Lubin v. Agora, Inc.

RAKER, J. Pursuant to an investigation into potential violations of Maryland securities laws, appellant, the Maryland Securities Commissioner, served two subpoenas duces tecum on appellee, Agora, Inc., a company whose business includes publishing investment newsletters. Following Agora’s refusal to produce its subscriber lists, marketing lists, and other documents containing information identifying any of its subscribers, the Commissioner filed a motion to compel enforcement. The trial court denied the motion, concluding that the Commissioner had failed to demonstrate a compelling need for the subscriber lists as required by the First Amendment and that the demand for subscriber lists was overbroad. We must decide whether the First Amendment to the United States Constitution prevents the Commissioner from compelling discovery of the identities of Agora’s subscribers.

We shall hold that it does. I. Agora is a Maryland corporation that publishes books and newsletters on topics such as investment, travel, leisure, and health. In the investment newsletter market, it fields more than a dozen offerings, with such colorful titles as “Pirate Investor,” “Contrarian Speculator,” and “The Flying Y Lockup Trader.” It also operates an investors’ group known as “The Oxford Club,” which offers its members a variety of benefits, including a twice-monthly newsletter, internet advisories, meetings and seminars, a telephone hotline, and use of a club room at Agora’s headquarters in Baltimore. The Commissioner heads the Maryland Division of Securities (the “Division”), an administrative agency charged with enforcement of the Maryland Securities Act, Maryland Code (1975, 1999 Repl.Vol., 2004 Cum.Supp.) § 11-101 et seq. of the ⁶ Corporations and Associations Article, 1 including the regulation of investment advisers and broker-dealers and the offer and sale of securities.

The Division commenced an investigation of Agora based on two activities undertaken by Agora. First, Agora sent a May, 2002 mass email (“the Email”) to an indeterminate number of its own subscribers, and to other individuals drawn from commereially-available marketing lists. 2 The Email offered a four-page report (“the Report”) on an unnamed company, in which investors were promised they would “make a fortune.” According to the Email, one of Agora’s newsletter columnists had received “insider information” that a nuclear arms reduction treaty between the United States and Russia would be signed on a specific date and would create enormous profits for the unnamed company. The Email advised that investors could “double or even triple” them money by purchasing stock in the unnamed company on May 21, 2002, and selling two days later, after the public announcement of the international agreement. The name of this company would be revealed only to those who purchased the report, which was priced at $1,000.

How many copies of the report were transacted is unclear, but at least one person filed a complaint with the Division after he purchased the report, followed its advice to invest in United States Enrichment Corporation, Inc. (“USEC”), and lost money when the stock’s price declined. ⁷ The second activity that interests the Division is Agora’s operation of the Oxford Club. In particular, the Division was concerned about a venture known as the “Oxford Club— Chairman’s Circle,” which, according to a direct-mail advertisement, featured “[ljifetime access” to annual “private teleconference^] covering the issues most critical to our small group ... the world’s most knowledgeable experts to walk us through important strategies ... a Chairman’s Circle private researcher ... to help you find specific information concerning a certain stock, offshore investments, global banking, real estate or any other issue concerning investing and wealth protection,” as well as the “private numbers” of the Oxford Club’s Executive Director, Research Director, and members of its Investment Advisory Panel. The price to join the Chairman’s Circle was $5,000, and additional sums were due annually. The Commissioner is investigating whether these activities violate Maryland securities law.

First, she alleges that the Email or Report could violate the antifraud provisions codified at §§ 11-301 and 11-302 of the Securities Act. 3 Second, the Commissioner alleges that the activities of the Oxford Club ⁸ (and possibly the Email and Report) could constitute individualized investment advice and thus subject Agora to the registration requirements of § 11 — 401. 4 (Agora is not registered in Maryland as an investment advisor.) The Commissioner’s concerns in this regard are not limited strictly to the Oxford Club; she suspects that Agora may be offering individualized investment advice in other contexts. Third, the Commissioner alleges that Agora may have referred customers to specific brokerages for specific trades, possibly including the USEC matter, thus acting as an “introducing broker” and subjecting it to the broker-dealer registration requirements of § 11-401. 5 (Agora is not registered in Maryland as a broker-dealer.) In furtherance of her investigation, the Commissioner issued two subpoenas duces tecum pursuant to her power under ⁹ § 11-701 (b). In the June 26 subpoena, she demanded, inter alia, “4. Information regarding the circulation of The Oxford Club newsletter. 5.

