Case 2:12-mc-02375-KOB Document 5 Filed 07/17/12 Page 1 of 14 FILED

2012 Jul-17 PM 05:29

U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
_________________________________________
)
FEDERAL TRADE COMMISSION, )
)
Plaintiff, )
) Civil Action No:
v. ) 2:12-mc-02375-KOB
) (re: motion to quash
NATIONAL UROLOGICAL GROUP, INC., et al. ) relating to
) 1:04-CV-3294-CAP
Defendants. ) in the Northern District
_________________________________________) of Georgia)

PLAINTIFF’S MOTION FOR RECONSIDERATION AND

OPPOSITION TO MOTION TO QUASH SUBPOENAS DIRECTED TO
JOSEPH P. SCHILLECI, JR.

I. Motion for Reconsideration

The FTC respectfully requests reconsideration of the Court’s July 17, 2012

Order (“Order”) (ECF No. 4) to permit it a full and fair opportunity to respond to

the motion to quash subpoenas for deposition and the production of documents

directed to Joseph P. Schilleci, Jr. (“Schilleci”), counsel for defendants Hi-Tech

Pharmaceuticals (“Hi-Tech”) and Jared Wheat, pursuant to the Court’s rules. At

12:33 P.M., on July 17, 2012, the fourteenth day after Hi-Tech, Wheat, and

Schilleci’s filing of that motion, this Court granted the motion on the grounds that:

1) the FTC had failed to respond in the intervening two weeks; and 2) the

subpoenas were “overly broad and would very likely result in the disclosure of
 Case 2:12-mc-02375-KOB Document 5 Filed 07/17/12 Page 2 of 14

information protected by the attorney-client privilege beyond the categories of

communication Judge Pannell deemed waived.” Order at 2 (emphasis original).

The FTC respectfully requests reconsideration “to correct a clear error of

law or manifest injustice.” Solutia, Inc. v. McWane, Inc., 726 F. Supp. 2d 1316,

1328 (N.D. Ala. 2010). The Local Rules for the Northern District of Alabama do

not provide a standard time for the filing of oppositions to motions. The FTC

consulted with the Court’s chamber rules, which provide that “ALL briefs, whether

on pretrial or post trial motions, must comply with the requirements of “Appendix

II” as far as practicable given the nature of the particular motion, including page

limitations, unless the court grants specific permission to deviate. Unless the

motion is dispositive, parties are not required to comply with Section D.” See

Bowdre Chamber Rules, attached as Plaintiff’s Exhibit A. Appendix II, in turn,

provides that oppositions to motions are due 21 days after the filing of the initial

motion. See Appendix II, attached as Plaintiff’s Exhibit B. In any event, the FTC

intended to file its response today, which is, in fact, the fourteenth day after the

filing of the motion to quash.1 Accordingly, reconsideration is warranted to give

1
Pursuant to Fed. R. Civ. P. 6, which governs the computation of time under the
 
Federal Rules, when calculating a period of days, parties are to “exclude the day of
the event that triggers the period.” Fed. R. Civ. P. 6(a)(1)(A). Thus, July 3, the
date on which the motion was filed, is excluded. Fourteen days from July 4, the
first day of any applicable deadline period, is July 17. Moreover, Rule 6 also
provides that “[u]nless a different time is set by a statute, local rule, or court order,
the last day [of a filing period] ends: (A) for electronic filing, at midnight in the
court’s time zone.” Fed. R. Civ. P. 6(a)(4).

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the FTC an opportunity to be heard and avoid clear error and/or manifest injustice.

To that end, the FTC includes its substantive response to the motion herein.

II. Opposition to Motion to Quash

The subpoenas directed to Schilleci, a resident of this district, relate to an

ongoing contempt action against Hi-Tech, Wheat, Stephen Smith, and Mark

Wright, before Judge Charles A. Pannell, of the Northern District of Georgia.2

Under Federal Rule of Civil Procedure 45, quashing a subpoena is

inappropriate where, as here, a waiver applies and when there is no undue burden.

See Fed. R. Civ. P. 45. Judge Pannell ruled on January 20, 2012, that Hi-Tech and

Wheat waived their attorney-client privilege by alleging as an affirmative defense

to the FTC’s contempt allegations that they relied in good faith on the advice of

counsel that they were in compliance with Judge Pannell’s final judgment.

