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

Background

Nonparty Timothy J. Dennin moved to quash, meaning cancel, a deposition subpoena served by defendant Mykalai Kontilai. Dennin argued that the subpoena sought irrelevant information, invaded work-product protection, and imposed an undue burden. The court began with relevance because it concluded that issue resolved the motion.

Kontilai identified the SEC’s fifth claim as the only SEC claim that he believed was relevant to Dennin’s testimony. That claim concerned alleged agreements and litigation involving investors represented by Dennin, including alleged efforts to prevent communications with government authorities. The court stated that the facts underlying this claim were not disputed because Kontilai had admitted the core allegations in his answer. It therefore found no apparent reason to depose Dennin about those matters.

Defenses 19 and 20

Kontilai also argued that Dennin had information relevant to defenses 19 and 20 in Kontilai’s answer. As described by the court, those defenses asserted that the SEC’s claims were barred because the SEC acted to interfere with Kontilai’s public criticism and because the SEC brought the case to cause him physical, economic, or mental harm.

The court had previously ordered Kontilai to explain why these defenses should not be stricken under Federal Rule of Civil Procedure 12(f)(1), which allows a court to remove an insufficient defense. The court explained that an improper-motive defense in an SEC enforcement action requires alleged misconduct that prejudiced the defendant’s ability to defend the case, with a direct connection between the misconduct and the claimed constitutional injury. Kontilai identified the burden of defending the enforcement action and the freezing of his assets, but the court found that these allegations did not show the required connection to his ability to mount a defense.

The court also found that Kontilai had not identified facts or a legal theory that could make the two defenses successful. It stated that allowing discovery into invalid defenses would prejudice the SEC and nonparties.

Ruling

The court held that the information Kontilai sought from Dennin was irrelevant to the SEC’s fifth claim and to Kontilai’s asserted defenses. It struck affirmative defenses 19 and 20. It also granted Dennin’s motion to quash the deposition subpoena. The order did not decide the merits of the SEC’s underlying enforcement claims.