COMMODITY FUTURES v. WORTH BULLION GROUP No. 12-3372.
717 F.3d 545 (2013)
COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. WORTH BULLION GROUP, INC., Mintco LLC, and Diamond State Depository LLC, Defendants-Appellants.
United States Court of Appeals, Seventh Circuit.
Decided May 29, 2013.
Lawrence Demille-Wagman (argued), Attorney, Commodity Futures Trading Commission Office of the General Counsel, Washington, DC, Diane Romaniuk, Attorney, Commodity Futures Trading Commission, Chicago, IL, for Plaintiff-Appellee.
Steven M. Malina, Attorney, Gregory E. Ostfeld (argued), Attorney, Greenberg Traurig, LLP, Peter B. Shaeffer, Attorney, Chicago, IL, Allan Michael Lerner, Attorney, Allan M. Lerner, P.A., Fort Lauderdale, FL, Steven M. Malina, Attorney, for Defendants-Appellants.
Before RIPPLE and ROVNER, Circuit Judges, and BARKER, District Judge.
BARKER, District Judge.
This appeal arises from an action filed by the United States Commodity Futures Trading Commission ("CFTC") to enforce several administrative subpoenas served on Worth Bullion Group, Inc. ("Worth"), Mintco LLC ("Mintco"), and Diamond State Depository LLC ("DSD") in connection with the CFTC's investigation into
Appellants handed over the documents requested by the CFTC, but redacted the names and contact information of the individual customers, retailers, and intermediaries, asserting that they (the appellants) are covered by the Right to Financial Privacy Act ("RFPA"), which requires that customers of a "financial institution" be given notice and the opportunity to object before any disclosures are made.
Worth's business is the purchase of precious metals on world markets which it sells to retailers, such as Mintco, who sell the metal(s) to retail customers, who are generally individuals. Worth uses a form agreement with each of its retailers and requires its retailers to use similar agreements with each of their customers in connection with sales made by them. In a typical transaction, after a retailer makes a sale, it submits the order to Worth so that the metal can be transferred from Worth to the customer.
When Worth purchases precious metals, it arranges for the metals to be delivered to DSD, an independent, secure depository. Upon receipt, DSD initially holds the metals in a master account that it maintains for Worth. Worth claims that when one of its retailers makes a sale, delivery to that customer is effected by Worth's instructions to DSD to transfer the amount of metal(s) purchased by the customer from the master account into a subaccount that DSD creates for that customer. DSD then prepares and transmits to the customer a non-negotiable warehouse receipt, which reflects the creation of the customer's subaccount. Under the terms of the agreements Worth maintains with its retailers as well as the terms of the retailers' agreements with their customers, delivery occurs at the point when the metals are transferred to DSD with Worth's instructions to allocate the metals to the customer's account. According to Worth, it always makes delivery to its customers within 28 days.
Most of these precious metals sales are financed, meaning that the customer pays only a portion of the price and borrows the remainder. A significant portion of Worth's business includes financing customers' purchases of precious metals. When it makes a loan to a customer, Worth charges interest on the unpaid balance and takes a security interest in the
The CFTC is an independent regulatory agency charged by law with the administration and enforcement of the Commodity Exchange Act, as amended, 7 U.S.C. § 1 et seq. ("CEA"). The CEA authorizes the CFTC to bring an enforcement action in federal court against any person who is violating or is about to violate any of the CEA's antifraud provisions. 7 U.S.C. § 13a-1. On November 15, 2011, the CFTC issued a formal order of investigation to determine whether any person, firm, or entity has violated the CEA in connection with retail commodity transactions, including those in which appellants are engaged. In particular, the CFTC investigation is focused on: "whether any person has violated 7 U.S.C. § 6(a), which prohibits, inter alia, the sale of any commodity futures contract unless that sale is conducted on a contract market registered by the [CFTC]; 7 U.S.C. § 6b, which prohibits, inter alia, the use of deception in connection with the sale of any commodity futures contract; and 7 U.S.C. § 15, which prohibits any person from using deception in connection with the sale of any commodity in interstate commerce."
Pursuant to its investigation, the CFTC issued subpoenas to Worth, Mintco, and DSD, seeking documents relating to the time period from July 16, 2011 to the present. The subpoena directed to Worth, issued on November 16, 2011, sought documents and information relating, inter alia, to the opening of accounts for customers; deliveries of metal from Worth to any customer; payments between Worth and any customer; sales or purchases of metals made by Worth for or on behalf of any customer; and Worth's precious metal financing. On December 7, 2011, the CFTC issued a subpoena to Mintco, seeking similar documents and information, including, inter alia, transaction history reports for all of Mintco's customers; documents related to the actual delivery of metal to Mintco's customers; documents related to the storage of metal by anyone on behalf of Mintco's customers; and documents related to loans, credit, or financing provided by Mintco to any customer. The CFTC issued two subpoenas to DSD, one on December 21, 2011, and the other on January 6, 2012. These subpoenas sought information concerning Worth, its retailers, and its customers, including, inter alia, documents regarding Worth's inventory of precious metals; documents related to the storage and physical delivery of precious metals for Worth, any affiliated dealers, and Worth's customers; and documents relating to sales or purchases of precious metals by Worth, its affiliated dealers, and its customers.
