Court: District Court, S.D. Florida; October 3, 2018; Federal District Court
Defendants Dustin Pillonato and Justin Ramsey objected to Receiver Jonathan E. Perlman's Motion to Compel Turnover of their personal laptops and cell phones, claiming protections under the Fifth Amendment against self-incrimination and the Fourth Amendment against unreasonable searches. The Receiver's motion stemmed from a dispute regarding compliance with the Court's Temporary Restraining Order and Preliminary Injunction, which required the turnover of electronic devices believed to contain business-related records pertinent to the Receivership.
Following extensive briefing and a hearing, Magistrate Judge Barry S. Seltzer recommended denying the Defendants' objections and ordering the turnover of the devices. The Court conducted a de novo review of the objections and the record, ultimately affirming Judge Seltzer's report. The analysis included a detailed examination of both the Fifth and Fourth Amendment claims, with Judge Seltzer concluding that the objections were unfounded. The Court instructed the Clerk to release the laptops and cell phones to the Receiver for imaging.
Judge Seltzer determined that the Defendants' surrender of electronic devices does not constitute a testimonial communication, thus precluding a successful Fifth Amendment objection. The Supreme Court's precedent indicates that the Fifth Amendment does not protect the contents of voluntarily prepared documents, even if they are incriminating. Since the requested records were voluntarily created, the Defendants lack Fifth Amendment protection regarding these records. Additionally, producing the devices does not require them to disclose thoughts or exercise discretion. Consequently, the Court agrees with Judge Seltzer's conclusion that the Defendants cannot invoke the Fifth Amendment privilege against self-incrimination concerning the turnover of their laptops and cell phones.
Regarding the Fourth Amendment, Judge Seltzer found sufficient probable cause to order the turnover and search of the electronic devices, satisfying the requirement of reasonableness. He concluded that (1) Defendants did not waive their Fourth Amendment rights, (2) they have standing to assert these objections due to a legitimate expectation of privacy in their devices, and (3) there is probable cause to believe business operations of the Receivership Entities exist on their devices. Although the Fourth Amendment's protections apply to civil matters, reasonableness is assessed less stringently in this context. The Court agrees with Judge Seltzer's findings, noting that probable cause exists based on Plaintiff's evidence supporting the Court's Temporary Restraining Order and Preliminary Injunction, and forensic examinations from voluntarily surrendered devices.
Defendants object to Judge Seltzer's Report on several grounds regarding the plaintiff's ex parte motion for a temporary restraining order (TRO). They argue that the motion lacked an oath or affirmation and did not specify the place to be searched or the items to be seized. Additionally, they contend that an unsworn motion cannot replace a sworn application for a search warrant, which they believe is necessary in this case. Defendants claim the Receiver failed to demonstrate probable cause regarding fraudulent information on their laptops and assert that Judge Seltzer improperly relied on illegally obtained evidence from a separate cell phone to justify the search of their devices.
These objections raise issues about the requirements needed for the Court to compel the turnover of electronic devices to the Receiver in the context of the Federal Trade Commission's investigation of alleged unfair practices by the Defendants. They argue that the Fourth Amendment mandates a search warrant, asserting that no exceptions apply.
The Court, however, finds Defendants' demand for a formal warrant unpersuasive, noting that no precedent mandates a warrant for a receiver to seize property. The Court emphasizes that receivership allows for the seizure of all assets of the distressed entity without the need for further particularity, as the receiver acts under court authorization. Judge Seltzer's reliance on the plaintiff's evidence justifying the TRO and preliminary injunction is affirmed. The Court concludes that the Receiver articulated probable cause for the seizure of the Defendants' devices without the necessity of a search warrant, supported further by digital forensic examination findings. The Court ultimately upholds Judge Seltzer's recommendations regarding the Defendants' Fourth Amendment objections.
The court affirms the Report [ECF No. 176] and orders the Clerk of Court to transfer the defendants' laptops and cell phones to the court-appointed Receiver, Jonathan E. Perlman, as per the Court's June 7, 2018 Order [ECF No. 62]. The matter involves the defendants, Dustin Pillonato and Justin Ramsey, who objected to the Receiver's Motion to Compel Turnover of their personal devices. The court, having reviewed the relevant files, recommends overruling these objections.
