May 27, 2015 Practice Points

Sole Proprietor's Invocation of Fifth Amendment Privilege Rejected in Response to Grand Jury Subpoena

A court affirmed the collective entity doctrine, which provides that an individual may not rely on the Fifth Amendment to avoid producing the records of a collective entity, even if those records might incriminate him personally

by Charles W. Stotter

The U.S. Court of Appeals for the Third Circuit upheld a district court's finding of civil contempt against a medical practice for refusing to comply with a grand jury subpoena, because the subpoenaed entity could not, as an incorporated entity, properly invoke the Fifth Amendment privilege against self-incrimination. In In Re: In The Matter Of The Grand Jury Empaneled on May 9, 2012, Slip Op. No. 15-1264 (3d Cir. May 15, 2015), the court found that the medical practice, identified as "ABC Entity," could not invoke the Fifth Amendment because it was incorporated as a professional association under New Jersey law, notwithstanding that an individual doctor was the sole proprietor, employee and custodian of ABC Entity's records. The court affirmed that the collective entity doctrine, which provides that an individual may not rely on the Fifth Amendment "to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if those records might incriminate him personally," applied. Id. at 7 (citation omitted).

Here, ABC Entity was subpoenaed to produce documents on its relationship with a blood-testing laboratory that had allegedly bribed doctors to refer patients for blood tests. The doctor who owned ABC Entity refused to comply with the subpoena on the grounds that, because he was the sole owner, employee, and custodian of records, a jury might conclude that he had produced the incriminating documents, and that his causing ABC Entity to turn over the requested documents would violate his Fifth Amendment privilege against self-incrimination. The Third Circuit rejected that argument, noting that "[t]here is no dispute that, ordinarily, corporations like [ABC Entity] are not entitled to invoke the Fifth Amendment's privilege against self-incrimination," and that "custodians of records for corporate entities are, typically, not entitled to invoke the privilege." Id. at 6. Although ABC Entity cited United States Supreme Court authority for the proposition that the "[Fifth Amendment] privilege applies to the business records of a sole proprietor or sole practitioner . . . . ," Bellis v. United States, 417 U.S. 85, 87–88 (1974), the Third Circuit distinguished that case, stating that Bellis "was referring to unincorporated solo practitioners and sole proprietors," id. at 8 (emphasis in original), that Bellis had "[drawn] a line between incorporated and unincorporated persons, not between solo practitioners and multi-member corporations," id., and that Bellis had affirmed adherence to the collective entity doctrine.

The court also rejected an argument that ABC Entity was merely an alter ego of the doctor, finding that "the size of the organization was immaterial," noting that Bellis had "soundly rejected" such an argument in stating that "[i]t is well settled that no privilege can be claimed by the custodian of corporate records, regardless of how small the corporation may be." Id. at 8–9 (emphasis in original). The court added that "it is not the size or the type of corporation that matters," but rather, "whether the entity in question is 'an established institutional entity independent of its individual partners,' and not merely a loose informal association or some temporary arrangement." Id. at 9–10 (citation omitted). The court found that here, ABC Entity "possesses an institutional identity independent of [the doctor] and maintains business records that, in no way, constitute [the doctor's] personal papers." Id. at 10.

The court also rejected an argument that, because only the doctor had authority over ABC Entity's business affairs, the "act-of-production doctrine" applied here. That doctrine provides that a person may invoke the Fifth Amendment privilege where the very act of producing documents contains testimonial features "regarding the existence and authenticity of the documents produced." Id. at 11 (citation omitted). See Braswell v. United States, 487 U.S. 99, 109 (1988). The court observed that "the Fifth Amendment privilege against self-incrimination is unavailable to corporate custodians," and that any act of production by the doctor would be as a representative of ABC Entity, not as an individual. Id. at 12–13.

The court concluded that "having taken advantage of the benefits of incorporation . . . [the doctor] may not discard the corporate form simply because he now finds it desirable to do so." Id. at 13. As the court further noted, its ruling "comports with precedent from several other circuits . . . . all of which have agreed that a corporate custodian may not refuse to comply with a subpoena on Fifth Amendment grounds merely because he or she is also that corporation's sole owner and employee." Id. at 15. The Third Circuit thus joins others in finding this result to be, in the words of the Second Circuit, the "sensible" one. Id. at 16 (citation omitted).

Keywords:litigation, act-of-production doctrine, collective entity doctrine, commercial and business, Fifth Amendment privilege, self-incrimination, subpoena

Charles W. Stotter is with Bressler, Amery & Ross, P.C., in Florham Park, New Jersey, and New York, New York.


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