Motion by Non-Party Witness Kabbage, INC., D/B/A Kservicing, to Quash Subpoena for Trial Testimony — No. 0:22-cr-60028 (Dkt. 28, S.D. Fla.)

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A Motion by Non-Party Witness Kabbage, Inc., d/b/a KServicing, to Quash Subpoena for Trial Testimony, Document 28 filed June 3, 2022 in the Southern District of Florida (Case 0:22-cr-60028-WPD), United States v. Luke Joselin. Kabbage, an online loan servicer for small businesses, objects to a government Rule 17(a) subpoena served March 25, 2022 for trial testimony scheduled to begin August 15, 2022 about Payment Protection Program (PPP) loans. It argues that compelled testimony is unreasonable while the Justice Department is also investigating Kabbage in Boston under the False Claims Act and in Houston over fraud and anti-money laundering controls, and that an SBA witness and business records could supply the evidence. It is signed by Jones Day counsel and opposed by the government.

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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 1 of 7




                             UNITED STATES DISTRICT COURT
                             SOUTHERN DISTRICT OF FLORIDA

   UNITED STATES OF AMERICA                                Case No. 22-60028-CR-
                                                           DIMITROULEAS/SNOW
   v.

   LUKE JOSELIN


        MOTION BY NON-PARTY WITNESS KABBAGE, INC., d/b/a KSERVICING,
                 TO QUASH SUBPOENA FOR TRIAL TESTIMONY

         Non-party witness Kabbage, Inc., d/b/a KServicing (“Kabbage”), hereby moves to quash a

  subpoena issued by the government for a trial currently scheduled to begin August 15, 2022.

                                         INTRODUCTION

         Kabbage is an online loan servicing company for small businesses. The U.S. Attorney’s

  Office for the Southern District of Florida has subpoenaed Kabbage to testify about its loan

  approval practices because it is a victim in the wire fraud scheme alleged in the indictment. But,

  at the same time, through Main Justice in Washington, D.C., the U.S. Attorney’s Office for the

  District of Massachusetts and the U.S. Attorney’s Office for the Eastern District of Texas, the U.S.

  Department of Justice (“DOJ”) is also investigating Kabbage for those very same practices.

  Requiring Kabbage to comply with DOJ’s subpoena here would force it to provide sworn

  testimony, on direct and cross examination, that would be readily available to the DOJ attorneys

  in Washington, Boston and Houston who are targeting Kabbage.

         While this pincer movement was unwitting – the U.S. Attorney’s Office here was unaware

  of the other proceedings – it is procedurally unfair to Kabbage, especially when DOJ can (a) enter

  Kabbage business records through a recordkeeper certification (including the loan application and

  related forms); and (b) secure testimony on the question of materiality from a witness provided by

  the Small Business Administration (“SBA”), which administered the relevant loan program.



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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 2 of 7




                                               BACKGROUND

         On March 25, 2022, the government served Kabbage with a Rule 17(a) subpoena for trial

  testimony in this fraud case, which is based on allegations that the defendant secured loans under

  the Payment Protection Program (“PPP”) by submitting falsified applications to Kabbage and

  another entity. Kabbage was a prominent servicer of PPP loans during the pandemic, and

  government counsel has explained that he is seeking testimony from Kabbage about the PPP

  program and Kabbage’s status as an approved lender; the process for applying for a PPP loan and

  the required documentary support; more specific testimony about Form 24831 and the significance

  of the information it collects; the importance of providing truthful information on the application;

  and the location of Kabbage’s servers.

         Meanwhile, for over a year, the Boston U.S. Attorney’s Office has been investigating

  Kabbage under the False Claims Act, on the theory that Kabbage improperly approved PPP loans

  that were either obviously fraudulent or not within Small Business Administration (“SBA”)

  parameters. The relevant period of that investigation overlaps the term of the conspiracy alleged

  in this case. Similarly, the Houston U.S. Attorney’s Office is investigating the adequacy of

  Kabbage’s fraud and anti-money laundering controls in the same time frame. Both matters are

  being coordinated by DOJ’s Civil Division in Washington, D.C.

