Court Opinion

ID: 2658285
Source: CourtListenerOpinion
Date Created: 2014-03-28 18:12:14.704152+00
Date Added: 2024-06-11T13:00:50.599003
License: Public Domain

Case: 13-11346       Document: 00512576249         Page: 1     Date Filed: 03/27/2014

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                       No. 13-11346                        March 27, 2014
                                                                            Lyle W. Cayce
SECURITIES AND EXCHANGE COMMISSION,                                              Clerk

                                                  Petitioner - Appellee
v.

ANDREW FARMER,

                                                  Respondent - Appellant

                   Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 4:13-MC-14

Before DAVIS, BARKSDALE, and ELROD, Circuit Judges.
PER CURIAM:*
       For this enforcement action pursuant to 15 U.S.C. § 78u(c), and following
an order granting the Securities and Exchange Commission’s (SEC) motion to
compel production of documents responsive to its administrative subpoena,
Andrew Farmer appeals the district court’s ruling he waived his Fifth
Amendment act-of-production privilege by failing timely to assert it. Pursuant
to agreement by the parties at oral argument here, that order is VACATED

       * Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5th Cir.
R. 47.5.4.
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                                  No. 13-11346

and this matter REMANDED for in camera review of the documents to
determine the applicability, vel non, of the privilege.
                                        I.
      As part of an investigation of possible market manipulation, the SEC, on
5 December 2012, served Farmer with a subpoena duces tecum, seeking, inter
alia, documentation of all transactions related to Chimera Energy Corporation
securities, and documents “sufficient to show” Farmer’s bank accounts, email
accounts, and telephone numbers. Additionally, the subpoena demanded he
testify before the SEC. The SEC also served a subpoena on Iridium Capital,
Ltd., for which Farmer is the registered agent.           (The enforcement orders
regarding Farmer’s subpoena ad testificandum and Iridium’s subpoena were
not appealed.)
      The subpoena at issue requested document-production by 20 December
2012. One day after that deadline, Farmer’s counsel contacted the SEC and
requested an extension; the deadline was extended to 18 January 2013. On 22
January, however, Farmer’s counsel contacted the SEC to advise Farmer
would not respond to the subpoena; neither an explanation for non-compliance
nor objections to the subpoena were provided.
      Over two months later, on 9 April, the SEC filed this enforcement action.
On 29 April, both by letter from counsel and in his opposition brief, Farmer
asserted, for the first time, his Fifth Amendment act-of-production privilege.
      The enforcement action was referred to a magistrate judge (MJ). The
MJ ruled Farmer waived the privilege by failing either to assert it in a timely
manner or to show good cause for his delay. Alternatively, in a footnote, the
MJ ruled Farmer’s “assertion of the privilege would fail for lack of specificity”.
Order Granting SEC’s Mot. to Compel at 7 n.3, SEC v. Farmer, No. 4:13-MC-
14 (N.D. Tex. 10 July 2013). In doing so, the MJ explained Farmer failed to

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show “the act of producing particular documents or categories of documents
. . . is both testimonial and self-incriminating”. Id.
      On review, the district court overruled Farmer’s objection regarding
privilege-waiver and “decline[d] to address Farmer’s objection to [the MJ’s]
discussion of specificity”. Order Affirming Mag. J.’s Order at 4, SEC v. Farmer,
No. 4:13-MC-14 (N.D. Tex. 4 Dec. 2013).
      Farmer filed a timely notice of appeal from that order. In addition, he
moved this court to stay the order’s requiring him to produce documents by 20
December 2013.       That motion was denied on 19 December.            Accordingly,
Farmer produced documents to the SEC—approximately 100–200 pages by his
estimation. It sequestered the documents pending resolution of this appeal.
                                        II.
      Pursuant to 15 U.S.C. § 78u(c), the district court had jurisdiction over
the SEC’s motion to compel compliance with its subpoena. And, this court has
jurisdiction over this appeal from the enforcement order, under 28 U.S.C.
§ 1291 (final decisions of district courts). See, e.g., In re Kaiser Alum. & Chem.
Co., 214 F.3d 586, 589 (5th Cir. 2000) (“An order enforcing an administrative
subpoena is considered a final order.”) (citation omitted).
      The   Fifth    Amendment     protects   against    both    self-incriminating
testimony and production of documents where production implicitly
communicates “the papers existed, were in [the custodian’s] possession or
control, and were authentic”. United States v. Hubbell, 530 U.S. 27, 36 (2000)
(citations omitted). Farmer contends the district court erred in ruling the
recipient of an SEC subpoena waives his act-of-production privilege by failing
to assert it within the SEC’s discovery deadlines, prior to initiation of an
enforcement action.
      First, Farmer contends the court failed to “indulge every reasonable
presumption against waiver” of this fundamental, constitutional right. See

