1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 3:22-cv-01914-H-SBC COMMISSION, 12 ORDER GRANTING PLAINTIFF Plaintiff, 13 SECURITIES AND EXCHANGE v. COMMISSION’S MOTION IN 14 LIMINE TO ADMIT RECORDED JOSEPH R. EARLE, JR., BARRY D. 15 STATEMENTS OF DEFENDANTS REAGH, WILLIAM CLAYTON, JOSEPH R. EARLE, JR. AND 16 FRANCIS T. DUDLEY, STEVEN E. BARRY D. REAGH BRYANT, UPPER STREET 17 MARKETING, INC., and PROJECT 18 GROWTH INTERNATIONAL, INC., [Doc. Nos. 106, 120.] 19 Defendants. 20 21 On June 27, 2024, Plaintiff Securities and Exchange Commission (“SEC”) filed a 22 motion in limine to admit recorded statements of Defendants Joseph R. Earle, Jr. (“Earle”) 23 and Barry D. Reagh (“Reagh”). (Doc. Nos. 106, 120.) On July 15, 2024, Defendants Earle, 24 Reagh, and William Clayton (“Clayton”) filed an opposition to the motion in limine. (Doc. 25 Nos. 110, 116.) On July 22, 2024, the SEC filed a reply. (Doc. No. 117.) A hearing on 26 the SEC’s motion is currently scheduled for Monday, September 9, 2024, at 10:30 a.m. 27 Pacific Time. (Doc. No. 123.) The Court, pursuant to its discretion under Civil Local Rule 28 7.1(d)(1), determines the matter is appropriate for resolution without oral argument, 1 submits the motion on the parties’ papers, and vacates the hearing. For the reasons below, 2 the Court grants the SEC’s motion in limine to admit recorded statements of Earle and 3 Reagh. 4 I. ANALYSIS 5 The SEC seeks an order from the Court allowing the SEC to admit four undercover 6 recordings of a confidential human source working for the Federal Bureau of Investigations 7 (“FBI”). (Doc. No. 106-1 at 7.) The SEC alleges that the confidential human source 8 consensually recorded his conversations with Earle and Reagh, where they made 9 statements in person and during recorded telephone calls that the SEC intends to use against 10 Earle, Reagh, and Clayton at trial. (Id.) The SEC argues that these consensually recorded 11 statements should be admitted because: (1) the recorded statements are relevant to the 12 SEC’s fraud claims against Earle, Reagh, and Clayton; (2) the recorded statements are not 13 hearsay; (3) the recorded statements were not obtained in violation of federal law; and 14 (4) the SEC can properly authenticate the recorded statements. (Id. at 14–19.) Defendants 15 do not dispute relevancy and that the recorded statements are not hearsay. Instead, 16 Defendants argue that the recorded statements should be excluded because: (1) Title III of 17 the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510–20 18 (“Title III”), precludes submission of the recorded statements at trial; (2) the Court should 19 bar testimony from any FBI personnel because they were not disclosed as potential 20 witnesses; and (3) the recorded statements would be unduly prejudicial. (Doc. No. 110 21 at 6–15.) The Court addresses each argument in turn below. 22 A. Relevance 23 Evidence is relevant if it has any tendency to make a fact of consequence more or 24 less probable than it would be without the evidence. Fed. R. Evid. 401. The SEC argues 25 that the consensually recorded statements are key pieces of evidence in support the SEC’s 26 fraud claims against Earle, Reagh, and Clayton. (Doc. No. 106-1 at 14.) Upon review of 27 the transcripts provided to the Court, the Court agrees with the SEC. Because the recorded 28 statements have a tendency to make a fact of consequence more or less probable than it 1 would be without the evidence, they are relevant. See Fed. R. Evid. 401. 2 B. Hearsay 3 “Hearsay” is defined as a declarant’s out of court statement used to prove the truth 4 of the matter asserted. Fed. R. Evid. 801(c). Hearsay evidence is generally inadmissible, 5 unless subject to certain exceptions. Fed. R. Evid. 802. Here, Earle and Reagh’s own 6 statements are admissible under Federal Rule of Evidence 802, which excludes from the 7 definition of hearsay a party’s own statements. See United States v. Matlock,

, 8 172 (1974) (a party’s “own out of-court admissions . . . surmount all objections based on 9 the hearsay”). As for the statements made to Earle and Reagh on the recordings, Earle and 10 Reagh participated in the calls and meetings and nothing in the transcripts provided to the 11 Court suggests that they did not hear and agree with these statements. Thus, these adoptive 12 admissions are admissible under Rule 801(d)(2)(B). Fed. R. Evid. 801(d)(2)(B); see 13 United States v. Monks,