Information regarding the circulation of each of the following newsletters: [seventeen newsletters named.] 10. Identifying information as to all persons and newsletter subscribers to whom the Tip [ie. the Email] was electronically mailed or otherwise sent, including name, address, email address and telephone number, or all documents containing that information. For newsletter subscribers, please show which newsletters are subscribed to. 11. Identifying information for all persons and newsletter subscribers who purchased the Tip [ie. the Report], including name, address, email address and telephone number, or all documents containing that information.

For newsletter subscribers, please show which newsletters are subscribed to. 14. All complaints or inquiries (including written, electronic and summaries of verbal complaints or inquiries) regarding the Tip or USEC Inc. 15. All correspondence regarding the Tip or USEC Inc.” In the March 31, 2003 subpoena, the Commissioner demanded, inter alia> “28. Client files relating to the ‘Members Liaison’ and ‘Telephone Hotline’ referred to at p. 7 of Exhibit E, including notes, memoranda and correspondence generated in connection with Oxford Club members’ inquiries, including that with respect to member representatives and clients. 30.

All complaints, including written complaints or synopses of verbal complaints, generated in connection with Exhibits A through E [Agora advertisements].” ¹⁰ Although Agora complied with the remainder of the subpoenas, it did not comply, or at least did not comply fully, with the items listed supra. In March 2003, the Commissioner informally narrowed her request for subscriber identifying information -with respect to Items 10 and 11 of the June 2002 subpoena, demanding that Agora produce identifying information for Maryland subscribers only. Agora refused consistently to produce any information identifying any of its subscribers. The Commissioner filed a complaint against Agora, amended in May 2003, in the Circuit Court for Baltimore City, for refusing to comply with the Division’s June 2002 and March 2003 subpoenas, and moved for enforcement of the subpoenas.

Agora admitted that it had not produced all the information demanded, but raised as an affirmative defense the protections of the First Amendment to the United States Constitution and Article 40 of the Maryland Declaration of Rights. The Circuit Court held a hearing as to whether the subpoena should be enforced. Before that court, the Securities Commissioner made clear to the court, and Agora agreed, 6 that the only issue before the court was the Commissioner’s request to the court to enforce the subpoena for the subscriber list. The Circuit Court for Baltimore County denied enforcement of the subpoenas.

The court reasoned as follows: “I do not believe that in our Bill of Rights that there is any provision that has higher priority than the First Amendment, and I think courts must be very zealous in guarding that most fundamental of all rights and not allow any erosion thereof. And I do believe that what the Commissioner is attempting to do here is, in its own relatively small way, an attempt to erode the fundamental principle. I do not believe that ¹¹ the Commissioner has made out any compelling showing why Agora, Inc., must release its subscriber list. In counsel’s opening argument, she said it would be very helpful, and perhaps it would be.

And even assuming it would be, that doesn’t win the ball game. That’s not what the Commissioner has to show. Counsel has argued it would be very useful to us. More than once, she said it would be very useful to us to show what the actions of Agora may have been.

Counsel has argued that by seeing these subscriber lists it may implicate Agora by talking to the subscribers, a fishing expedition is what this is called. You know, we’d like to talk to subscribers and maybe we’ll find something to implicate Agora. Maybe so. Maybe you would, but that is no basis for this.

There is no attempt to zero in on certain subscribers or a certain class of subscribers, but all subscribers. Not that a narrowing of the list would be permissible either, but at least we’re not at that point. It’s a shotgun approach. Counsel has argued, well it’s relevant to the inquiry.