Moreover, the information sought by the FTC is not overly broad or unduly

burdensome because it seeks only the “attorney-client communications and other

documents that contain or relate to the advice that counsel gave them about the

compliance of their advertising with the final judgment and the FTC Act,” see

Defs.’ Mot. Exhibit D at 3, the very subject of the waiver. Accordingly, the FTC

requests that the Court deny the motion to quash or, to the extent the Court has

questions regarding the scope of the waiver found by Judge Pannell, to transfer the

2
Schilleci does not represent Smith or Wright and, thus, they are not parties to Hi-
Tech’s and Wheat’s motion.

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motion to the Nothern District of Georgia so that he may interpret the subpoena in

light of his own ruling.3

A. Background

On November 1, 2011, the FTC filed a motion for an order to show cause

why Hi-Tech and Wheat should not be held in contempt for violating the final

judgment by advertising weight-loss supplements Fastin, Lipodrene, Benzedrine,

and Stimerex-ES with claims that were not supported by competent and reliable

scientific evidence as required by the final judgment.4 On May 31, 2012, Judge

Pannell ordered Hi-Tech and Wheat to show cause why they should not be held in

contempt. In opposition to the show cause motion, Hi-Tech and Wheat asserted

the affirmative defense that they relied in good-faith on the advice of counsel,

Edmund Novotny (“Novotny”), that their advertising complied with Judge

3
Moreover, at a status conference before Judge Pannell, held on May 31, 2012,
counsel for Hi-Tech and Wheat stated their intention to file a motion for a
protective order in response to any subpoenas directed to Mr. Schilleci, and Judge
Pannell clearly contemplated that such a motion would be filed in the Northern
District of Georgia for his consideration. See Tr. of 5/31/12 Hearing at 27-29
(attached as Plaintiff’s Exhibit C) (“THE COURT: Well, he can file this motion. I
can see that no matter what I do today I’m still going to have to redo it in some
kind of Order pursuant to some kind of motion.”). Subsequently, on June 4, 2012,
during a conference call with FTC counsel, Mr. Wenik reiterated that he expected
that any discovery disputes in the matter would be handled by Judge Pannell.
Instead, in an attempt to get a second bite at the apple and obtain a conflicting
ruling on the issue of waiver, Hi-Tech, Wheat, and Schilleci filed a motion with
this Court.
4
The FTC also moved for an order to show cause against defendants Stephen
Smith and Mark Wright, who are not before this court.

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Pannell’s final judgment.5

On December 14, 2011, the FTC filed a motion to determine the scope of

Hi-Tech and Wheat’s attorney-client privilege waiver through the assertion of the

advice of counsel defense. On January 20, 2012, after the motion was fully

briefed, Judge Pannell granted the FTC’s motion and found that Hi-Tech and

Wheat waived their attorney-client privilege by asserting the advice of counsel

defense. Specifically, Judge Pannell decided that the scope of the waiver was not

limited to “the single attorney [Novotny] they consulted regarding compliance with

the judgment” but extended “to all other communications relating to the same

subject matter.” Defs.’ Mot., Ex. D. at 3 (emphasis added). Thus, he found that

Hi-Tech and Wheat waived privileged with respect to both “attorney-client

communications and other documents that contain or relate to advice that counsel

gave them about the compliance of their advertising with the final judgment and

the FTC Act.” Id.

To conduct discovery into the advice of counsel defense, the FTC served the

document and deposition subpoenas at issue to Schilleci because the evidence

demonstrated that he also gave advice about the compliance of Hi-Tech advertising

5
Ga. Dkt. No. 346 at 11-12 (Memorandum Of Law Of Defendants Hi-Tech
Pharmaceuticals, Inc. And Jared Wheat In Opposition To Plaintiff’s Motion For
An Order To Show Cause And Plaintiff’s Motion To Modify The Final Judgment);
Ga. Dkt. No. 346-1 at 7-8 (Declaration Of Jared Wheat In Support Of Contempt
Defendants’ Response To Plaintiff’s Motion For Order To Show Cause And
Motion To Modify The Final Judgment).

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with the final judgment.6 The FTC served nearly identical subpoenas on Novotny.

The requested discovery is narrowly tailored to the advice Schilleci gave

about Hi-Tech and Wheat’s compliance with the final judgment. In an attempt to

hide unfavorable evidence and disclose only favorable evidence, Hi-Tech and

Wheat have moved to quash the Schilleci subpoenas, but not the Novotny

subpoenas.7 Hi-Tech and Wheat are therefore impermissibly attempting to use the

attorney-client privilege as both a sword and a shield.

B. The Motion To Quash Should Be Denied Because Hi-Tech And

Wheat Waived Their Attorney-Client Privilege And The FTC’s
Subpoenas Are Not Unduly Burdensome.

Hi-Tech, Wheat, and Schilleci base their motion to quash on Fed. R. Civ. P.

