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STANLEY E. KEEN Regional Solicitor ROBERT M. LEWIS, JR. Counsel for ERISA DANE L. STEFFENSON GA Bar No. 677780 Trial Attorney Office of the Solicitor UNITED STATES DEPARTMENT OF LABOR 61 Forsyth St., Room 7T10 Atlanta, Georgia 30303 Telephone (404) 302-5435 Fax (404) 302-5438 Email: [email protected] Attorneys for Petitioner, United States Department of Labor UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ELAINE L. CHAO, Secretary of Labor, UNITED STATES DEPARTMENT OF LABOR, ) ) ) ) Petitioner, ) ) v. ) ) MATTHEW J. DONNELLY d/b/a/ The ) BUSINESS APPRAISAL INSTITUTE, ) ) Respondents. ) ) Case No.

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PETITION TO ENFORCE ADMINISTRATIVE SUBPOENA DUCES TECUM

This is an action brought by ELAINE L. CHAO, Secretary of Labor, United States Department Of Labor ("the Secretary"), to enforce compliance with an Administrative Subpoena Duces Tecum issued by the Regional Director of the Atlanta Regional Office of the Employment Benefits Security Administration ("EBSA") of the United States Department of Labor on March 13, 2008, in connection with an ongoing investigation conducted pursuant to Section 504 of the Employee Retirement Income

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Security Act of 1974 ("ERISA"), 29 U.S.C. § 1134 (the "Subpoena"). This Court has jurisdiction over this Petition

pursuant to Sections 9 and 10 of the Federal Trade Commission Act, 15 U.S.C. §§ 49 and 50, as made applicable to ERISA by Sections 504(c) and 502(e)(1) of ERISA, 29 U.S.C. §§ 1134(c) and 1132(e)(1). This memorandum of law is submitted in support of

the Secretary's petition to compel Respondents to produce documents as demanded by the Subpoena duly served upon Respondents. This Petition requests this Court to issue an Order for Respondents to show cause why they should not produce all documents requested by the Subpoena. The requested documents

are relevant to EBSA's investigation and Respondents' failure to provide the documents is impeding the Secretary's proper exercise of her lawful authority and responsibility to enforce and administer ERISA. I. FACTS Respondent Matthew J. Donnelly ("Donnelly") is a California resident residing at 180 2nd Street, Suite 419, Oakland, California 94607. Donnelly owns and conducts business as The

Business Appraisal Institute ("BAI") pursuant to a Fictitious Business Name filed with the County of San Francisco on April 1, 2003. Affidavit of Investigator Jennifer Del Nero In Support of

Petition to Enforce Administrative Subpoena Duces Tecum ("JDN Aff.") at ¶ 4. Respondents provided valuation services to

Bruister & Associates, Inc. ("Bruister"), a closely-held corporation, and the Plans for several transactions in which the

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Plans purchased Bruister stock from a Party-in-Interest. Aff. at ¶ 3.

JDN

Respondents provided similar valuation services to

other ERISA-covered plans and plan sponsors in connection with similar transactions involving employer securities that have no generally recognized markets. JDN Aff. at ¶ 7. The amount

ERISA-governed plans paid for employer securities for which Respondents provided the valuation are part of the subject of the EBSA investigation being conducted pursuant to ERISA § 504(a), 29 U.S.C. § 1134(a). Id. at ¶¶ 3-7.

At all times relevant hereto, the Secretary, through the Atlanta Regional Office of EBSA, has been conducting an investigation of the Plans, including service providers and others related to the Plans, under ERISA § 504(a), 29 U.S.C. § 1134(a), to determine whether any person has violated or is about to violate any provision of Title I of ERISA or any regulation or order promulgated thereunder. JDN Aff. at ¶ 2.

On March 20, 2008, EBSA served the Subpoena on Respondents, seeking the production of certain documents necessary for its investigation. Id. at ¶¶ 7, 9. The Subpoena required

Respondent to produce the responsive documents by March 28, 2008. Id. at ¶ 9. On March 24, 2008, Respondents' attorney, Larry Israel, sent a fax acknowledging his clients' receipt of the Subpoena, and answered the Subpoena by asserting a few objections and stating that Respondents had no responsive documents other than those to which the objections applied. A true and accurate copy

of the fax is attached as Exhibit B to the Del Nero Affidavit.

