Small businesses have a right to remain silent too. In the white collar and government investigations world, it is common for defense attorneys to receive a grand jury subpoena addressed to the corporation, partnership, or corporate entity controlled by the client. This is a preferred practice of many US Attorney’s Offices because of the collective entity doctrine which, courts have held, prohibits a corporation from invoking a Fifth Amendment privilege against self-incrimination in response to a subpoena since, after all, only people – not artificial entities – can testify against themselves. Indeed, following the rationale of this doctrine, the corporation has no Fifth Amendment privilege to invoke and therefore the client cannot refuse to produce any corporate documents based on the assertion of that privilege. This is the case even if the corporate documents – or emails – are rife with potentially incriminating material or statements. This practice of sending subpoenas to the corporation to avoid a possible Fifth Amendment defense is also rarely challenged and rarely litigated, but, in certain circumstances, it should be challenged.
Collective Entity Doctrine
Many district courts and some appellate courts have issued decisions championing the collective entity doctrine. See United States v. Roe, 421 F. App’x 881, 884-85 (10th Cir. 2011) (“[T]he district court held the Roes could not assert … personal [Fourth and Fifth Amendment] rights to oppose summonses seeking materials from [their LLC], a collective entity. We take the district court’s view of the matter.”); United States v. Lu, 248 F. App’x 806, 807-08 (9th Cir. 2007) (“[T]he business records of Lu’s [single-member limited liability companies] are not protected by the Fifth Amendment); United States v. Greenleaf, 546 F.2d 123, 128 (5th Cir. 1977) (recognizing the “small family partnership” exception, but concluding that the defendant partnership did not qualify for the exception); In Re: In The Matter Of The Grand Jury Empaneled on May 9, 2012, Slip Op. No. 15-1264 (3d Cir. May 15, 2015) (finding 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 even though an individual doctor was the sole proprietor, employee and custodian of ABC Entity’s records).
Yet challenges to grand jury subpoenas are still viable. For example, at least 3 district courts have allowed corporate clients to invoke the Fifth Amendment privilege in response to grand jury subpoenas. See United States v. Slutsky, 352 F. Supp. 1105 (S.D.N.Y. 1972)(two-person family partnership responsible for managing country club resort with gross receipts of more than $4 million and employees was permitted to invoke the Fifth Amendment in response to a subpoena requesting production of business records); see In re Subpoena Duces Tecum, 81 F. Supp. 418, 421 (N.D. Cal. 1948)( granting a small partnership Fifth Amendment rights, stating that “the partnership’s sole purpose was to “conduct the personal business of the partners … [and while] some partnerships, which have a large number of partners … might … take on the habilaments of an association or corporation … certainly this small family partnership [did] not reach such a stature.”); see In re Grand Jury Subpoena Duces Tecum (Doe), 605 F. Supp. 174, 178 (E.D.N.Y. 1985) (permitted a husband-wife partnership to invoke the Fifth Amendment and said “the Bellis Court contemplated that individual owners of the proverbial “Mom and Pop” stores would continue to enjoy the protection of the Fifth Amendment even though they elected to conduct business as a partnership. If the Bellis Court intended to hold that no partners could ever invoke the Fifth Amendment with respect to partnership records it could have easily said so.”).
And the Supreme Court in Bellis v. United States, 417 U.S. 85, 89-90 (1974) held in favor of the collective entity doctrine finding that a three-person partnership possessed no Fifth Amendment right but said “[t]his might be a different case if it involved a small family partnership or if there were some other pre-existing relationship of confidentiality among the partners.” If the high court in Bellis simply wanted to kill any type of Fifth Amendment privilege it could have said so, but it did not.
Takeaways
With this in mind, the success of any such challenge should be case specific. In determining whether to challenge the subpoena, focus on the following:
-How damning are the documents for the client? If, upon review, the documents are not incriminating or potentially incriminating, is it worthwhile to engage in protracted and costly subpoena litigation especially when the case law is unfavorable to the client? After reviewing the documents, only counsel can discern the extent to which the documents might severely harm the client if produced. The fight has to be worthwhile.
–Is the client a small family partnership? The district court decisions finding that a privilege applied to the partnership generally involved small family partnerships which is consistent with the dicta in Bellis. By comparison, the Third Circuit recently held that a sole proprietorship managed by one physician was not entitled to Fifth Amendment protection. Thus, the courts have not established a black and white rule conditioned on the number of partners or members.
-Can the client’s company meet the Bellis test? In Bellis, the Supreme Court formulated a two prong test to determine when a company might invoke the privilege:
First, does the partnership have a distinct institutional identity? In deciding this question, counsel should examine the structure of the firm, i.e., whether it is merely an informal or temporary agreement, how the firm is regulated by state law, how it holds itself out to third parties, and whether it files a separate income tax return.
Second, does the partner claiming the privilege hold the requested records in a personal or in a representative capacity? As at least one court has recognized, all partnership records are partnership property under state law and therefore most partnerships would fail under this prong of Bellis. So, if the company fits into the first prong, then that might be sufficient to warrant constitutional protection especially if:
-There is a pre-existing relationship of confidentiality between the partners;
-The interests of the company are intertwined with the personal interests of the partners or members, or
-The company is composed of a single director/officer or member as part of an LLC and files a single tax return as a “pass through” entity. See Braswell v. United States, 487 U.S. 99, 118 n.11 (1988) (holding that president of corporation and sole shareholder was not protected by 5th Amendment from grand jury subpoena but leaving “open the question whether the agency rationale supports compelling a custodian to produce corporate records when the custodian is able to establish, by showing for example that he is the sole employee and officer of the corporation, that the jury would inevitably conclude that he produced the records.”
Despite the seeming invincibility of the collective entity doctrine, if the client is a small business or partnership and the requested documents in the grand jury subpoena merit the challenge and the likely costs of litigation, any and all of these arguments should be raised. After all, “[i]t seems clear that the Bellis Court contemplated that individual owners of the proverbial “Mom and Pop” stores would continue to enjoy the protection of the Fifth Amendment even though they elected to conduct business as a partnership.” In re Grand Jury Subpoena Duces Tecum (Doe), 605 F. Supp. at 178
Author: Andrew Feldman
Mr. Feldman represents professionals, corporations, health care providers, and health care marketers in government investigations and prosecutions throughout the United States. Mr. Feldman works tirelessly for his clients from the time an investigation begins until the time a jury renders a verdict.
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