Success by Health defendants sanctioned for deleting evidence
The FTC has been granted a motion requesting spoilation sanctions against Success by Health defendants Jay Noland, Lina Noland, Thomas Sacca and Scott Harris.
In May 2019 a bank subpoena was inadvertently passed on to Success by Health.
That lead to owner Jay Noland becoming aware of an FTC investigation into the company.
When the FTC learned its investigation was no longer a secret, they ‘specifically advised Noland and SBH to preserve relevant documents.’
What followed instead was the systematic deletion, withholding and tampering of evidence by individual Success by Health defendants.
On January 28th the FTC filed a motion for sanctions against the individual Success by Health defendants.
What we know is that the deletion and tampering of evidence pertained to Noland the individual defendants switching to encrypted communication platforms.
This occurred the day after Noland learned of the FTC’s investigation.
Throughout proceedings Noland then proceeded to hide his failure to preserve and efforts to withhold evidence from the FTC.
The FTC sought and obtained a temporary restraining order that … required the Individual Defendants to produce their electronic communications, and required the Individual Defendants to turn over the mobile devices they had used to operate the business.
Notwithstanding these orders, the Individual Defendants did not initially turn over their mobile devices and did not produce any Signal communications.
Additionally, during a post-TRO deposition, Noland failed to disclose the Signal and ProtonMail accounts in response to direct questioning about the existence of any encrypted communications platforms.
The court goes on to recount the series of events detailed in the FTC’s motion.
In its own words;
It gets worse. It has now come to light that, during the months following the issuance of the TRO, Noland used his ProtonMail account to provide third-party witnesses with what can be construed as a script to follow when drafting declarations the Individual Defendants wished to submit in support of their defense.
These communications only came to light by fortuity, when one of the recipients anonymously disclosed them to the FTC.
Finally, in August 2020, just as they were about to belatedly turn over their mobile devices for imaging, the Individual Defendants deleted the Signal app from their phones in coordinated fashion.
As a result, neither side’s forensic specialists have been able to recover any of the Signal communications the Individual Defendants sent and received between May 2019 and August 2020.
Although we knew of Noland’s email from the FTC’s motion, specifics are revealed by the court in its August 30th order.
Although the recipient’s name is blacked out in the copy of the email that has been provided to the Court, the FTC asserts (and the Individual Defendants do not deny) that the recipient was Robert Mehler, who previously served as SBH’s director of sales.
In the body of the email, Noland asked Mehler to solicit declarations from SBH affiliates and provided a list of information that affiliates should include in their declarations, such as “The purpose of the company is to sell product,” “Each affiliate and user of the product believes there is a healthful or positive effects [sic] that comes from using the SBH products,” “Affiliates have found financial freedom because of their ability to earn commissions from the sale of products,” and “Does not feels [sic] as though any SBH Affiliate received misrepresentations have been made to them by Success By Health.”
After sending this email, Noland deleted it without disclosing it to the FTC.
The FTC learned of this conduct in late 2020. In December 2020, defendant Thomas Sacca admitted under deposition that
the deletion (of evidence) was part of a coordinated plan between himself, Harris, and Noland.
Noland would corroborate Sacca’s admission at his own deposition.
Based on evidence submitted by the FTC in its motion, the court found
it is undisputed that the Individual Defendants deleted the Signal app and Signal messages.
It is also undisputed that the Individual Defendants used Signal to communicate about SBH business.
Regardless of how and when it occurred, Signal-related electronically stored information (ESI) was lost.
The FTC asserts that it uncovered a May 2020 email from Noland’s ProtonMail account providing instructions for declarations to be submitted to the Court in this action.
During meet-and-confer correspondence in October 2020, in response to questions about why the Individual Defendants had not produced this email, the Individual Defendants’ counsel admitted that Noland deleted it.
And in their response to the FTC’s motion for sanctions, the Individual Defendants again admit that Noland deleted it.
Given this backdrop, it is clear that ProtonMail ESI was lost.
The Court concludes that the Individual Defendants’ document preservation obligations arose on May 29, 2019, when the FTC responded to Noland’s counsel’s email by stating that Noland “and the company should suspend any ordinary course destruction of documents, communications, and records.”
Noland admitted that he discussed SBH business matters on Signal “from time to time.”
Similarly, Sacca admitted that he used Signal to discuss SBH business.
This testimony, standing alone, strongly suggests that the deleted ESI was at least “potentially relevant to the litigation.”
The lone deleted ProtonMail email that has been recovered further bolsters this conclusion.