45(c)(3)(iii) and (iv), which provide that “the issuing court must quash or modify a

subpoena that . . . (iii) requires disclosure of privileged or other protected matter, if

no exception or waiver applies; or (iv) subjects a person to undue burden.”

Emphasis added. The motion to quash should be denied because a waiver applies

to the documents and testimony requested by the subpoenas, and the subpoenas do

6
Ga. Dkt. No. 366 at 11-14 (Plaintiff’s Reply In Support Of Its Motion For An
Order To Show Cause Why Contempt Defendants Hi-Tech Pharmaceuticals, Jared
Wheat And Stephen Smith Should Not Be Held In Contempt For Violating The
Final Judgment And Permanent Injunction And Its Motion To Modify The Final
Judgment) (attached as Plaintiff’s Exhibit D).
7
 On
July 16, 2012, John S. Hicks, Assistant General Counsel and Ethics Counsel
for Baker, Donelson, informed the FTC that Hi-Tech and Wheat have consented to
the disclosure of advice from Novotny in response to subpoenas that are nearly
identical to those the FTC served on Schilleci.

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not subject Schilleci to undue burden.

1. As The Court Has Recognized, A Waiver Applies To The

Documents And Testimony Sought By The FTC’s Subpoenas
Because Judge Pannell Already Decided that Hi-Tech And Wheat
Waived Their Attorney-Client Privilege.

As the Court has recognized, Judge Pannell’s determination that Hi-Tech

and Wheat have waived attorney-client privilege over “attorney-client

communications and other documents that contain or relate to advice that counsel

gave them about the compliance of their advertising with the final judgment and

the FTC Act” is law of the case. See Order at 2; see also United States v. Exxon

Corp., 94 F.R.D. 246, 247-8 (D.D.C. 1981) (court’s prior discovery opinion

established as the law of the case that defendant had waived its attorney-client

privilege and that any documents pertinent to defendant’s defense of good faith

were therefore discoverable).8 Judge Pannell’s ruling on the waiver and its scope

8
  Because
Judge Pannell has ruled that Hi-Tech and Wheat waived privilege over
not only communications with Novotny but “all other communications . . . relating
to the same subject matter,” Defs.’ Mot. to Quash, Ex. D, at 3, the Alabama Rules
of Professional Conduct do not prohibit Schilleci from disclosing the requested
information. See Comments to Alabama Rule of Professional Conduct 1.6
(Disclosures Otherwise Required or Authorized); Chesnoff v. United States (In re
Grand Jury Proceedings), 13 F.3d 1293, 1296-97 (9th Cir. 1993) (relying on
Comments to Rule 1.6 of the Model Code of Professional Conduct, which is the
same as Alabama Rule 1.6, court held that district court did not abuse its discretion
in holding attorney in contempt of court for his refusal to testify before a grand
jury). Schilleci has not cited to any case prohibiting him from disclosing attorney-
client communications when a judge has issued a court order, as Judge Pannell has,
finding that the attorney-client privilege has been waived.

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is a well-reasoned decision based on controlling Eleventh Circuit authority.9

2. The Scope Of The Subpoena Is Consistent With And Tracks To

The Language Of Judge Pannell’s Order.

The FTC’s subpoena specifications are not overly broad. The FTC drafted

the subpoena specifications with an eye towards Judge Pannell’s waiver order. As

the Court has recognized, Judge Pannell found that Hi-Tech and Wheat waived

privilege with respect to:

[A]ttorney-client communications and other documents that contain or relate

to advice that counsel gave them about the compliance of their advertising10

9
See Cox v. Administrator United States Steel & Carnegie, 17 F.3d 1386, 1418-19
  
(11th Cir. 1994) (“[I]t would be inequitable to allow . . . [a party] to present
evidence tending to show that it intended to comply with the law, while allowing it
to cloak in privilege those documents tending to show it might have known its
actions did not conform to the law.” ); Mohawk Indus. v. Interface, Inc., 2008 WL
5210386, at *7 (N.D. Ga. Sept. 29, 2008) (“Once a party waives the attorney-client
privilege as to a communication, the waiver generally ‘extends to all other
communications relating to the same subject matter.’”); Chick-Fil-A v. ExxonMobil
Corp., 2009 U.S. Dist. LEXIS 109588, at *17 (S.D. Fla. Nov. 10, 2009) (finding
that subject matter waiver was warranted under Fed. R. Evid. 502(a) because it
would be unfair to permit party to produce privileged information supporting its
contentions while at the same time withholding other privileged information that
may undermine them).
10
The final judgment against Hi-Tech and Wheat defines “advertisement” as “any
 
written or verbal statement, illustration, or depiction that is designed to effect a sale
or create interest in the purchasing of goods or services, whether it appears in a
brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert,
free standing insert, letter, catalogue, poster, chart, billboard, public transit card,
point of purchase display, packaging, package insert, label, film, slide, radio,
television, or cable television, audio program transmitted over a telephone system,
program-length commercial (“infomercial”), Internet website (including metatags),
or in any other medium.” See Final Judgment and Permanent Injunction Against
National Urological Group, Inc., Hi-Tech Pharmaceuticals, Inc., Jared Wheat,