Worth, Mintco, and DSD each reportedly produced thousands of pages of responsive documents to the subpoenas, but failed to fully comply with the subpoenas by redacting the names and identifying information of their customers, independent retailers, and delivery intermediaries from the documents.
The district court held that the RFPA does not apply to appellants because they do not fall within the statute's definition of "financial institution." Applying the doctrine of noscitur a sociis,
The RFPA expressly prohibits "financial institutions" from providing a government agency with access to any customer's financial records unless the customer is first given notice and the opportunity to object. 12 U.S.C. §§ 3402, 3405. The RFPA defines "financial institution" as "any office of a bank, savings bank, card issuer ..., industrial loan company, trust company, savings association, building and loan, or homestead association (including cooperative banks), credit union, or consumer finance institution." 12 U.S.C. § 3401. Appellants contend that Worth and Mintco qualify as "consumer finance institutions" under this definition. The question of who qualifies as a "consumer finance institution" under the RFPA is a matter of first impression in this circuit.
Because the RFPA does not explicitly define "consumer finance institution," we begin with our analysis of the plain and ordinary meaning of the phrase. Acknowledging that we have on occasion regarded dictionaries to be "a helpful resource in ascertaining the common meaning of terms that a statute leaves undefined," Shlahtichman v. 1-800 Contacts, Inc.,
These dictionary definitions do not carry the day for appellants, however. As our court has previously cautioned, "[d]ictionary definitions are acontextual," United States v. Costello,
It is clear that all of the referenced entities surrounding the phrase "consumer finance institution" in the RFPA's definition of "financial institution," including banks, card issuers, loan and trust companies, and credit unions, convey considerably more than a tangential or secondary relationship to the field of financing. Rather, a primary reason each of these entities exists is to provide financing and cash loans to the general public, making these services a core function and purpose of such businesses. To avoid broadening the meaning of the term beyond what Congress intended when it enacted the RFPA, we assign a meaning of "consumer finance institution" with an eye toward "the company it keeps." Gustafson v. Alloyd Co., Inc.,
The nature of appellants' businesses is readily distinguishable from that of the other entities listed in the RFPA's definition of "financial institution" and the similarities proffered by appellants are both chimerical and unavailing. Worth and Mintco provide financing primarily, if not solely, for the very narrow purpose of enabling or facilitating their customers' purchases of the goods they sell, to wit, precious metals. No evidence has been adduced that indicates that individuals who receive credit from Worth or Mintco also obtain cash loans or that they receive financing in amounts beyond the amount needed to bridge the gap between their down payments and the purchase prices of the precious metals which they are buying. In this way, the provision of financing is not a defining characteristic of appellants' business; rather, it is merely a means to an end, the real or primary goal of the transaction being a sale of precious metals. Clearly, Worth and Mintco are sellers, not financial institutions. This is, in fact, how they identify themselves — as a wholesaler and retailer of precious metals, respectively. Moreover, although appellants claim to be "consumer finance institutions," the loan contract which they use for their financing transactions explicitly provides that any financing that a borrower obtains through Worth's financing program is not to be used "for any personal, family, household or other consumer purposes."
However, these bottom line numbers do not in and of themselves demonstrate that appellants provide loans to members of the general public who are not their customers for any purpose other than the purchase of precious metals. For example, Worth is affiliated with a number of retailers, who, in turn, make sales to the public. Mintco is the only such retailer who is an appellant before us here. Thus, loans made to customers of Worth's other retailers for the purchase of precious metals would fall within the category of loans "for purposes other than the purchase of precious metals from any Appellant," but would clearly not be a loan to a member of the general public unrelated to the purchase of precious metals from Worth or its affiliated retailers. As the CFTC points out, without more information regarding the identity of the borrowers and the purpose of the loans, it is impossible to determine whether, for example, these numbers represent situations in which Worth has allowed existing customers who previously purchased precious metals from Worth or its retailers and have sufficient equity in their accounts to borrow against that equity. Again, such loans, even if they were for a purpose other than the purchase of precious metals, would not necessarily demonstrate that appellants are in the practice of making loans to individuals who are not their customers. Thus, nothing about this proffered evidence alters our analysis regarding the nature of appellants' business.
Nor are we persuaded by appellants' argument that we should adopt the definition of "financial institution" contained in the Bank Secrecy Act ("BSA"), 31 U.S.C. § 5312, which specifically includes precious metal dealers. See 31 U.S.C. § 5312(a)(2)(N). Although the RFPA explicitly incorporates the broader definition set forth in the BSA in certain provisions, none of those sections are at issue here. Section 3414 of the RFPA provides that "[f]or purposes of this section and sections 3415 and 3417 of this title insofar as they relate to the operation of [section 3414], the term `financial institution' has the same meaning as in subsections (a)(2) and (c)(1) of section 5312 of title 31 [the BSA]...." Section 3414 has no application here, however, as it applies only when the government is seeking the customer records of a financial institution in connection with a counterintelligence,
For the foregoing reasons, we hold that appellants do not qualify as "financial institutions" under the RFPA,
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