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Specifically, the Subpoena sought nine categories of documents. JDN Aff., Exh. A. The first concerns fees received for Respondents did not

valuation services provided to the Plans.

produce any responsive documents nor did they object to this request. JDN Aff. ¶¶ 11-12, Exh. B. Nevertheless, bank

statements, tax records and a Quickbook systems that should show deposits of such fees are believed to be in Respondents' possession. JDN Aff. ¶ 8. The second category requests all Respondents have produced the

documents related to the Plans.

majority of these documents under a prior subpoena, but have refused to perform a thorough search and have indicated additional responsive documents exist. The third and fourth categories request information to identify other ERISA-governed Plans for which Respondents have acted as a service provider. Respondents object to these

requests as overly broad and burdensome and not relevant to EBSA's current investigation. JDN Aff., Exh. B. These

objections are addressed below in section II.C. wherein the Secretary shows that the requests are not overly broad or burdensome, are sufficiently clear and concise, and are relevant to the current investigation. Respondents do not object to the fifth through seventh categories of requested documents requesting all marketing materials, including communications, and any fee sharing agreements. Respondents are believed to have some marketing

materials and emails and/or other communications discussing their services. JDN Aff. at ¶ 8. There is no dispute that fee

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agreements may not exist.

The final two categories request all

appraisals Respondents have performed for ERISA-governed plans and the underlying documentation for those appraisals. Aff., Exh. A. JDN

Respondents have objected that these requests are

"overly broad, ambiguous, vague, uncertain, and without clear meaning." JDN Aff., Exh. B. As discussed below in section

II.C., these objections are patently frivolous. Despite EBSA and the undersigned's good faith attempts to secure compliance with the Subpoena, Respondents have failed to produce responsive documents. Id. at ¶ 11. Because Respondent

has failed to produce the required records, the Secretary filed the current Petition to secure this Court's assistance in obtaining the necessary documents. II. ARGUMENT A. An Administrative Subpoena Duces Tecum Issued Pursuant to a Legitimate Investigation and that Seeks Reasonably Relevant Documents Must be Enforced.

As the Supreme Court held over fifty years ago in the seminal case of Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 201 (1946), an administrative subpoena enables a federal agency to fulfill its investigative burden; therefore, to invalidate an administrative subpoena is to question the power of Congress to delegate enforcement of federal laws. As a

result of this Supreme Court holding, a proceeding brought to enforce an administrative subpoena is summary in nature. E.E.O.C. v. Karuk Tribe Housing Authority, 260 F.3d 1071, 1078 (9th Cir. 2001); EEOC v. St. Regis Paper Co., 717 F.2d 1302,

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1304 (9th Cir. 1983); accord Oklahoma Press Publishing, 327 U.S. at 216-217. The scope of the subpoena enforcement proceeding is narrow because of the important governmental interest in the expeditious investigation of possible unlawful activity. E.E.O.C. v. Children's Hospital, 719 F.2d 1426, 1428 (9th Cir. 1983) (en banc) (finding that "the scope of the judicial inquiry in an EEOC or any other agency subpoena enforcement proceeding is quite narrow.") (overruled on other grounds). Thus, while

the Court's function is neither minor nor ministerial, the scope of issues to be litigated is limited to the question of whether the agency issued the administrative subpoena for proper investigatory purposes. 217. An en banc panel of the Ninth Circuit Court of Appeals, following the guidance of Oklahoma Press Publishing and its progeny, set forth a test for the judicial enforcement of administrative subpoenas. Under that test, an agency Oklahoma Press Publishing, 327 U.S. at

establishes a prima facie case for enforcing an administrative subpoena if it shows: (1) Congress granted it the authority to investigate; (2) the agency followed the necessary procedural requirements for issuing a subpoena; and (3) the evidence sought is relevant and material to the investigation. Children's

Hospital, 719 F.2d at 1428; see also E.E.O.C. v. Karuk Tribe Housing Authority, 260 F.3d at 1076 (holding that "courts must enforce administrative subpoenas unless the evidence sought by

