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People ex rel DuFauchard v. U.S. Financial Management

January 12, 2009

THE PEOPLE EX REL. PRESTON DUFAUCHARD, AS CORPORATIONS COMMISSIONER, ETC., PLAINTIFF AND RESPONDENT,
v.
U.S. FINANCIAL MANAGEMENT, INC., ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of San Diego County, Rafael A. Arreola, Judge. Affirmed. (Super. Ct. No. 37-2007-0078116-CU-PT-CTL).

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

The California Corporations Commissioner (the Commissioner), as the head of the Department of Corporations (the Department), issued an investigatory administrative subpoena duces tecum to U.S. Financial Management, Inc. and U.S. Financial Management (collectively U.S. Financial Management) pursuant to Government Code sections 11180 through 11182 and Financial Code*fn1 section 12305. Through his subpoena, the Commissioner sought various records from U.S. Financial Management relevant to his investigation regarding the company's suspected violation of section 12000 et seq. (the Prorater Law). U.S. Financial Management refused to fully comply with the subpoena. Among other objections, U.S. Financial Management objected to the request for records pertaining to its activities involving non-California residents, on the ground that the Commissioner lacked jurisdiction to investigate such activities.

The Commissioner filed a petition in the trial court seeking an order compelling U.S. Financial Management to comply with the subpoena. The Commissioner alleged that U.S. Financial Management is a California corporation and a California-based company engaged in prorating with clients from both California and other states. In response, U.S. Financial Management claimed that the Commissioner lacked jurisdiction to investigate its activities with non-California residents. The trial court ordered U.S. Financial Management to fully comply with the Commissioner's subpoena, including providing documents pertaining to non-California residents.

On appeal, U.S. Financial Management claims that the trial court erred in ordering it to comply with the Commissioner's subpoena. U.S. Financial Management's sole argument is that the Commissioner lacks jurisdiction to investigate its activities involving non-California residents. We conclude that the Commissioner has the authority to investigate conduct on the part of U.S. Financial Management, a California corporation whose principal place of business is in California, even where that conduct involves only nonresidents.*fn2 Therefore, we affirm the judgment.

II. FACTUAL AND PROCEDURAL BACKGROUND

In October 2007, the Commissioner filed a petition seeking an order compelling U.S. Financial Management's compliance with a June 28, 2007 subpoena duces tecum. In his petition, the Commissioner alleged that the Department is responsible for administering and enforcing the Prorater Law.*fn3

The Commissioner noted that "[a]n individual or entity must first obtain a license from the Commissioner before acting as a prorater, or be exempt." The Commissioner alleged that U.S. Financial Management was acting as a prorater with both California and out-of-state clients, without a license.

The Commissioner stated that in July 2007, the Department properly served a subpoena duces tecum on U.S. Financial Management, requesting the production of certain documents in the course of an investigation into possible violations of the Prorater Law. The Commissioner stated that the Department received a letter from U.S. Financial Management's attorney in August 2007 admitting that U.S. Financial Management had engaged in unlicensed prorating.

In September 2007, U.S. Financial Management sent the Commissioner a document entitled "Responses and Objections to Subpoena Duces Tecum," in which it outlined various grounds on which it based its refusal to produce certain documents. The Commissioner further noted that U.S. Financial Management had "failed and refused to produce any documents relevant to... past and current out-of-state prorating clients," in responding to the subpoena.

The Commissioner supported his petition with, among other items, a brief setting forth legal points and authorities, a copy of the subpoena, various correspondence between the Commissioner and U.S. Financial Management regarding U.S. Financial Management's obligations pursuant to the subpoena, U.S. Financial Management's responses and objections to the subpoena, and a declaration attesting to the Commissioner's efforts to gain U.S. Financial Management's compliance with the subpoena.

In its opposition to the Commissioner's petition, U.S. Financial Management stated, "Although [U.S. Financial Management] ha[s] debt settlement clients who are California residents, and [U.S. Financial Management's] office is in San Diego, [U.S. Financial Management] conduct[s] most of [its] business outside of California with [its] non-California resident debt settlement clients." U.S. Financial Management argued that the Commissioner did not have the authority to regulate "occurrences outside the state," but did not specify which of the Commissioner's requests sought information related to such occurrences. U.S. Financial Management also argued that the Commissioner lacked jurisdiction to investigate any of its activities with respect to non-California residents.

