CAROL MIRANDO, Magistrate Judge.
This matter comes before the Court upon review of the Petition of the Federal Trade Commission (the "FTC" or "Commission") for an Order Enforcing Administrative Investigative Process and Memorandum of Law ("Petition"). Doc. 1. Respondents CellMark Biopharma LLC ("CellMark") and Lexium International LLC ("Lexium") filed their responses (Docs. 4, 5), to which the FTC filed a reply (Doc. 12). For the reasons discussed below, the undersigned recommends that the Petition be granted.
The FTC is an administrative agency of the United States established by the FTC Act, 15 U.S.C. § 41 et seq., to prohibit "unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(2). The dissemination or the causing to be disseminated of "any false advertisement . . . likely to induce . . . the purchase of food, drugs, devices, services, or cosmetics" is unlawful and constitutes an unfair or deceptive act or practice within the meaning of the FTC Act. 15 U.S.C. §§ 45(a)(1); 52(a),(b).
Except in certain enumerated exceptions not relevant here, the FTC has the power to gather and compile information concerning, and to investigate the organization, business, conduct, practices, and management of any person, partnership, or corporation, engaged in or whose business affects commerce. 15 U.S.C. § 45(a). To carry out its investigative duties, the FTC has the power to issue civil investigative demands ("CIDs") to require any person to produce documentary material or tangible things, file written reports or answers to questions, to give oral testimony, or to require any combination thereof. 15 U.S.C. § 57b-1(c)(1). The CIDs must comply with certain requirements under the FTC Act, and must be signed by a Commissioner acting pursuant to a FTC resolution. See 15 U.S.C. § 57b-1(2)-(6),(i); 16 C.F.R. § 2.7(a)-(b).
On April 25, 2016, after reviewing the advertisements of Lexium and CellMark, Commission staff opened an investigation to determine whether Lexium's and CellMark's marketing and sale of their respective products violate Sections 5 and 12 of the FTC Act. Doc. 1-2 ¶ 6; 15 U.S.C. §§ 45, 52. Lexium is a privately held Florida limited liability company with its principal place of business in Fort Myers, Florida. Doc. 1-2 ¶ 3. It markets and sells "prescription strength" health products including: (1) ADDTabz, purported to treat, cure, or mitigate symptoms associated with Attention Deficit Disorder/Attention Deficit Hyperactivity Disorder; (2) PhenTabz, purported to cause significant weight loss comparable to prescription drugs; and (3) REMTabz, purported to treat, cure, or mitigate sleep disorders and anxiety. Id. CellMark is a privately held Delaware limited liability company with its principal place of business in Fort Myers, Florida. Id. ¶ 4. It markets and sells: (1) Cognify, purported to treat, cure, mitigate, or prevent cognitive decline caused by chemotherapy; and (2) CellAssure, purported to meet the nutritional needs of cancer patients undergoing surgery, radiation, and chemotherapy. Id.
Derek Vest ("Mr. Vest") is an individual who at some point owned and operated Lexium and CellMark. Id. ¶ 5. Mr. Vest co-founded Lexium with Mary Lirette ("Ms. Lirette"), and previously served as its sole member and president; however, as of April 2015, Ms. Lirette and Tara Vest ("Ms. Vest") have served as Lexium's sole authorized members. Id. Ms. Lirette and Ms. Vest are Mr. Vest's mother and sister, respectively. Id. Lexium currently identifies Mr. Vest as its consultant. Id. Mr. Vest also is the founder, Board Chairman, and sole owner of CellMark, but recently resigned as its chief executive officer. Id.
On May 24, 2016, pursuant to a FTC Resolution (Doc. 1-12), the Commission issued CIDs to Lexium and to CellMark. Docs. 1-2 ¶ 8; 1-13; 1-14. The Lexium CID contained forty-two interrogatories and thirty-six requests for documents. Doc. 1-13 at 14-29. The CellMark CID contained forty-three interrogatories and thirty-four requests for documents. Doc. 1-14 at 14-27. Each CID defines "Company" to include "all directors, officers, members, employees, agents, consultants, and other persons working for or on behalf of the foregoing . . ." Docs. 1-13 at 5; 1-14 at 5. Each CID "covers documents and information in [the company's] possession or under [its] actual or constructive custody or control including, but not limited to, documents and information in the possession, custody, or control of [its] attorneys, accountants, directors, officers, employees, and other agents and consultants . . ." Docs. 1-13 at 10; 1-14 at 10. Both CIDs required compliance on or before June 14, 2016. Docs. 1-13 at 2; 1-14 at 2.
