Commodity Futures Trading Commission v. Worth Bullion Group, Inc.

In the

United States Court of Appeals

For the Seventh Circuit

No. 12-3372

C OMMODITY F UTURES T RADING C OMMISSION,

Plaintiff-Appellee,

v.

W ORTH B ULLION G ROUP, INC.,

M INTCO LLC, AND D IAMOND S TATE D EPOSITORY LLC,

Defendants-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 12 C 2431—John A. Nordberg, Judge.

A RGUED JANUARY 22, 2013—D ECIDED M AY 29, 2013

Before R IPPLE and R OVNER, Circuit Judges, and B ARKER,

District Judge.Œ

B ARKER, District Judge. This appeal arises from an

action filed by the United States Commodity Futures

Œ

The Honorable Sarah Evans Barker, United States District

Court for the Southern District of Indiana, sitting by designation.

2 No. 12-3372

Trading Commission (“CFTC”) to enforce several admin-

istrative 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 whether appellants are in

violation of various sections of the Commodity Ex-

change Act. 7 U.S.C. §§ 1 et seq. Worth, Mintco and DSD

all conduct business in the precious metals market.

Worth is a precious metal wholesaler; Mintco is

a precious metals dealer and retailer; and DSD is a dep-

ository for storing precious metals. The subpoenas

seek documents relating to purchases or sales of

precious metals in which appellants were involved.

Appellants handed over the documents requested by

the CFTC, but redacted the names and contact informa-

tion of the individual customers, retailers, and intermedi-

aries, asserting that they (the appellants) are covered by

the Right to Financial Privacy Act (“RFPA”), which re-

quires that customers of a “financial institution” be

given notice and the opportunity to object before any

disclosures are made.1 See 12 U.S.C. §§ 3401, 3402(2), 3405.

The district court rejected this argument, finding that

the RFPA does not apply to appellants, and ordered

1

Before the district court, appellants alternatively argued

that the materials that they produced established that the

CFTC does not have jurisdiction over the transactions at

issue because the documents show that delivery of precious

metals in each instance occurred within 28 days of the sale,

which places them outside the scope of 7 U.S.C. § 2(c)(2)(D).

That issue has not been renewed on appeal, however.

No. 12-3372 3

Worth, Mintco, and DSD to comply in full with the sub-

poenas. The district court’s order is currently stayed

pending appeal. On appeal, we consider whether appel-

lants are covered “financial institutions” under the

RFPA. For the reasons explained below, we hold that

they are not and thus affirm the district court’s holding.

I. BACKGROUND

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 con-

nection 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 instruc-

tions to DSD to transfer the amount of metal(s) pur-

chased 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 agree-

4 No. 12-3372

ments 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 trans-

ferred 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, mean-

ing that the customer pays only a portion of the price

and borrows the remainder. A significant portion of

Worth’s business includes financing customers’ pur-

chases 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 metals as collateral.

Worth also provides monthly account statements to its

customers, which include the financing fees payable

to Worth. Mintco reportedly arranges financing through

Worth’s financing program both for customers who

purchase Worth’s precious metals as well as for cus-

tomers who purchase other metals. Financing generates

approximately 80% of Worth’s and 90% of Mintco’s

business and revenues.

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

No. 12-3372 5

entity has violated the CEA in connection with retail

commodity transactions, including those in which ap-

pellants are engaged. In particular, the CFTC investiga-

tion 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 con-

tract; and 7 U.S.C. § 15, which prohibits any person

from using deception in connection with the sale of any

commodity in interstate commerce.” 2

Pursuant to its investigation, the CFTC issued sub-

poenas to Worth, Mintco, and DSD, seeking docu-

ments 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 cus-

tomer; 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 sub-

poena to Mintco, seeking similar documents and infor-

mation, including, inter alia, transaction history reports

for all of Mintco’s customers; documents related to

the actual delivery of metal to Mintco’s customers; docu-

ments related to the storage of metal by anyone on

2

Appellee’s Resp. at 7.

6 No. 12-3372

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 re-

lating 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 sub-

poenas, 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.3 The identities

of Worth’s own suppliers and depositories were not

redacted, however, nor were any dates, transaction

data financial data, account numbers for customers, or

retailers’ identification numbers. Worth and Mintco

based their decision to redact the identifying informa-

tion on the relinquished materials on the grounds that,

because financing consumers’ purchases of metals was

3

Appellants concede that the names and identifying informa-

tion of the retailers and intermediary delivery companies

must be produced and have not appealed that portion of the

district court’s ruling.

No. 12-3372 7

an essential part of their businesses, they were “finan-

cial institutions” under the RFPA and, as such, the

CFTC was required to notify their customers before

appellants were permitted to make any disclosures of

personal information, and so informed the CFTC. DSD,

although not claiming to be a covered financial institu-

tion, redacted information on its subpoenaed docu-

ments based on its contention that, as an agent of Worth,

it is subject to the same restrictions under the RFPA.

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,4 the district court deter-

mined that appellants’ business was not sufficiently

similar to the other entities listed in the RFPA’s defini-

tion of “financial institution,” and thus, ordered ap-

pellants to comply in full with the subpoenas. The

district court subsequently stayed its ruling pending

appeal, based on appellants’ claim that compliance with

the subpoenas would cause them irreparable harm.