U.S. Financial Management supported its opposition with, among other items, a declaration from its president, John Tran. In his declaration, Tran stated that U.S. Financial Management operates a debt settlement business. Tran explained, "In simple form, a debt settlement company negotiates with creditors for creditors to accept a lump sum payoff of a consumer's debt, the lump sum being at a lower amount than what is owed to the creditor." Tran explained that a creditor may be willing to accept such a payoff because the consumer is often in a position to file for bankruptcy protection. Tran stated "Although [U.S. Financial Management] ha[s] debt settlement clients who are California residents, and [U.S. Financial Management's] office is in San Diego, most of [U.S. Financial Management's] customers reside outside of California and, therefore, most of [U.S. Financial Management's] business occurs outside of California."

In his reply to U.S. Financial Management's opposition, the Commissioner noted that U.S. Financial Management's Web site indicates that its headquarters is located in San Diego, California. The Commissioner claimed, "As a California-based prorater, all of [U.S. Financial Management's] activities originate from California." The Commissioner argued, "[T]he Department has the authority to request and review documents relating to [U.S. Financial Management's] prorating activities with respect to both California and out-of-state clients-if merely to determine whether those business activities are within the Department's jurisdiction...."

In November 2007, the trial court heard oral argument on the matter. After hearing argument, the court stated that it would grant the petition. On December 10, 2007, the court entered an order entitled "ORDER TO PRODUCE: NUMBER ONE."*fn4 The trial court ordered U.S. Financial Management to produce the documents requested by the Commissioner's subpoena duces tecum, including a list containing the "contact information... of past and current out-of-state prorating clients," "executed applications, contracts or other agreements... entered into between [U.S. Financial Management] and past and current out-of-state prorating clients," "documents reflecting payment of settlement fees by past and current out-of-state prorating clients," and "scripts, brochures, advertising materials, summaries, booklets, illustrations, and other documents... describing [U.S. Financial Management's] services to past and current out-of-state prorating clients...."

U.S. Financial Management timely appeals from the trial court's "ORDER TO PRODUCE: NUMBER ONE."

III. DISCUSSION

A. The Trial Court's "ORDER TO PRODUCE: NUMBER ONE" is Appealable as a Final Judgment

At the outset, we address whether this court has appellate jurisdiction to consider U.S. Financial Management's appeal.

In State ex rel. Dept. of Pesticide Regulation v. Pet Food Express Ltd. (2008) 165 Cal.App.4th 841 (State ex rel. Dept. of Pesticide Regulation), the court noted, "Confusion exists regarding appealability of orders enforcing administrative subpoenas." (Id., at p. 849; compare e.g., Millan v. Rest. Enters. Group, Inc. (1993) 14 Cal.App.4th 477, 485 (Millan) [holding that "the better view is that'orders requiring compliance with the subpoenas are appealable as final judgments in special proceedings....' "], with Bishop v. Merging Capital, Inc. (1996) 49 Cal.App.4th 1803, 1809 (Bishop) [concluding that orders compelling compliance with administrative subpoenas are not appealable].)

The Bishop court noted that an order compelling compliance with an administrative subpoena is not an appealable order. (Bishop, supra, 49 Cal.App.4th at p. 1806.) Further, the Bishop court suggested that such an order is not a final judgment, in light of the possibility of subsequent contempt proceedings to gain compliance with the order. (See id. at p. 1808 [stating that "any ruling rendered by this court would be in the nature of an advisory opinion," in light of the possibility of subsequent contempt proceedings].)

In following Millan and implicitly rejecting Bishop, the court in State ex rel. Dept. of Pesticide Regulation concluded that an order compelling compliance with an administrative subpoena is appealable as a final judgment:

"[A] judgment is the'final determination of the rights of the parties in an action or proceeding.' [Citation.] The statutory scheme [citation] provides for an original proceeding in the superior court, which results in an order directing the respondent to comply with the administrative subpoena. [Citations.] The court order enforcing the administrative subpoena is tantamount to a superior court judgment in mandamus which, with limited exceptions, is appealable under Code of Civil Procedure section 904.1. [Citation.] Whether the matter is properly characterized as an'action' [citation] or a'special proceeding' [citation], it is a final determination of the parties' rights.

It is final because it leaves nothing for further judicial determination between the parties except the fact of compliance or noncompliance with its terms. [Citation.] The fact that an intransigent respondent may be subject to a contempt order does not mean the court order is not final, because the same possibility exists with injunctions and final judgments which form the basis for contempt citations. The purpose of any judicial order which commands or prohibits specific conduct is to make the sanction of contempt available for disobedience. This fact does not render such an order'non-final.'

Indeed, the contempt judgment is not appealable but must be reviewed, if at all, by writ, and therefore review of the underlying order can reliably be had only if that order is appealable. [Citation.]" (State ex rel. Dept. of Pesticide Regulation, supra, 165 Cal.App.4th at p. 851.)

The State ex rel. Dept. of Pesticide Regulation court rejected the argument that an order compelling compliance with an administrative subpoena is ...


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