On June 6, 2016, Commission staff met and conferred with two CellMark representatives and CellMark's outside counsel, Richard J. Oparil, during which Commission staff proposed a rolling production schedule for CellMark to respond to the CID. Doc. 1-2 ¶ 9. During the meet and confer, CellMark informed Commission staff that it would be filing a petition to limit or quash the CID with the FTC on the basis that its principal, Mr. Vest, was then the subject of a federal grand jury investigation by the United States Attorney's Office for the Middle District of Florida and, thus, Mr. Vest would be asserting his privilege against self-incrimination.
On June 8, 2016, Commission staff met and conferred with two Lexium officials and with attorney Oparil, who also represented Lexium. Doc. 1-2 ¶ 11. Commission staff proposed a rolling production schedule of four three-week rounds between June 14, 2016 and August 16, 2016 for Lexium to comply with the CID. Id. Similar to CellMark's defense, attorney Oparil informed Commission staff that Mr. Vest was asserting a privilege against self-incrimination and, on that basis, Lexium intended to file a petition to limit or quash the CID. Id. Nevertheless, on June 13, 2016, attorney Oparil confirmed with Commission staff by email that "Lexium believes it can meet the discovery schedule discussed on June 8." Id. ¶ 12.
Pursuant to Section 20 of the FTC Act,
On July 5, 2016, the FTC entered an order denying CellMark's and Lexium's petitions to limit or quash the CIDs. Doc. 1-21. Regarding the requests for documents, the FTC held that the CIDs were directed to the corporations and seek only corporate documents. Id. at 4. It further held that Mr. Vest, acting in a representative capacity as a corporate agent, cannot assert a Fifth Amendment privilege against self-incrimination, and must produce the documents even if they are incriminating to Mr. Vest personally. Id. Regarding the interrogatories, the FTC held that both the Lexium and CellMark CIDs identify and list officers and employees other than Mr. Vest, and the companies can call on those individuals to respond to the interrogatories on the companies' behalf without impinging on Mr. Vest's personal Fifth Amendment rights. Id. at 5 (citing United States v. Kordel, 397 U.S. 1, 8 (1970)). Lastly, regarding Lexium and CellMark's assertion of their own Fifth Amendment privilege against self-incrimination, the FTC held that the privilege is a uniquely individual right that corporate entities may not invoke. Id. Accordingly, the FTC denied both petitions and ordered Lexium and CellMark to comply with the CIDs on or before August 15, 2016. Id.
The FTC contends that despite the order directing compliance with the CID by August 15, 2016, Lexium and CellMark have failed to fully comply with the CIDs. Doc. 1 ¶¶ 24, 34. Regarding the Lexium CID, FTC contends that Lexium has provided no response to twenty-eight out of the thirty-six requests for documents, has provided incomplete responses to six of the requests for documents, and has failed to provide a certification that its CID response is complete and a certification of records of regularly conducted activity to establish the admissibility of the documents in response to the Lexium CID. Doc. 12-1 ¶ 7.
With regard to CellMark CID, the FTC contends CellMark has failed to comply with Interrogatory No. 21, which directs the company to "identify any and all domain names for which Derek Vest is the registrant." Doc. 1 ¶ 34. FTC additionally contends that despite several document requests seeking "communications," "documents referring to or relating to communications," or "emails," CellMark has produced a very limited number of emails. Doc. 12-1 ¶ 17. Further, although CellMark has indicated that it is withholding responsive documents based on Mr. Vest's assertion of his Fifth Amendment privilege, it has failed to produce a privilege log. Id.