Well, a million things can be relevant to an inquiry. And particularly when you are beginning an inquiry, one never knows what might be relevant. And to simply say to the Court well, this is relevant to an inquiry, which means a very broad-based pursuit, looking for whatever you might be able to find, that’s not enough. I think there are other avenues that might well be available to the Commissioner to obtain the identity of certain subscribers, be able to talk to certain subscribers.

There is no showing there at all that that would not be possible. There is no showing here at all that the Commissioner has made any concentrated effort to speak to subscribers, locate them, get the information which the Commissioner is seeking. And the fact that counsel has stated, well, it’s been narrowed down to Maryland subscribers is of no moment. I think it is definitely over broad. ¹² As I’ve indicated, if it were particularized to a certain group of subscribers only, I’m not sure whether that would remedy it either.

But we don’t have that situation. We have the situation here of all the subscribers in the State of Maryland. It is for these reasons that the Commissioner’s motion is denied.” The Commissioner noted a timely appeal to the Court of Special Appeals. Before consideration by that court, we issued a writ of certiorari on our own initiative.

Securities Commissioner v. Agora, 380 Md. 230 , 844 A.2d 427 (2004).

II

The Commissioner argues that the Circuit Court erred in its determination that First Amendment interests are implicated by the subpoenas and, therefore, failed to apply the proper test for enforcement of administrative subpoenas. The Commissioner argues that the subpoenas satisfy the three-part test articulated by the Supreme Court in Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 208-09 , 66 S.Ct. 494, 505-06 , 90 L.Ed. 614 (1946), and recognized by this Court in Banach v. State Commission on Human Relations, 277 Md. 502, 506 , 356 A.2d 242, 245-46 (1976), for enforcement of an administrative agency subpoena: (1) “the inquiry is authorized by statute;” (2) “the information sought is relevant to the inquiry;” and (3) “the demand is not too indefinite or over-broad.” See also State Commission v. Freedom Express, 375 Md. 2, 12 , 825 A.2d 354, 360 (2003). The Commissioner asserts that the information sought is relevant to the investigation, which is authorized by statute, because having 6 access to such information would allow the Division to investigate thoroughly whether Agora has violated provisions of the Securities Act, including §§ 11-301 and 11-302 (antifraud provisions), and § 11-401 (broker-dealer and investment adviser registration requirements). Speaking with subscribers and potential customers would allow the Commissioner to ascertain whether Agora transacted business as an investment adviser without registering as such in violation of ¹³ § 11-401 by, for example, providing personalized investment advice at Agora-hosted conference calls and symposia.

Having access to contact information for those persons who received the Email or purchased the Report also would enable the Commissioner to question those individuals about their dealings with Agora to determine whether Agora violated the Securities Act’s antifraud provisions by, for example, communicating false or misleading information to investors in a nonpublished format. The Commissioner maintains that the subpoenas satisfy the third prong of the Banach test because the demands are sufficiently definite and reasonable in scope considering the purpose of the investigation, and compliance with the subpoenas would not be burdensome. The Commissioner further contends that no legitimate First Amendment interest would be implicated by enforcement of the subpoenas because the subpoenas do not restrict Agora’s publishing activities in any way. The Commissioner claims that the subpoenas are enforceable because they were issued in connection with the Email, which she maintains is unprotected commercial speech because it is misleading and serves Agora’s economic interests.

Further, the Commissioner argues that the subpoenas do not implicate associational rights of Agora’s subscribers because the Commissioner seeks subscriber identities only as a means of fulfilling her statutory duty to protect investors and not in an effort to learn more about their associational ties or political persuasions. Agora argues that the First Amendment to the United States Constitution, Article 40 of the Maryland Declaration of Rights, and Maryland public policy promoting the free flow of information require a heightened level of review when an administrative subpoena seeks the disclosure of a publisher’s subscriber lists. Instead of merely satisfying the Banach test, Agora argues, the Commissioner must show the relevancy of the information sought, a compelling need for the information, and proof that the State has no other available means of obtaining it. Claiming that it has standing to assert the constitutional rights of its subscribers, Agora also argues that ¹⁴ the First Amendment associational rights of its readers trigger “exacting” scrutiny, as “probing questioning from regulators about their reading habits ... will undoubtedly discourage these readers from maintaining their relationship with the publisher” and exercising their First Amendment freedoms.