In that email, Noland asked Mehler to persuade SBH affiliates—that is, potential witnesses in this case—to make exculpatory representations about the purpose of the company.
These topics are relevant to this litigation. This raises an inference that other lost ESI addressed relevant topics, too.
The foreseeable relevance of the Signal and ProtonMail messages is also established by circumstantial evidence.
The FTC has thus carried its burden of showing the reasonably foreseeable relevance of the destroyed ESI to this litigation.
The parties do not dispute that the Individual Defendants failed to take reasonable steps to preserve the deleted communications.
The Court finds that the lost messages cannot be restored or replaced through additional discovery.
The Individual Defendants’ argument that the FTC has not shown it was prejudiced by the loss of information is unavailing.
The Individual Defendants assert that they switched from WhatsApp and iOS to Signal in May 2019 for an innocent reason — to avoid the hacking, eavesdropping, and infiltration efforts of former SBH associate Luke Curry and “a small group of saboteurs.”
The FTC argues this explanation is implausible.
The FTC’s investigator ran searches in the Individual Defendants’ document productions and found no communications suggesting that the Individual Defendants were concerned about hacking or other interference from Luke Curry in or around May 2019.
Further, when later asked about the motivation to install Signal, Harris did not mention Luke Curry or any other specific hacking concerns—instead, he more generally stated that the Individual Defendants “wanted to make sure we had whatever was the most secure at the time.”
As for the Individual Defendants’ deletion of the Signal app in August 2020, they contend it was justified because they didn’t want the FTC to learn the names of the individuals who have been donating to their legal defense in this case.
The FTC argues this explanation is implausible because “Defendants do not explain how a mere list of contacts and a phone log would somehow have revealed to the FTC who donated money to them.”
Further, the FTC argues, at other points in this litigation the Individual Defendants have represented that they don’t know the identity of their donors, so it is inconsistent for them to aver that they don’t know their donors’ identities while simultaneously positing that they needed to delete Signal to protect those unknown persons’ identities.
Consequently, the court granted the FTC’s motion.
The FTC has easily carried its burden of showing that the Individual Defendants acted with the intent to deprive the FTC of the information contained in the Signal and ProtonMail messages.
The most decisive factor is the timing of the installation and use of
Signal and ProtonMail.
The Individual Defendants would have the Court believe this timing was a coincidence—they happened to install elaborate encrypted privacy-focused apps immediately after discovering they were the subject of an FTC investigation because, around that same time, they noticed hacking attempts from Curry and his fellow “saboteurs.”
This explanation is incredible.
Apart from the Individual Defendants’ testimony, there is no documentary or other evidence supporting the notion that the Individual Defendants were being hacked at this time.
The plausibility of this explanation is further undermined by Noland’s failure to disclose the existence of the Signal or ProtonMail accounts during his February 2020 deposition, despite being asked targeted questions on this exact topic.
If the switch to these accounts was part of an innocuous effort to avoid hacking, Noland could have easily said so.
His failure to do so raises the inference that the motivation for switching to the accounts was more nefarious.
The Court also rejects the Individual Defendants’ proffered justification for Noland’s failure to disclose the Signal and ProtonMail accounts during his deposition (i.e. he was confused and/or got cut off by the FTC’s counsel).
The deposition transcript contains no evidence of confusion or an interruption, Noland also failed to disclose the accounts in response to a later question about encrypted communications, and Noland made no effort to correct the transcript after the deposition was complete.
The content of the ProtonMail email from May 2020, which the FTC lucked into discovering despite Noland’s efforts to destroy it, serves as further circumstantial proof that the Individual Defendants’ evidence-destruction efforts were not innocuous.
The May 2020 email can be construed as an attempt to shape the testimony of third-party witnesses on the key disputed issues in this case.
If the evidence being destroyed was potentially harmful to the
Individual Defendants’ case, it is reasonable to infer that their motivations for destroying it were not innocuous.
Finally, the coordinated deletion of the Signal app from the Individual Defendants’ phones in August 2020, just as the phones were about to be turned over for imaging, is the pièce de résistance.
This was an outrageous maneuver that raises a strong inference of bad faith.
This inference is not undermined, in any way, by the Individual Defendants’ proffered justification for their coordinated deletion effort (i.e., they wanted to prevent the FTC from learning the identify of their donors).
This explanation makes no sense.
Accordingly, IT IS ORDERED THAT the FTC’s motion for sanctions is granted.
Judge Lanza’s 30th August order doesn’t address what sanctions will be imposed. And I’m honestly not sure what happens next.
I’m assuming at some point sanction penalties will be issued and enforced.
Stay tuned for updates as we continue to track the case docket.