The background reveals that on May 7, 2018, the Federal Trade Commission (FTC) filed a complaint against multiple defendants for allegedly defrauding consumers through fraudulent Google My Business certification and search engine optimization services, violating the FTC Act. The next day, the court issued a Temporary Restraining Order (TRO) against the defendants, indicating the likelihood of FTC's success and potential harm without immediate action. The TRO appointed Jonathan Perlman as Temporary Receiver with comprehensive powers to control the Receivership Entities and mandated the defendants to transfer all electronic devices and access credentials to him. The Receiver is authorized to take custody of all assets and documents related to the Receivership Entities and can seek compliance or contempt citations if necessary.
On June 4, 2018, the Receiver filed a Motion to Compel Turnover and for an Order to Show Cause, alleging that the Defendants violated the Temporary Restraining Order (TRO) shortly after being notified of it. The Motion requested Pillonato and Ramsey to surrender their laptop computers and cellphones for imaging, provide passwords for business-related devices, return three Louis Vuitton backpacks, and disclose the identity of a third individual seen with them after being served with the FTC's Complaint and the TRO. A hearing on the Motion occurred on June 6, 2018, and on June 7, the District Court partially granted the Motion. The Court ordered Pillonato and Ramsey to give their electronics to the Clerk's Office and provide passwords and the identity of the third person to the Receiver.
On June 8, 2018, Pillonato and Ramsey confirmed compliance by delivering their devices and all required passwords, as well as two of the three backpacks and the contact information for the unidentified third person. They did not turn over the final backpack, claiming they did not own it but provided the owner's details to the Receiver. On July 3, 2018, they filed a Response and Objections to the Receiver's Motion, raising Fifth and Fourth Amendment concerns regarding the turnover of their electronic devices. The District Court referred these Objections for a Report and Recommendation on July 5, 2018.
On July 17, 2018, the Receiver responded to objections raised by Defendants Dustin Pillonato and Justin Ramsey regarding the motion to compel the turnover of their laptop computers and cellphones. The Receiver contended that the defendants failed to present valid constitutional objections. On August 9, 2018, the Receiver submitted a notice of newly discovered evidence, including a declaration detailing a forensic data report from an Apple cellphone found at the defendants' Deerfield Beach office, identified as belonging to Pillonato. The cellphone contained texts indicating it was to be used strictly for work, leading the Receiver to assert that it holds business records related to the Corporate Defendants.
In their August 15, 2018 response, Pillonato and Ramsey argued the evidence was obtained through a warrantless search. During a hearing on September 6, 2018, they raised Fifth and Fourth Amendment claims, asserting a right against self-incrimination and contesting the probable cause for the search and seizure of their devices. The Receiver countered by stating that the defendants waived their Fourth Amendment rights, lacked standing for their claim, and that probable cause had been established. The undersigned concluded that Pillonato and Ramsey do not possess a Fifth Amendment privilege regarding the devices' content or production, and they lack a viable Fourth Amendment claim due to established probable cause for the seizure and search of their devices.
Ramsey and Pillonato assert a Fifth Amendment claim against the seizure of their personal electronic devices, arguing that these devices, purchased with personal funds, do not belong to the defendant corporation and thus should not be subject to search and seizure. They express concerns that information extracted from these devices could be used against them in current or future legal actions, citing fears of prosecution based on allegations of fraud. They invoke the precedent set in McCarthy v. Arndstein to support their claim that the Fifth Amendment protects against self-incrimination in both civil and criminal cases.
However, the argument is fundamentally flawed as they fail to demonstrate that producing the devices is testimonial and thus protected under the Fifth Amendment. The Amendment only protects individuals from being compelled to provide incriminating testimonial communications, not from producing documents they have voluntarily created. Supreme Court precedents clarify that individuals can be compelled to produce documents containing incriminating information if those documents were not created under compulsion. In this case, the Receiver seeks business records that were voluntarily prepared prior to the legal action, meaning the Fifth Amendment protections do not apply. Ramsey and Pillonato's suggestion that their act of turning over the devices would be testimonial is insufficient to establish a valid Fifth Amendment defense.
The Eleventh Circuit outlines when an act of production is considered testimonial under the Fifth Amendment. Such an act is deemed testimonial if it involves the individual conveying a factual statement regarding the existence, possession, or authenticity of materials. Conversely, an act is not testimonial if it simply requires a physical action without mental engagement. For instance, producing a key to a locked box is a non-testimonial physical act. Additionally, the "foregone conclusion" doctrine applies when the government can demonstrate prior knowledge of the materials, negating any testimonial aspect.
