United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

The SEC brought the underlying lawsuit against Collector’s Coffee Inc., doing business as Collectors Café, and Mykalai Kontilai, identified in the opinion as CCI’s founder, President, and Chief Executive Officer. The SEC alleged that the defendants violated federal securities laws by defrauding investors.

CCI moved to compel the SEC to produce three categories of materials: notes from 21 SEC witness interviews; SEC staff notes from an FBI interview report concerning Gail Holt; and the FBI’s actual interview report. The SEC opposed production based on the work-product doctrine. An FBI FD-302 is a form the FBI uses to summarize an interview.

Legal standard

Federal Rule of Civil Procedure 26(b)(3) generally protects documents prepared in anticipation of litigation for or by a party or its representative. A requesting party may obtain factual work product only by showing a substantial need for the materials and an inability to obtain their equivalent without undue hardship. Even then, the court must protect an attorney’s or representative’s mental impressions, conclusions, opinions, and legal theories.

The party asserting work-product protection must show that the material is a document or tangible thing, was prepared in anticipation of litigation, and was prepared by or for a party or its representative. Materials are prepared in anticipation of litigation when, considering the document and the circumstances, they were created because of the prospect of litigation rather than in the ordinary course of business.

FBI interview report

The SEC submitted evidence that it did not possess the FBI’s FD-302 of Holt’s interview and argued that the report was not otherwise in its possession, custody, or control. CCI argued that the SEC and FBI had conducted a joint investigation and that this relationship required the SEC to produce the report.

The court rejected that argument. It found no evidence of continuing cooperation between the agencies. The agencies had conducted one joint interview of Holt, and the SEC did not conduct interviews, ask specific questions, or take investigative steps at the direction or request of the Department of Justice. The SEC attorney was later allowed to review the FD-302 but could not copy it or remove it from the FBI’s possession. The court held that these facts did not establish that the report was in the SEC’s possession, custody, or control and therefore did not order its production.

Notes from 21 SEC interviews

The court held that the SEC’s notes from the 21 witness interviews were prepared in anticipation of litigation. The SEC learned of a complaint containing detailed and specific securities-fraud allegations, opened an investigation, and continued to expect possible enforcement litigation. An SEC attorney stated that the interviews were conducted to give the SEC information to decide whether to proceed with litigation and what the scope of that litigation should be. She also stated that she would not have conducted the interviews without expecting the possibility of litigation.

The court concluded that these facts showed the notes were created with an eye toward litigation. It rejected CCI’s arguments that the investigation was merely a non-public fact-finding inquiry, that the notes were created long before the enforcement action was filed, and that they were prepared in the ordinary course of business. The court stated that the purpose of the investigation, rather than the passage of time before litigation, controlled the analysis.

The court also held that CCI had not shown a substantial need for the interview notes. Although CCI discussed the hardship of obtaining equivalent information, it did not adequately explain why the notes were essential to preparing its case. The notes were therefore protected from disclosure.

Notes concerning Holt’s FD-302

CCI offered more specific reasons for seeking the SEC’s notes from the FBI’s FD-302 of Holt’s interview. It argued that Holt’s information was important and that Holt had given conflicting accounts concerning certain documents. The court nevertheless held that CCI had not shown the required substantial need.

The court noted that CCI had not shown that the requested notes would reveal testimony by Holt that differed from her current testimony. CCI also had not explained what Holt said during her deposition about the recanted statements. The court concluded that CCI’s belief that the notes might contain impeachment material was speculative and that CCI could seek the relevant information by questioning Holt.

Disposition

Judge Gabriel W. Gorenstein denied CCI’s motion to compel. The opinion addressed discovery and work-product protection; it did not resolve the SEC’s underlying allegations of securities fraud.