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the subpoena is plainly incompetent or irrelevant to any lawful purpose of the agency."). Both the Supreme Court and the Ninth

Circuit hold that a declaration from a government official is sufficient to establish a prima facie case for the three elements listed above. United States v. Stuart, 489 U.S. 353,

360 (1989); Children's Hospital, 719 F.2d at 1428. Once EBSA makes this prima facie showing, then the court must issue an order to show cause why the administrative subpoena should not be enforced unless Respondent meets its burden of providing compelling reasons why the subpoena should not be enforced or should be enforced only in modified form. United States v. Powell, 379 U.S. 48, 57-58 (1964). Although

compelling reasons can preclude enforcement, the only two compelling reasons for non-enforcement identified by the Supreme Court and the Ninth Circuit are that the agency's request is over broad or unduly burdensome. Oklahoma Press Publishing, 327

U.S. at 217; Children's Hospital, 719 F.2d at 1428; F.D.I.C. v. Garner, 126 F.3d 1138, 1143 (9th Cir. 1997). B. The Court Should Enforce EBSA'S Administrative Subpoena Duces Tecum Because the Subpoena Meets the Ninth Circuits' Three-Prong Test for Enforcement. 1) Congress authorized the Secretary to conduct investigations and to issue administrative subpoenas duces tecum in furtherance of the Secretary's ERISA enforcement obligations.

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The Subpoena in this case was issued by EBSA, an agency of the United States Department of Labor. ERISA § 504, 29 U.S.C. §

1134, gives the Secretary broad authority to conduct investigations to determine whether any person has violated or

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is about to violate any provision of Title I of ERISA or any regulation or order issued under that Title. This investigatory

power includes the power to issue administrative subpoenas duces tecum to compel the production of documents and to have them enforced by the district court of the United States. Id. The

Ninth Circuit recognizes the Secretary's authority under ERISA to issue administrative subpoenas and to enforce them in the district courts of the United States. 885, 888 (9th Cir. 1989). Dole v. Milonas, 889 F.2d

In Dole, the Ninth Circuit held:

Section 1134(c) of that title [29 U.S.C.] also makes §§ 9 and 10 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 49 and 50, relating to compelling the attendance of witnesses and the production of documents at investigatory proceedings, applicable under ERISA. The incorporated FTC Act provisions authorize the Secretary to petition for enforcement of her ERISA Title I subpoena in district court. Id. Thus, EBSA has statutory authority to issue administrative

subpoenas, such as the one issued here, in furtherance of its investigation to determine whether any person, including Respondents, have or are about to violate ERISA, and to have the district court of the United States enforce such subpoena. 2) EBSA followed the necessary procedural requirements for issuing the administrative subpoena duces tecum.

The administrative Subpoena Duces Tecum was issued by R.C. Marshall, Regional Director of the Atlanta Regional Office of EBSA, who as an authorized representative was delegated authority from the Secretary to issue the Subpoena and who determined that the Subpoena was appropriate to issue in connection with the on-going investigation. JDN Aff., Exh. A.

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The Subpoena was properly served on Respondents, who acknowledged receipt of the Subpoena. JDN Aff. at ¶¶ 9-10.

Thus, the agency met the procedural requirements for proper service of the administrative subpoena. 3) The information sought through the administrative subpoena duces tecum is relevant and material to EBSA's investigation.

Courts give broad latitude in determining whether documents sought by administrative subpoenas are relevant and material. In fact, courts extend to administrative investigations and to subpoenas issued thereunder the same broad latitude as provided to grand-jury investigations and their subpoenas. Oklahoma

Press Publishing, 327 U.S. at 216; see also United States v. Weingarden, 473 F.2d 454, 459 n.9 (6th Cir. 1973). The Ninth

Circuit's test for relevance is "whether the information sought might assist in determining whether any person is violating or has violated any provision of Title I of ERISA." Donovan v.