4

Under the doctrine of noscitur a sociis, “the meaning of

questionable words or phrases in a statute may be ascertained

by reference to the meaning of words or phrases associated

with it.” United States v. Schuster, 467 F.3d 614, 619-20 (7th

Cir. 2006) (internal quotations and citation omitted).

8 No. 12-3372

II. DISCUSSION

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 . . ., indus-

trial 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 in-

stitutions” 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.5 As

5

Following oral argument, our research disclosed that this

issue has been recently addressed in the Southern District of

Florida in Federal Trade Comm’n v. Sterling Precious Metals, LLC,

No. 12-80597-CIV, 2013 WL 1442180 (S.D. Fla. Apr. 9, 2013), a

case involving another of Worth’s precious metal retailers

and three of its members. There, defendants argued that they

were consumer finance institutions under the RFPA by virtue

of their facilitation of their customers’ financing through

Worth for the purchase of precious metals. In the alternative,

defendants argued that, even if they themselves did not meet

the definition, Worth qualifies as a consumer finance institu-

tion; they are Worth’s agents and, as such, they are also

covered under the RFPA. The district court held that the

defendants were not consumer finance institutions under the

(continued...)

No. 12-3372 9

an issue of statutory construction, it is a legal question

that we consider de novo. Masters v. Hesston Corp., 291

F.3d 985, 989 (7th Cir. 2002) (citation omitted).

Our starting point in cases involving statutory con-

struction is “the language employed by Congress and

the assumption that the ordinary meaning of that

language accurately expresses the legislative purpose.”

Turley v. Gaetz, 625 F.3d 1005, 1008 (7th Cir. 2010) (quoting

Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194

(1985)). In the absence of statutory definitions, “ ‘we

accord words and phrases their ordinary and natural

meaning and avoid rendering them meaningless, redun-

dant, or superfluous; we view words not in isolation

but in the context of the terms that surround

them . . . .’ ” Scherr v. Marriott Int’l, Inc., 703 F.3d 1069,

1077 (7th Cir. 2013) (quoting In re Merchants Grain, Inc., 93

F.3d 1347, 1353-54 (7th Cir. 1996)). Where we confront

terms that are subject to competing definitions, “we

usually define them in reference to the terms they

appear with.” United States v. Taylor, 640 F.3d 255, 263

(7th Cir. 2011). Statutory interpretation “is guided not

(...continued)

RFPA, rejecting many of the same arguments advanced here

by appellants. The court did not reach the question of

Worth’s status under the RFPA, however, because it held

that the defendants had failed to establish that they were,

in fact, acting as agents of Worth, and thus, regardless of

whether Worth was a financial institution, they were not

covered entities.

10 No. 12-3372

just by a single sentence or sentence fragment, but by

the language of the whole law, and its object and pol-

icy.” United States v. Balint, 201 F.3d 928, 933 (7th Cir.

2000) (citations omitted).

Because the RFPA does not explicitly define “con-

sumer finance institution,” we begin with our analysis of

the plain and ordinary meaning of the phrase. Acknowl-

edging 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., 615 F.3d 794, 799

(7th Cir. 2010), appellants cite various dictionary defini-

tions, primarily relying on Black’s Law Dictionary, which

defines “finance company” as “[a] nonbank company

that deals in loans either by making them or by pur-

chasing notes from another company that makes the

loans directly to borrowers,” and further defines “con-

sumer finance company” as “[a] finance company that

deals directly with consumers in extending credit.”

B LACK’S L AW D ICTIONARY 706 (9th ed. 2009). Appellants

also cite definitions of “consumer finance company” from

internet sources, one of which defines the term as: “A non-

bank lender. A consumer finance company does not

receive deposits, but does make loans to customers for

business or personal use. It derives its profits from the

interest on these loans. It is also called simply a finance

company.” T HE F REE D ICTIONARY B Y F ARLEX, http://

financial-dictionary.thefreedictionary.com/Consumer+

Finance+Company (last visited on May 23, 2013). Appel-

lants contend that both Worth and Mintco clearly

No. 12-3372 11

fall within these definitions because they are non-

bank entities who deal directly with customers to

provide and facilitate financing for business or

personal use.

These dictionary definitions do not carry the day for

appellants, however. As our court has previously cau-

tioned, “[d]ictionary definitions are acontextual,” United

States v. Costello, 666 F.3d 1040, 1044 (7th Cir. 2012), and

thus “must be used as sources of statutory meaning

only with great caution.” Id. at 1043. Here, when taken

in context, the meaning of the term “consumer finance

institution” is “narrowed by the commonsense canon of

noscitur a sociis—which counsels that a word is given

more precise content by the neighboring words with

which it is associated.” United States v. Williams, 553

U.S. 285, 294 (2008) (citations omitted); see also Costello,

666 F.3d at 1046 (“[A]djacent terms shed light on each

other’s meaning, . . . a light not to be found in a dic-

tionary . . . .”) (internal citation omitted). Under the

principle of noscitur a sociis, “the fact that ‘several items

in a list share an attribute counsels in favor of inter-

preting the other items as possessing that attribute as

well.’ ” Center for Individual Freedom v. Madigan, 697 F.3d

464, 496 (7th Cir. 2012) (quoting Beecham v. United States,

511 U.S. 368, 371 (1994)).

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

12 No. 12-3372

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., 513 U.S. 561, 575 (1995).