         Government counsel and undersigned counsel have discussed various ways of addressing

  Kabbage’s concerns, but have been unable to reach resolution.




         1
             This is the SBA-approved borrower information form for PPP loans.



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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 3 of 7




                                            ARGUMENT
  I.     THE COURT IS EMPOWERED TO QUASH A SUBPOENA FOR TESTIMONY
         IF IT IS UNREASONABLE OR OPPRESSIVE

         Rule 17(c) provides that “the court may quash or modify [a] subpoena if compliance would

  be unreasonable or oppressive.” Fed. R. Crim. Pro. 17(c)(2). “The standard is basically the same

  for subpoenas compelling the attendance of witnesses – i.e., subpoenas ad testificandum under

  Rule 17(a).” United States v. Santistevan, No. 11-CR-00406-CMA, 2012 WL 2875949, at *1 (D.

  Colo. July 12, 2012); see also Stern v. U.S. Dist. Ct., 214 F.3d 4, 17 (1st Cir. 2000) (“[C]ourts

  routinely have entertained motions seeking such relief and decided them by reference to

  comparable principles.”). To determine whether a subpoena is “unreasonable or oppressive,”

  courts consider whether the burden of compliance greatly outweighs the relevance of the

  subpoenaed information. See, e.g., United States v. Hardy, 224 F.3d 752, 756 (8th Cir. 2000)

  (addressing the standard regarding the production of documents).

  II.    ALLOWING DOJ TO FORCE KABBAGE TO TESTIFY IN THIS CASE WHEN
         DOJ IS SIMULTANEOUSLY INVESTIGATING KABBAGE ELSEWHERE IS
         UNREASONABLE

         Here, the subpoena presents an undue – and, as importantly, unnecessary – burden for

  Kabbage, because the government is investigating Kabbage in two jurisdictions while, at the same

  time, compelling its testimony in a third, all on related issues. In short, compelled testimony here

  jeopardizes Kabbage’s ability to defend itself there.

         Courts have long recognized this tension in analogous situations. For example, when one

  party faces parallel civil and criminal proceedings, courts often stay the civil proceedings so that

  civil discovery, e.g., depositions or interrogatory responses, do not prejudice the defendant’s

  position in the criminal matter. The obvious concern is the procedural unfairness of compelling a

  target’s testimony when it is under threat of parallel criminal sanctions. See, e.g., S.E.C. v.



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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 4 of 7




  Healthsouth Corp., 261 F. Supp. 2d 1298, 1316 (N.D. Ala. 2003) (“Because of the ongoing

  criminal investigation, defendant Scrushy has been placed in the precarious position of either

  waiving his Fifth Amendment rights and defending himself in the matter before this court, or

  asserting the privilege and probably losing this civil proceeding. While such a choice may not be

  unconstitutional, this court may still exercise its discretion to stay this case in the interest of

  justice.”).2

           This case does not present an identical situation, but the equities are the same: the Boston

  and Houston investigations are, financially, an existential threat to Kabbage. Yet, in this parallel

  matter in Florida, the same government agency seeks to force Kabbage to testify about the internal

  processes at issue in those investigations. For example, any testimony about the materiality of

  defendant Luke Joselin’s alleged false statements, and their role in Kabbage’s loan approval

  process, would expose Kabbage to questions about the fraud controls in its loan approval process,

  which is directly relevant to DOJ’s Boston and Houston inquiries.