National Bank of Alaska, 696 F.2d 678, 684 (9th Cir. 1983) (emphasis added). Thus, under controlling precedent, the

Secretary's administrative subpoena duces tecum satisfies the relevance standard where the Secretary demonstrates that the material requested "might assist" EBSA in determining whether a violation has occurred. EBSA clearly has the authority to As

review such documents in connection with its investigation. ERISA makes clear: The Secretary shall have the power, in order to determine whether any person has violated or is about to violate any provision of this subchapter or any regulation or order thereunder to make an investigation . . . and to enter such places, inspect such books and
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records and question such persons as he may deem necessary to enable him to determine the facts relative to such investigations, if he has reasonable cause to believe there may exist a violation of this subchapter or any rule or regulation issued thereunder. . . . ERISA § 504(a), 29 U.S.C. § 1134(a).

5 The current investigation of the Plans is being conducted 6 to determine whether any person has violated or is about to 7 violate any provision of Title I of ERISA. 8 The purchase of employer stock in a closely-held corporation by 9 an ERISA-governed plan from the employer, majority shareholder 10 or other party-in-interest as defined by section 3(14) of ERISA 11 is prohibited under section 406(a) and (b) of ERISA. 12 these transactions resulting in a violation of ERISA, they must 13 meet the exemption in section 408, which requires, among other 14 things, that the stock be purchased at or below fair-market 15 value. 16 Respondents provide valuations for these closely-held 17 corporations for the purpose of determining a value at which 18 ERISA-governed plans will buy employer securities from a party19 in-interest. 20 valuations are at or below fair-market value, each transaction 21 in which Respondents have provided a valuation is prohibited and 22 a violation of ERISA. 23 includes whether Respondents' valuations exceeded fair-market 24 value. Having reviewed these transactions, including 25 Respondents' valuations, EBSA has determined that further 26 investigation is warranted to determine whether there may be 27 28
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JDN Aff. at ¶ 2.

To avoid

JDN Aff. at ¶¶ 6-7.

Thus, unless Respondents'

Accordingly, EBSA's investigation

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violations of ERISA related to Respondents' valuations. Aff. ¶ 6. To complete its investigation, EBSA has sought nine

JDN

categories of documents, all of which are relevant to this investigation in that they "might assist" EBSA in determining whether violations of ERISA have occurred. The first category

seeks documents related to Respondents' fees in providing the valuations, which is relevant to determining whether fees paid were reasonable and the amount of disgorgement that might be sought, if a violation is determined. The second category

requests all documents in any way related to the valuation services provided to Bruister and the Plans and are directly relevant to the investigation. The third and fourth categories

seek to identify other ERISA-governed plans for whom Respondents have provided similar services to allow EBSA to verify information Respondents provide in response to categories eight and nine, and assist EBSA in determining whether any violation of ERISA may have occurred in other similar transactions for which Respondents provided the valuation. Categories five and

six seek marketing materials and communications related to Respondents providing valuation services in transactions similar to those being investigated. Finally, categories eight and nine

seek valuations Respondent has performed for similar transactions and all underlying documentation, which may, among other things, shed light on the methodology and validity of the valuations provided to the Plans and assist EBSA in determining

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whether violations may have occurred in other transactions for which Respondents provided the valuation. As the Secretary has made a prima facie showing that EBSA has the authority to issue the administrative Subpoena, that the Subpoena was properly issued and that the information sought is reasonably relevant, EBSA is entitled to the issuance of an order to show cause why the administrative Subpoena should not be enforced. C. See Powell, 379 U.S. at 57-58.

The Court Should Enforce EBSA's Administrative Subpoena Duces Tecum Because Respondents Have Not Provided and Cannot Provide Compelling Reasons for Non-Compliance.

Respondents have not objected to categories one, five, six 12 or seven. 13 consist of challenging the relevancy of categories three and 14 four, and asserting that categories 3-4 and 8-9 are vague, 15 ambiguous, overly broad and burdensome. 16 A challenge to an administrative subpoena on relevancy 17 grounds must demonstrate that there is no reasonable possibility 18 that the category of materials the government seeks will produce 19 information relevant to the general subject of its 20 investigation. 21 U.S. 292, 301 (1992 (addressing grand-jury subpoena). 22 principle has been explained as follows: 23 24 25 26 27 28
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Respondents' objections to the other categories

Cf. United States v. R. Enterprises, Inc., 498 This

[I]n the pre-complaint stage, an investigative agency is under no obligation to propound a narrowly focused theory of a possible future case. Accordingly, the relevance of the agency's subpoena requests may be measured only against the general purposes of its investigation.