See Buckley v. Valeo, 424 U.S. 1, 64 , 96 S.Ct. 612, 656 , 46 L.Ed.2d 659 (1976) (“We long have recognized that significant encroachments on First Amendment rights of the sort that compelled disclosure imposes cannot be justified by a mere showing of some legitimate governmental interest. Since NAACP v. Alabama [ 357 U.S. 449 , 78 S.Ct. 1163 , 2 L.Ed.2d 1488 (1958) ] we have required that the subordinating interests of the State must survive exacting scrutiny.”) Agora maintains that the Commissioner has failed to show a compelling need for subscriber lists and has not exhausted other avenues for investigating Agora’s compliance with the Maryland Securities Act. First, Agora argues that the Division has no compelling need for subscriber lists in investigating whether Agora acted as an unregistered investment adviser in violation of § 11-401. Noting that the Commissioner has offered no evidence that Agora has provided personalized investment advice to its readers, Agora asserts that the subpoenas’ “dragnet” for the identities of all subscribers cannot meet the heightened requirement of a compelling or overriding governmental need.

Agora maintains that, in the context of the Division’s inquiry into possible noncompliance with investment advisor provisions, there are alternatives to demanding subscriber lists. Such alternatives might include gathering information from a narrower group of individuals who participated in Agora seminars, conference calls, and telephone hotline services, or seeking information from Agora employees themselves regarding communications to subscribers. Second, Agora maintains that there is no compelling or even relevant need for subscriber lists to investigate whether Agora violated antifraud provisions of Maryland securities laws. Even assuming that § 11-301 could provide a cause of action ¹⁵ against Agora, which Agora maintains it could not, 7 Agora asserts that the text of its publications, along with its trading records, which it has produced, would suffice in determining whether it made any false or misleading statements “in connection with” the offer, sale, or purchase of securities.

Further, Agora maintains that the Commissioner’s desire to know the extent to which readers may have relied upon Agora’s statements and suffered harm as a result cannot justify the demand for subscriber lists because reliance and damages are irrelevant to any action the Commissioner might bring against Agora under § 11-301. In sum, Agora argues that the Commissioner has made no compelling connection between the subjects of the inquiry and the request for identifying information of Agora subscribers.

III

We must determine whether the Commissioner legally may compel Agora to produce the subscriber lists. Ordinarily, administrative agency subpoenas will be enforced if the agency’s investigation is statutorily authorized, the information sought by the subpoena is relevant to the investigation, and the demand is not indefinite or overbroad. Banach v. St. Comm’n on Human Rel., 277 Md. 502, 506 , 356 A.2d 242, 245-46 (1976). The First Amendment, however, creates “an essential prerequisite to the validity of an investigation which intrudes into the area of constitutionally protected rights of speech, press, association and petition that the ¹⁶ State convincingly show a substantial relation between the information sought and a subject of overriding and compelling state interest.” Gibson v. Florida Legislative Investigation Committee, 372 U.S. 539, 546 , 83 S.Ct. 889, 893-94 , 9 L.Ed.2d 929 (1963).

We must examine the information sought by the Commissioner to determine whether to apply the ordinary Banach inquiry, or the much more exacting scrutiny required by the First Amendment. Having made that determination, we must then determine whether the applicable standard has been met. The First Amendment to the United States Constitution provides in part that “Congress shall make no law ... abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble.” 8 The Supreme Court long has recognized that the freedoms of speech and the press protected by the First Amendment encompass much more than the right to speak, write, and publish. See Griswold v. Connecticut, 381 U.S. 479, 482 , 85 S.Ct. 1678, 1680 , 14 L.Ed.2d 510 (1965) (“The right of freedom of speech and press includes not only the right to utter or to print, but the right to distribute, the right to receive, the right to read.”) Recognizing the interdependence between receipt of information, on the one hand, and expression of information on the other, the Court has stated: “This right [to receive information and ideas] is an inherent corollary of the rights of free speech and press that are explicitly guaranteed by the Constitution, in two senses.

