TARGET OIL & GAS CORPORATION , ET AL. VS. COMMONWEALTH OF KENTUCKY
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RENDERED: AUGUST 8, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-001113-MR
TARGET OIL & GAS CORPORATION
AND MICHAEL SMITH
v.
APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 04-CI-00588
COMMONWEALTH OF KENTUCKY,
DEPARTMENT OF FINANCIAL INSTITUTIONS,
DIVISION OF SECURITIES
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: FORMTEXT CLAYTON, MOORE, AND TAYLOR,
JUDGES.
TAYLOR, JUDGE: Target Oil & Gas Corporation and Michael Smith
(collectively referred to as Target) bring this appeal from a May 10, 2007, order of
the Franklin Circuit Court ordering Target to produce certain documents pursuant
to a subpoena duces tecum issued by the executive director of the Commonwealth
of Kentucky, Office of Financial Institutions (executive director). We affirm.
On March 11, 2004, the executive director issued a subpoena duces
tecum ordering Target to produce certain documents to the Office of Financial
Institutions, Division of Securities. The executive director was investigating
Target for possible acts of fraud and misrepresentation in the marketing of
securities. See Kentucky Revised Statutes (KRS) 292.460; KRS 292.320. Target
refused to comply with the subpoena duces tecum. As a result, the executive
director instituted an action in the Franklin Circuit Court seeking enforcement of
the subpoena duces tecum against Target. Eventually, the circuit court concluded
that the subpoena duces tecum was valid and ordered Target to comply with its
terms.
Target then pursued an appeal in the Court of Appeals. In Appeal No.
2004-CA-001947-MR, the Court of Appeals upheld the validity of the subpoena
duces tecum and affirmed the circuit court’s order mandating enforcement of same.
Target then filed a motion for discretionary review with the Supreme Court. By
order entered February 14, 2007, the Supreme Court denied Target’s motion for
discretionary review.
On February 26, 2007, the executive director filed a “Motion for
Updated Subpoena” in the circuit court. Therein, the executive director argued that
the circuit court’s order of enforcement of the subpoena duces tecum “needs to be
updated to cover the time between its entry and the present.” In effect, the
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executive director sought to compel Target to also produce documents covering a
time period through “the present.”
Target filed a response and argued that it should not be compelled to
produce the additional documents. Target maintained that the executive director
was required to issue a new subpoena duces tecum in order to obtain documents
from May 11, 2007, (when the original subpoena duces tecum was issued) to the
present.
On May 10, 2007, the circuit court ordered Target to comply with the
subpoena duces tecum issued by the executive director and specifically held “[i]n
order to clarify the time periods covered by the documents in the attached list, the
present shall be defined as the entry date of this Order.” Thus, Target was ordered
to produce documents covering a time period though May 10, 2007. This appeal
follows.
Target initially contends that the circuit court erred by “determining
that an administrative subpoena duces tecum can be updated.” Specifically, Target
argued:
[T]he original 2004 subpoena sought records from the
inception of the company in 1999 to March 11, 2004, a
period of five years. When Target Oil’s appeals were
exhausted in 2007, the [executive director] filed a motion
with the court requesting an “updated” subpoena seeking
an additional three years of records. No new subpoena
was issued or served. Neither the Motion, nor the Order,
has a subpoena attached, only a list of items to be
produced. The proper procedure would have been the
issuance of a new subpoena served on the parties from
whom production was sought. This did not occur. In a
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novel procedural maneuver, the court simply amended
the order from 2004 to increase the scope of the
subpoena nearly two-fold.
This procedural innovation is not without
significance. The violation of the procedural due process
of the Appellants is undeniable. . . .
....
The trial court allowed the [executive director] to
increase its schedule of items to be produced and skip the
required procedural steps. This action has at least two
practical ramifications. First, if there’s no new subpoena
issued, there will be no new enforcement action. A new
enforcement action would require the [executive director]
to defend its subpoena process against new legal
arguments rather than relying on the law of the case.
Second, if there’s no new subpoena, the [executive
director] can return to the trial court, as often as it likes,
and utilize the same process employed here to obtain
endless access to [Target’s] records without ever having
to issue another subpoena or repel any legal argument.
Target’s Brief at 4-5.
In this case, we do not believe the executive director was required to
initiate a new enforcement action. The executive director merely sought
documents covering the time period the case was on appeal until the case was
remanded to the circuit court. The executive director did not seek “endless access”
to records, and the circuit court did not order such access. Moreover, the delays in
producing the documents under the subpoena duces tecum in this case are directly
attributable to Target. It seems disingenuous for Target to now complain about
producing additional documents covering a time period caused by its own delays.
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Simply put, we are unable to conclude that Target’s due process rights were
offended. Hence, we view this contention to be without merit.
Target also asserts that the “trial court erred in determining that the
‘undated’ subpoena duces tecum was within the scope of Chapter 292 of the
Kentucky Revised Statutes.” In particular, Target argues:
The legislature clearly states that the purpose of
Chapter 292 is the protection of Kentucky investors. The
[executive director’s] investigative power was created by
Chapter 292, specifically KRS 292.460. Since the
purpose of the chapter is the protection of Kentucky
investors, any subpoena issued by the [executive
director] must be limited to documents and information
related to Kentucky investors.
Target’s Reply Brief at 5. This argument is essentially the same argument raised
previously by Target in Appeal No. 2004-CA-001947-MR and rejected by our
Court:
Target insists, however, that the director’s antifraud authority is limited to fraud practiced against
Kentucky investors. It asserts that it does not solicit or
sell to Kentucky investors and thus that in this case even
an anti-fraud inquiry is beyond the director’s authority.
Clearly, though, the director is not obligated to accept
Target’s denials at face value; and even if Target’s
assertion is true, as noted above KRS 292.320 makes it
unlawful for a Kentucky securities issuer to practice
fraud “upon any person,” not just upon Kentucky
residents. . . .
....
The director’s investigative authority is not undermined,
therefore, by Target’s assertion that it deals only with
out-of-state investors.
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We believe the decision by the Court of Appeals in Appeal No. 2004-CA-001942MR on this issue constitutes the law of the case and may not be revisited in a
subsequent appeal. See Union Light Heat & Power Co. v. Blackwell’s Adm’r, 291
S.W.2d 539 (Ky. 1956). Notwithstanding, we observe that the decision in the
earlier appeal appears to be correct based upon the facts and law applicable to this
case.
In sum, we hold that the circuit court did not err by entry of its May
10, 2007, order enforcing the subpoena duces tecum.
For the foregoing reasons, the order of the Franklin Circuit Court is
affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Jeffrey W. Jones
Lexington, Kentucky
William B. Owsley
Frankfort, Kentucky
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