Success by Health defendants held liable for evidence spoliation
As part of a massive 131 judgment, the Arizona court hearing the FTC’s case has held the Success by Health Defendants liable of evidence spoliation.
Back in September 2021 sanctions were ordered against the Success by Health Defendants over the same conduct.
The individual Success by Health Defendants in question are Jay Noland, Lina Noland, Thomas Sacca and Scott Harris.
At the time I wasn’t sure what the sanctions were or possible lead to, as none were detailed in the order granting the FTC’s request for sanctions.
That’s been up in the air until a May 11th order finding Success by Health was a pyramid scheme.
Because these issues are relevant to all of the FTC’s outstanding claims against Defendants—they have the potential to affect the Court’s findings both as to liability and as to remedies—the Court addresses them here.
In its order the court revisits the spoliation conduct in question.
In its order, the court examined ten documented “acts of dishonesty”.
On May 15, 2019, Wells Fargo inadvertently disclosed to Noland that the FTC had subpoenaed bank records related to him and his companies.
The very next day, Noland instructed the “SBH Leadership Council,” which included Harris and Sacca, to install the Signal messaging application on their phones.
Around the same time, Defendants also switched to using ProtonMail, a Swiss encrypted email service that emphasizes user privacy.
On May 29, 2019, the FTC asked that Defendants “suspend any ordinary course destruction of documents, communications, and records.” (Id.)
Rather than suspend document destruction, Defendants instructed each other (as well as other SBH employees and affiliates) to use Signal or ProtonMail for “anything sensitive” or “important things.” (Id.)
The Court concludes, in its capacity as finder of fact, that Defendants’ purpose in switching to Signal and ProtonMail was to conceal evidence from the FTC.
Because this issue came up during the Success by Health trial (held earlier this year over January and February), the court addressed the Success by Health Defendant’s testimonial explanations.
Cited as the “second act of dishonesty”, the court noted;
During their testimony at trial, Defendants sought to provide various innocent explanations for their decision to begin using Signal the day after learning about the FTC’s investigation.
Noland testified that the timing was a “coincidence.”
The Court found this testimony to be incredible and damaging to Defendants’ credibility.
In a related vein, the Court was unpersuaded by Defendants’ testimony at trial that they only used Signal’s messaging feature for non-substantive logistical texts (such as scheduling phone calls) and reserved their substantive discussions for phone calls conducted via Signal.
This explanation was not credible for at least two reasons.
First, before switching to Signal, Defendants exchanged a large volume of substantive text messages via the “SBH Leadership Council” group chat on WhatsApp, but after switching to Signal, the volume of such messages dwindled.
It is implausible that Defendants simply stopped engaging in substantive text message conversations after switching messaging platforms—the more logical inference is that Defendants began using Signal’s messaging feature for these conversations.
Second, the FTC presented evidence at trial of one instance in December 2019 where Harris sent the following text to Noland via the iOS app: “Please text me on signal.”
This text undermines Defendants’ testimony about how they used Signal’s messaging function, which was only to make logistical arrangements for Signal phone calls.
If that were true, Harris would have simply texted “Please call me on signal”—there would have been no need to switch over to Signal’s messaging platform simply to then send another text message saying “Please call me on signal.”
The inference is that Defendants were using Signal’s messaging function for substantive purposes but chose to testify untruthfully about that conduct at trial.
The “third act of dishonesty” noted by the court occured when the Success by Health Defendants were directed to turn over electronic devices and communications to the court-appointed Receiver.
As a result of failing to do so (with respect to communications over Signal), the court concluded “this conduct was deceptive and
constituted a violation of a court order.”
The “fourth act of dishonesty” occurred at Jay Noland’s FTC deposition;
During that deposition, the FTC asked Noland a series of questions about whether he used any encrypted messaging services or applications. In response, Noland failed to disclose his use of Signal and ProtonMail:
Q. Have you ever used any type of encrypted communications to conduct Success By Media business?
A. I’m not sure what you mean, sir.
Q. Have you used any type of phone application or software system that encrypts the substance of the communication from point to point?
A. I mean, I think it’s like standard practice now. I don’t know. It’s standard practice.
Q. Do you do that in your course of your work for Success By Media?
A. I don’t know. Whatever communication. I mean, it’s a phone call. The encrypted, what Verizon offers.
Q. Do you do anything separately to encrypt your communications apart from what a Verizon provider may do on their end?
A. Just have, you know, I think WhatsApp uses that now.
In its proposed findings of fact, the FTC urges the Court to find that Noland “feigned confusion and then lied” during this portion of the deposition.
