Secretary Labor v. Comm Trust Co

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
1-19-2007
Secretary Labor v. Comm Trust Co
Precedential or Non-Precedential: Precedential
Docket No. 05-2785
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PRECEDENTIAL
UNITED STATES COURT OF APPEAL
FOR THE THIRD CIRCUIT
Nos. 05-2785/4828
ELAINE L. CHAO, SECRETARY OF LABOR,
UNITED STATES DEPARTMENT OF LABOR
v.
COMMUNITY TRUST COMPANY,
Appellant.
___________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court No. 05-mc-00018
District Judge: Hon. Mary A. McLaughlin
____________________
Argued on March 9, 2006
Before: ALDISERT, and ROTH*, Circuit Judges
RODRIGUEZ**, District Judge
(Opinion Filed: January 19, 2007)
Howard M. Radzely, Esquire
Solicitor of Labor
Timothy D. Hauser, Esquire
Associate Solicitor for Plan Benefits Security
Robyn M. Swanson, Esquire (Argued)
Elizabeth Hopkins, Esquire
Counsel for Appellate and Special Litigation
Karen L. Handorf, Esquire
Counsel for Appellate and Special Litigation
United States Department of Labor
Office of the Solicitor
200 Constitution Avenue
Washington, DC 20210
_________________
*Judge Roth assumed senior status on May 31, 2006.
**The Honorable Joseph H. Rodriguez, Senior United
States District Judge for the District of New Jersey, sitting by
designation.
2
Ellen L. Beard, Esquire
Senior Appellate Attorney
Plan Benefits Security Division
United States Department of Labor
P. O. Box 1914
Washington, D.C. 20013
Counsel for Appellee
Lowell R. Gates, Esquire (Argued)
Albert N. Peterlin, Esquire
Matthew J. Eshelman, Esquire
Gates, Halbruner & Hatch, P.C.
1013 Mumma Road
Suite 100
Lemoyne, PA 17043
Counsel for Appellant
OPINION
ROTH, Circuit Judge:
This appeal presents the question of when a district court may
enforce a government agency’s subpoena duces tecum against a
financial institution in light of two statutes which protect private
consumer financial information, the Right to Financial Privacy Act
(RFPA), 12 U.S.C. § 3401, et seq. and the Gramm-Leach-Bliley Act
(GLBA), 15 U.S.C. § 6801 et seq.
3
I. Factual and Jurisdictional Background
In February 2004, the United States Department of Labor
(DOL) initiated an investigation into unspecified fiduciary duty
violations of the Employee Retirement Income Security Act of 1974,
29 U.S.C. § 1001 et seq. (ERISA), involving the Regional
Employers’ Assurance Leagues’ Voluntary Employees’ Beneficiary
Association (REAL VEBA). REAL VEBA is a multiple-
employer/employee welfare benefit trust. The individual employees,
who are beneficiaries of the REAL VEBA Trust, receive various
benefits from the trust, including life insurance. REAL VEBA pays
the premiums of each participant’s separate insurance policy. REAL
VEBA does not, however, maintain separate accounts in each
participant’s name. Each participant in REAL VEBA has executed
a limited power of attorney for REAL VEBA to act on his or her
behalf.
As part of her investigation, the Secretary of Labor issued an
administrative subpoena duces tecum to Penn-Mott Benefit Services,
Inc., the REAL VEBA plan administrator, and to John J. Koresko.
Koresko is the sole shareholder in Koresko and Associates, a law
firm that represents Penn-Mott. Penn-Mott has no employees or
assets. Penn-Mott and Koresko refused to comply with the subpoena
based on attorney-client privilege and financial privacy rights. As a
result, in April 2004, the Secretary instituted an enforcement action
in the Eastern District of Pennsylvania. Our Court ultimately ordered
in Chao v. Koresko, 2005 U.S. App. LEXIS 22025 (3d Cir. Oct. 12,
2005), that the subpoenas against Penn-Mott and Koresko be
enforced.1
1
As of the date of oral argument in this case, Koresko had
not complied with the subpoena and the District Court had
ordered his incarceration for contempt, Order of Incarceration,
4
Community Trust Company (CTC) is state-chartered trust
company. It is the trustee of REAL VEBA and maintains an account
in REAL VEBA’s name. CTC accepts deposits for policy premiums
to be paid for certain benefits, such as life insurance, for specific
employee beneficiaries. CTC maintains the deposits, invests them in
a money market account, and remits payment of the premiums to
insurance companies for individual employees’ policy premiums.