In response, Lexium contends that it and Mr. Vest have received identical target letters from the United States Attorney's Office and are both in jeopardy of criminal prosecution. Doc. 5 at 3-4. Lexium admits that it did not meet the schedule for compliance with the CID, but states that it produced documents and information to the FTC in June and October of 2016; and, as of the date of its response, it anticipated producing additional documents in its possession. Id. at 4. Lexium contends it is not withholding any corporate records based on a Fifth Amendment privilege but only Mr. Vest's personal documents in his possession, custody, or control. Id. Regarding the interrogatories, Lexium objects to requesting any of its managers to respond to the interrogatories and asserts its own Fifth Amendment privilege against self-incrimination. Id. at 4-6. Thus, Lexium objects to producing what it has classified as Mr. Vest's "personal documents" in his possession, custody, or control, and to responding to any of the unanswered interrogatories based on the corporate entity's assertion of a Fifth Amendment privilege against self-incrimination.
CellMark, on the other hand, responds that it has complied with the CID and produced all responsive corporate documents and information, including those from Mr. Vest. Doc. 4 at 5. According to CellMark, the only issue in dispute is its response to Interrogatory No. 21, which requests a list of Mr. Vest's personal domain names that are not in CellMark's possession or control. Doc. 4 at 1, 4-5.
The FTC has authority to prosecute any inquiry necessary to its duties in any part of the United States. 15 U.S.C. § 43. Whenever a person fails to comply, in part or fully, with a CID, the FTC may file, in the district court of the United States for any judicial district in which the person resides, is found, or transacts business, a petition for an order of such court to enforce compliance with the CID. 15 U.S.C. § 57b-1(e). The Court may "hear and determine the matter so presented, and . . . enter such order or orders as may be required to carry into effect the provisions of [Section 20 of the FTC Act]." 15 U.S.C. § 57b-1(h). The role of the court in a proceeding to enforce an administrative subpoena, such as the CIDs at issue, is "sharply limited" in that "inquiry is appropriate only into whether the evidence sought is material and relevant to a lawful purpose of the agency." United States v. Fla. Azalea Specialists, 19 F.3d 620, 623 (11th Cir. 1994) (quoting Equal Emp't Opportunity Comm'n v. Kloster Cruise Ltd., 939 F.2d 920, 922 (11th Cir. 1991)). Generally, subject to recognized privileges, "an administrative subpoena should be enforced if the inquiry is within the authority of the agency, the demand is not too indefinite, and the information sought is reasonably relevant." Id. (citation omitted); U.S. Equal Emp't Opportunity Comm'n v. Tire Kingdom, Inc., 80 F.3d 449, 450 (11th Cir. 1996) (citations omitted); United States v. Lockheed Martin Corp., 995 F.Supp. 1460, 1462 (M.D. Fla. 1998) (citations omitted).
Here, each Respondent's principal place of business is in Fort Myers, Florida. Docs. 1 ¶¶2-3, 7; 1-4 at 2; 5 at 2. Accordingly, the Court may "hear and determine the matter so presented." 15 U.S.C. § 57b-1(h). Neither Respondent contests the authority of FTC to issue the CIDs, nor alleges that the CIDs are too indefinite or that the information sought is not reasonably relevant to the FTC's investigation of Respondents. See Docs. 4, 5. Rather, the issue is whether Mr. Vest, Lexium or CellMark can assert a Fifth Amendment privilege against self-incrimination and avoid producing the documents and information responsive to the CIDs. Upon review of the Petition and the file as a whole, the undersigned recommends the investigation at issue is within the FTC's authority, the demand is not too indefinite, and the information the FTC seeks from Respondents is reasonably relevant to its investigation of them. The undersigned next considers the arguments related to the Fifth Amendment privilege against self-incrimination.
The Fifth Amendment to the United States Constitution reads: "No person . . . shall be compelled in any criminal case to be a witness against himself." U.S. Const. amend. V. The United States Supreme Court has held that a corporation has no Fifth Amendment privilege against self-incrimination to withhold its corporate records. Hale v. Henkel, 201 U.S. 43 (1906). The Fifth Amendment privilege "is essentially a personal one, applying only to natural individuals." United States v. White, 322 U.S. 694, 698 (1944). Furthermore, the papers and effects that it protects "must be the private property of the person claiming the privilege, or at least in his possession in a purely personal capacity." Id. at 699.
