Second Circuit holds that subsequent Supreme Court case law did not affect the circuit’s prior precedent that the Fifth Amendment bars a corporation from refusing to produce subpoenaed records, in In re Grand Jury Subpoena Issued June 18, 2009, 593 F.3d 155 (2d Cir. Feb. 1, 2010) (No. 09-3561-CV) (per curiam)
In the case, the district court held two companies in contempt for failing to produce records after receiving a grand jury subpoena for records related to a bank fraud, illegal gambling, and money laundering investigation. The companies were wholly owned by one shareholder, officer and employee, Rennick, who moved to quash the subpoena “since he was the only individual capable of producing the requested corporate records and the act of production would be testimonial and potentially self-incriminating.” Grand Jury Subpoena, 593 F.3d at 157. The motion was denied. See In re Grand Jury Subpoena Issued June 18, 2009, No. M11-189 (S.D.N.Y. Aug. 4, 2009). Defendant Rennick was then charged with conspiracy, bank fraud, illegal gambling, and money laundering counts. The companies refused to comply with the subpoena and the district court held them in contempt. See In re Grand Jury Subpoena Issued 24 June 18, 2009, No. M11-189 (S.D.N.Y. Aug. 17, 2009).
On appeal, the Second Circuit considered whether a corporation (with a sole shareholder, officer, and employee) may refuse to comply with a subpoena demanding production of corporate records under the Fifth Amendment’s act of production privilege. Grand Jury Subpoena, 593 F.3d at 157. Generally, corporations cannot claim a Fifth Amendment privilege. Corporations could not invoke the Fifth Amendment privilege under the “collective entity rule.” Braswell v. United States, 487 U.S. 99, 104-10 (1988). Similarly, a corporate custodian of records may not claim a Fifth Amendment privilege to refuse to produce corporate records. See Bellis v. United States, 417 U.S. 85, 88, 90, 100 (1974). Under prior precedent, the circuit had held that held that there was no exception to the “collective entity rule” for a corporation that was “essentially a one-man operation.” See In re Two Grand Jury Subpoenae Duces Tecum, 769 F.2d 52, 57 (2d Cir. 1985) (noting “[t]here simply is no situation in which the fifth amendment would prevent a corporation from producing corporate records, for the corporation itself has no fifth amendment privilege”).
The companies argued that a subsequent Supreme Court case suggested a change in the law since the Court had “le[ft] open the question” whether a custodian of records for a company, which was essentially a one-person operation, could refuse to comply with a subpoena where he could show “that the jury would inevitably conclude that he produced the records.” Braswell, 487 U.S. at 118 n.1 (1988), a very similar case. The Second Circuit rejected this argument, holding “that Braswell did not overrule In re Two Grand Jury Subpoenae.” Grand Jury Subpoena, 593 F.3d at 158. The First Circuit had reached a similar conclusion. See Amato v. United States, 450 F.3d 46, 52 (“ Braswell did not alter the application of the collective-entity doctrine in this circuit.”). The Second Circuit also observed that this conclusion was a “sensible” one for three reasons:
“First, it prevents the erosion of the ‘unchallenged rule that the [corporation] itself is not entitled to claim any Fifth Amendment privilege.’ Bellis, 417 U.S. at 90. Second, it recognizes that the decision to incorporate is freely made and generates benefits, such as limited liability, and burdens, such as the need to respond to subpoenas for corporate records. See Amato, 450 F.3d at 52. Third, it avoids creating a category of organizations effectively immune from regulation by virtue of being beyond the reach of the Government’s subpoena power. See United States v. White, 322 U.S. 694, 700 (1944) (“Were the cloak of the [Fifth Amendment] privilege to be thrown around these impersonal [corporate] records and documents, effective enforcement of many federal and state laws would be impossible.”); see also Braswell, 487 U.S. at 115 (noting the importance of subpoenaing corporate records in the fight against white collar crime).”
Grand Jury Subpoena, 593 F.3d at 158-59. Finally, the circuit noted that “[e]very other court to have considered this issue has reached the same conclusion for largely the same reasons,” including:
- Amato v. United States, 450 F.3d 46, 51-53 (as noted above)
- United States v. Stone, 976 F.2d 909, 912 (4th Cir. 1992) (“The privilege against compulsory self-incrimination is, of course, personal, and does not apply to collective entities, such as corporations.… Wujkowski chose the corporate form and gained its attendant benefits, and we hold, in accord with the decisions of sister circuits, that he cannot now disregard the corporate form to shield his business records from production.”), cert. denied, 507 U.S. 1029 (1993)
- United States v. Milligan, 371 F. Supp. 2d 1127, 1129 (D. Ariz. 2005) (“[E]ven if this was a one-man corporation, Milligan has provided no authority showing that any court, let alone a controlling court, has actually applied the potential Braswell exception. As the government previously pointed out, no such court has applied the Braswell exception. Thus, application of the potential exception would be inappropriate in any case.”)
- United States v. Maxey & Co., 956 F. Supp. 823, 829 (N.D. Ind. 1997) (“After carefully reviewing the record in this case in light of the Fourth Circuit’s decision in Stone, this court is persuaded that Maxey & Company’s argument under the Braswell footnote is without merit.… [N]either the respondent, * Maxey & Company, nor its agent, Mr. Maxey, may assert the Fifth Amendment privilege against self-incrimination to excuse production of the documents sought by the IRS in its March 28, 1996, summons.”)
- United States v. Raniere, 895 F. Supp. 699, 706-07 (D.N.J. 1995) (“The ruling in Braswell disallows the use by the Government against Raniere of the ‘individual act’ of producing the documents…. The Government may, however, subsequently use the corporation’s act of production against Raniere, the custodian.”)
- United States v. Moseley, 832 F. Supp. 56, 58-59 (W.D.N.Y. 1993) (noting “the Supreme Court explicitly held that the Fifth Amendment 59 is never implicated when the custodian is compelled to produce corporate records “regardless of how small the corporation may be” and agreeing with the Second and Fourth Circuits) (quoting Braswell, 487 U.S. at 108)
- SEC v. Bremont, No. 96 Civ. 8771, 1997 U.S. Dist. LEXIS 6125, at *3 4 (S.D.N.Y. May 6, 1997)
The circuit did not believe that it was inevitable that the jury would conclude defendant Rennic had produced the records:
“Although the inference would be strong, it would not be automatic. For example, the jury might believe the Government obtained the documents entirely on its own, such as by conducting a search. Even if the jurors learned that the Government obtained the documents via a subpoena, they might infer that the corporation engaged a third party to search its records and make the production on its behalf.”
Grand Jury Subpoena, 593 F.3d at 159. Accordingly, the district court did not abuse its discretion in its contempt order.
The Grand Jury Subpoena presents an interesting issue concerning the application of the act of production privilege in the corporate setting. For other cases considering the act of production privilege, see Defendant Compels Production Of Company Records Provided To Earlier Government Investigation; Compelling Access To Encrypted Information.