In Coquina Investments v. TD Bank, N.A., 760 F.3d 1300 (2014), the Eleventh Circuit in a case of first impression analyzed and ruled on the Fifth Amendment privilege against self-incrimination. The case arose out of a billion-dollar Ponzi scheme where an investment partnership, Coquina Investments, claimed that a bank assisted a lawyer in perpetrating a fraud.
The Ponzi Scheme
Scott Rothstein, in 2009, was a high-powered attorney in South Florida who purported to represent whistleblowers and victims of sexual harassment. Rothstein claimed that the defendants in those cases paid large sums of money for structured settlements so as to avoid litigation. The requirement was that the firm would release the settlement money to the victims over a period of time and that the deferred payments would be forfeited if the victims breached confidentiality. He claimed that some of the victims were so desperate for immediate payment that they were willing to forgo large portions of the settlement to get immediate payment. Rothstein then asked wealthy investors to finance the payments to the victims. Rothstein falsely assured his investors that the full amount of the settlement money had been deposited in a trust account so there was no risk of loss. The reality, however, was that the clients and settlements were fictitious. The money that Rothstein received from the investors was used to finance his elaborate lifestyle and to repay old debts.
One of the investors was Coquina, a Texas investment partnership. Coquina invested $37.7 million with Rothstein and lost about $6.7 million when Rothstein’s Ponzi scheme collapsed in October 2009. Rothstein convinced Coquina to make the multimillion-dollar investments by ensuring the investors that the defendants had already deposited the full amount of the settlement in the account. Rothstein also stated that the account at TD Bank contained very strict transfer restrictions, a claim that was patently false. Rothstein transferred money to himself from that account and the bank’s then-regional-vice-president Frank Spinosa falsely assured the investors at Coquina that there were millions of dollars in the trust account when in fact there was only $100.
On May 12, 2010, Coquina filed this lawsuit, claiming that the bank aided and abetted Rothstein’s Ponzi scheme, made fraudulent misrepresentations, and engaged in racketeering. The district court granted summary judgment for the racketeering claim, however, the aiding and abetting and fraudulent misrepresentation claims went to trial. There are several pertinent legal issues within this appeal, however, this practice point will evaluate the issue of a nonparty’s invocation of the Fifth Amendment privilege in the context of a civil case.
A Nonparty’s Invocation of the Fifth Amendment Privilege against Self-Incrimination
Spinosa was permitted by the court to testify even though he made it known before testifying that he intended to invoke his Fifth Amendment privilege against self-incrimination. The district court instructed the jury that it could draw adverse inferences against TD Bank and determine its liability because of Spinosa’s silence. TD Bank argued that the district court erred in allowing Spinosa to testify as a witness for Coquina since it was known before his testimony that he was going to invoke his Fifth Amendment privilege. TD Bank also argued that the court erred in allowing Coquina to ask questions that included no corroborating evidence while allowing the jury to draw adverse inferences against TD Bank because of his refusal to answer the questions.
The court referred to LiButti v. United States, where the Second Circuit identified four factors for courts to consider including: 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." This court adopted the analysis, finding that three of the four LiButti factors were favorable to the trustworthiness of drawing negative inferences against TD Bank based on Spinosa’s invocation of his Fifth Amendment privilege. The court concluded that since the evidence showed that Spinosa was intricately involved in the case and knew of and participated in Rothstein’s scheme, the district court did not err in allowing Coquina to call Spinosa to the stand for the sole purpose of exercising his Fifth Amendment privilege.
The Eleventh Circuit affirmed the district court’s ruling on all counts.
The Eleventh Circuit emphasized two important legal points: 1.) a witness may be called in a civil case even though the witness has decided beforehand to invoke the privilege against self-incrimination, and 2.) adverse inferences may be drawn against a party with whom the witness is associated as a result of invoking the privilege.
The Second Circuit’s decision in LiButti may be applied flexibly in cases similar to this one in the interest of justice. Because Spinosa was TD Bank’s regional vice president, the evidence showed that Spinosa through TD Bank made material misrepresentations to investors.
Under Federal Rule of Evidence 801(d)(2)(D), Spinosa’s statements would have been admissible against TD Bank even if he were unavailable to testify. Spinosa offered to have his lawyer assist in finding and presenting evidence to rebut the emails and other incriminating evidence presented by the plaintiffs. Since no such evidence existed, as none was presented, the negative inference was drawn appropriately.