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Federal Trade Commission v. Timeshare Mega Media and Marketing Group

December 7, 2011


The opinion of the court was delivered by: Robin S. Rosenbaum United States Magistrate Judge


This matter comes before the Court upon Non-parties Federal Bureau of Investigation and FBI Special Agent David M. Roberts's Motion to Quash Subpoena and for Protective Order [D.E.

98], upon referral by the Honorable William J. Zloch. See D.E. 101. The Court has reviewed the Non-parties' Motion, all filings in support thereof and in opposition thereto, and the record in this matter and is otherwise duly advised in the premises. After careful consideration, the Court now grants the Non-parties' Motion for the reasons set forth below.

I. Background

In this Federal Trade Commission ("FTC") enforcement action, Plaintiff FTC seeks to enjoin alleged violations of the Federal Trade Commission Act, 15 U.S.C. § 41, et seq., and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101, et seq.; to disgorge allegedly ill-gotten gains resulting from the asserted violations, and obtain other equitable relief for Defendants' alleged transgressions of the statutes. See D.E. 1 at ¶ 1. Defendants Pasquale and Lisa Pappalardo (collectively, "the Pappalardos") serve as managers of Defendant Timeshare Mega Media and Marketing Group, Inc. ("TMMMG"), a Florida corporation.*fn1 The Complaint claims that along with Co-defendants, the Pappalardos engaged in a scheme to deceptively advertise and sell timeshare resale services through interstate telephone calls to consumers throughout the United States. Id. at ¶ 17.

According to the Complaint, Defendants made unsolicited calls to consumers who own timeshare units that have been listed for sale with timeshare resale companies, representing that they had a buyer for the consumer's timeshare unit, usually at or above the asking price. See id. at ¶¶ 18-19. When consumers indicated their interest in the offer, the Complaint continues, Defendants explained that the consumers had to pay a fee for the sale to proceed, but that the fee would be refunded in full at the closing of the sale of the timeshare unit. Id. at ¶ 20. While the Complaint asserts that the fee charged varied, it represents that "the most typical fee" was $1,996, with a special "hardship program" fee of approximately $999 for those who stated that they could not afford to pay the larger fee. Id. at ¶ 21. The FTC further avers that Defendants collected the fee by credit card, which they charged the same day. Id. at ¶ 23.

Following these telephone conversations, the Complaint alleges, Defendants sent consumers e-mails containing a link to a website where consumers could view Defendants' welcome letter and form contract. Id. at ¶ 24. The FTC characterizes the welcome letter as instructing the consumersto sign and return the contract to Defendants, but the contract did not relate to a pending sale of the consumer's unit. Id. Instead, the contract provided only that Defendants would advertise the unit for sale. Id. While some consumers were allegedly duped and returned the signed contract, the Complaint explains, others called to question Defendants about the contract. Id. at ¶¶ 25-26. The Complaint further asserts that in response to such inquiries, Defendants told the consumers that the contract was needed "to get the ball rolling" and that sales documents would be forthcoming. Id. at ¶ 26. Based on the FTC's allegations, many consumers then signed and returned the contract to Defendants. Id. After Defendants received the signed contract, the Complaint contends, Defendants did not contact those consumers again and engaged in tactics to stall consumers who called Defendants. Id. at ¶ 27. Because the sales never closed, the Complaint alleges, consumers attempted to initiate chargebacks challenging Defendants' credit card charges. Id. at ¶ 28. But, according to the Complaint, these chargebacks were often denied because Defendants produced the consumers' signed contracts as proof of the consumers' agreement to pay for Defendants' purported marketing services. Id.

Along with its Complaint in this case, the FTC also filed an Ex Parte Motion for Temporary Restraining Order and Motion for Order to Show Cause Why a Preliminary Injunction Should Not Be Granted [D.E. 9]. In support of its Ex Parte Motion, the FTC filed, among other evidence, the Declaration of Federal Bureau of Investigation ("FBI") Special Agent David M. Roberts. See D.E. 11-1; see also, e.g., D.E. 8 at 8 n.32, 10 n.38, n.39, n.43, 11 n.46, n.47, n.49. The Court granted the FTC's Motion for Temporary Restraining Order and Motion for Order to Show Cause. See D.E. 13. Thereafter, instead of proceeding with a hearing on the FTC's Motion for Preliminary Injunction, the Pappalardos stipulated to a preliminary injunction. See D.E. 52.

On September 23, 2011, the parties attended Court-ordered mediation. See D.E. 91. The mediator issued her Report of Mediation, indicating that the parties had "reached a full settlement in principle and [would] jointly move . . . for an extension of 90 (ninety) days for all pending deadlines in the scheduling order." Id. In accordance with the Report of Mediation, the FTC and the Pappalardos filed their Joint Motion to Extend Pending Deadlines [D.E. 92]. In this document, the parties represented that the mediation had been "successful" and that "[a]ll settlement terms, including stipulated final judgments and permanent injunctions, [had] been agreed upon in principle, and the Parties [were] in the process of reducing these proposed settlements to writing."

Despite this development, the settlement later fell apart. See D.E. 103. Then the Pappalardos served Special Agent Roberts with a deposition subpoena. See D.E. 98-1. Counsel for the FBI and Agent Roberts objected, complaining that the Pappalardos had failed to comply with the FBI's Touhy regulations and the Privacy Act. In response, counsel for the Pappalardos purported to comply with the FBI's Touhy regulations and submitted a statement indicating that the Pappalardos sought Agent Roberts's*fn2 testimony as it relates to his participation in, and knowledge of, an investigation of Timeshare Mega Media and Marketing Group, Incorporated. The parameters of Agent Roberts' anticipated testimony includes his knowledge of any participation by Pasquale and/or Lisa Pappalardo, Timothy Burns, Jack Bauman, Luis Duany, Mike Spinelli, Scott Schneider, Paul Brucato, and Charles Schwab in the matter and their respective roles. Agent Roberts will also be questioned on the Declaration he executed on September 24, 2010[,] in support of the action filed in case no. 10-62000-Civ-Zloch.

D.E. 98-2 at 7.

Following additional exchanges of letters, the FBI and Agent Roberts (collectively, "Non-parties") filed the pending Motion, seeking to quash the deposition subpoena. In support of their Motion, the Non-parties note that several others allegedly involved with the Pappalardos have been criminally charged, and the investigation into the Pappalardos and others remains ongoing. They further contend that (1) the Pappalardos have failed to comply with the FBI's Touhy regulations; (2) the Pappalardos' proposed deposition topics impinge on the FBI's law enforcement and investigatory files privilege; (3) the Pappalardos' requested deposition interferes with the FBI's criminal investigation of the Pappalardos and others; (4) the Pappalardos seek grand-jury information; and (5) the Pappalardos have not followed the requirements of the Privacy Act. See D.E. 98. In response, the Pappalardos protest that the FBI and Agent Roberts have waived any process or privilege that may otherwise have prevented or limited the deposition of Agent Roberts by filing and relying upon Agent Roberts's declaration in support of the FTC's Ex Parte Motion for Temporary Restraining Order. See D.E. 99. The Non-parties disagree, asserting that they have not waived process or privilege, and, even if they have, any waiver is limited to the scope of Agent Roberts's deposition. See D.E. 104. This matter is now ripe for decision.

II. Discussion

A. The FBI's Touhy ...

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