Sec. & Exch. Comm'n v. N. Star Fin., LLC

• Decision Date: 10 October 2017
• Docket Number: Case No.: GJH-15-1339
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. NORTH STAR FINANCE, LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. NORTH STAR FINANCE, LLC, et al., Defendants.

Case No.: GJH-15-1339

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND Southern Division

October 10, 2017

MEMORANDUM OPINION

Plaintiff Securities & Exchange Commission ("SEC") brought the present enforcement action against Defendant Michael K. Martin ("Martin") on May 11, 2015, and has been attempting to obtain Martin's emails via discovery since September 29, 2016, when Martin filed a Motion to Stay Discovery, ECF No. 211. Presently pending before the Court is Martin's Motion to Reconsider this Court's September 25, 2017 Order holding Martin in contempt for failing to consent to the release of his emails by his service provider by sending an email granting authorization (the "Consent Email"), ECF No. 336. No hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, Defendants' Motion for Reconsideration is denied.

I. BACKGROUND

On December 29, 2016, the Court issued an Order directing Martin to send a Consent Email to Yahoo, Inc., his email service provider, authorizing Yahoo to release Martin's account information and certain of Martin's emails to the SEC; specifically, the Yahoo email account with the Yahoo ID "capitalsourcelending@yahoo.com." ECF No. 235. Martin did not comply with this Order, and on February 3, 2017, the Court issued another Order, directing Martin to show cause why he should not be held in contempt. ECF No. 252. Plaintiff SEC has since endeavored to subpoena Martin's emails from Yahoo directly, an effort which Yahoo has opposed. See ECF No. 275, ECF No. 291. The Court held a motions hearing on June 30, 2017 to hear argument on the administrative subpoena issue, and Martin did not appear. See ECF No. 307. On August 4, 2017, this Court again ordered Martin to sign the Consent Email set forth in ECF No. 235, a copy of which was attached to that Order. ECF No. 321. The Court warned Martin that:

If Martin fails to do so within ten (10) days of this Order, the Court will hold Martin in contempt pursuant to Fed. R. Civ. P. 37(b)(2)(vii). Further, because Defendants' funds have been frozen by the Court for the benefit of the alleged victims, a monetary fine would not effectively compel production in this case. Therefore, if the Court holds Martin in contempt, it will also issue an arrest warrant and direct that Martin be held by the U.S. Marshals until he complies with this Order.

Id. at 2.¹

On August 16, 2017, during a telephone status call with the parties, Martin stated that he would comply with this Court's Order and send the Consent Email. ECF No. 323. However, on August 18, 2017, the SEC provided this Court with a copy of an "Amended Authorization for the Release of Yahoo Emails," which Martin had sent to the SEC. Exhibit A. The SEC takes the position that the document "fails to comply with the Court's Order," and relayed to the Court that Yahoo's counsel "confirmed that Yahoo does not deem the so-called authorization sufficient to permit it to release the emails sought by the Commission." Indeed, despite the Court's explicit instruction that Martin send the Consent Email contained in ECF No. 235, Martin made a number of significant changes before returning the document. Specifically, Martin's "AmendedAuthorization" gives his "protested signature" rather than his "express consent." Compare Exhibit A with Exhibit B. Furthermore, he gives Yahoo permission to "disclose only logs, containing names and addresses received and sent without attachments" rather than "[a]ll emails, including deleted emails, together with their attachments." Compare Exhibit A with Exhibit B. Finally, Martin states that he "do[es] not hold harmless Yahoo for the disclosure," whereas the Consent Email provided that he should "agree to hold harmless . . . Yahoo for the disclosure." Compare Exhibit A with Exhibit B.

On September 25, 2017, the Court held Martin in contempt of court and ordered that an arrest warrant would be issued for Martin, to be held in abeyance until 12 noon on October 2, 2017; the Court ordered that if Martin complied with the Court's order and signed the Consent Email prior to that time, the court would indefinitely stay the arrest warrant. ECF No. 335 at 3. Rather than complying with this Order, however, on September 26, 2017, Martin filed a Motion for Reconsideration. ECF No. 336. In his Motion for Reconsideration, Martin generally asks the Court to "deny the . . . [SEC]'s application for mandated/compelled disclosure of Defendant Martin's Yahoo email account." Id.at 1. Specifically, Martin makes a litany of arguments - which are at times difficult to parse through - including that the compelled production of his emails violates his Fourth and Fifth Amendment rights, along with his Attorney-Client Privilege. See id. at 4, 6-16. On September 27, 2017, the SEC filed an Opposition to Martin's Motion, arguing that Martin "merely rehashes arguments that this Court previously rejected," and that Martin is not entitled to a reconsideration of the Court's prior orders. ECF No. 338 1, 4.

