In the Courts

Second Circuit Denies Fifth Amendment 'Act of Production' Privilege

On Feb. 1, 2010, in In re Grand Jury Subpoena Issued June 18, 2009, No. 09-3561-cv, the Second Circuit, in a per curiam opinion, held that a single-person corporation could not refuse to comply with a subpoena for production of corporate records by asserting the Fifth Amendment's “act of production” privilege. In its decision, the court extended its prior decision denying an exception to the collective-entity rule for corporations that were essentially single-person operations to the actual single-person corporation, finding that an intervening decision by the Supreme Court had not overturned the Second Circuit's earlier decision. The Second Circuit's decision affirmed a contempt order issued by the U.S. District Court for the Southern District of New York against Account Services Corporation (ASC) and KJB Financial Corporation (KJB), for failure to comply with a grand jury subpoena duces tecum.

The subpoena was issued on June 18, 2009, pursuant to an investigation into allegations of bank fraud, illegal gambling, and money laundering. Douglas Rennick, the sole owner, shareholder, officer and employee of both companies, unsuccessfully moved to quash the subpoena and, following his motion, Rennick himself was indicted on conspiracy, bank fraud, illegal gambling, and money laundering charges. ASC and KJB, upon refusing to respond to the subpoena, were held in contempt by the district court.

Contending that Rennick was the only person capable of responding to the subpoena by producing the records requests, the companies argued before the Second Circuit that they could resist the subpoena on Fifth Amendment grounds, as part of the guarantee that no one “shall be compelled in any criminal case to be a witness against himself,” as the companies argued that record request productions by Rennick would be both testimonial and potentially self-incriminating.

While the collective-entity rule generally prohibits corporations from asserting the Fifth Amendment privilege against self-incrimination, ASC and KJB argued that the Supreme Court's decision in Braswell v. United States, 487 U.S. 99 (1988), compelled the Second Circuit to decide in the companies' favor.

Braswell dealt with a corporation that was essentially a single-person operation and, while the Supreme Court held that the company's custodian of records could not fail to respond to a subpoena on Fifth Amendment grounds, the court also precluded introduction of evidence ' in any potential case against the custodian ' that the custodian of records personally produced the records, on the grounds that the custodian fulfilled the requests pursuant to his representative, rather than personal, capacity.

In its opinion, the Second Circuit noted that Braswell explicitly “le[ft] open the question” regarding whether a custodian could refuse to comply with a subpoena in situations where the custodian “is able to establish ' that the jury would inevitably conclude that he produced the records,” including instances where the corporation actually was operated by a single person. Braswell, 487 U.S. at 118. As such, the Second Circuit extended its decision in In re Two Grand Jury Subpoenae Duces Tecum, 769 F.2d 52, 53 (2d Cir. 1985), where the court had previously addressed the possibility of excepting a corporation that was “essentially a one-man operation” from the collective-entity rule. In Duces Tecum, the court held that there “simply is no situation in which the fifth amendment would prevent a corporation from producing corporate records, for the corporation itself has no fifth amendment privilege.” Id. at 57.

In its opinion affirming the district court's contempt order, the Second Circuit detailed its application of the Duces Tecum logic to the current case before it in three parts. First, the court held that denial of the Fifth Amendment privilege to one-person corporations prevented erosion of the general rule that corporations are not entitled to the Fifth Amendment privilege. Second, the court held that denial recognized the freedom associated with incorporation decisions ' and the accompanying benefits and burdens. Third, the court noted that denial of the act-of-production privilege for single-person corporations prevented formation of a subset of regulation-immune entities. The Second Circuit noted that its rationale tracked that of other courts considering the issue in the wake of Braswell.

Eleventh Circuit Denies Fourth Amendment Protection for e-Mails
Subpoenaed from ISPs

On March 11, 2010, in Rehberg v. Paulk, No. 09-11897, the Eleventh Circuit, in an opinion authored by Judge Frank M. Hull, denied Fourth Amendment protection for e-mails subpoenaed directly from an Internet Service Provider (ISP), with the court instead finding a voluntary relinquishment of the right to privacy after e-mails are sent and received by the ISP.