As harsh as these words may be, the Court agrees in its capacity as factfinder that this is an accurate description of what transpired.
The “fifth act of dishonesty” pertains to Noland addressing the above deposition at the Success by Health bench trial.
In essence, Noland blamed the FTC’s attorney for cutting him off before he had a chance to complete his answer. Noland also seemed to blame his then-counsel for the omission.
These are, respectfully, not credible excuses for Noland’s failure to disclose his use of Signal and ProtonMail during the February 2020 deposition.
The “sixth act of dishonesty” occured when Noland sought to ply Success by Health affiliates with a declaration script.
In mid-2020 … Noland used his ProtonMail account to send an email to Robert Mehler.
In the Court’s view as factfinder, this email was not (as the defense sought to portray it at trial) some clumsily written but well-intentioned attempt to gather evidence—instead, it was essentially a script that Noland hoped SBH affiliates would follow when submitting declarations intended to bolster the defense’s position in this case.
The Court reaches this conclusion not only based on the substance of the email but because of what followed.
After sending the email to Mehler, Noland deleted it and failed to produce or disclose it to the FTC.
Separately, Mehler failed to disclose the email in response to a subpoena from the FTC, a follow-up email from the FTC, and a subsequent letter from defense counsel.
Although Mehler attempted to explain at trial why his failure to produce the email in response to these inquiries was a good-faith mistake, the Court did not find this testimony credible.
Attempting to coach witnesses and then hide the evidence of the witness-coaching is deeply troubling behavior.
The “seventh act of dishonesty” occurred when the Success by Health Defendants
engaged in a coordinated effort to delete the Signal app from their phones, which were due to be turned over for imaging the next day. These deletion efforts prevented the forensic recovery of any Signal-related information from the phones.
In the sanctions order, the Court described Defendants’ coordinated deletion of the Signal app as “an outrageous maneuver that raises a strong inference of bad faith.”
The Court stands by that description now, after hearing the evidence during the bench trial.
The “eighth act of dishonesty” pertains to the Success by Health Defendants attempting to explain the coordinated deletion of Signal during the bench trial.
Defendants testified that they only reason they did so was because they feared the FTC would otherwise be able to use the information in the Signal app to identify which individuals were making donations to their legal defense fund in this case and then harass those individuals with overbroad subpoena requests.
This testimony is problematic for two reasons. First, even assuming that protecting donor identities was one reason why Defendants chose to delete the Signal app, the Court does not accept that it was the only reason.
Given the sheer scope of the dishonesty surrounding the use and concealment of Signal and ProtonMail, the Court infers that Defendants also deleted it with the intent of destroying evidence that could otherwise be used against them in this litigation.
Their testimony to the contrary during trial undermined their credibility and serves as further evidence of dishonesty.
Second, and more broadly, Defendants’ trial testimony on this point seems to presuppose that there might be a good reason for intentionally violating a court order.
The “ninth act of dishonesty” occurred when Noland failed to identify a newly created email account during his deposition.
In August 2020 (Noland) create(d) a new ProtonMail email account with the handle “breeze8.”
The dishonesty stems from the testimony that Noland provided during his December 14, 2020 deposition in this case.
During that deposition, Noland was asked, point-blank, to identify “all email addresses you’ve used since January 1st, 2017”
and failed to identify the breeze8 account in his resulting answer.
There is no honest explanation for this omission.
The “tenth act of dishonesty” occured when Noland was questioned about the cited omission above.
When (Noland) was finally confronted with his failure to disclose the breeze8 account during his December 2020 deposition … Noland took zero accountability for the omission, refused to even acknowledge that he had made a mistake (explaining that the previous testimony related “specifically in regard to that spoliation at that time”), and instead tried to blame his former counsel.
As a result of the Success by Health Defendants’ “acts of dishonesty”, the court found it appropriate that the aforementioned ordered sanctions factor into the ruling against them.
This will manifest by way of an ordered monetary judgment. Said judgment is pending on an ordered FTC filing, due within 14 days of May 11th (May 25th).
As at time of publication, the FTC has yet to make the ordered filing.
More to come…