The Secretary, in December 2004, issued a second subpoena duces
tecum to CTC, directed at the REAL VEBA documents.
CTC maintains a copy of the REAL VEBA Trust
organizational documents, such as the trust agreement.2 However,
the vast majority of the documents covered by the CTC subpoena
contain personal private financial information specific to each
employee receiving benefits under the REAL VEBA Trust. CTC
claims that the subpoena requires it to disclose documents which are
either personal financial records of REAL VEBA beneficiaries or
copies of documents which the Secretary has already received from
the respondents in Koresko.3 Therefore, CTC refused to furnish the
Chao v. Koresko, No. 04-mc-74 (E.D.Pa., Feb. 23, 2006), and
denied stay of the order pending appeal. Order Denying Stay
Pending Appeal of Order to Incarcerate, Chao v. Koresko, No.
04-mc-74 (E.D.Pa. March 7, 2006).
2
The DOL received copies of these organizational
documents from the respondents as a result of the
Koresko/Penn-Mott subpoena.
3
At oral argument, counsel for the DOL stated that the
materials requested in the subpoena to Penn-Mott and Koresko
substantially overlap with the materials requested in the CTC
5
information, arguing that it would violate financial privacy rights set
forth in the RFPA and the GLBA.
On January 1, 2005, the Secretary filed a petition to enforce
the CTC subpoena in the District Court for the Eastern District of
Pennsylvania. CTC filed a motion to dismiss under FED. R. CIV. P.
12(b)(1) and 12(b)(6). CTC argued that the Secretary could not
enforce the subpoena because REAL VEBA is not covered by ERISA
and, therefore, the Secretary lacked jurisdiction to issue the
subpoena.4 CTC claims that, because the scope of the investigation
is beyond the Secretary’s investigatory authority, CTC is forbidden
by the GLBA and the RFPA from releasing the information.
The District Court held that the plain language of the RFPA
made its protections inapplicable to REAL VEBA and that the
Secretary did not need to establish jurisdiction to enforce the
subpoena under the GLBA. Accordingly, the District Court entered
judgment for the Secretary and ordered CTC to comply with the
subpoena. CTC then moved for a stay of enforcement pending
appeal. The District Court denied the motion, found CTC in
contempt for refusing to comply with the subpoena, and fined CTC.
CTC has appealed the District Court’s rulings that DOL did
not need to establish jurisdiction and that REAL VEBA is not
protected by the RFPA. CTC has also appealed the District Court’s
denial of the stay of enforcement pending appeal. We consolidated
the denial of stay and contempt ruling with the initial appeal.
subpoena.
4
The Secretary of Labor has broad authority to conduct
investigations to determine whether any person has violated or
is about to violate Title I of ERISA. 29 U.S.C. § 1134.
6
The District Court exercised jurisdiction under 28 U.S.C. §
1331, 15 U.S.C. § 49, and 29 U.S.C. §§ 1132 and 1134. CTC
challenged this jurisdiction on the bases discussed below. We have
jurisdiction under 28 U.S.C. §§ 1291 and 1294(1) because this is an
appeal from an order enforcing an administrative subpoena, which is
a final order. In re Kaiser Aluminum & Chem. Co., 214 F.3d 586,
589 (5th Cir. 2000).
We review orders enforcing administrative subpoenas for
abuse of discretion. FDIC v. Wentz, 55 F.3d 905, 908 (3d Cir. 1995).
Abuse of discretion occurs when “the district court’s decision rests
upon a clearly erroneous finding of fact, an errant conclusion of law
or an improper application of law to fact.” NLRB v. Frazier, 966
F.2d 812, 815 (3d Cir. 1992). We review the District Court’s
interpretation of federal statutes de novo. Gagliardo v. Connaught
Labs., Inc., 311 F.3d 565, 570 (3d Cir. 2002).
We also review the denial of stays from injunctive relief
pending appeal, including from contempt orders, for abuse of
discretion. Socialist Workers Party v. Att'y Gen. of the United States,
419 U.S. 1314, 1315 (1974).
II. Discussion
To enforce an administrative subpoena, an agency must
demonstrate that the subpoena meets certain threshold requirements.
SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d 118, 128 (3d Cir.
1981) (en banc). Those requirements are “(1) the inquiry must be
within the authority of the agency, (2) the demand for production
must not be too indefinite, and (3) the information sought must be
reasonably relevant to the authorized inquiry.” United States v.
