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Can a Receiver Obtain Business Records when a Fifth Amendment Right Against Self Incrimination is Asserted? By Weissman, Richard & Weissman, Carol* Assume a receiver has just been appointed over Acme Corporation in a civil enforcement action brought by a state or federal regulatory agency. The order of appointment authorizes the receiver to take possession and control of all of Acme’s assets, its ongoing business enterprise and all its business and financial records (expansively defined to include documents, computer hardware, software and all computer based records, floppy disks, CD-ROMs, computer passwords and access codes, etc.). The receiver then serves the order on Acme’s president, Mr. Smith, and demands immediate turnover of and access to the financial records. Mr. Smith refuses, and the attorney for both Mr. Smith and Acme states that her clients are exercising their respective Constitutional rights against self-incrimination under the Fifth Amendment, which rights (it is asserted) preclude the receiver’s obtaining Acme’s records. The attorney also discloses that some of Acme’s records are now in her possession (having been delivered by Mr. Smith). She asserts an attorney-client privilege in refusing to turn over these documents. Is the Receiver sunk? Are these insurmountable Constitutional protections afforded to Acme and to Mr. Smith? Does the Fifth Amendment privilege against self-incrimination prevent the receiver from executing his duties set by the Court? Does the attorney-client privilege apply under these facts? The short answer is: No, no, no and no! Is There A Corporate Privilege? The U. S. Supreme Court has stated that it is well established that artificial entities such as corporations, partnerships, unincorporated associations (and similarly constituted entities), are not shielded by the Fifth Amendment. Braswell v. United States, et al., 487 U.S. 99, 102-107 (1988). Acme, as a statutorily created entity, has an unconditional duty to produce records prepared and maintained in the ordinary course of business if required by court order [Id.] or a subpoena for the production of records. Acme does not possess a Fifth Amendment privilege precluding production of corporate financial records, correspondence, marketing and sales documents or the like even though such records would tend to establish that illegal activities took place. Hale v. Henkel, supra, at 75. A corporation, as a creation of the state, is amenable to state action, and both an order and a subpoena mandating production of Acme’s records are forms of state action. The right against self-incrimination is limited to its historical function of protecting a natural person against compulsory self-incrimination through his own testimony or personal records. Bellis v. United States, 417 U.S. 85, 90 (1974). The reasoning behind denial of the Fifth Amendment privilege to artificial entities enunciated by the Supreme Court is that the corporate records are deemed public in nature, rather than private papers that would be protected by the Fifth Amendment. Bellis v. United States, supra, at 88 and 100. The Fifth Amendment privilege is inapplicable to corporations, regardless of their size (as small as one shareholder). Braswell v. United States, supra, at 104 [which decision also comments that if a sole proprietorship is involved a different inquiry is required]. The protections of the Fifth Amendment are also denied to partnerships, formal and informal associations, and dissolved corporations and partnerships (including entities that have been through bankruptcy). Fisher v. United States, 425 U.S. 391,412. It is clear that all of Acme’s corporate documents and records, in whatever form they are maintained, including computers, software files, hard drives, disks, CD ROMS and the passwords and access codes to such information are not shielded and must be produced. May Agents and Representatives of the Corporation Invoke a Personal Fifth
Amendment Privilege and Refuse to Produce Corporate Records? A custodian may be the chief executive officer, the president, a member of the board of directors, and/or any employee formally designated as the custodian of records. The law considers a custodian’s act of producing records pursuant to court order a function of the corporation, not a personal or individual act by the custodian. Id. For that reason, the custodian’s act of delivering the corporate records under law is not considered to be “compelled testimony” of the individual custodian (which would be protected under the Fifth Amendment). **Fisher v. United States, supra, at 408-409, 410-411 This is the case even where the records may tend to provide incriminating evidence against the custodian. In our hypothetical, Acme’s counsel states that there is no one to produce the records because the individual directors, officers and employees are each asserting their personal right against self-incrimination under the Fifth Amendment. They refuse to deliver the records on the grounds that production of the