First, the right to receive ideas follows ineluctably from the sender’s First Amendment right to send them.... More ¹⁷ importantly, the right to receive ideas is a necessary predicate to the recipient’s meaningful exercise of his own rights of speech, press, and political freedom.” Bd. of Educ., Island Trees Union Free School Dist. No. 26 v. Pico, 457 U.S. 853, 867 , 102 S.Ct. 2799, 2808 , 73 L.Ed.2d 435 (1982) (emphasis in original). The First Amendment protects broadly the rights of individuals to read and to receive ideas.

First Amendment freedoms are implicated and infringed directly when the government denies access to or proscribes reading materials on the basis of the contents of those materials. See, e.g., id. (holding that the First Amendment prohibits the government from removing books from the shelves of a school library based on the ideas contained in those books); Stanley v. Georgia, 394 U.S. 557 , 559 89 S.Ct. 1243, 1245 , 22 L.Ed.2d 542 (1969) (holding that a state statute criminalizing the mere possession of obscene materials in a person’s home violates the First Amendment). The First Amendment is implicated also when regulations deter or interfere with the receipt of information and free flow of ideas.

In United States v. Rumely, 345 U.S. 41 , 73 S.Ct. 543 , 97 L.Ed. 770 (1953), the Supreme Court said of government inquiry into the identities of those who purchase or read certain materials: “Surely it cannot be denied that giving the scope to the resolution for which the Government contends, that is, deriving from it the power to inquire into all efforts of private individuals to influence public opinion through books and periodicals, however remote the radiations of influence which they may exert upon the ultimate legislative process, raises doubts of constitutionality in view of the prohibition of the First Amendment.” Id. at 46 , 73 S.Ct. at 546 . 9 Unlike the majority in that case, Justice Douglas would have reached the constitutional issue. ¹⁸ His concurrence explains persuasively how freedom of expression is threatened by government inquiry into the identities of those who purchase or read certain materials: “A requirement that a publisher disclose the identity of those who buy his books, pamphlets, or papers is indeed the beginning of surveillance of the press.... Once the government can demand of a publisher the names of the purchasers of his publications, the free press as we know it disappears. Then the spectre of a government agent will look over the shoulder of everyone who reads. The purchase of a book or pamphlet today may result in a subpoena tomorrow.

Fear of criticism goes with every person into the bookstall. The subtle, imponderable pressures of the orthodox lay hold. Some will fear to read what is unpopular---The press and its readers will pay a heavy price in harassment____If [a book-buyer] can be required to disclose what she read yesterday and what she will read tomorrow, fear will take the place of freedom in the libraries, bookstores, and homes of the land.... Congress could not do this by law.

The power of investigation is also limited.” Id. at 57-58 , 73 S.Ct. 543, 551-52 (Douglas, J., concurring). The Supreme Court has condemned as unconstitutional the deterrent effect on speech that could arise if the government required readers to identify themselves before receiving through the mail certain reading material. See Lamont v. Postmaster Gen., 381 U.S. 301 , 85 S.Ct. 1493 , 14 L.Ed.2d 398 (1965). In Lamont , the Court struck down a postal regulation that required an addressee to file a written request with the post office before receiving “communist political propaganda.” Id. at 307 , 85 S.Ct. at 1496.

The Court held that the requirement that readers of such material identify themselves before getting access to the material was “almost certain to have a deterrent effect.” Id. The Court stated that the postal regula ¹⁹ tion at issue was “at war with the ‘uninhibited, robust, and wide-open’ debate and discussion that are contemplated by the First Amendment.” Id. at 307, 85 S.Ct. at 1496-97 (quoting New York Times Co. v. Sullivan, 376 U.S. 254, 270 , 84 S.Ct.