The Supreme Court has held repeatedly that an individual may not invoke his personal Fifth Amendment privilege to avoid producing documents of a collective entity that are in his custody, even if his production of those documents would prove personally incriminating. See e.g., Wilson v. United States, 221 U.S. 361 (1911); In re Grand Jury Subpoena Dated Nov. 12, 1991, FGJ 91-5 (MIA), 957 F.2d 807, 809-10 (11th Cir. 1992) (listing cases).
As the Supreme Court has explained,
White, 322 U.S. at 699 (citations omitted). Because artificial entities such as corporations may only act through their agents, when their records are subpoenaed, the custodian's act of production is not deemed a personal one, but rather an act of the artificial entity. Braswell v. United States, 487 U.S. 99, 109-10 (1988). To allow a custodian to withhold production of corporate documents "would be tantamount to a claim of privilege by the corporation—which of course possesses no such privilege." Id. at 110. Thus, even "[i]f the corporation were guilty of misconduct, [a corporate officer] could not withhold its books to save it; and if he were implicated in the violations of law, he could not withhold the books to protect himself from the effect of their disclosures." Wilson, 221 U.S. at 384. The same principles apply when corporate records are in the possession of an individual no longer employed by the corporation. In re Grand Jury Subpoena, 957 F.2d at 812.
Here, the Lexium CID is directed to the company. Doc. 1-13 at 2, 19-25. Upon review of the requests at issue, it is abundantly clear that the CID seeks only corporate documents. See Doc. 1-13 at 23-29. The CID requests:
Doc. 1-13 at 23-29.
Because Mr. Vest is acting as a consultant for Lexium (Doc. 1-8 at 2), he is acting in a representative capacity as a corporate agent. Wilson, 221 U.S. at 380. Mr. Vest must produce the documents, even if they are incriminating to him personally. Id. Although Lexium contends that it is not withholding corporate documents but only personal documents in Mr. Vest's possession and control, the CID only requests corporate documents, all of which clearly relate to the Tabz Products that the company markets and sells. Doc. 1-13 at 23-29. Accordingly, any withheld documents responsive to the CIDs would be corporate documents, and Lexium has offered no argument or rationale why the responsive documents would be deemed Mr. Vest's private documents or in his possession in a purely personal capacity.
Similarly, the CellMark CID is directed to the company. Doc. 1-14 at 2. The types of documents requested are very similar, and some identical, to the documents requested of Lexium, with the exception of dates, company names, and products. Compare Doc. 1-13 at 23-29 with Doc. 1-14 at 22-28. Because Mr. Vest is acting as an officer of CellMark (Doc. 1-18 at 2), he is acting in a representative capacity as a corporate agent. Wilson, 221 U.S. at 380. Mr. Vest must produce the documents, even if they are incriminating to him personally. Id.
Relying on United States v. Hubbell, 530 U.S. 27 (2000), Respondents argue that Mr. Vest can assert his right against self-incrimination to avoid responding to the CIDs because the simple act of producing the documents may incriminate him because production would admit their "existence and authenticity." Docs. 4 at 10; 5 at 5 (incorporating CellMark's response). In Hubbell, the Supreme Court recognized that the act of producing documents may involve a testimonial aspect that may enjoy the Fifth Amendment privilege, independent of whether the contents of the documents at issue are protected. 530 U.S. 27 at 36. The act of production itself may sometimes implicitly communicate a "statements of fact," such that the witness' act of production can serve as an admission that the requested papers exist, are in his possession or control, and are authentic. Id. In such circumstances, the Supreme Court held that the government could not rely on the act of production to mount a case against the custodian in a subsequent criminal prosecution. Id. at 42-45.
