Circuit Consensus: Drawing An Adverse Inference From A Nonparty Witness's Invocation Of The Fifth Amendment Privilege

Eleventh Circuit confronts an issue of first impression concerning the circumstances in which a nonparty may invoke the Fifth Amendment before a civil jury; circuit explains that the application of the Fifth Amendment is different in criminal and civil cases; circuit concludes that one party could call a nonparty witness “to the stand for the purpose of having him invoke the Fifth Amendment privilege in the jury’s presence,” in Coquina Investments v. TD Bank, N.A., _ F.3d _ (11th Cir. July 29, 2014) (No. 12-11161)

Under what circumstances can a nonparty be called for the purpose of invoking the Fifth Amendment privilege against self-incrimination in a civil case so that an adverse inference may be drawn? The Eleventh Circuit recently considered this open issue.

Trial Court Proceedings: Allowing Invocation Of The Privilege

In the case, plaintiff Coquina Investments (“Coquina”) brought an action against defendant TD Bank, N.A. (“TD Bank”) to recover more than $6.7 million which were lost after a Ponzi scheme collapsed. The fraud was perpetuated by attorney Rothstein. The bank had handled the investments in the scheme.

At trial, the bank’s former regional vice president, Frank Spinosa, was called by the plaintiff who knew that he planned to assert his Fifth Amendment privilege against self-incrimination. The trial court instructed the jury that “‘the knowledge and actions of a bank officer or director, such as’ Spinosa, ‘may be imputed to a bank, such as’ TD Bank.” Coquina Investments, _ F.3d at _, n.10. After hearing all the evidence, the jury returned a verdict for the plaintiff. On appeal, one issue raised by the bank was that the trial court erred in allowing the bank’s former regional vice president to be called to assert the privilege before the jury.

Eleventh Circuit Review: Reviewing Other Precedent And Considering Appropriate Factors

The circuit noted that the application of the Fifth Amendment privilege against self-incrimination “operates differently in criminal and civil contexts.” In criminal cases, the privilege prohibits any “negative inference” based on a defendant’s silence. Coquina Investments, _ F.3d at _ (citing Griffin v. California, 380 U.S. 609, 615 (1965)). However, in civil matters, “the Fifth Amendment does not forbid adverse inferences against parties . . . when they refuse to testify in response to probative evidence offered against them.” Coquina Investments, _ F.3d at _ (quoting Baxter v. Palmigiano, 425 U.S. 308, 318 (1976); Mitchell v. United States, 526 U.S. 314, 328 (1999) (“Th[is] rule allowing invocation of the privilege [by civil litigants], though at the risk of suffering an adverse inference or even a default, accommodates the right not to be a witness against oneself while still permitting civil litigation to proceed.”)).

The circuit noted an open issue in the Eleventh Circuit and Supreme Court on how to handle the invocation of the privilege by a nonparty witness. The posture of the witness is different than a party. As the circuit explained:

[A] nonparty witness like Spinosa may invoke the privilege for a variety of reasons that are unrelated to the possibility of self-incrimination; for instance, a nonparty may purposefully choose not to contradict incriminating evidence in order to “saddle a defendant with liability by insinuation, particularly where the chance of prosecution of the witness is slim.” Charles H. Rabon, Jr., Note, Evening the Odds in Civil Litigation: A Proposed Methodology for Using Adverse Inferences When Nonparty Witnesses Invoke the Fifth Amendment, 42 Vand. L. Rev. 507, 534 n.189 (1989); F.D.I.C. v. Fid. & Deposit Co. of Md., 45 F.3d 969, 978 (5th Cir. 1995) (“The concern is that a non-party who stands in no special relationship to the party at the time of trial may purposefully invoke the privilege solely to discredit the party.”). Because the witness cannot be made to explain why the privilege has been invoked, the reliability of the adverse inference drawn from his silence is limited. Cf. Brink’s Inc. v. City of New York, 717 F.2d 700, 716–17 (2d Cir. 1983) (Winter, J., dissenting) (analogizing nonparties’ invocations of the privilege to hearsay evidence).

Coquina Investments, _ F.3d at _.

Other Circuit Cases

Given the open issue, the circuit considered how the issue had been handled by other circuits. Other circuits have considered the issue “on a case-by-case basis” including the following:

  • Second Circuit: LiButti v. United States, 107 F.3d 110, 123 (2d Cir. 1997) (“Although the issue of the admissibility of a non-party's invocation of the Fifth Amendment privilege against self-incrimination in the course of civil litigation and the concomitant drawing of adverse inferences appropriately center on the circumstances of the case, the evolving case law and its underlying rationale accordingly suggest a number of non-exclusive factors”)
  • Third Circuit: Rad Servs., Inc. v. Aetna Cas. & Sur. Co., 808 F.2d 271, 277 (3d Cir. 1986) (“A non-party's silence in a civil proceeding implicates Fifth Amendment concerns to an even lesser degree.”)
  • Fifth Circuit: F.D.I.C. v. Fid. & Deposit Co. of Md. , 45 F.3d 969, 978 (5th Cir. 1995) (“we refuse to adopt a rule that would categorically bar a party from calling, as a witness, a non-party who had no special relationship to the party, for the purpose of having that witness exercise his Fifth Amendment right.”)
  • Eighth Circuit: Cerro Gordo Charity v. Fireman’s Fund Am. Life Ins. Co., 819 F.2d 1471, 1481 (8th Cir. 1987) (concluding in certain instances “a party may call a witness to the stand even when that witness has made known an intention to invoke the Fifth Amendment.”)