The case originated in 2003, when the Dougherty County, GA, District Attorney's office began investigating Charles Rehberg, in connection with faxes he allegedly sent to management at a local hospital. According to the opinion, in the course of the investigation, James Paulk, the District Attorney's chief investigator, and Kenneth Hodges, the then-District Attorney for the county, acquired Rehberg's telephone records and e-mail. The e-mails came from Rehberg's ISP, Exact Advertising, pursuant to a state subpoena.

After the related charges against Rehberg were dismissed, he filed a lawsuit against Paulk, Hodges and Kelly Burke, a special prosecutor appointed to replace Hodges. Rehberg's ten-count suit included four alleged violations of 42 U.S.C. ' 1983, for alleged malicious prosecution in violation of his rights under the Fourth and Fourteenth Amendments, retaliatory investigation/prosecution, evidence fabrication, and conspiracy to violate his First, Fourth, and Fourteenth Amendment rights. Before the Eleventh Circuit, the defendants appealed the district court's denial of their Rule 12(b)(6) motion to dismiss based on alternative claims of absolute and qualified immunity.

In discussing the district court's denial of absolute and qualified immunity for Hodges and Paulk against Rehberg's Fourth Amendment malicious prosecution claim, the Eleventh Circuit found that the denial of absolute immunity was appropriate, as a prosecutor “loses the cloak of absolute immunity by stepping out of his role as an advocate and performing 'investigative' functions more commonly performed by law enforcement officers,” including the preparation and filing of subpoenas. Id. at *8 (internal citation omitted).

However, the court held that the district court erred by also denying qualified immunity to Hodges and Paulk for the subpoena activities. The court held that the Fourth Amendment's guarantee of freedom from unreasonable searches and seizures did not extend to the e-mail copies received from the ISP pursuant to the subpoenas, as the court held that Rehberg had no legitimate expectation of privacy in those e-mails, because they were voluntarily provided to a third party.

In the Courts was written by Matthew Alexander an associate at Kirkland & Ellis LLP, Washington, DC. Business Crimes Hotline was written by Associate Editor Kenneth S. Clark, an associate in the same office.

Second Circuit Denies Fifth Amendment 'Act of Production' Privilege

On Feb. 1, 2010, in In re Grand Jury Subpoena Issued June 18, 2009, No. 09-3561-cv, the Second Circuit, in a per curiam opinion, held that a single-person corporation could not refuse to comply with a subpoena for production of corporate records by asserting the Fifth Amendment's “act of production” privilege. In its decision, the court extended its prior decision denying an exception to the collective-entity rule for corporations that were essentially single-person operations to the actual single-person corporation, finding that an intervening decision by the Supreme Court had not overturned the Second Circuit's earlier decision. The Second Circuit's decision affirmed a contempt order issued by the U.S. District Court for the Southern District of New York against Account Services Corporation (ASC) and KJB Financial Corporation (KJB), for failure to comply with a grand jury subpoena duces tecum.

The subpoena was issued on June 18, 2009, pursuant to an investigation into allegations of bank fraud, illegal gambling, and money laundering. Douglas Rennick, the sole owner, shareholder, officer and employee of both companies, unsuccessfully moved to quash the subpoena and, following his motion, Rennick himself was indicted on conspiracy, bank fraud, illegal gambling, and money laundering charges. ASC and KJB, upon refusing to respond to the subpoena, were held in contempt by the district court.

Contending that Rennick was the only person capable of responding to the subpoena by producing the records requests, the companies argued before the Second Circuit that they could resist the subpoena on Fifth Amendment grounds, as part of the guarantee that no one “shall be compelled in any criminal case to be a witness against himself,” as the companies argued that record request productions by Rennick would be both testimonial and potentially self-incriminating.

While the collective-entity rule generally prohibits corporations from asserting the Fifth Amendment privilege against self-incrimination, ASC and KJB argued that the Supreme Court's decision in Braswell v. United States , 487 U.S. 99 (1988), compelled the Second Circuit to decide in the companies' favor.