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with the final judgment and the FTC Act.

Defs.’ Mot. to Quash, Ex. D. at 3.

Subpoena Specification 2 seeks information specifically relating to advice

concerning the compliance of Hi-Tech and Wheat’s advertising with the final

judgment exactly as Judge Pannell ruled. Specifically, Specification 2 asks for:

All documents containing or relating to advice that you [Schilleci] gave

Contempt Defendants, whether orally or in writing, about the compliance or
non-compliance of any print advertisement, direct mailing piece, web page,
product packaging or product label, whether in draft or final form, including
but not limited to, those identified as FTC 3, Attachments 4-8, 13-16, 18-19,
21-22, 24-26 (attached), with the Hi-Tech Order. The documents produced
should include, but not be limited to, drafts of any such advertisements, edits
communicated to Contempt Defendants, any communications with
Contempt Defendants (whether via email, text message, letter, voicemail or
by other written or electronic means), and any notes or memoranda
describing, relating to, or memorializing communications with Contempt
Defendants, and records of the dates and times of such communications.

Defs.’ Mot. to Quash, Ex. A at 13-14.

Similarly, Subpoena Specification 3 seeks only documents about the very

waiver Judge Pannell found. Specifically, Specification 3 asks for:

All documents containing or relating to advice that you gave Contempt

Defendants, whether orally or in writing, about the use of footnotes or
disclaimers in connection with any print advertisement, direct mail piece,
web page, product package, or product label for Fastin, Lipodrene,
Stimerex-ES, and Benzedrine. The documents produced should include, but
not be limited to, drafts of any such footnotes or disclaimers, edits
communicated to Contempt Defendants, any communications with
Contempt Defendants (whether via email, text message, letter, voicemail or

Thomasz Holda, and Stephen Smith (“Hi-Tech Order”) at 4, Definition 2 (attached

as Plaintiff’s Exhibit E).

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by other written or electronic means), notes or memoranda describing,

relating to, or memorializing communications with Contempt Defendants,
and records of the dates and times of such communications.

Defs.’ Mot. to Quash, Ex. A at 14.

Similarly, Specification 1 asks for:

All documents containing or relating to advice that you gave Contempt

Defendants, whether orally or in writing, about compliance with the Hi-Tech
Order. The documents produced should include, but not be limited to,
communications with Contempt Defendants (whether via email, text
message, letter, voicemail or by other written or electronic means), any notes
or memoranda describing, relating to, or memorializing communications
with Contempt Defendants, and records of the dates and times of such
communications.

Defs.’ Mot. To Quash, Ex. A. at 13. Although Subpoena Specification 1 does not

specifically delineate the types of advertising covered, it is necessarily limited to

Hi-Tech and Wheat’s advertising since the injunctive provisions of the final

judgment only reach defendants’ advertising activities. See Plaintiff’s Exhibit E at

10-17 (Sections I-VI).

Of course, even if a subpoena specification is overly broad, Rule 45

expressly permits the Court to modify the subpoena, rather than impose the more

drastic remedy of quashing it. See Rule 45(c)(3)(A). In fact, “modification of a

subpoena is preferable to quashing it outright.” See Wiwa v. Royal Dutch

Petroleum Co., 392 F.3d 812, 818 (5th Cir. 2004). Thus, to the extent the Court is

concerned about the breadth of Specification 1, it can appropriately modify the

specifications to address those concerns. See Fadalla v. Life Automotive Prods.,

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Inc., 258 F.R.D. 501, 507 (S.D. Fla. 2007); see also Wiwa, 392 F.3d at 818.11

3. Judge Pannell’s Prior Ruling On Hi-Tech and Wheat’s Waiver

Warrants Transferring The Motion To The Northern District Of
Georgia For His Consideration.

To the extent that questions concerning the scope of the waiver exist,

transfer of the motion to quash to the Northern District of Georgia is appropriate.

