On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Approved for Publication February 29, 1996. As Amended March 19, 1996. As Corrected April 4, 1996.
Before Judges King, Kleiner and Humphreys. The opinion of the court was delivered by Humphreys, J.A.D.
The opinion of the court was delivered by: Humphreys
The opinion of the court was delivered by HUMPHREYS, J.A.D.
These appeals *fn1 stem from the issuance by the New Jersey Bureau of Securities ("Bureau"), of subpoenas duces tecum on Leonard B. Greer ("Greer") and L.C. Wegard and Co., Inc. ("Wegard"). The subpoenas were issued in connection with the Bureau's investigation of possible violations of the New Jersey Uniform Securities Law, N.J.S.A. 49:3-47 to -75.
Greer and Wegard filed an action in the Superior Court Law Division to enjoin the Bureau from enforcing the subpoenas and related administrative orders. They alleged that the subpoenas were overly broad and were issued in bad faith in order to harass them. Judge Cass conducted a plenary hearing and, on July 25, 1994, entered a judgment in which she modified and enforced the subpoenas. The Bureau appealed. Greer and Wegard cross-appealed (Docket No. A-14-94T3).
Judge Cass also entered an order on August 31, 1995 sanctioning the Bureau for violating a sealing order. The Bureau appealed. Greer and Wegard cross-appealed. (Docket No. A-308-95 T5).
As to the subpoenas, the Bureau contends that the Judge erred by (1) granting a plenary hearing; (2) failing to enter a directed verdict at the end of plaintiffs' case; (3) finding that the telephone toll records were not subject to the subpoenas; (4) eliminating non-business communications from the subpoenas; and (5) failing to sanction plaintiffs for resisting compliance with the subpoenas without any justification.
Plaintiffs contend on their cross-appeal that the Judge erred by: (1) refusing to deny enforcement of the subpoenas; (2) enforcing provisions of the subpoenas that were over-broad and burdensome; (3) enforcing administrative orders issued without statutory authority and in bad faith; and (4) denying any prehearing discovery.
As to the sanction order, the Bureau contends that it did not violate any court orders and should not have been sanctioned. Plaintiffs cross-appeal from the Judge's denial of counsel fees incurred by them in their appellate applications to enforce the sealing order.
We have thoroughly reviewed this voluminous record and carefully considered the arguments of counsel. We hold: (1) the subpoenas are enforceable without modification; and (2) the Bureau did not willfully violate the sealing order and should therefore not be sanctioned.
Greer is the managing director and sole stockholder of Wegard, a licensed security broker and dealer whose headquarters is in New York City. Wegard is registered with the Bureau as a securities broker dealer. Greer acquired Wegard in September of 1991. Before that, Wegard's primary business was investment banking. After Greer's acquisition, Wegard's primary business became the sale of over the counter securities to the public. Several of these securities are the subject of other investigations by the Bureau, in particular an investigation of security dealings by Robert E. Brennan ("Brennan").
As part of its continuing investigations, the Bureau on July 17, 1992, served subpoenas duces tecum on Greer and Wegard. Schedule A, attached to the subpoenas, required production of several categories of writings as follows: (1) telephone toll records for two numbers from July 1, 1991; (2) records pertaining to an account for Greer's wife at First Philadelphia Corporation from January 1, 1989; (3) records of activity involving Fish Funding Corporation and Arthur Fishbein; (4) and (5) records of all communications with twelve specified persons or entities from April 1, 1991; (6) research reports relating to recommendations made by Wegard agents; and (7) all books and records of accounts and minutes of the proceedings of the shareholders, board and executive committee of Wegard, since September 1, 1991.
Greer had been subpoenaed earlier. He testified three times before the Bureau and answered all questions posed to him. However, he did not comply with these two subpoenas. Instead, on July 27, 1992, Greer filed in the Superior Court a verified complaint against the Bureau, demanding that the Bureau provide copies of Greer's prior deposition testimony. That case was resolved in the Bureau's favor by our decision on June 17, 1994, in which we concluded that witnesses were not entitled to unconditional release of transcripts of their testimony in Bureau investigations.
On January 20, 1993, the Bureau issued administrative orders to Greer and Wegard to produce certain records for three accounts which had been identified in the prior subpoenas. The records were itemized telephone toll records of Cellular One, a cellular phone company.
On January 25, 1993, Greer and Wegard filed an action in the Superior Court against the Bureau and the Chief of the Bureau seeking to enjoin enforcement of the subpoenas and administrative orders. Plaintiffs contended that they had already provided all records responsive to the subpoenas and orders, other than personal documents unrelated to the business of Wegard or Greer. Plaintiffs also contended that service was defective, that the document demands were overbroad, vague and burdensome, and that an immediate court hearing was needed to prevent irreparable harm.
On January 27, 1993 the Bureau served a Superior Court subpoena duces tecum on Cellular One, seeking telephone records that were included in the prior subpoena demands. The records were produced to the court and sealed.
On February 3, 1993, the defendants filed an answer and verified counterclaim seeking enforcement of the subpoenas and orders, and also sanctions for non-compliance. A dispute over whether jurisdiction resided in the Law Division or the Appellate Division was resolved when the Appellate Division on June 8, 1993, granted defendants' motion to return the complaint and the counterclaim to the trial court for Disposition.
Plaintiffs subsequently sought to take depositions and obtain documents. Plaintiffs argued that the subpoenas had been issued in bad faith and not for any lawful purpose but only to harass and injure them. On October 1, 1993, Judge Cass held that plaintiffs were entitled to a hearing on whether the subpoenas should be enforced. She denied pre-hearing discovery.
Extensive hearings were held between October 18, 1993 and January 5, 1994. On June 16, 1994, Judge Cass issued a comprehensive opinion. She found that the Bureau was investigating trading activity by Wegard in approximately twenty different securities where there was indication of fraud, stock manipulation, or abusive sales practices. Further, she found that the investigations had been undertaken in accordance with N.J.S.A. 49:3-68(a). She pointed out that:
Plaintiffs are engaged in the business of selling securities. The securities industry is certainly subject to pervasive and long standing regulation on both the state and federal levels. This system of regulation is based largely on compulsory disclosure by those engaged in the industry of relevant information to the various regulatory agencies. As such, there can be no reasonable expectation of privacy regarding any business records related to this heavily regulated industry. . . . no matter how tangential that relationship may be.
Consequently, she held that with respect to the business items, the subpoenas were enforceable.
However, Judge Cass modified the subpoenas by limiting the demand for toll records of two telephone numbers to the aggregate amounts paid, omitting the numbers called. These two telephone numbers were used by Greer for both business and personal calls.
She also limited the scope of the documents demanded in paragraphs 4 and 5 of Schedule A to business communications with the named persons and entities. She reasoned that Greer's right to privacy as guaranteed by the New Jersey Constitution precluded the subpoenaing of his personal telephone toll records except for the billing totals. In addition, she found that the demand for all communications with twelve ...