documents may criminally implicate them in some way. They argue that forcing them to deliver the corporate records is the equivalent of compelling them to testify as to their personal knowledge about the documents and potentially establishing their personal guilt (or culpability) for Acme’s alleged illicit activities. This argument fails. The content of the records is not at issue because the custodian’s act of producing them is not considered to be testimony as to the content of the documents. The custodian acts as a representative of the corporation: the act of production is deemed that of the corporation, not of the individual. Braswell v. United States, supra, at 118. The legal reality is that Acme’s directors, officers and employees serve only as representatives and agents of the Corporation and are bound by its obligations to produce the records. Bellis v. United States, supra, at 90. In particular, Smith, the president of Acme in our hypothetical, holds the records only as Acme’s agent and custodian, not in his personal capacity. He cannot assert any personal Fifth Amendment privilege to shield the corporation from producing the documents. Wilson v. United States, supra, at 382; Braswell v. United States, supra, at 110, and others. The Supreme Court has consistently denied a custodian’s attempt to “back door” this use of the Fifth Amendment privilege. If Smith were allowed to assert a personal Fifth Amendment privilege to prevent his production of the documents on the grounds that such production constituted his testimony, it would be “tantamount to a claim of privilege” by Acme, a privilege which it does not possess. Bellis v. United States, supra, at 100; Braswell v. United States, supra, at 110-11, 112. A custodian’s production of corporate records is mandated notwithstanding any potential that they may personally incriminate him or her. Id. “A custodian, by assuming the duties of his office, undertakes the obligation to produce the books of which he is custodian in response to a rightful exercise of the State’s ... powers.” Curcio v. United States, 354 US 118, 123-4 (1957). Acme must find a means to comply with the order, even if it requires appointment of an alternate custodian. If so, it is incumbent on Smith to ensure that this alternate custodian has sufficient knowledge about the existence, nature and scope of the records so as to be able to properly comply with the order. Otherwise, “the solution [i.e. appointment of an alternate custodian] is a chimera.” Braswell v. United States, supra, at 117. What About Documents in the Possession of Acme’s Attorneys? The rule is: if the records are producible by Acme, they are producible by its counsel, despite the fact that the records are delivered to counsel for the purpose of obtaining legal assistance. Only if the records are unobtainable from the client under a subpoena or other lawful order will the records be unobtainable from counsel by reason of the attorney-client privilege. Where Acme cannot avoid producing its records, neither can its counsel under the guise of attorney-client privilege. Id., 403 405. Enforcing the Subpoena
or Court Order It is appropriate and necessary for the Court to be made aware of any obstructionist conduct of the corporation and its agents, to enable the Court to control and direct the course of administration of the receivership. Expensive and time-delaying depositions, interrogatories and other forms of discovery open the door for the deponent or declarant to assert “personal” rights against self-incrimination as to his personal knowledge sought through these traditional discovery means. Direct production of corporate records upon service of the receivership order avoids such peripheral impediments. Pursuing a contempt citation that provides for a civil contempt penalty (incarcerating the agent pending full compliance with the order) may be a cost efficient and expedient tool against Acme’s obstructive agent(s) and counsel. The requisite proof elements for contempt are: (1) the order was served on the citee; (2) demand was made for production of the records being sought under the order; (3) the citee had the ability to produce the records; and (4) the citee’s failure to produce the records. Once these elements are established, a contempt citation will follow. A claim that the documents are no longer available to the citee or that they have been destroyed are dynamics beyond the scope of this article. Suffice it to say, however, that the Court does have various methods that it may employ to enforce compliance with its orders, jail time pending compliance being one of them. A citee’s claim of “I can’t” is really his legal statement of “I won’t.” His contention is not legally viable and the Court should support the receiver’s pursuit of the records. A command to the corporation is, in effect, a command to those who are officially responsible for the conduct of its affairs. “As the corporation can only act through its agents, the courts will operate upon the agents through the corporation.” Wilson v. United States, supra, at 377. |