Westinghouse Elec. Corp., 638 F.2d 570, 574 (3d Cir. 1980). “If the
government makes this preliminary showing, the burden then shifts
to the respondent to prove that enforcement of the subpoena would
7
be improper . . ..” Wheeling-Pittsburgh, 648 F.2d at 128.
CTC objects to the District Court’s enforcement of the
subpoena on the grounds that the District Court erred as a matter of
law in its rulings that enforcement was not barred by the RFPA and
the GLBA. CTC also claims that the subpoena was not issued within
the authority of the Department of Labor to investigate. CTC finally
contends that the District Court erred in not deferring enforcement
pending appeal.
A. Right to Financial Privacy Act
The RFPA was enacted by Congress “to protect the customers
of financial institutions from unwarranted intrusion into their records
while at the same time permitting legitimate law enforcement
activity.” 1978 U.S.C.C.A.N. 9273, 9305. The RFPA seeks to strike
a balance between the right of privacy of customers and the need for
law enforcement agencies to obtain financial records as a part of
legitimate investigations. Id. CTC contends that because the specific
requirements of the RFPA were not met, CTC has an affirmative
obligation not to, directly or indirectly, produce the financial records
of its customers to any government authority. For that reason, CTC
asserts that the District Court erred in holding that the RFPA did not
bar enforcement of the subpoena.
The RFPA provides that, unless a statutory exception applies:
no Government authority may have access to or obtain copies
of, or the information contained in the financial records of
any customer from a financial institution unless the financial
records are reasonably described and–
...
8
(2) such financial records are disclosed in response to
an administrative subpoena or summons which meets
the requirements of section 1105 [12 U.S.C. § 3405]
. . ..
12 U.S.C. § 3402 (emphasis added). None of the statutory exceptions
to section 3402 apply in this case. Rather, the question under the
RFPA is whether the financial records, sought by the subpoena, are
records of CTC’s “customers.”
The RFPA defines “customer” as:
any person or authorized representative of that person who
utilized or is utilizing any service of a financial institution, or
for whom a financial institution is acting or has acted as a
fiduciary, in relation to an account maintained in the
person’s name.
12 U.S.C. § 3401(5) (emphasis added). The RFPA defines “person,”
in turn, as “an individual or a partnership of five or fewer
individuals.” 12 U.S.C. § 3401(4).
The District Court held that the REAL VEBA beneficiaries
are not customers of CTC because REAL VEBA does not maintain
accounts at CTC in plan beneficiaries’ names. Instead, the court
determined that REAL VEBA was CTC’s customer, but because the
RFPA protects only “customers” who are individuals or small
partnerships, 12 U.S.C. § 3401(4), REAL VEBA does not qualify as
a “customer” under the RFPA. Therefore, the RFPA does not bar
enforcement of the subpoena.
CTC urges to the contrary that the definition of “customer”
should be read so that the final phrase in section 3401(5), “in relation
to an account maintained in the person’s name,” modifies only “a
financial institution [that] is acting or has acted as a fiduciary” rather
than modifying the whole subsection, including “any person or
authorized representative of that person.” Accordingly, CTC argues
that, on the basis of its limited power of attorney, it is the “authorized
representative” of the REAL VEBA plan beneficiaries who utilize its
services. Since the requirement that the account be in “the person’s
name” applies only to fiduciaries, the RFPA applies here to prevent
disclosure of the beneficiaries’ information.
Because CTC does not maintain accounts in the names of the
REAL VEBA beneficiaries, however, if the final phrase modifies
both clauses of the subsection – the authorized representative clause
and the fiduciary relationship clause – then under the language of the
RFPA the plan beneficiaries are not “customers” of CTC.
CTC presents four arguments in support of its reading of
RFPA section 3401(5). First, CTC argues that the canon of statutory
construction known as the “doctrine of last antecedent” counsels in
favor of limiting the phrase “in relation to an account maintained in
the person’s name” to modifying the phrase immediately preceding
it, not both clauses of RFPA section 3401(5). The doctrine of last
antecedent requires “qualifying words, phrases, and clauses to be
applied to the words or phrase immediately preceding, and are not to
be construed as extending to and including others more remote.” J.C.
Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 365 (3d Cir. 2004). But
“this rule [of the last antecedent] is not an absolute and can assuredly
be overcome by other indicia of meaning . . ..” Id. (citing Barnhart
v. Thomas, 540 U.S. 20 (2003) (applying the rule of last antecedent
to statutes)).