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1 F.T.C. v. Texaco, Inc., 555 F.2d 862, 874 (D.C. Cir.), cert. 2 denied, 431 U.S. 974 (1977). 3 Secretary met her burden of showing that the documents "might 4 assist" in her investigation especially given the "broad 5 latitude" courts extend to administrative subpoenas. 6 Oklahoma Press Publishing, 327 U.S. at 216; National Bank of 7 Alaska, 696 F.2d at 684; Weingarden, 473 F.2d at 459. 8 Categories three and four seek to identify other ERISA-governed 9 plans for which Respondents have provided valuation services in 10 similar transactions. 11 verify information Respondents provide in response to categories 12 eight and nine, and assist EBSA in determining whether any 13 violation of ERISA may have occurred in other similar 14 transactions for which Respondents provided the valuation. 15 Accordingly, Respondents have not and cannot meet their burden 16 of showing that these documents are not relevant. 17 Respondents remaining objections are similarly without 18 merit in that the Subpoena sufficiently lists, identifies and 19 describes the documents being sought and limits them to only 20 those created since 2002. 21 their unduly broad and burdensome objections, Respondents must 22 show that "compliance will unduly disrupt or seriously hinder 23 normal business operations." 24 Inc., 985 F.2d 1036, 1040 (10th Cir. 1993) (finding 25 that it would take six months and two employees working full 26 time on the request insufficient to establish that the request 27 28
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In the previous section, the

See

This information will allow EBSA to

See JDN Aff., Exh. A.

To prevail on

EEOC v. Citicorp Diners Club, allegation

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was unduly burdensome); see also EEOC v. Maryland Cup Corp., 985 F.2d, 478, 479 (9th Cir. 1993); NLRB v. Carolina Food Processors, Inc., 81 F.3d 507, 513 (4th Cir. 1996); NLRB v. G.H.R. Energy Corp., 707 F.2d 110, 114 (5th Cir. 1982). Here, Respondents have

admitted that they retain very few documents, which should make the number of responsive documents very limited. Nevertheless,

Respondents claim that it could take hundreds of hours and thousands of dollars to comply. JDN Aff., Exh. B. Although

that would not likely be unduly burdensome, Respondents were told they could produce the documents as kept in the ordinary course of business to substantially reduce their alleged burden. See Garner, 126 F.3d at 1146 (finding that despite fact that subpoena sought more than a million documents, appellants failed to enunciate how the requests constituted a mere fishing expedition given the scope of the investigation). declined the offer. Respondents

Accordingly, Respondents have not met their

burden of showing that the Subpoena is unreasonable by being overly broad or burdensome. To the contrary, the documents the

Secretary requested are narrowly focused on documents related to valuations Respondents performed since 2002, all of which EBSA understands are located in Donnelly's residential apartment in Oakland, California. As such, the Subpoena is not indefinite,

unreasonable, or overreaching, but comes within the Secretary's enforcement powers and must be enforced. See Powell, 379 U.S. at 57-58; Oklahoma Press Publishing, 327 U.S. at 217; Garner, 126 F.3d at 1143; Children's Hospital, 719 F.2d at 1428.

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III. CONCLUSION The Secretary has met her burden of establishing that she is engaged in legitimate law enforcement inquiries and that the documents requested in the Subpoena are relevant to those investigations. Respondents have asserted no reasonable

justification for its refusal to comply with the Subpoena. Accordingly, for all the reasons set forth above, the Petition to enforce the Secretary's administrative Subpoena should be granted.

Dated:

August 28, 2008

GREGORY F. JACOB Solicitor of Labor STANLEY E. KEEN Regional Solicitor ROBERT M. LEWIS, JR. Counsel for ERISA By: DANE L. STEFFENSON Trial Attorney SOL Case No. 08-60050 Attorneys for Petitioner U.S. Department of Labor

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