(9th Cir. 1985) (adoptive admissions may be 14 presented to the jury where “sufficient foundational facts have been introduced for the jury 15 reasonably to conclude that the defendant did actually hear, understand and accede to the 16 statement”). Lastly, Earle and Reagh’s statements are admissible against each other and 17 against Clayton under Rule 801(d)(2)(E) because they were made during and in furtherance 18 of a conspiracy or common enterprise alleged in the complaint. See generally Bourjaily v. 19 United States,

(1987). Accordingly, the recorded statements are not 20 hearsay. 21 C. Authenticity 22 Next, the SEC argues that it can properly authenticate the recordings. (Doc. 23 No. 106-1 at 17–19.) “To satisfy the requirement of authenticating or identifying an item 24 of evidence, the proponent must produce evidence sufficient to support a finding that the 25 item is what the proponent claims it is.” Fed. R. Evid. 901(a). “In other words, the party 26 offering the evidence must make a prima facie showing of authenticity ‘so that a reasonable 27 juror could find in favor of authenticity or identification.’” United States v. Gadson, 763

, 1203 (9th Cir. 2014) (quoting United States v. Black,

(9th 1 Cir. 1985)). This is not a heavy burden. See United States v. Recio,

, 2 236–37 (4th Cir. 2018) (Rule 901 burden “not high”); United States v. Ceballos, 789

(5th Cir. 2015) (Rule 901 burden “low”). In order for the SEC to meet this 4 burden, the Court must be satisfied that the SEC will be able to demonstrate that “the 5 recording is accurate, authentic, and generally trustworthy.” United States v. Panaro, 266

(9th Cir. 2001) (quotation omitted). That foundation may be proved through 7 extrinsic evidence, such as a witness who testifies that the recording “is what it purports to 8 be, or is a true and accurate copy of the original.” Gadson, 763 F.3d at 1203–04; see also 9 United States v. Matta-Ballesteros,

(9th Cir. 1995), opinion amended on 10 denial of reh’g,

(9th Cir. 1996) (foundation for admitting recording “is done 11 by proving a connection between the evidence and the party against whom the evidence is 12 admitted and can be done by both direct and circumstantial evidence”). “A recorded 13 conversation is generally admissible unless . . . unintelligible portions are so substantial 14 that the recording as a whole is untrustworthy.” United States v. Rrapi,

, 746 15 (9th Cir. 1999). Moreover, “[t]here is no requirement that the tapes be put in evidence 16 through the person wearing the recorder, or for that matter, through a contemporaneous 17 witness to the recorded conversations.” United States v. Collins,

(7th 18 Cir. 2013) (quoting United States v. Fuentes,

(2d Cir. 1977)). 19 Here, the SEC argues that it can admit the recordings through either the testimony 20 of the confidential human informant or through an FBI agent who directed and supervised 21 the recordings and can thus lay the foundation for authentication. (Doc. No. 106-1 at 19.) 22 The SEC further argues that the FBI agent can equally authenticate the recorded calls on 23 which the confidential human informant participated without the agent by explaining the 24 systematic manner the FBI used to collect the recordings, and the confidential human 25 informant’s consistent adherence to the FBI’s instructions regarding collecting the 26 recordings. (Id.) Accordingly, the SEC has met its prima facie showing of authenticity. 27 See, e.g., Collins, 715 F.3d at 1035–37 (district court properly admitted recordings where 28 informant recorded defendant on his own and then shipped tapes to the government even 1 though the informant “did not testify at trial and . . . no government agents were present 2 when [he] made the recordings”); United States v. Correa,

(11th 3 Cir. 2013) (district court properly admitted videotape where FBI agent established 4 foundation). 5 D. Title III of the Omnibus Crime Control and Safe Streets Act of 1968 6 The SEC next argues that the four recordings were lawfully obtained under federal 7 law. (Doc. No. 106-1 at 15–16.) Defendants argue that the disclosure of the recordings by 8 the FBI to the SEC violated Title III and thus, Section 2515 of Title III prohibits their use 9 at trial. (Doc. No. 110 at 6–11.) 10 Title III established a “comprehensive scheme for the regulation of wiretapping and 11 electronic surveillance.” Gelbard v. United States,

(1972). But under 12 Section 2511(2)(c), “[i]t shall not be unlawful . . . for a person acting under color of law to 13 intercept a wire, oral, or electronic communication, where such person is a party to the 14 communication or one of the parties to the communication has given prior consent to such 15 interception.”