CTC’s statutory construction argument is undone by a
comma. In J.C. Penney, this Court applied the rule to a phrase in an
insurance contract that had no commas. 393 F.3d at 365 (citing
Resolution Trust Corp. v. Nernberg, 3 F.3d 62 (3d Cir. 1993)). In
Resolution Trust Corp., we noted that “[t]he use of a comma to set off
a modifying phrase from other clauses may indicate that the
10
qualifying language is to be applied to all of the previous phrases and
not merely the immediately preceding phrases.” 3 F.3d at 65 (citing
Nat’l Sur. Corp. v. Midland Bank, 551 F.2d 21, 34 (3d Cir. 1977)
(lack of a comma limited application of the qualifying language to the
word immediately preceding it)).
In this case, there are two telltale commas. Not only is the
modifying phrase “in relation to an account maintained in the
person’s name” set off by a comma, but the phrase to which CTC
would like to limit the language, “or for whom a financial institution
is acting or has acted as a fiduciary,” is also set off by commas.
Under normal rules of grammar (which we assume Congress
followed), a phrase that is set off by commas can be excised from a
sentence. Thus, in this case, if we excise the second “fiduciary”
clause of section 3401(5), it would leave the modifying phrase “in
relation to an account maintained in the person’s name” to qualify the
initial phrase “any person or authorized representative of that person
who utilized or is utilizing any service of a financial institution”.
Because the CTC account is in REAL VEBA’s name and REAL
VEBA is not a “person” under the RFPA, we conclude that CTC’s
statutory construction argument does not hold water.
Second, CTC argues that the RFPA’s definition of “person”
in section 3401(4) is inapplicable because REAL VEBA is a trust,
which is a non-entity. CTC argues that in the case of a trust, we
should look to the underlying entities – the trust settlors and
beneficiaries. In light of the beneficiaries’ equitable interest in the
corpus of the trust, CTC argues that the beneficiaries qualify as
“customers” – whatever the title of the CTC account, the “customers”
are the individual REAL VEBA beneficiaries and their legal
representative, the plan administrator. The question of the status of
a trust in relation to section 3401(4) is a question of first impression.
A trust differs from a corporation, large partnership, LLC, et cetera.
Looking to the equitable beneficiaries of a trust – the real parties in
11
interest – rather than to its legal owner is hardly a novel principle in
trust law. Here, the privacy interests at stake are not the REAL
VEBA’s, but those of its beneficiaries’. While the Secretary claims
that a broader reading of section 3401(4) would “allow any large
entity to argue that it is really just the representative of its constituent
members,” we are not convinced by this slippery slope argument.
See Ridgeley v. Merchs. State Bank, 699 F. Supp. 100, 102 (N.D.
Tex. 1988). We believe that it is possible to draw a principled
distinction between a trust and other entities. Nonetheless, we
decline to do so here; we are not inclined to carve out a “trust
exception” to RFPA’s definition of “person” solely on the principles
of the common law of trusts.
Moreover, CTC’s argument has no support in existing statute
or caselaw. In Pittsburgh National Bank, we held that we are bound
by the RFPA’s unambiguous definition of “customer.” 771 F.2d 73,
75-76 (3d Cir. 1985) (holding that a corporation is not a person for
section 3401(4)). CTC’s policy argument fails to get around the plain
statutory language that makes RFPA protections applicable only to
accounts maintained in the customers’ names. That is, RFPA
requires a customer to hold both equitable and legal title. Thus, even
if CTC is managing funds for REAL VEBA beneficiaries, applicable
to the interests of these individual beneficiaries, CTC does not
maintain accounts in the beneficiaries’ names. Accordingly, this
argument also fails.
Third, CTC argues that we should follow the Ninth Circuit’s
ruling in Donovan v. National Bank of Alaska, 696 F.2d 678 (9th Cir.
1983). National Bank of Alaska involved a scenario very similar to
this case. In National Bank of Alaska, the Secretary of Labor served
an administrative subpoena duces tecum on the bank to determine if
there was a violation of ERISA plans the bank administered. Id. at
680. The subpoena required the bank to produce the general plan
documents for all the plans it administered. Id. The subpoena stated
12
that upon receipt of the initial information, the Secretary would select
twenty-five plans for more thorough examination, for which it
requested “[a]ll documents maintained by the bank relating to
transactions or dealings with, for or on behalf of the employee benefit
plans selected . . ..” Id. The bank was concerned that the additional
information might include personal financial records of plan
beneficiaries.