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Emspak v. United States, 349 U.S. 190, 198 (1955) (citations omitted). Instead,
he contends silence in response to the SEC’s subpoena was, at most, vague
evidence of intent to waive the privilege, not a basis for waiver of the
constitutional privilege, which should not be equated to less-fundamental
privileges.
      Second, Farmer contends a recipient of an SEC subpoena has no duty to
comply with it until the SEC pursues an enforcement action. See SEC v. Jerry
T. O’Brien, Inc., 467 U.S. 735, 741 (1984); SEC v. ESM Gov’t Sec., Inc., 645
F.2d 310, 313–14 (5th Cir. Unit B 1981) (citing, inter alia, Reisman v. Caplin,
375 U.S. 440, 449 (1964)) (stating “the fifth amendment privilege against self-
incrimination is an appropriate ground” to challenge an SEC subpoena in an
enforcement action). Because, according to Farmer, he was not required to
assert the privilege prior to the enforcement proceeding, his assertion was
timely.
      On the other hand, the SEC contends Farmer lost the privilege by failing
to assert it when obtaining the extension to respond or, later, by communi-
cating, without explanation or objection, that he would not produce documents.
Instead, the SEC maintains Farmer engaged in “tactical gamesmanship”,
delaying its decision to bring this enforcement action and, potentially, its
investigation. Finally, the SEC disputes Farmer’s assertion that a recipient of
an SEC subpoena is under no duty to comply until an enforcement proceeding.
In particular, the SEC notes 15 U.S.C. § 78u(c) makes failure to comply,
“without just cause”, a criminal offense, even if the SEC does not bring an
enforcement action.
      On appeal, neither Farmer nor the SEC addressed whether he failed to
assert the privilege with sufficient specificity. At oral argument here, the SEC
explained: it had abandoned, in briefing before the district court, the position
that Farmer’s privilege-assertion should be denied for lack of specificity;

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instead, it requested the district court conduct an in camera review of the
documents to determine whether the act-of-production privilege applied to
particular documents or categories of documents; and, for that reason, it did
not brief the specificity issue to this court. Similarly, Farmer explained at oral
argument that he focused on waiver, in the district court and here, because
that issue was the focus of the district court’s decision, not specificity, which
the court declined to address.
      At oral argument, counsel for the SEC agreed with this court’s suggested
approach: not ruling on waiver, vel non, of Farmer’s constitutional privilege
and, instead, remanding to district court for in camera review of the
documents. The SEC stated this was an “appropriate” way to resolve this issue
and an “adequate substitute”, even though it would moot the waiver issue.
Likewise, Farmer agreed this approach was appropriate.           His agreement
included requesting leave to file, in district court, an ex parte submission to
discuss the incriminating nature, which could be facially unclear, of specific
documents.
      No citation is required for the long-established prudential rule not to
decide a constitutional question if another ground is dispositive. Therefore, we
pretermit ruling on the constitutional question regarding the timeliness of
Farmer’s assertion of his Fifth Amendment act-of-production privilege and
remand to district court for it, following Farmer’s ex parte submission, to
review in camera the documents produced by Farmer, and sequestered
currently by the SEC, and determine those documents, if any, for which the
act-of-production privilege applies.
                                       III.
      For the foregoing reasons, the district court’s 4 December 2013 order is
VACATED and this matter is REMANDED for further proceedings consistent
with this opinion.

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