Court Opinion

ID: 173166
Source: CourtListenerOpinion
Date Created: 2010-08-14 19:16:08+00
Date Added: 2024-06-11T17:25:23.332378
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                                                                 February 2, 2010
                      UNITED STATES COURT OF APPEALS
                                                   Elisabeth A. Shumaker
                                                                    Clerk of Court
                                     TENTH CIRCUIT

 SECURITIES AND EXCHANGE
 COMMISSION,

                Plaintiff - Appellee,                    No. 09-4135
           v.                                              (D. Utah)
 DUANE MARCHANT, STEPHEN                       (D.C. No. 2:97-CV-00963-DAK)
 SPENCER, KARL BADGER,
 MARION SHERRILL, LA JOLLA
 CAPITAL FINANCIAL, HAROLD B.
 GALLISON, JR., TERRY HUGHES,
 WILLIAM SLONE, and ANDREW
 SEARS,

                Defendants,
 --------------------------------------
 THOMAS E. STAMOS,

                Movant - Appellant.

                               ORDER AND JUDGMENT *

Before HARTZ, ANDERSON, and TYMKOVICH, Circuit Judges.

       *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
      After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist in the determination

of this appeal. See Fed. R. App. P. 34(a)(2); 10 th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

      Following a consent judgment in a securities case, the Securities and

Exchange Commission (“SEC”) sought a subpoena to serve upon American

Resources and Development Company (“ARDCO”), in order to determine the

financial status of one of the defendants in the securities case. Thomas E.

Stamos, the president and a director of ARDCO, moved to quash the subpoena.

The district court denied the motion to quash, and this appeal followed. The SEC

has filed a motion to dismiss this appeal on the ground that this court lacks

jurisdiction over the matter because the denial of the motion to quash is not a

final appealable order. The motion to dismiss has been referred to us, and we

address it as a threshold matter pertaining to our jurisdiction. Finding no

jurisdiction, we dismiss this appeal without reaching its merits.

                                         -2-
      In 2004, Defendant George Badger 1 entered into a final consent judgment

in a securities case in the Utah federal district court. More specifically, he

consented to liability for disgorgement of $13,436,950.54 and the assessment of a

civil penalty of $5,786,162.00, for a total liability of $19,223,112.54. With

interest, administrative charges and penalties added, the total amount Mr. Badger

owed was $31,781,989.17, as of March 17, 2009. Mr. Badger has thus far paid

      1
          The Complaint in this action describes Mr. Badger as follows:

              Badger is 67 years old and resides in Salt Lake City, Utah.
      During the relevant time period, Badger had the title of Director of
      Investor Relations for [Golf Communities of America, Inc. f.k.a.
      Golf Ventures, Inc. (“GVI”)] but, in fact, acted as the principal
      officer of GVI, making all significant executive decisions. At all
      relevant times, Badger was also a large shareholder and President of
      Leasing Technology, Inc. (“LTI”), GVI’s largest shareholder. From
      1993 through 1996, Badger also served as President of LTI. In April
      1997, Badger pled guilty in the United States District Court for the
      Southern District of New York to a four-count, felony information
      alleging: (i) conspiracy to commit securities fraud, wire fraud,
      money laundering and commercial bribery; (ii) securities fraud;
      (iii) criminal contempt; and (iv) perjury. In connection with prior
      incidents, Badger has (a) pled guilty to bribing an agent of the
      Internal Revenue Service; (b) pled guilty to conspiracy to commit
      securities fraud; and (c) in an action brought by the Commission,
      consented to a permanent injunction barring him from future
      violations of the antifraud provisions of the federal securities laws.

Compl. at 3-4.

                                          -3-
only a small portion ($2,050 as of April 8, 2009). 2 The district court explicitly

retained jurisdiction over the case for enforcement purposes.

      ARDCO is a public company which has been in business since March 1983.

Mr. Badger is currently the holder of 65,477 shares of ARDCO. The total number

of issued ARDCO shares is 467,039,666. Mr. Badger’s wife, Lajuana, owns a

number of shares of ARDCO. Mr. Badger was an officer and director of ARDCO

until September 1996, when he resigned from those posts. In recent years, Mr.

Badger has consulted with ARDCO and made state corporate filings.

Mr. Badger’s son, Karl, had also apparently served as an officer and director of

ARDCO in the past.

      In March 2009, the Securities and Exchange Commission (“SEC”) served

Thomas E. Stamos with a subpoena, based upon his role as the president and a

director of ARDCO. 3 The SEC subpoena sought specific documents relating to

Mr. Badger, his wife and specifically named entities related to them for a

specified period of time.

      Mr. Stamos moved to quash the subpoena in its entirety, arguing that “[t]he

requested information is not relevant,” that “[n]one of the Defendants . . . are

related to ARDCO in any material or relevant way,” and that the subpoena “is

      2
       As a part of the complex scheme involved, Mr. Badger “paid bribes to
registered broker-dealers and to individual brokers in exchange for the brokers
recommending and selling GVI securities to their retail customers.” Compl. at 2.
      3
          Mr. Stamos is also Mr. Badger’s former son-in-law.

                                         -4-
overly broad and appears to be fishing for information without legal basis.”