In the case involving Pillonato and Ramsey, their act of producing electronic devices in compliance with a court order is classified as surrender rather than testimony. This is because the existence and location of the devices are already established, and the production does not involve revealing any internal thoughts or exercising discretion. The district court's decision in Sallah v. Worldwide Clearing LLC supports this interpretation, where the court found that producing documents did not violate Fifth Amendment rights as it did not require the defendant to make subjective judgments. Ultimately, since the devices' information was created before the turnover request and compliance required no discretion, their surrender does not constitute a testimonial communication protected by the Fifth Amendment.
Ramsey and Pillonato object to a court order requiring them to surrender their personal electronic devices, claiming it violates their Fourth Amendment rights against unreasonable searches and seizures. They argue they have a reasonable expectation of privacy in these devices, necessitating a warrant or probable cause for any search, which they contend has not been adequately demonstrated. The Receiver counters that Ramsey and Pillonato have waived their Fourth Amendment rights by failing to raise this objection during a previous evidentiary hearing on the Preliminary Injunction, where they could have contested the order's terms, including the turnover of all electronic devices used for the Receivership entities' business. The Receiver maintains that their late assertion of Fourth Amendment violations is untimely and should be dismissed on the grounds of waiver.
The Receiver cites FTC v. Credit Bureau Ctr. LLC, 284 F. Supp. 3d 907 (N.D. Ill. 2018), to support the argument regarding the waiver of Fourth Amendment rights by Ramsey and Pillonato. In Credit Bureau, the court addressed similar Fourth Amendment issues when the FTC secured a preliminary injunction against defendants for violations of federal law. The defendants contested the seizure of their documents and electronic records, claiming it violated the Fourth Amendment, but the court found they had forfeited this argument by not objecting during the preliminary injunction hearing. The Receiver argues that Ramsey and Pillonato similarly waived their Fourth Amendment rights by not objecting to the turnover of electronic devices as required by the injunction. However, upon reviewing the hearing transcript, it is noted that while Ramsey and Pillonato did not explicitly cite the Fourth Amendment in their objections, their counsel asserted that the devices were personal and required a warrant for search, implying a Fourth Amendment concern. Therefore, the Receiver's assertion of waiver is not upheld, and it is concluded that Ramsey and Pillonato did not waive their Fourth Amendment claim.
Ramsey and Pillonato are contending that they possess standing to assert a Fourth Amendment claim regarding their electronic devices, despite the Receiver's argument that they lack standing due to not claiming ownership in prior financial affidavits. Ramsey and Pillonato assert they purchased the devices with their own funds and have continuously claimed ownership throughout the litigation. They emphasize their possessory interest in the devices, as they have used them personally, establishing a reasonable expectation of privacy.
The legal standard for Fourth Amendment standing requires a defendant to demonstrate both a subjective and an objective expectation of privacy. Subjectively, they must exhibit an actual expectation of privacy; objectively, society must recognize that expectation as legitimate. Factors considered in determining this legitimacy include ownership, possessory interest, the right to exclude others, and the steps taken to maintain privacy.
Despite the Receiver's claims regarding the financial affidavits, the record shows Ramsey and Pillonato have consistently asserted their ownership and possession of the devices, which they were using when served with a Temporary Restraining Order (TRO). The Receiver has not provided evidence to contradict this assertion. Given these factors, the undersigned concludes that Ramsey and Pillonato have both subjective and objective expectations of privacy, thus establishing their standing to raise a Fourth Amendment claim.
Furthermore, they argue that their reasonable expectation of privacy prohibits the Receiver from seizing or searching their electronic devices without a search warrant or a showing of probable cause.
The Receiver contends that even if Ramsey and Pillonato had standing to raise a Fourth Amendment claim, there is already sufficient probable cause established for the turnover and search of the involved electronic devices. The Fourth Amendment protects against unreasonable searches and seizures, requiring probable cause for warrants, as clarified by the Supreme Court. Probable cause does not necessitate concrete proof of criminal activity but rather a substantial chance of such activity, as described in District of Columbia v. Wesby and Illinois v. Gates. Although Fourth Amendment protections are typically associated with criminal cases, they also apply to civil matters, where the standard of reasonableness is less stringent. The FTC provided extensive evidence, including 31 consumer declarations and legal briefs supported by audio and video files, to justify its request for a Temporary Restraining Order (TRO) and a Preliminary Injunction. The District Court found that the Defendants, including Ramsey and Pillonato, misrepresented their affiliation with Google and made false promises to businesses regarding search engine placements, indicating likely violations of the FTC Act.