The Ninth Circuit opined that “[w]here the Department [of
Labor] requests records which disclose transactions of bank
customers with the plans, its request would fall within the scope of
the Financial Privacy Act, and, absent certification, the bank may
legally refuse to produce those records.” Id. at 683-84. The court
held that the RFPA was not an obstacle to enforcement of the first
part of the subpoena. Id. at 684. The court went on, however, to
comment on the second part:
As for the second part of the subpoena, absent selection of the
actual plans to be investigated, neither the Department [of
Labor] nor the bank has any way of knowing whether any
individual privacy rights might be affected. The bank cannot
refuse to comply with the subpoena as a whole on the basis of
its vague allegations that it might be required at some time in
the future to produce records in violation of the Financial
Privacy Act.
Id. at 684. Thus, because National Bank of Alaska, at the stage at
which it was decided, dealt only with organizational documents, not
individual beneficiary accounts, it is distinguishable.
Finally, CTC argues that under the District Court’s ruling, the
right to financial privacy, the right protected by the RFPA, can be
circumvented by the government depending upon which entity, in the
chain of entities involved in the provision of financial services, the
13
government chooses to be subject to the subpoena. According to
CTC, the government could obtain documents to which it is not
otherwise entitled simply by issuing a subpoena to an entity one step
removed from the entity that maintains the direct account relationship
with the individual customer. It is axiomatic that the executive
branch may not do indirectly what Congress has forbidden it to do
directly, particularly when privacy rights are involved.
Nevertheless, even though we may agree that, under the
RFPA, it is the REAL VEBA beneficiaries who should be protected,
we cannot reshape clear statutory language. Moreover, the Supreme
Court has made clear that RFPA is to be narrowly construed. See
SEC v. Jerry T. O’Brien, Inc., 467 U.S. 735, 745 (1984). Congress
enacted the RFPA in response to United States v. Miller, 425 U.S.
435 (1976), in which the Supreme Court held that there is no
constitutional right to privacy of financial records. If Congress is
dissatisfied with the treatment its legislative creation gives to a trust
like the REAL VEBA trust held by CTC, Congress can rectify the
situation.
Thus, we conclude that the District Court correctly found that
the RFPA does not bar the enforcement of the Secretary’s
administrative subpoena.
B. Gramm-Leach-Bliley Act
CTC also contends that enforcement of the subpoena would
violate the GLBA’s prohibition on disclosure of consumer financial
information to unaffiliated third parties. GLBA section 6802, entitled
“Obligations with respect to disclosures of personal information,”
14
provides that:
(a) Notice Requirements. Except as otherwise provided in
this subtitle, a financial institution may not, directly or
through any affiliate, disclose to a nonaffiliated third party
any nonpublic personal information, unless such financial
institution provides or has provided to the consumer a notice
that complies with section 503 [15 U.S.C. § 6803].
(b) Opt Out.
(1) In general. A financial institution may not
disclose nonpublic personal information to a
nonaffiliated third party unless–
(A) such financial institution clearly and
conspicuously discloses to the consumer, in writing or
in electronic form or other form permitted by the
regulations prescribed under section 504, that such
information may be disclosed to such third party;
(B) the consumer is given the opportunity, before the
time that such information is initially disclosed, to
direct that such information not be disclosed to such
third party; and
(C) the consumer is given an explanation of how the
consumer can exercise that nondisclosure option.
15 U.S.C. §§ 6802(a)-(b).
The GLBA defines “nonpublic personal information” as:
personally identifiable financial information–
15
(i) provided by a consumer to a financial institution;
(ii) resulting from any transaction with the consumer
or any service performed for the consumer; or
(iii) otherwise obtained by the financial institution.
15 U.S.C. § 6809(4)(A).
If section 6802 applies to REAL VEBA, then CTC, as a
financial institution, is prohibited from releasing any of the
subpoenaed information, other than the REAL VEBA plan
documents, to the Secretary, a nonaffiliated third party, unless an
exception applies. The threshold question is whether section 6802
applies to REAL VEBA.
1. Is REAL VEBA a “Consumer” Under
Gramm-Leach-Bliley?