Braswell dealt with a corporation that was essentially a single-person operation and, while the Supreme Court held that the company's custodian of records could not fail to respond to a subpoena on Fifth Amendment grounds, the court also precluded introduction of evidence ' in any potential case against the custodian ' that the custodian of records personally produced the records, on the grounds that the custodian fulfilled the requests pursuant to his representative, rather than personal, capacity.

In its opinion, the Second Circuit noted that Braswell explicitly “le[ft] open the question” regarding whether a custodian could refuse to comply with a subpoena in situations where the custodian “is able to establish ' that the jury would inevitably conclude that he produced the records,” including instances where the corporation actually was operated by a single person. Braswell, 487 U.S. at 118. As such, the Second Circuit extended its decision in In re Two Grand Jury Subpoenae Duces Tecum, 769 F.2d 52, 53 (2d Cir. 1985), where the court had previously addressed the possibility of excepting a corporation that was “essentially a one-man operation” from the collective-entity rule. In Duces Tecum, the court held that there “simply is no situation in which the fifth amendment would prevent a corporation from producing corporate records, for the corporation itself has no fifth amendment privilege.” Id. at 57.

In its opinion affirming the district court's contempt order, the Second Circuit detailed its application of the Duces Tecum logic to the current case before it in three parts. First, the court held that denial of the Fifth Amendment privilege to one-person corporations prevented erosion of the general rule that corporations are not entitled to the Fifth Amendment privilege. Second, the court held that denial recognized the freedom associated with incorporation decisions ' and the accompanying benefits and burdens. Third, the court noted that denial of the act-of-production privilege for single-person corporations prevented formation of a subset of regulation-immune entities. The Second Circuit noted that its rationale tracked that of other courts considering the issue in the wake of Braswell.

Eleventh Circuit Denies Fourth Amendment Protection for e-Mails
Subpoenaed from ISPs

On March 11, 2010, in Rehberg v. Paulk, No. 09-11897, the Eleventh Circuit, in an opinion authored by Judge Frank M. Hull, denied Fourth Amendment protection for e-mails subpoenaed directly from an Internet Service Provider (ISP), with the court instead finding a voluntary relinquishment of the right to privacy after e-mails are sent and received by the ISP.

The case originated in 2003, when the Dougherty County, GA, District Attorney's office began investigating Charles Rehberg, in connection with faxes he allegedly sent to management at a local hospital. According to the opinion, in the course of the investigation, James Paulk, the District Attorney's chief investigator, and Kenneth Hodges, the then-District Attorney for the county, acquired Rehberg's telephone records and e-mail. The e-mails came from Rehberg's ISP, Exact Advertising, pursuant to a state subpoena.

After the related charges against Rehberg were dismissed, he filed a lawsuit against Paulk, Hodges and Kelly Burke, a special prosecutor appointed to replace Hodges. Rehberg's ten-count suit included four alleged violations of 42 U.S.C. ' 1983, for alleged malicious prosecution in violation of his rights under the Fourth and Fourteenth Amendments, retaliatory investigation/prosecution, evidence fabrication, and conspiracy to violate his First, Fourth, and Fourteenth Amendment rights. Before the Eleventh Circuit, the defendants appealed the district court's denial of their Rule 12(b)(6) motion to dismiss based on alternative claims of absolute and qualified immunity.

In discussing the district court's denial of absolute and qualified immunity for Hodges and Paulk against Rehberg's Fourth Amendment malicious prosecution claim, the Eleventh Circuit found that the denial of absolute immunity was appropriate, as a prosecutor “loses the cloak of absolute immunity by stepping out of his role as an advocate and performing 'investigative' functions more commonly performed by law enforcement officers,” including the preparation and filing of subpoenas. Id. at *8 (internal citation omitted).

However, the court held that the district court erred by also denying qualified immunity to Hodges and Paulk for the subpoena activities. The court held that the Fourth Amendment's guarantee of freedom from unreasonable searches and seizures did not extend to the e-mail copies received from the ISP pursuant to the subpoenas, as the court held that Rehberg had no legitimate expectation of privacy in those e-mails, because they were voluntarily provided to a third party.

In the Courts was written by Matthew Alexander an associate at Kirkland & Ellis LLP, Washington, DC. Business Crimes Hotline was written by Associate Editor Kenneth S. Clark, an associate in the same office.