The FTC has demonstrated a strong likelihood of success in proving that Defendants engaged in fraudulent practices by using false claims of affiliation with Google, making deceptive threats regarding removal from Google, and offering misleading promises for better search placement to sell their services. Additionally, Defendants unlawfully withdrew funds from consumers' bank accounts. The district court's findings, supported by substantial evidence including various records and witness testimonies, justified the issuance of a preliminary injunction, establishing probable cause for the action. Despite Defendants Ramsey and Pillonato's claims that there was no probable cause to believe evidence of fraud existed on their electronic devices, the court found otherwise. The Temporary Restraining Order (TRO) mandated that any electronic devices containing business records of the Receivership Entities must be turned over, emphasizing that such records could be located at the Defendants' residences, regardless of device ownership. The Receiver has asserted probable cause that the laptops in question hold relevant information concerning the Receivership Entities, which the Defendants have not contested.
There is a substantial likelihood that Ramsey and Pillonato possess business records on their personal laptops and cell phones, supported by forensic examinations. Upon being served with a Temporary Restraining Order (TRO) requiring the surrender of their laptops to the Receiver, they fled with the devices, raising suspicions about the presence of relevant business data. The Receiver aims to image the laptops to preserve data as mandated by the Court. Moreover, forensic analysis of Defendant Ricardo Diaz's voluntarily surrendered cell phone revealed 4,202 exchanged text messages related to the business operations of the Receivership Entities between him and both Ramsey and Pillonato. Specific exchanges highlighted discussions about profits, business deals, chargebacks, and operational losses, reinforcing the argument that they utilized their personal devices for business purposes. Consequently, there is probable cause to believe that further evidence of business activities exists on the laptops and cell phones in the Clerk's custody, justifying a search and seizure under the Fourth Amendment. Additionally, Pillonato and Ramsey's Fifth Amendment claims are dismissed, as their prior preparation of business records means their production would not be considered testimonial. The conclusion affirms that the order for turnover and search aligns with constitutional standards of reasonableness.
Defendants Dustin Pillonato and Justin Ramsey's objections to the Receiver's Motion to Compel the turnover of their personal laptop computers and cell phones are recommended to be overruled. The devices currently held by the Clerk of the Court are to be surrendered to the Receiver, who will search (download) their contents for evidence related to the Receivership Entities' business operations. The parties have fourteen days to file written objections to this recommendation with Judge Cecilia M. Altonaga; failure to do so will limit their ability to contest the findings later. The District Court previously indicated that the Plaintiff is likely to prevail, having issued a Preliminary Injunction against the Defendants. The undersigned notes that while Ramsey and Pillonato complied with certain court orders, they failed to provide evidence supporting their claim of personal ownership of the electronic devices and did not amend their financial disclosure forms as promised. The Receiver acknowledges that any attorney-client communications on the devices generated post-TRO will be protected from review. The document references case law suggesting that a preliminary injunction can be considered prima facie evidence of probable cause.
An injunction order is characterized as temporary and provisional, aimed at maintaining the status quo and requiring only a prima facie case, which serves as evidence of probable cause. Some courts, however, maintain that a preliminary injunction issued after a hearing provides conclusive evidence of probable cause. For example, in *Paiva v. Nichols*, it was noted that a defendant could demonstrate the lack of probable cause by establishing that an interim victory, such as a granted preliminary injunction, supports their claim. The *H.P. Rieger Co. v. Knight* case further asserts that once an injunction is granted after thorough consideration, it conclusively establishes probable cause, thereby obstructing any malicious prosecution claims.
The excerpt details an incident involving the FTC's process server, Ivan Lopez, who served Defendants Pillonato and Ramsey with a complaint and a temporary restraining order (TRO) on May 9, 2018. Shortly after service, the defendants fled the residence, with an unidentified man carrying two laptop bags and three Louis Vuitton backpacks. The attorney for the defendants later confirmed that the bags contained laptops but refused to surrender them, citing personal ownership while acknowledging the potential for incriminating evidence related to the corporate defendants.
