Lubin v. Agora, Inc.

• Decision Date: 12 September 2005
• Docket Number: No. 128,128
• Citation: 389 Md. 1,882 A.2d 833
• Parties: Melanie Senter LUBIN, Securities Commissioner for the State of Maryland v. AGORA, INC.
• Court: Maryland Court of Appeals

882 A.2d 833

389 Md. 1

Melanie Senter LUBIN, Securities Commissioner for the State of Maryland v. AGORA, INC.

No. 128, Sept. Term, 2003.

Court of Appeals of Maryland.

September 12, 2005.

Julie L. Tewey, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on brief), for appellant.

Lee T. Ellis, Jr. (Bruce W. Sanford, Baker & Hostetler, LLP, Washington, DC, Matthew J. Turner, General Counsel, Agora, Inc., Baltimore, on brief), for appellee.

Peter E. Keith, Gallagher, Evelius & Jones, LLP, Baltimore, Mark J. Davis, Stephen W. Hall, Asst. General Counsels, Northern American Securities Administrators

Assn., Inc., Washington, DC, Amicus Curiae.

Mary R. Craig, Towson, Amici Curiae.

Argued before BELL, C.J., RAKER, CATHELL, HARRELL, BATTAGLIA, GREENE, ELDRIDGE, JOHN C. (Retired, specially assigned) JJ.

RAKER, J.

Pursuant to an investigation into potential violations of Maryland securities laws, appellant, the Maryland Securities Commissioner, served two subpoenas duces tecum on appellee, Agora, Inc., a company whose business includes publishing investment newsletters. Following Agora's refusal to produce its subscriber lists, marketing lists, and other documents containing information identifying any of its subscribers, the Commissioner filed a motion to compel enforcement. The trial court denied the motion, concluding that the Commissioner had failed to demonstrate a compelling need for the subscriber lists as required by the First Amendment and that the demand for subscriber lists was overbroad. We must decide whether the First Amendment to the United States Constitution prevents the Commissioner from compelling discovery of the identities of Agora's subscribers. We shall hold that it does.

I.

Agora is a Maryland corporation that publishes books and newsletters on topics such as investment, travel, leisure, and health. In the investment newsletter market, it fields more than a dozen offerings, with such colorful titles as "Pirate Investor," "Contrarian Speculator," and "The Flying V Lockup Trader." It also operates an investors' group known as "The Oxford Club," which offers its members a variety of benefits, including a twice-monthly newsletter, internet advisories, meetings and seminars, a telephone hotline, and use of a club room at Agora's headquarters in Baltimore.

The Commissioner heads the Maryland Division of Securities (the "Division"), an administrative agency charged with enforcement of the Maryland Securities Act, Maryland Code (1975, 1999 Repl.Vol., 2004 Cum.Supp.) § 11-101 et seq. of the Corporations and Associations Article,¹ including the regulation of investment advisers and broker-dealers and the offer and sale of securities.

The Division commenced an investigation of Agora based on two activities undertaken by Agora. First, Agora sent a May, 2002 mass email ("the Email") to an indeterminate number of its own subscribers, and to other individuals drawn from commercially-available marketing lists.² The Email offered a four-page report ("the Report") on an unnamed company, in which investors were promised they would "make a fortune." According to the Email, one of Agora's newsletter columnists had received "insider information" that a nuclear arms reduction treaty between the United States and Russia would be signed on a specific date and would create enormous profits for the unnamed company. The Email advised that investors could "double or even triple" their money by purchasing stock in the unnamed company on May 21, 2002, and selling two days later, after the public announcement of the international agreement. The name of this company would be revealed only to those who purchased the report, which was priced at $1,000.

How many copies of the report were transacted is unclear, but at least one person filed a complaint with the Division after he purchased the report, followed its advice to invest in United States Enrichment Corporation, Inc. ("USEC"), and lost money when the stock's price declined.

The second activity that interests the Division is Agora's operation of the Oxford Club. In particular, the Division was concerned about a venture known as the "Oxford Club — Chairman's Circle," which, according to a direct-mail advertisement, featured "[l]ifetime access" to annual "private teleconference[s] covering the issues most critical to our small group ... the world's most knowledgeable experts to walk us through important strategies ... a Chairman's Circle private researcher ... to help you find specific information concerning a certain stock, offshore investments, global banking, real estate or any other issue concerning investing and wealth protection," as well as the "private numbers" of the Oxford Club's Executive Director, Research Director, and members of its Investment Advisory Panel. The price to join the Chairman's Circle was $5,000, and additional sums were due annually.