(2)(c). Moreover, the Ninth Circuit has also held that “one 16 party’s consent is sufficient justification for electronic surveillance and no prior judicial 17 authorization is required.” United States v. Testa,

(9th Cir. 1977) (citing 18 United States v. Ryan,

(9th Cir. 1976); Holmes v. Burr,

(9th 19 Cir. 1973)); see also United States v. Luis,

(9th Cir. 2013) 20 (recordings made by a cooperating informant who was a party to the communication are 21 “specifically permitted” under Title III); United States v. Daniel,

(9th 22 Cir. 1982) (“no basis for excluding” information “by federal officers in violation of state 23 law but in compliance with § 2511”). 24 Section 2515 of Title III precludes the use of recordings as evidence “if the 25 disclosure of that information would be in violation of this chapter.”

. 26 But it is clear that “the provisions of [Section 2515] do not preclude the use of intercepted 27 communications when one of the parties thereto consented to the interception.” United 28 States v. Puchi,

(9th Cir. 1971). “[I]f, as in the case of most interceptions 1 of communications by or with the consent of a party, the interception does not require a 2 warrant to be lawful, Title III does not restrict its use. . . . Section 2511 exempts the 3 conversations covered by it from the entirety of Title III.” In re High Fructose Corn Syrup 4 Antitrust Litig.,

(7th Cir. 2000); see also United States v. Hammond, 286

(4th Cir. 2002) (“the FBI was free to use the intercepted conversations once 6 they were excepted under either § 2510(5)(a)(1) or § 2511(2)(c)”). 7 Here, it is undisputed that the confidential human informant was a party to the 8 recorded conversations and gave prior consent to record them. (Doc. No. 106-1 at 9.) 9 Thus, the recordings are lawful under Section 2511(2)(c). As for Defendants’ contention 10 that the FBI’s disclosure of the recordings to the SEC violated Title III and thus, must be 11 precluded under Section 2515, Defendants fail to identify any provision of Title III that 12 prohibits either the FBI from providing the recordings to the SEC or that prohibits the 13 introduction of the recordings at trial. Indeed, Title III expressly prohibits disclosure or 14 use of only those communications obtained “in violation of” Section 2511(1) or of 15 disclosure of recordings obtained in connection with a criminal investigation with the intent 16 of obstructing, impeding, or interfering with a criminal investigation. 18 U.S.C. 17 §§ 2511(1)(c)–(e). None of Title III’s disclosure limitations apply here. 18 Because the recordings are lawful under Section 2511(2)(c) and disclosure to the 19 SEC was proper, Section 2515’s exclusionary rule does not apply.1 20 E. Failure to Disclosure Potential Witnesses 21 Defendants also argue that the Court should bar testimony from any FBI personnel 22 because they were not disclosed as potential witnesses. (Doc. No. 110 at 11–13.) But as 23 the SEC points out on reply, any testimony by an FBI agent would be limited to 24 authenticating the recordings. (Doc. No. 117 at 16.) And courts in this Circuit routinely 25 recognize that failure to disclose an authenticating witness is harmless. See, e.g., Lam v. 26

27 1 Importantly, Defendants fail to cite to any authority in which evidence obtained in 28 1 || City & Cty. of San Francisco,

(9th Cir. 2014); Zadoian v. Target 2 Corp., 19:cv-00326-DSF,

, at *2 (C.D. Cal. Apr. 14, 2020). Moreover, 3 ||and contrary to Defendants’ allegations, there is no evidence in the record to suggest that 4 ||the SEC has acted in bad faith. Thus, the Court declines to preclude authenticating 5 || testimony by an FBI agent. 6 F. Federal Rule of Evidence 403 7 Defendants next argue that the Court should exclude any reference to the FBI’s 8 |/investigation, including reference to the recordings as derived from that investigation, 9 || because it would be of limited probative value while being very prejudicial, would risk 10 || confusing the jury, and would result in the undue waste of the Court’s time. (Doc. No. 110 11 13-15.) After careful consideration of Defendants’ arguments, the Court concludes that 12 probative value of reference to the FBI’s investigation, including reference to the 13 recordings as derived from that investigation, outweighs any risk of prejudice. See Fed. R. 14 || Evid. 403. Thus, the Court declines to exclude such evidence under Rule 403. 15 CONCLUSION 16 For the foregoing reasons, the Court grants the SEC’s motion in limine and admits 17 ||the four recordings. This ruling is without prejudice, and the parties may make valid 18 || contemporaneous objections at trial concerning the matters discussed in this order. The 19 || Court reserves the right to change this ruling based on the testimony developed at trial. 20 IT IS SO ORDERED. 21 | DATED: September 3, 2024 | dus | JI A 22 MARILYN HUFF, Distri ge 3 UNITED STATES DISTRICT COURT 24 25 26 27 28