Applying that cannon of statutory construction here

brings us to the conclusion that Congress did not intend

“consumer finance institution” to include every retailer

that extends financing to a percentage of its customers

as part of its business, which would be the result if ap-

pellants’ definition were adopted.6

The nature of appellants’ businesses is readily distin-

guishable 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

6

Appellants criticize the CFTC for failing to put forth its

own definition of “consumer finance institution.” Although the

CFTC has not proposed a specific definition, it referenced at

oral argument a number of entities, including small loan

companies, consumer discount companies, and household

finance companies, as examples distinct from the other nine

entities listed in the RFPA’s definition of “financial institu-

tions” but yet sufficiently similar to those entities to satisfy the

doctrine of noscitur a sociis and thus qualify as “consumer

finance institutions” under the RFPA.

No. 12-3372 13

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 pre-

cious 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, al-

though appellants claim to be “consumer finance insti-

tutions,” the loan contract which they use for their fi-

nancing transactions explicitly provides that any fi-

nancing that a borrower obtains through Worth’s

financing program is not to be used “for any personal,

family, household or other consumer purposes.” 7 Given

these facts, it is clear that neither Worth nor Mintco

qualifies as a “consumer finance institution,” and thus

they are not “financial institutions” under the RFPA.

Further, the RFPA is inapplicable to DSD because ap-

pellants’ only argument with regard to DSD is a “boot-

strap” argument, namely, that, as Worth’s agent, the

RFPA applies to DSD to the extent it applies to Worth.

7

A.R. at 226.

14 No. 12-3372

Any other argument likewise is not supported by the

evidence. The evidence submitted by appellants in

support of their contention that their business includes

making loans to the public at large for purposes other

than the purchase of their own precious metals 8 consists

of two charts, both of which relate to the period from

July 2011 to December 2012. According to the informa-

tion reflected in the charts, during that time period,

Worth made 4,441 loans totaling $246.7 million, and

Mintco made 139 loans totaling $12.3 million. Of these

loans, 572 of Worth’s loans totaling $5.8 million, and

nine of Mintco’s loans totaling approximately $20,000,

were loans “to the public at large for purposes other

than the purchase of precious metals from any Appel-

lant.” Supp. Mem. at 2.

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 cus-

tomers for any purpose other than the purchase of

8

Following oral argument, we requested that appellants

supplement the record with documentation identifying loans

made by appellants to the public at large. Appellants argue

that the CFTC has waived any argument based on the rele-

vance of such loans because it failed to raise this issue

before the district court. However, the nature of appellants’

financing activities is relevant to the application of the

doctrine of noscitur a sociis, which was central to the district

court’s decision that appellants have challenged. Because

the CFTC raised this issue in the context of defending the

district court’s opinion on appeal, there has been no waiver.

No. 12-3372 15

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 appel-

lant 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 pur-

poses other than the purchase of precious metals from

any Appellant,” but would clearly not be a loan to a mem-

ber 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 re-

garding 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 appel-

lants 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 deal-

ers. See 31 U.S.C. § 5312(a)(2)(N). Although the RFPA

explicitly incorporates the broader definition set forth

16 No. 12-3372

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 opera-

tion 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 counter-

intelligence, terrorism, or Secret Service investigation.

Because the RFPA explicitly incorporates the BSA’s

definition of financial institution only for this nar-

row purpose, there is no basis on which to conclude

that Congress intended it to apply to the type of

law enforcement investigation the CFTC is conducting

here.

For the foregoing reasons, we hold that appellants do

not qualify as “financial institutions” under the RFPA,9 and

9

The CFTC argues that, even if appellants were covered

“financial institutions” under the RFPA, the RFPA’s customer

notification provisions would still not be applicable because

the CFTC’s investigation falls within one of the enumerated

exceptions to the notification requirement. The exception

invoked by the CFTC provides in relevant part: “Nothing in

this chapter (except sections 3403, 3417 and 3418 of this title)

shall apply when financial records are sought by a Government

authority—(A) in connection with a lawful proceeding, investi-

gation, examination, or inspection directed at a financial

(continued...)

No. 12-3372 17

the judgment of the district court is therefore A FFIRMED.

(...continued)

institution (whether or not such proceeding, investigation,

examination, or inspection is also directed at a customer)

or at a legal entity which is not a customer . . . .” 12 U.S.C.

§ 3413(h)(1)(A). However, when the government seeks rec-

ords pursuant to this section, it must provide certification to

the target financial institution indicating that the investiga-

tion is directed at the institution. To our knowledge, although

the CFTC has offered to provide such a certification to appel-

lants, it has not yet done so. Thus, we do not reach the merits

of this argument (nor need we do so, given our determina-

tion that the RFPA does not apply to appellants in any event).

5-29-13