relevant because (1) they 15 are not parties; (2) their records contain “personal, private and confidential” information; 16 and (3) the FTC’s subpoena constitutes “blatant overreach and harassment” that imposes 17 “burdensome requirements for no apparent reason other than to torment and badger.” (Doc. 18 234.) None of these contentions have merit. 19 First, the Wrights’ status as nonparties is irrelevant. The government’s power to 20 subpoena financial records under the RFPA is not limited to parties to an action. 12 U.S.C. 21 § 3402 (applying the RFPA to “the financial records of any customer from a financial 22 institution”). See also FTC v. Kutzner, 2016 WL 9282403, *3-4 (C.D. Cal. 2016) (denying 23 non-party’s motion to quash under the RFPA); United States v. Allen, 2020 WL 1034395, 24 *4-7 (D. Ariz. 2020) (same), report and recommendation adopted, 2020 WL 1033269 (D. 25 Ariz. 2020); United States v. Lamont, 2020 WL 4365916, *3 (D. Ariz. 2020) (same). 26 Second, the Wrights’ belief that their bank records are “personal, private and 27 confidential” does not bear on the analysis. The RFPA specifically provides that such 28 records may be subpoenaed so long as the government meets the statutory requirements. 1 12 U.S.C. § 3402(4); Blunden, 896 F. Supp. at 999 (“[RFPA] was, in large part, passed in 2 response to the decision in United States v. Miller, 425 U.S. 435 [(1976)], where the 3 Supreme Court held that bank customers have no reasonable expectation of privacy, under 4 the Fourth Amendment, in bank records of their accounts.”). 5 Third, the FTC has established that the sought-after information is relevant. “[T]he 6 standard for meeting the relevance requirement—as set out in the language of 12 U.S.C. 7 § 3410(c)—is not stringent.” Kutzner, 2016 WL 9282403 at *3. The FTC need only show 8 that it has “a reasonable belief that the records sought are relevant” to its inquiry. 12 U.S.C. 9 § 3410(c). See also Rosiere v. SEC, 2010 WL 489526, *3 (D. Nev. 2010) (“For purposes 10 of an administrative subpoena, the notion of relevancy is a broad one . . . . So long as the 11 material [sought by the subpoena] touches on a matter under investigation, an 12 administrative subpoena will survive a challenge that the material is not relevant.”) 13 (alterations in original) (internal quotation marks omitted); Neuhaus, 2007 WL 1322340 at 14 *3 (“[T]he SEC’s burden is not a heavy one.”). 15 The FTC has met this low bar. The FTC alleges, based on documents and records 16 it has discovered, that the Wrights, who are married to each other, have a close personal 17 and professional relationship with defendant Jay Noland and that this relationship has 18 involved various financial transactions that may have been in violation of the preliminary 19 injunction’s asset freeze and foreign asset repatriation requirements. (Doc. 109 at 5, 9-10; 20 Doc. 237 at 2-7; Doc. 237-1.) In particular, the FTC alleges that Jeffrey Wright performed 21 work for SBH starting in 2018 in a variety of roles, including helping to formulate new 22 SBH products, answering medical questions on SBH’s Facebook page, and writing articles. 23 (Doc. 237-1 at 13-20.) He also served on “the executive team” of SBH as its 24 “Scientific/Medical Board Member.” (Doc. 8-7 at 8.) He participated in a variety of in- 25 person and virtual events to promote SBH products and offered trainings to SBH sales 26 affiliates. (Doc. 237-1 at 5-6.) Amber Wright assisted with these efforts on SBH’s 27 Facebook group. (Id. at 6.) The Wrights were also SBH affiliates, purchasing large 28 amounts of SBH products and earning over $16,000 in commissions. (Id. at 4, 24-25.) 1 Since the entry of the preliminary injunction in this case, the Wrights have started a new 2 company that markets products that appear to be similar to those previously marketed by 3 SBH. (Id. at 9-11, 47-52, 57-60.) 4 Of even greater relevance, the FTC alleges that in September 2019 Jeffrey Wright 5 loaned one of Jay Noland’s entities nearly $100,000 to purchase a car and furniture in 6 Uruguay and that the Wrights accompanied Noland on a trip to Uruguay. (Doc. 187-1 at 7 3, 8-11; Doc. 237 at 4-5; Doc. 237-1 at 24, 67.) The FTC further alleges that since the 8 entry of the TRO, the Wrights have used their America First account to transfer funds to 9 Jay Noland’s creditors and other Defendants’ spouses. (Doc. 163-1 at 53-59, 61-64; Doc. 10 237-1 at 9.)2 11 The FTC’s proffered evidence demonstrates that the FTC has a reasonable basis for 12 believing that the information sought in the America First subpoena is relevant to its 13 investigation in this case. In particular, the FTC has established a reasonable belief that 14 the information may relate to compliance or noncompliance with the preliminary 15 injunction’s asset freeze and foreign asset repatriation provisions. This satisfies the 16 RFPA’s relevance requirement. Cf. Kutzner, 2016 WL 9282403 at *4 (“[T]he Court finds 17 that the FTC is engaged in legitimate law enforcement activity, namely discovery to 18 determine compliance with the court-ordered asset freeze. The Court further finds that the 19 FTC has shown a reasonable relief that the records sought by its subpoenas are relevant to 20 its legitimate investigation.”). 21 B. Procedural Requirements 22 The Wrights argue that the FTC failed to comply with the RFPA’s procedural 23 requirements because they “still have not been legally served with the subpoena so the ten 24 day right to quash should not have started yet.” (Doc. 234.) 25 This argument is without merit. The RFPA provides that the government may 26 subpoena a financial institution if a copy of the subpoena is “mailed to [the customer’s] 27 2 The Wrights’ reply provides, without sworn affidavits or documentary evidence, potential explanations for these transactions and for other allegations in the FTC’s 28 response. (Doc. 246.) But even accepting these explanations as true, nothing in the Wrights’ reply alters the analysis with respect to relevance under the RFPA. || last known address” alongside a notice of the subpoena that specifies the nature of the law 2|| enforcement inquiry and the method of objecting to the subpoena. 12 U.S.C. § 3407(2) || (emphasis added). The materials attached to the Wrights’ motion demonstrate that the FTC 4|| did mail a copy of the subpoena and the required notice. (Doc. 234, Ex. 1.) Aside from 5 || the conclusory allegation that they have “not been legally served,” the Wrights have not 6|| offered any other basis to conclude that the FTC failed to comply with the RFPA’s procedural requirements. 8 Accordingly, 9 IT IS ORDERED that the Wrights’ motion to quash (Doc. 234) is denied. 10 Dated this 10th day of December, 2020. 11 12 om ee 13 } t _—— Dominic W. Lanza 14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6-