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IN RE GRAND JURY SUBPOENA DUCES TECUM

March 25, 1985

IN RE GRAND JURY SUBPOENA DUCES TECUM DATED NOVEMBER 13, 1984 (JOHN DOE, Petitioner)


The opinion of the court was delivered by: MCLAUGHLIN

MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

 This is a motion by petitioner, John Doe, one of two partners in a consulting firm, to quash a grand jury subpoena duces tecum. Fed. R. Crim. P. 17(c). The subpoena is directed to petitioner as custodian of a partnership records, and commands production of books and records from January 1, 1981 to the present, including cash receipts and disbursements, general ledgers, cancelled checks, bank statements and partnership tax returns. For the reasons developed below, the Court will conduct a hearing on the applicability of the act of production doctrine.

 Facts

 Petitioner and his wife are sole partners in a consulting firm. The partnership was established in December 1980; prior to that time petitioner operated the business as a sole proprietorship. The firm has no employees, and no office outside petitioner's home. Its annual gross receipts from 1981 through 1983 averaged approximately $85,000, and average annual net income was approximately $ 44,000. The partnership files the required federal and state income tax returns separate from those filed by the two partners.

 Discussion

 Petitioner initially contended that this refusal to produce the subpoenaed documents is privileged under the act of production doctrine, which is grounded in the Fifth Amendment privilege against self-incrimination. United States v. Doe, 465 U.S. 605, 104 S. Ct. 1237, 1242, 79 L. Ed. 2d 552 (1984); Fisher v. United States, 425 U.S. 391, 410, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976). As petitioner conceded at oral argument, however, the threshold question is whether petitioner, as partner, has a Fifth Amendment privilege to assert at all. Transcript of Dec. 18, 1984 at 9-10.

 The Fifth Amendment privilege against self-incrimination is purely personal. Couch v. United States, 409 U.S. 322, 328, 34 L. Ed. 2d 548, 93 S. Ct. 611 (1972). It is not available to individuals possessing records of a corporation in a representative capacity, United States v. White, 322 U.S. 694, 699-700, 88 L. Ed. 1542, 64 S. Ct. 1248 (1944), even if that individual is the sole shareholder of the corporation whose records are subpoenaed. Hair Industry, Ltd. v. United States, 340 F.2d 510, 511 (2d Cir.), cert. denied, 381 U.S. 950, 14 L. Ed. 2d 724, 85 S. Ct. 1804 (1965). On the other hand, an individual, as sole proprietor of a business, may assert a Fifth Amendment privilege even with respect to business records. Bellis v. United States, 417 U.S. 85, 87-88, 40 L. Ed. 2d 678, 94 S. Ct. 2179 (1974).

 Whether a partnership should be treated as a corporation or a sole proprietorship for Fifth Amendment purposes has been a troublesome question. In Bellis v. United States, 417 U.S. 85, 40 L. Ed. 2d 678, 94 S. Ct. 2179 (1974), a partner in a three-member law firm claimed a Fifth Amendment privilege to refuse to produce partnership records in his possession. The Court rejected his argument that the law firm represented nothing more than the personal legal practices of its partners. It held that when a partnership has "an established institutional identity independent of its individual partners," id. at 95, an individual partner may not withhold subpoenaed partnership records that he possesses in a representative capacity. Id. at 95-97.

 Analogizing the three-member law partnership to a corporation, which clearly has a distinct institutional identity, see United States v. White, 322 U.S. 694, 88 L. Ed. 1542, 64 S. Ct. 1248 (1944), the Bellis Court placed great emphasis on the extent to which a partnership, like a corporation, is regulated by state law, and on the fact that a partnership, like a corporation, must file a tax return separate from that filed by its individual partners, officers or employees. Bellis v. United States, supra, 417 U.S. at 95-97.

 The Bellis Court specifically refused to hold, however, that a partner could never invoke the Fifth Amendment privilege with respect to partnership records. Indeed, the Court noted, in the last paragraph of its opinion, that "[t]his might be a different case if it involved a small family partnership, see United States v. Slutsky, 352 F. Supp. 1105 (S.D.N.Y. 1972) . . . or . . . if there were some other pre-existing relationship of confidentiality among the partners." Id. at 101 (citations omitted).

 Bellis established a twofold inquiry for determining whether the privilege applies. First, does the partnership have a distinct institutional identity? Second, does the partner claiming the privilege hold the requested records in a personal or in a representative capacity? If the partnership has achieved an institutional identity and if the partner hold the records in a representative capacity, then Bellis denies Fifth Amendment protection to the partnerhship, and to its partners as well.

 In considering the first question, Bellis instructs us to examine 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 separate income tax returns. Id. at 96-97. This analysis would lead to the conclusion that the partnership here has an established institutional identity distinct from petitioner and his wife.

 The partnership has existed since it was converted from a sole proprietorship in December 1980; it is not a temporary, informal arrangement. By choosing to conduct business in partnership form, petitioner acquired numerous rights and obligations under New York law. E.g., N.Y. Partnership Law § 20 (McKinney 1948) (partners agents of partnership for purposes of partnership business); id. § 40 (partners have equal rights in management and conduct of partnership business); id. § 51 (partners are co-owners of specific partnership property). Additionally, when petitioner conducts business with third parties he binds the partnership by his conduct. Id. §§ 20, 24, 25. ...


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