For section 6802 to apply to REAL VEBA, REAL VEBA
must be a “consumer” under section 6809(4). The parties disagree,
however, as to whether REAL VEBA is a “consumer.” The District
Court did not address this question; it ruled for DOL on other
grounds.5 The Secretary has, nonetheless, urged us to consider
affirming the District Court on this alternative basis, as we are
permitted to do. E.g., Storey v. Burns Int’l Sec. Servs., 390 F.3d 760,
5
The District Court found that the GLBA explicitly
exempted CTC because the disclosure was required “to comply
with a properly authorized civil, criminal, or regulatory
investigation or subpoena or summons by Federal, State, or local
authorities.” 15 U.S.C. § 6802(E)(8). As we explain infra, we
do not agree with this conclusion.
16
761 n.1 (3d Cir. 2004).
GLBA defines “consumer” as:
an individual who obtains, from a financial institution,
financial products or services which are to be used primarily
for personal, family, or household purposes, and also means
the legal representative of such an individual.
15 U.S.C. § 6809(9).
Obviously, REAL VEBA is not an individual. CTC,
however, argues that REAL VEBA is still a “consumer” because its
power of attorney from the beneficiaries makes it “the legal
representative of the individuals who receive benefits through the
Plan.” The Secretary contends that CTC’s claim to be REAL
VEBA’s legal representative cannot be maintained in the face of
Federal Trade Commission (FTC) regulations adopted under the
GLBA.
GLBA section 6804(a)(1) provides rulemaking authority to
various regulatory agencies for the particular types of financial
institutions within their regulatory purview. 15 U.S.C. § 6804(a)(1).
Section 6805(7) provides that financial institutions like CTC, a state-
chartered non-banking trust, are within the catch-all regulatory ambit
of the FTC. 15 U.S.C. § 6805(7). FTC regulations provide examples
of who is not a “consumer” under GLBA section 6809(9):
(vi) An individual is not your consumer solely because he or
she has designated you as trustee for a trust.
(vii) An individual is not your consumer solely because he or
she is a beneficiary of a trust for which you are a trustee.
17
(viii) An individual is not your consumer solely because he or
she is a participant or a beneficiary of an employee benefit
plan that you sponsor or for which you act as a trustee or
fiduciary.
16 C.F.R. §§ 313.3(e)(2)(vi)-(viii).
The Secretary argues that the FTC definitions demonstrate
that REAL VEBA is not a consumer under the GLBA. The
Secretary, however, mistakenly attributes to FTC definitions the
interpretative weight we would give in a DOL matter to those of the
DOL. While we give agencies’ regulations controlling-weight
deference, Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837, 842-43 (1984), it is only when agencies are enforcing
their own regulations. Sec’y of Labor v. Excel Mining, LLC, 334
F.3d 1, 7 (D.C. Cir. 2003) (“we do not generally accord deference to
one agency's interpretation of a regulation issued and administered by
another agency”); Amerada Hess Pipeline Corp., v. Fed. Energy Reg.
Comm’n, 117 F.3d 596, 600 (D.C. Cir. 1997). When an agency seeks
to piggyback upon another agency’s regulation for its own
enforcement purposes, such deference is inappropriate – both because
of differences in agency expertise and because of the fact that
deference follows Congressional delegation. Id. at 601.
Indeed, in the case of the GLBA, there is no reason to give
FTC regulations deference in their interpretation by the Secretary of
Labor because of the possibility of multiple, conflicting regulatory
interpretations of the GLBA by the various agencies with overlapping
rulemaking authority under GLBA section 6804(a)(1). It is
conceivable that two or more agencies could create reasonable, but
different, interpretative regulations regarding the same statutory term.
The GLBA itself foresaw this possibility and its language urges
agencies to coordinate their regulations to the extent possible. See 15
U.S.C. § 6804(a)(2). When it is possible for an agency to pick and
18
choose between conflicting regulations, the agency should not be
entitled to choose the convenient one and then receive Chevron
deference. The mere fact that there could be conflicting regulations
should preclude Chevron deference.
Thus, in the case before us, the Secretary is in the same
position as a private party who might bring an action. In such a
situation, federal regulations are persuasive, but no more, as to
statutory interpretation. For that reason, we reject the Secretary’s
argument that REAL VEBA is not a consumer because it fails to fall
within FTC regulations defining that term.
Our analysis of the situation leads us to the following
conclusion: REAL VEBA serves as a legal representative of its
beneficiaries and this role is sufficient to qualify REAL VEBA as a
“consumer” of CTC under the GLBA if the plan beneficiaries are
“individuals who obtain services from CTC.”