The Court in Hubbell, however, did not address whether an individual may rely on the Fifth Amendment privilege to avoid the production of corporate records that he holds in a representative capacity. See 530 U.S. 27. In that respect, there is nothing to suggest that the Court deviated from its prior holding in Braswell, which is more analogous to the instant case. Braswell, 487 U.S. 99. Similar to Respondents' arguments, the petitioner in Braswell, who was president and sole shareholder of the two active corporations in question, argued that the act of producing the documents has independent testimonial significance, which would incriminate him personally. Id. at 103. The Supreme Court rejected the petitioner's argument, emphasizing that the act of production would not be deemed a personal act but an act of the corporation. Id. at 110. The Court emphasized that a custodian must produce records and documents that he holds in a representative capacity, "even though production of the papers might tend to incriminate [him] personally." Id. at 110-11 (citing White, 322 U.S. at 699).
Several courts having considered whether the act of production doctrine applies to corporate records post-Hubbell have held that corporate officers cannot rely on the Fifth Amendment to avoid production of corporate documents. See e.g., In re Grand Jury Empaneled on May 9, 2014, 786 F.3d 255, 263 (3d Cir. 2015) ("[T]here is no reason to suspect that Hubbell altered, in any way, the analysis set forth in Braswell. The Supreme Court did not mention, much less revisit, the collective entity rule and cited Braswell only in a footnote for the proposition that the act of producing subpoenaed documents may have some protected testimonial aspects.); Armstrong v. Guccione, 470 F.3d 89, 98 (2d Cir. 2006) ("[W]e reject any suggestion that Hubbell so undermined Braswell that we are no longer compelled to follow its holding."); Amato v. United States, 450 F.3d 46, 50-53 (1st Cir. 2006) (in a post-Hubbell decision, noting that Braswell did not alter its precedent that "that the act-of-production doctrine is not an exception to the collective-entity doctrine even when the corporate custodian is the corporation's sole shareholder, officer and employee."). The undersigned recommends a same holding here would be accordant with the Supreme Court's "consistent view that the privilege against compulsory self-incrimination should be `limited to its historic function of protecting only the natural individual from compulsory incrimination through his own testimony or personal records.'" Bellis v. United States, 417 U.S. 85, 89-90 (quoting White, 322 U.S. at 701).
Turning next to the interrogatories, Mr. Vest can invoke his Fifth Amendment privilege against self-incrimination in refusing to answer the interrogatories. U.S. v. Kordel, 397 U.S. 1, 7 (1970) ("Surely, [corporate officer] was not barred from asserting his privilege simply because the corporation had no privilege of its own."). But, service of interrogatories to the corporation obliges the corporation to "appoint an agent who could, without fear of self-incrimination, furnish such requested information as was available to the corporation." Id. at 9 (footnote omitted). The corporation cannot avoid this obligation by appointing only officers who would assert a fear of self-incrimination in refusing to answer the interrogatories. Id.; see also 8 Charles Alan Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2018 (3d. ed. 2010) ("[T]he burden on the corporation is to designate someone to answer on its behalf who can furnish as much information as is available to the corporation without fear of self-incrimination."). As the Supreme Court has stated,
Kordel, 397 U.S. at 8 (quotations and footnotes omitted).
Here, CellMark specifically objects to Interrogatory No. 21 which requires CellMark to disclose "any and all domain names for which Derek Vest is the registrant." Docs. 4 at 4; 4-1 ¶¶ 10, 11. CellMark states the list of Vest's personal domain names is not in CellMark's possession, custody, or control. Docs. 4 at 4; 4-1 ¶ 11. CellMark argues that to require the company to provide further answers to interrogatories with information that could only come from Mr. Vest would be an impingement on Mr. Vest's privilege against self-incrimination because the act of answering the interrogatories would have a testimonial aspect and an incriminating effect. Doc. 4 at 6-11. Specifically, it states that "the FTC is essentially asking this Court to . . . order CellMark to interview Mr. Vest, obtain information from him, and provide supplemental interrogatory responses under oath to the FTC." Id. at 10. CellMark argues that the government can simply compare CellMark's initial interrogatory responses with any supplemental responses, and readily deduce what new information can be attributed to Mr. Vest. Id.