Supp. App. at 38-30. The SEC opposed Mr. Stamos’s motion to quash and it

provided documents, including corporate filings and copies of tax returns, to

establish the relationship between ARDCO and Mr. Badger. Those documents

revealed that ARDCO’s corporate filings with the State of Utah, as recently as

February 2009, listed Mr. Badger’s home address as ARDCO’s business address.

They also revealed that ARDCO and its subsidiaries held total assets of more than

$3,000,000 for the fiscal year ending on March 31, 2007. SB Trust owned

30.93%of ARDCO’s common stock; George and Lajuana Badger’s 2007 federal

tax returns show that they received $75,000 in interest income from SB Trust;

David Badger, George Badger’s son, is the trustee of SB Trust.

      In denying Mr. Stamos’s motion to quash, the district court noted that the

SEC is allowed to conduct discovery regarding Mr. Badger’s financial condition

pursuant to Fed. R. Civ. P. 69(a)(2) “because he has failed to pay any significant

amounts on his judgment and has made inconsistent statements regarding the

ownership of assets.” Order at 2. The court further noted Mr. Badger’s ties to

ARDCO and rejected Mr. Stamos’s argument that the subpoena was overly broad

and vague. It also dismissed Mr. Stamos’s argument that Mr. Badger had only

minimal contacts with ARDCO, noting that ARDCO had failed to address or

explain its use of Mr. Badger’s home address for corporate filings and the other

                                         -5-
evidence provided by the SEC, which indicated substantial connections between

Mr. Badger and ARDCO.

      As indicated, Mr. Stamos/ARDCO has filed an appeal from the denial of

the motion to quash, and the SEC has filed a motion to dismiss the appeal,

arguing we lack jurisdiction. Because “[w]e first must satisfy ourselves that we

have jurisdiction to hear this appeal,” we turn to that question first. See Johnson

v. Martin, 195 F.3d 1208, 1213 (10 th Cir. 1999).

      “The law is well-settled that ‘one to whom a subpoena is directed may not

appeal the denial of a motion to quash that subpoena but must either obey its

commands or refuse to do so and contest the validity of the subpoena if he is

subsequently cited for contempt on account of his failure to obey.’” In re Grand

Jury Subpoenas Dated December 7 and 8, 40 F.3d 1096, 1099 (10 th Cir. 1994)

(quoting United States v. Ryan, 402 U.S. 530, 532 (1971)). The Supreme Court

has, however, identified an exception to that general rule. Id. (citing Perlman v.

United States, 247 U.S. 7 (1918)). In Perlman, the Supreme Court “held that the

district court’s order denying Perlman’s motion to quash a subpoena was

immediately appealable because the third party to whom the subpoena was

directed, a court clerk, would not have risked a contempt citation in order to

preserve Perlman’s privilege.” In re Grand Jury Subpoenas Dated December 7

and 8, 40 F.3d at 1099. The SEC cites these cases in support of its argument that

Mr. Stamos cannot appeal the denial of the motion to quash now; rather, he must

                                         -6-
await a contempt citation and appeal that at that time: “in order for a corporate

client to appeal denial of its motion to quash a subpoena directed at its attorney, it

had to await a contempt citation against its attorney or be able to prove that the

attorney would produce the records rather than risk contempt.” Id.

      In opposing the motion to dismiss, Mr. Badger argues that these cases are

all inapposite because they all involved “subpoenas issued during the pre-trial

criminal discovery phase of a case[,] . . . [and] each of these cases concern a

subpoena issued directly to defendants.” Appellant’s Resp. to Mot. to Dismiss at

3. Mr. Badger overlooks the fact that our decision in In re Grand Jury Subpoenas,

did address the situation where the subpoena is addressed to a third party. See In

re Grand Jury Subpoenas Dated Dec. 7 and 8, 40 F.3d at 1099 (“in order for a

corporate client to appeal denial of its motion to quash a subpoena directed at its

attorney . . . “) (emphasis added). Furthermore, the language concerning the

appealability of the denial of a motion to quash does not suggest that the

applicable principles are context-specific—i.e., only relevant to pre-trial

discovery in criminal cases; cf. United States v. Campbell, 73 Fed. Appx. 382,

383 (10 th Cir. Aug. 22, 2003) (unpublished) (“[O]ur sister circuits have held that

orders compelling discovery under Rule 69(a) are interlocutory orders that are not

immediately appealable.”); see also Cent. States, Southeast & Southwest Areas

Pension Fund v. Express Freight Lines, Inc., 971 F.2d 5, 6 (7 th Cir. 1992); Rouse

Constr. Int’l, Inc. v. Rouse Constr. Corp., 680 F.2d 743, 745-46 (11 th Cir. 1982);

                                          -7-
Childs v. Kaplan, 467 F.2d 628, 629 (8 th Cir. 1972); United States v. Fabric

Garment Co., 383 F.2d 984, 984 (2d Cir. 1967).

      Thus, we take guidance from these precedents and conclude that the denial

of the motion to quash is not immediately appealable. We accordingly lack

jurisdiction over this appeal and DISMISS it.

      For the foregoing reasons, this appeal is DISMISSED.

                                               ENTERED FOR THE COURT

                                               Stephen H. Anderson
                                               Circuit Judge

                                         -8-