The Secretary urges that REAL VEBA is not a consumer
within section 6809(9) because the plan beneficiaries are not
“individuals[] who obtain” services directly from CTC; rather, the
beneficiaries “passively” receive benefits from the financial
institution – this passive receipt does not amount to “obtaining.”
Thus, according to the Secretary, the beneficiaries are not themselves
consumers, and their legal representative is not a consumer. The
Secretary’s definition of “obtain” is, however, dubious.
The parties both rely on a dictionary definition of “obtain”:
“To come into the possession or enjoyment of (something) by one’s
own effort or by request; to procure or gain, as the result of purpose
and effort; hence, generally, to acquire, get.” The Oxford English
Dictionary, vol. 10, at 669 (2d ed. 1989). Under this definition, it is
clear that REAL VEBA beneficiaries “obtain” financial services from
CTC, namely the payment of insurance policy premiums and the
19
provision of ministerial financial services. We conclude that this is
sufficient to qualify REAL VEBA beneficiaries as consumers and,
thus, to qualify REAL VEBA a consumer if it is the beneficiaries’
legal representative.
2. Was the Subpoena Properly Authorized?
The Secretary, however, goes on to argue that, even if REAL
VEBA is a “consumer” and entitled to the protections of GLBA
section 6802(a), a statutory exception to section 6802(a), applies
here. Section 6802(e)(8) provides that 6802(a):
[S]hall not prohibit the disclosure of nonpublic personal
information— . . .
(8) to comply with Federal, State, or local laws, rules,
and other applicable legal requirements; to comply
with a properly authorized civil, criminal, or
regulatory investigation or subpoena or summons by
Federal, State, or local authorities; or to respond to
judicial process or government regulatory authorities
having jurisdiction over the financial institution for
examination, compliance, or other purposes as
authorized by law.
15 U.S.C. § 6802(e)(8). The District Court found that the section
6802(e)(8) exception applied in this case even though the Secretary’s
jurisdiction to conduct the investigation had not yet been determined.
The District Court considered that the question of statutory coverage
of REAL VEBA under ERISA was “not ripe for decision because it
is not a legal issue, but rather one that depends on the information
sought by the subpoena . . . [and] the secretary is not required to
demonstrate that the Plan is covered by ERISA prior to seeking
enforcement.” The District Court did not cite any Third Circuit law
20
for this last proposition; instead, it relied on a ruling by the Eighth
Circuit Court of Appeals in Donovan v. Shaw, 668 F.2d 985, 989 (8th
Cir. 1982).
CTC disputes the District Court’s ruling. CTC argues that the
burden of proof of jurisdiction is on the Secretary and asserts that
REAL VEBA is not covered by ERISA. The Secretary does not
dispute that it bears the burden of proof of jurisdiction. Rather, it
argues that the question is not ripe and that DOL needs the
subpoenaed information to determine jurisdiction.
CTC claims that the District Court erroneously relied on pre-
GLBA ERISA caselaw to determine if the investigation was properly
authorized. Specifically, the District Court relied on Shaw in which
the Eighth Circuit held that the Secretary could conduct an
investigation before jurisdiction had been determined:
It is well-settled that a subpoena enforcement proceeding is
not the proper forum in which to litigate the question of
coverage under a particular federal statute. This question,
reserved for initial determination by the administrative
agency seeking judicial enforcement of its subpoena cannot
be resolved before the agency has had an opportunity to
examine the relevant records. Thus, in a subpoena
enforcement action, the agency cannot be required to
demonstrate that the very matter or entity it seeks to
investigate under its statutory investigatory powers is covered
by the enabling statute since the “(authority) to investigate the
existence of violations . . . include(s) the authority to
investigate coverage.”
668 F.2d at 989 (citations omitted, ellipsis and parentheses in
original). CTC argues that Shaw is contrary to the spirit of the
GLBA and relies on the Seventh Circuit’s opinion in Reich v. Great
21
Lakes Indian Fish and Wild Life Commission, which held that the
Secretary was required to establish regulatory jurisdiction in order to
enforce a subpoena. 4 F.3d 490 (7th Cir. 1993).
The coverage question in Great Lakes was a question of law.