The FTC responds that it is seeking a full list of domain names registered by Mr. Vest that relate to CellMark products. Doc. 12 at 8. The FTC states that it is not seeking a Court order directing CellMark to compel Mr. Vest to provide testimonial responses to Interrogatory No. 21, but is asking the Court to direct CellMark to provide a complete list of domain names responsive to Interrogatory No. 21 by examining corporate records, including those in Mr. Vest's possession, and consulting with knowledgeable personnel other than Mr. Vest in preparing the responses. Doc. 12 at 9.
The undersigned agrees that Mr. Vest cannot be compelled to answer the interrogatories for fear of self-incrimination. Kordel, 397 U.S. at 7. The undersigned also recommends that the FTC's request is not outside the bounds of what the company's obligation already is, which is to appoint an agent who could, without fear of self-incrimination, furnish such requested information as was available to CellMark. Id.
Furthermore, pursuant to Section 20 of the FTC Act, a corporation's response to interrogatories must "be submitted under a sworn certificate . . . by any person responsible for answering each . . . question, to the effect that all information required by the demand" in the corporation's "possession, custody, control, or knowledge" has been submitted. 15 U.S.C. § 57b-1(c)(13). Thus, a corporation must "select an officer or employee to gather and obtain from books, records, other officers or employees, or other sources, the information necessary to answer the interrogatories and sign them on behalf of the corporation not himself." In re Folding Carton Antitrust Litig., 76 F.R.D. 417, 419 (N.D. Ill. 1977). This requirement is analogous to Federal Rule of Civil Procedure 33(b)(1)(B), which requires that a public or private corporation may answer by any officer or agent, who must furnish such information available to that party. Fed. R. Civ. P. 33(b)(1)(B). Moreover, "[b]ecause [Rule 33(b)(1)(B)] authorizes either an officer or an agent to answer, it clearly allows answers by an attorney." 8B Charles Alan Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 2168.1 (3d. ed. 2010). Similarly, here, Respondents can appoint any officer, agent, employee, or even its attorney to answer the interrogatories. The FTC states that, through public sources, its staff has learned that Mr. Vest registered several domain names that appear directly relevant to CellMark's business. Doc. 12-1 ¶ 14. CellMark must comply with its duty and examine its books, records, other officers or employees, or other sources, to obtain the information necessary to answer the interrogatories.
Lexium, on the other hand, contends that its only two managers, Ms. Lirette and Ms. Vest, should not be compelled to respond to the FTC's interrogatories because "the company they own has received a target criminal letter." Docs. 5 at 4; 5-1 ¶ 12.
Lastly, Respondents argue that the Supreme Court's decisions in Citizens United v. Fed. Election Comm'n, 558 U.S. 310 (2010), holding that the government cannot prohibit political expenditures by corporations based on their corporate identity, and Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751 (2014), recognizing that a closely-held corporation had religious liberties, should be read expansively to extend the Fifth Amendment privilege against self-incrimination to corporations. Docs. 1-8 at 6-7, 4 at 11, 5 at 6, 1-18 at 5-6. Both Citizens United and Hobby Lobby addressed the application of the First Amendment to corporations, and neither addressed nor mentioned the application of the Fifth Amendment right against self-incrimination to corporations. See Citizens United, 558 U.S. 310; Hobby Lobby, 134 S.Ct. 2751.
Accordingly, for the reasons stated in this Report and Recommendation, the undersigned respectfully recommends that the Petition of the Federal Trade Commission for an Order Enforcing Administrative Investigative Process and Memorandum of Law be granted and that Respondents be ordered to fully comply with the CIDs.
ACCORDINGLY, it is respectfully
1. Petition of the Federal Trade Commission for an Order Enforcing Administrative Investigative Process and Memorandum of Law be GRANTED.
2. That the Court enter an Order requiring Respondents Lexium International LLC and CellMark Biopharma, LLC to fully comply with the CIDs issued by the Federal Trade Commission within ten (10) days of the Order or at such later date as the Federal Trade Commission establishes.
Id.
Doc. 5-1 ¶ 12.