The Commissioner is investigating whether these activities violate Maryland securities law. First, she alleges that the Email or Report could violate the antifraud provisions codified at §§ 11-301 and 11-302 of the Securities Act.³ Second, the Commissioner alleges that the activities of the Oxford Club (and possibly the Email and Report) could constitute individualized investment advice and thus subject Agora to the registration requirements of § 11-401.⁴ (Agora is not registered in Maryland as an investment advisor.) The Commissioner's concerns in this regard are not limited strictly to the Oxford Club; she suspects that Agora may be offering individualized investment advice in other contexts. Third, the Commissioner alleges that Agora may have referred customers to specific brokerages for specific trades, possibly including the USEC matter, thus acting as an "introducing broker" and subjecting it to the broker-dealer registration requirements of § 11-401.⁵ (Agora is not registered in Maryland as a broker-dealer.)

In furtherance of her investigation, the Commissioner issued two subpoenas duces tecum pursuant to her power under § 11-701(b). In the June 26 subpoena, she demanded, inter alia,

"4. Information regarding the circulation of The Oxford Club newsletter.

5. Information regarding the circulation of each of the following newsletters: [seventeen newsletters named.]

* * *

10. Identifying information as to all persons and newsletter subscribers to whom the Tip [i.e. the Email] was electronically mailed or otherwise sent, including name, address, email address and telephone number, or all documents containing that information. For newsletter subscribers, please show which newsletters are subscribed to.

11. Identifying information for all persons and newsletter subscribers who purchased the Tip [i.e. the Report], including name, address, email address and telephone number, or all documents containing that information. For newsletter subscribers, please show which newsletters are subscribed to.

* * *

14. All complaints or inquiries (including written, electronic and summaries of verbal complaints or inquiries) regarding the Tip or USEC Inc.

15. All correspondence regarding the Tip or USEC Inc."

In the March 31, 2003 subpoena, the Commissioner demanded, inter alia,

"28. Client files relating to the `Members Liaison' and `Telephone Hotline' referred to at p. 7 of Exhibit E, including notes, memoranda and correspondence generated in connection with Oxford Club members' inquiries, including that with respect to member representatives and clients.

* * * 30. All complaints, including written complaints or synopses of verbal complaints, generated in connection with Exhibits A through E [Agora advertisements]."

Although Agora complied with the remainder of the subpoenas, it did not comply, or at least did not comply fully, with the items listed supra.

In March 2003, the Commissioner informally narrowed her request for subscriber identifying information with respect to Items 10 and 11 of the June 2002 subpoena, demanding that Agora produce identifying information for Maryland subscribers only. Agora refused consistently to produce any information identifying any of its subscribers.

The Commissioner filed a complaint against Agora, amended in May 2003, in the Circuit Court for Baltimore City, for refusing to comply with the Division's June 2002 and March 2003 subpoenas, and moved for enforcement of the subpoenas. Agora admitted that it had not produced all the information demanded, but raised as an affirmative defense the protections of the First Amendment to the United States Constitution and Article 40 of the Maryland Declaration of Rights. The Circuit Court held a hearing as to whether the subpoena should be enforced. Before that court, the Securities Commissioner made clear to the court, and Agora agreed,⁶ that the only issue before the court was the Commissioner's request to the court to enforce the subpoena for the subscriber list.

The Circuit Court for Baltimore County denied enforcement of the subpoenas. The court reasoned as follows:

"I do not believe that in our Bill of Rights that there is any provision that has higher priority than the First Amendment, and I think courts must be very zealous in guarding that most fundamental of all rights and not allow any erosion thereof.

And I do believe that what the Commissioner is attempting to do here is, in its own relatively small way, an attempt to erode the fundamental principle. I do not believe that the Commissioner has made out any compelling showing why Agora, Inc., must release its subscriber list.

In counsel's opening argument, she said it would be very helpful, and perhaps it would be. And even assuming it would be, that doesn't win the ball game. That's not what the Commissioner has to show. Counsel has argued it would be very useful to us. More than once, she said it would be very useful to us to show what the actions of Agora may have been.

Counsel has argued that by seeing these subscriber lists it may implicate Agora by talking to

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