In the instant case, however, regulatory jurisdiction involves
questions of fact: (1) whether “the group of employers that
establishes and maintains the plan” is “a ‘bona fide’ association of
employers ‘tied by a common economic or representation interest,
unrelated to the provision of benefits’” and (2) whether “the
employer-members of the organization that sponsors the plan”
exercise control, directly or indirectly, in both form and substance,
over the plan. Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d
780, 787 (3d Cir. 1998). Moreover, in ruling on the subpoena in
Koresko, we adopted Shaw and held that the District Court properly
enforced administrative subpoenas without inquiring into the
question of the agency’s jurisdiction because “coverage by the statute
is not an element of [the Secretary]’s prima facie case, and lack of
coverage is not a defense to enforcement . . ..” 2005 U.S. App. LEXIS
22025, at *10 (3d Cir. Oct. 12, 2005). Koresko, however, did not
consider Shaw vis-à-vis the GLBA because the subjects of the
subpoena in that case were not financial institutions. For that reason,
Koresko and Penn-Mott were not able to invoke the GLBA as a
defense. Therefore, Koresko is distinguishable on this point.
GLBA section 6802(e)(8) has three clauses, each of which
provides an exception to section 6802(a)-(b). The Secretary relies on
the second clause, which provides an exception to GLBA’s
prohibitions in order to “to comply with a properly authorized civil,
criminal, or regulatory investigation or subpoena or summons by
Federal, State, or local authorities . . ..” 15 U.S.C. § 6802(e)(8). The
Secretary argues that the second clause is a separate exception to the
GLBA from the first and third clauses of section 6802(e)(8) and that
the language in the second clause does not require a finding of
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agency jurisdiction, in distinction to the third clause, which does
expressly require the existence of jurisdiction to undertake the
investigation. The Secretary claims that the second clause of section
6802(e)(8) is well within the ambit of Shaw and Koresko.
We find this distinction unconvincing. Implicit in the term
“properly authorized” is a finding of jurisdiction to undertake the
investigation. Applying Shaw and Koresko to the CTC subpoena
would make a nullity of the GLBA’s “properly authorized” language.
Because disclosure is a bell that cannot be unrung, a later review of
jurisdiction would not undo the harm from a disclosure that violated
the GLBA and which might involve costly document production.
In this case, jurisdiction should be relatively easy for the
Secretary to determine simply on the basis of REAL VEBA plan
documents, which do not contain protected personal financial
information and which appear to have already been turned over to the
Secretary. To the extent that these documents are inadequate, the
Secretary is entitled to significant document production from Penn-
Mott and Koresko. Indeed, these organizational documents would
appear to be adequate for a determination of jurisdiction, as the
question of ERISA coverage relates to the role of the employers who
are the plan sponsors, not to the beneficiary-employees. See, e.g.,
Gruber, 159 F.3d at 787.
It is well-established that administrative subpoenas will be
enforced when the agency shows that “the investigation will be
conducted pursuant to a legitimate purpose, that the inquiry is
relevant, that the information demanded is not already within the
agency’s possession, and that the administrative steps required by
statute have been followed.” Wentz, 55 F.3d at 908 (emphasis
added). We are aware of Koresko’s intransigence in complying with
the District Court’s enforcement order that we affirmed.
Nonetheless, we consider the information to be in the Secretary’s
23
possession because she is entitled to it by court order.6
Therefore, we hold that the District Court erred in ruling that
the issue of the Secretary’s jurisdiction was not ripe for adjudication.
In order to make GLBA’s protections meaningful, before private
consumer financial information is released by a financial institution
to the DOL, the Secretary must establish jurisdiction to conduct the
investigation.
C. Stay of Enforcement Pending Appeal and Civil
Contempt
The District Court denied CTC’s motion to stay enforcement
pending appeal. When CTC refused to comply with its order, the
District Court held CTC in contempt and fined CTC $250 a day,
explaining that “CTC has refused to comply with Court orders – even
an order to which it agreed . . .. The Court has no choice but to hold
CTC in civil contempt.” While CTC did refuse to comply with a
properly issued court order, in light of our reversal of the District
Court’s subpoena enforcement order, we will vacate its ancillary
contempt order.
IV. Conclusion
6
We also note that if the Secretary were willing to pay for
pre-production redaction of personal information from the
requested documents, neither the GLBA nor the RFPA would be
implicated by the subpoena because there would not be a release
of personal financial information.
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For the reasons stated above, we will vacate the District
Court’s orders enforcing the subpoena, denying the stay, and finding
CTC in contempt, and we will remand this case to the District Court
for further proceedings consistent with this opinion.
25