Given that Judge Pannell has already ruled that Hi-Tech’s and Wheat’s assertion of

the advice of counsel defense operates as a subject-matter waiver that extends to all

counsel with whom they consulted regarding the compliance of their advertising

with the final judgment, Judge Pannell is in the best position to answer any

questions regarding what types of documents are covered by that waiver.

Moreover, the Court has the authority to transfer the motion to Judge

Pannell. See Melder v. State Farm Mut. Auto. Ins. Co., 2008 U.S. Dist. LEXIS

34118 (N.D. Ga. Apr. 25, 2008) (court transferred motion to quash as best way to

ensure that ruling on motion would be consistent with trial court’s other discovery

rulings); see also In re Digital Equipment Corp., 949 F.2d 228 (8th Cir. 1991)

(court issuing subpoena can remit objections to trial court to give trial court

11
 Hi-Tech,
Wheat, and Schilleci’s argument to this Court that the FTC can obtain
the information it seeks from another source, Novotny, boils down to the same
argument Judge Pannell rejected. They are again attempting to rely only on advice
of counsel favorable to their defense, while hiding advice of counsel that is
unfavorable. The specific advice that Schilleci gave is not available from any other
source. The evidence already in hand demonstrates that Schilleci and Novotny
gave contradictory advice to Hi-Tech and Wheat concerning the advertisements’
compliance with the final judgment. See Plaintiff’s Exhibit D at 12-14. 

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jurisdiction to rule on objections); Petersen v. Douglas County Bank & Trust Co.,

940 F.2d 1389, 1391-92 (10th Cir. 1991) (a magistrate who transferred a motion to

quash from the issuing court to a trial court acted within his authority).

Finally, Schilleci has entered an appearance on behalf of Hi-Tech and Wheat

in the Northern District of Georgia and, having done so, is subject to personal

jurisdiction of that district court.12 CMC Interconnect Techs., Inc. v. Fairchild

Semiconductor Corp., 2009 U.S. Dist. LEXIS 22823 (D. Ariz. Mar. 4, 2009) (court

transferred motion to quash because trial court was acquainted with the facts

alleged to have produced a waiver, trial court made a prior ruling on a closely-

related discovery issue, and trial court had before it key parties and lawyers

involved in the dispute).

The Court may also stay deciding the motion, allow Hi-Tech and Wheat to

seek relief (e.g., a protective order) with Judge Pannell, and defer to Judge

Pannell’s decision. Staying the motion is warranted here because counsel for Hi-

Tech and Wheat already informed Judge Pannell that they intended to file a motion

for a protective order and Judge Pannell indicated that he expected that he would

hear any such motion. See n.3, supra. This Court has the legal authority to stay a

decision on the motion to quash to allow Hi-Tech, Wheat, and Schilleci to file a

12
See Local Rule 83.1, Northern District of Georgia. Indeed, given that the
privilege belongs to Hi-Tech and Wheat and not Schilleci, it is odd that Schilleci
appears to be asserting the privilege not only on behalf of his clients but on his
own as well.

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motion for a protective order with Judge Pannell. See, e.g., Clausnitzer v. Fed.

Express Corp., 2007 U.S. Dist. LEXIS 61699, *9-13 (N.D. Ga. Aug. 21, 2007)

(issuing court transferred motion for protective order to trial court, stayed motion

to quash pending trial court’s decision, and stated that it would issue a ruling on

the motion to quash not inconsistent with the trial court’s decision).

Dated: July 17, 2012

Respectfully submitted,

/s/ Edwin Rodriguez

AMANDA C. BASTA
[email protected]
EDWIN RODRIGUEZ
[email protected]
FEDERAL TRADE
COMMISSION
600 Pennsylvania Avenue,
N.W.
Mailstop M-8102B
Washington, D.C. 20580
Tel.: (202) 326-2340 (Basta);
(202) 326-3147
(Rodriguez)
Fax: (202) 326-2558
Attorneys for Plaintiff

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CERTIFICATE OF SERVICE

I hereby certify that on this 17th day of July, 2012, I caused a copy of
Plaintiff’s Motion for Reconsideration and Opposition to Motion to Quash
Subpoenas Directed to Joseph P. Schilleci, Jr. to be served via electronic mail and
Federal Express to the following counsel of record:

Joseph P. Schilleci, Jr., Esq. ([email protected])

The Schilleci Law Firm, LLC
512 Montgomery Hwy, Suite 210
Birmingham, AL 35216

Arthur W. Leach, Esq.

5780 Winward Pkwy, Suite 225
Alpharetta, GA 30005

/s/ Edwin Rodriguez

Edwin Rodriguez

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