II. STANDARD OF REVIEW

Although Martin does not cite to a particular Federal Rule permitting reconsideration of the Court's prior decision, because no final judgment has been entered in this case, Martin'sMotion is controlled by Rule 54(b) of the Federal Rules of Civil Procedure. That rule provides, in relevant part:

[A]ny order or other decision, however designated, that adjudicates fewer 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 Cezair v. JP Morgan Chase Bank, N.A., No. CIV.A. DKC 13-2928, 2014 WL 4955535, at *1 (D. Md. Sept. 30, 2014) (citing Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1469-70 (4th Cir. 1991)) ("It is well-established that the appropriate Rule under which to tile motions for reconsideration of an interlocutory order is Rule 54(b)."). The power to grant relief under Rule 54(b) "is committed to the discretion of the district court." Am. Canoe Ass'n v. Murphy Farms, Inc., 326 F.3d 505, 515 (4th Cir. 2003) (citing Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 12, 103 S.Ct. 927 (1983)).

The United States Court of Appeals for the Fourth Circuit has not defined the precise standard governing a motion for reconsideration under Rule 54(b). See Fayetteville, 936 F.2d at 1472. Courts in this district have, however, frequently looked toward the standards articulated in Rules 59(e) and 60(b) for guidance in considering such motions. See Cezair, 2014 WL 4955535, at *1 (citing Akeva, LLC v. Adidas Am., Inc., 385 F. Supp. 2d 559, 565-66 (M.D.N.C. 2005)). Thus, "[m]ost courts have adhered to a fairly narrow set of grounds on which to reconsider their interlocutory orders and opinions. Courts will reconsider an interlocutory order in the following situations: (1) there has been an intervening change in controlling law; (2) there is additional evidence that was not previously available; or (3) the prior decision was based on clear error or would work manifest injustice." Akeva, 385 F. Supp. 2d at 565-66; see also Innes v. Bd. of Regents of the Univ. Sys. of Md., 121 F. Supp. 3d 504, 506-07 (D. Md. 2015) (applying thisthree-part test when evaluating a motion for reconsideration under Rule 54(b)). Importantly, "a motion to reconsider is not proper where it only asks the Court to rethink its prior decision, or presents a better or more compelling argument that the party could have presented in the original briefs on the matter." Boykin Anchor Co. v. Wong, No. 5:10-CV-591-FL, 2012 WL 937182, at *2 (E.D.N.C. Mar. 20, 2012); cf. Hutchinson v. Staton, 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 the judgment).

III. DISCUSSION

Martin's Motion for Reconsideration does not raise any "intervening change in controlling law" or "additional evidence that was not previously available." As such, Martin's Motion for Reconsideration has merit only if the Court's prior ruling was "based on clear error or would work manifest injustice." Martin raises a number of arguments alleging that the Court's ruling violates his rights, which the Court addresses in turn.

A. The Court has the authority to order Martin to consent to the release of his emails

As an initial matter, the Court notes that it possesses clearly established authority to order Martin to consent to the release of his emails by Yahoo as a discovery sanction. Under Federal Rule of Civil Procedure 34(a), a party may request the production of documents and various other categories of items that are "in the responding party's possession, custody, or control." Fed. R. Civ. P. 34(a)(1). The items that may be sought under the Rule include "electronically stored information." Fed. R. Civ. P. 34(a)(1), which plainly encompasses both electronic communications and archived copies of such communications that are preserved in electronic form, see Fed. R. Civ. P. 34, Advisory Committee Note to 2006 Amendments; Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 317 nn. 36-38 (S.D.N.Y.2003). A request for production underRule 34 "need not be confined to documents or other items in a party's possession, but instead may properly extend to items that are in that party's 'control.'" Flagg v. City of Detroit, 252 F.R.D. 346, 353 (E.D. Mich. 2008) (quoting Fed.R.Civ.P. 34(a)(1)); see also Cooper Industries, Inc. v. British Aerospace, Inc., 102 F.R.D. 918, 919 (S.D.N.Y.1984) ("Documents need not be in the possession of a party to be discoverable, they need only be in its custody or control.")

Where a party fails to comply with its discovery obligations, "a party may move for an order compelling disclosure or discovery." Fed. R. Civ. P. 37(a)(1). Specifica...