           The problem is exacerbated by Joselin’s opportunity to cross examine Kabbage’s

  representative at trial: since the government’s theory is that Joselin secured PPP loans via fraud,

  the defense will cross examine the Kabbage witness about the adequacy of Kabbage’s fraud

  controls, in an effort to muddy the relevant issues and deflect responsibility to Kabbage.3




           2
             See also, e.g., Dean v. Douglas, No. 5:12-CV-120 CAR, 2012 WL 6151137, at *4 (M.D. Ga. Dec. 11, 2012)
  (“[P]articipating fully in civil discovery could cause irreparable harm and prejudice to Defendants in their criminal
  defenses. Although the Court is cognizant that Plaintiff's interest in an expeditious resolution of the case and the
  public's interest in the civil and criminal litigation weigh against issuing a stay, the Court concludes that these interests
  do not outweigh the great likelihood for prejudice to Defendants that would result from allowing this civil action to
  proceed. Accordingly, the Court finds that the interests of justice warrant a stay of this proceeding.”).
          3
            The government and Kabbage agree that cross examination on this subject would not be legally relevant
  under FRE 403. The government has advised that it may move in limine to prevent this kind of cross examination.



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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 5 of 7




  III.       THE GOVERNMENT CAN SECURE THE EVIDENCE IT NEEDS BY OTHER
             MEANS

             As noted above, the government appears to need Kabbage’s testimony to explain the PPP

  loan program, establish the materiality of applicants’ misrepresentations on loan forms, and

  establish the (interstate) location of Kabbage’s servers.

             All of this can be accomplished by other means:

            A witness from the SBA can explain the PPP program; Kabbage’s status as an approved

             lender; what was required to qualify for a PPP loan; and the acceptable underlying

             documentation, including the Form 2483 and the materiality of the information it requires

             (it is, after all, an SBA form).

            Defendant’s submission of the loan application to Kabbage, and processing and approval

             of the package, can be established from the documents themselves. If those records are not

             admitted by stipulation or recordkeeper certification under FRE 104 and 803, Kabbage

             could provide a witness for the limited purpose of authenticating documents and laying the

             foundation for the business record exception to the hearsay rule.

            The out-of-state location of Kabbage’s servers would likely be stipulated but, if not,

             Kabbage could also provide a witness for that limited purpose.

             By using these alternative methods to prove its case, the government’s interest in this

  prosecution is preserved while avoiding the procedural unfairness of allowing DOJ to investigate

  Kabbage with one hand while compelling its testimony with the other.

                                                CONCLUSION

             For these reasons, Kabbage respectfully requests the Court quash the subpoena or, in the

  alternative, severely limit, as described above, questioning of any Kabbage witness on direct and

  cross examination.



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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 6 of 7




                             LOCAL RULE 88.9 CERTIFICATION

         Undersigned counsel have conferred in a good faith effort to resolve the issues raised in

  this motion. Counsel for the government opposes this motion.



   Dated: June 3, 2022                             Respectfully submitted,


                                                   /s/ Ana María Cristina Pérez Soto
                                                   Ana María Cristina Pérez Soto
                                                   Florida Bar No. 096692
                                                   JONES DAY
                                                   Brickell World Plaza
                                                   600 Brickell Avenue, Suite 3300
                                                   Miami, FL 33131
                                                   Phone: (305) 714-9700
                                                   Fax: (305) 714-9799
                                                   Email: cperezsoto@jonesday.com

                                                   and

                                                   Andrew E. Lelling
                                                   Pro hac vice motion pending
                                                   alelling@jonesday.com
                                                   100 High Street
                                                   JONES DAY
                                                   Boston, MA 02110-1781
                                                   Phone: (617) 449-6856
                                                   Fax: (617) 449-6999

                                                   Attorneys for Kabbage, Inc., d/b/a
                                                   KServicing




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Case 0:22-cr-60028-WPD Document 28 Entered on FLSD Docket 06/03/2022 Page 7 of 7




                                  CERTIFICATE OF SERVICE

         I hereby certify that on June 3, 2022, I electronically filed the foregoing with the Clerk of

  the Court by using the CM/ECF system, which will send a notice of electronic filing to all counsel

  or parties of record.


                                                    /s/ Ana María Cristina Pérez Soto
                                                    Ana María Cristina Pérez Soto




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