Adopting LiButti Factors

The Eleventh Circuit found persuasive the analysis and factors adopted by the Second Circuit in LiButti v. United States. As the Eleventh Circuit noted:

LiButti recognized, as we do here, that the “overarching concern” that should guide the admissibility inquiry “is fundamentally whether the adverse inference is trustworthy under all of the circumstances and will advance the search for the truth.” 107 F.3d at 124. After surveying pertinent cases from the other circuits, LiButti identified four non-exclusive factors for courts to consider: (1) “the nature of the relevant relationships”; (2) “the degree of control of the party over the non-party witness”; (3) “the compatibility of the interests of the party and non-party witness in the outcome of the litigation”; and (4) “the role of the non-party witness in the litigation.” Id. at 123–24 (capitalization altered). LiButti made clear that these factors should be applied flexibly and that an invocation is not barred even if not all of the factors are satisfied.

We agree with and adopt the LiButti analysis—i.e., that the admissibility of a nonparty’s invocation of the Fifth Amendment privilege and the concomitant drawing of adverse inferences should be considered by courts on a case-by-case basis. We also agree that LiButti’s non-exclusive factors should be applied flexibly and that the overarching concern is whether the adverse inference is trustworthy under all of the circumstances.

Coquina Investments, _ F.3d at _.

Applying The LiButti Factors

In applying the four factors, the circuit found three supported “the trustworthiness of the adverse inferences drawn against TD Bank based upon Spinosa’s invocation”:

First, although Spinosa was no longer employed by TD Bank at the time of trial, there is reason to believe that Spinosa still retained some loyalty to TD Bank. The bank paid Spinosa’s legal fees associated with this action. See Rad Servs., 808 F.2d at 276 (stating that “[a]ny factors suggesting that a former employee retains some loyalty to his former employer—such as the fact that the employer is paying for his attorney”—serves the purpose of “reduc[ing] the chance that the employee will falsely claim to have engaged in criminal conduct for which the defendant employer is liable” (quoting Robert Heidt, The Conjurer’s Circle—The Fifth Amendment Privilege in Civil Cases, 91 Yale L.J. 1062, 1119 n.214 (1982))). Moreover, Spinosa’s attorney had offered to cooperate in TD Bank’s internal investigations on his behalf. Second, the assertion of the privilege likely advanced the interests of both Spinosa and TD Bank in the outcome of this litigation. The chance is remote that Spinosa would have invoked the Fifth Amendment if he neither knew of nor participated in Rothstein’s Ponzi scheme because doing so increased his own exposure to criminal prosecution. And third, Spinosa is a “key figure” in this case because his alleged actions and misrepresentations formed the bulk of Coquina’s complaint. See Cerro Gordo Charity, 819 F.2d at 1482 (citing the invoking witness’s role as a “key figure” in the lawsuit as a factor justifying the adverse inference).

Further, the record is replete with evidence that Spinosa, while acting as a regional vice president for TD Bank, knew of and participated in Rothstein’s fraud. The evidence shows that Spinosa signed “lock letters” falsely claiming that the money held in a TD Bank trust account could be disbursed only to Coquina. Mel Klein and Kathleen White, two of Coquina’s investors, testified that Spinosa falsely represented to them that the restriction described in the “lock letters” was both effective and commonplace at the bank. Klein and White also testified that Spinosa told them that there were millions of dollars in the trust account when in fact there was only $100 in the account at the time. Additionally, e-mails between Rothstein and Spinosa show that when Rothstein instructed Spinosa to “just answer yes to all [of Rothstein’s] questions” in a conference call with Coquina’s investors, Spinosa replied, “No problem.” The e-mails also indicate that when Rothstein asked Spinosa to wire $16 million for him from RRA’s accounts at TD Bank to Morocco, where Rothstein fled after his Ponzi scheme was discovered, Spinosa complied.

Coquina Investments, _ F.3d at _. The circuit “conclude[d] that the district court did not abuse its discretion in allowing Coquina to call Spinosa to the stand for the purpose of having him invoke the Fifth Amendment privilege in the jury’s presence.” Coquina Investments, _ F.3d at _ (footnote omitted). The adverse inference was appropriate and “trustworthy”: “namely, that while acting as TD Bank’s regional vice president, Spinosa had knowledge of Rothstein’s fraud and assisted in its perpetration.” Coquina Investments, _ F.3d at _.

Finally, the circuit suggested that even where a trial court may permit a nonparty witness to assert the privilege, "the district court’s specific determination of relevance and its evaluation of a potential Fed. R. Evid. 403 problem are reviewed for abuse of discretion.”
Coquina Investments, _ F.3d at _ (quoting F.D.I.C., 45 F.3d at 977)).

Conclusion

The Coquina Investments case provides a recent example of how a court will analyze whether to allow a nonparty witness to be called to invoke the Fifth Amendment privilege. Ultimately, the trial court holds a substantial amount of discretion in applying the non-exclusion factors and in determining whether the witness may be called, including under FRE 401 and FRE 403. Under the circumstances of the civil fraud case, there was no abuse of discretion in allowing the nonparty witness to be called and the adverse inference to be given.

For discussion of the use of leading questions for a witness asserting the Fifth Amendment privilege, see Open Issue: Can Leading Questions Be Based Upon A Good Faith Basis To Ask Them When The Fifth Amendment Privilege Is Asserted?.

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