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United States Securities and Exchange Commission v. First Jersey Securities Inc.

decided: March 24, 1988.


Appeal from an order of the United States District Court for the Southern District of New York, Richard Owen, Judge, adjudging intervenor-appellant Havard Lee in contempt of court for refusing to produce documents pursuant to an order of the district court. Affirmed.

Feinberg, Chief Judge, Pratt, Circuit Judge, and Dorsey, United States District Judge for the District of Connecticut, sitting by designation.

Author: Pratt

PRATT, Circuit Judge:

In what has become a recurring problem in this circuit, we are faced on this appeal with the issue of when an individual, acting in his capacity as an agent of a corporation, may claim a fifth amendment privilege against producing corporate documents pursuant to court order. Here, intervenor-appellant Havard Lee challenges an order of the district court holding him in contempt for refusing to produce certain corporate documents alleged to be in his possession. Because we find that the testimonial effect of Lee's production of the documents in question would be negligible, we conclude that he has no legitimate claim to the "act of production" privilege, and we affirm the order of contempt entered by the district court.


This action arose in connection with a civil proceeding filed by the Securities and Exchange Commission ("SEC") against First Jersey Securities, Inc. ("First Jersey") and Robert E. Brennan, its chief executive officer. The SEC alleges that in First Jersey's underwriting and brokerage activities, it captured profits through excessive markups and markdowns charged to customers, caused some branch offices to advise customers to sell securities, even as other branch offices were recommending that customers buy the very same securities, and caused the purchasers of securities as to which First Jersey made a market to be given a "profit", in an amount determined solely by First Jersey, so that the same securities could then be sold to other First Jersey customers at inflated prices.

On September 24, 1986, the SEC submitted to First Jersey its Third Request for Production of Documents pursuant to Fed.R.Civ.P.34. It sought production of certain documents, including (1) customer handbooks, reflecting trades in customer accounts; (2) customer inventory sheets, listing customer holdings in securities; (3) records of salesmen's commissions; (4) evidence of communications between branches and the First Jersey home office in New York; (5) daily price quotations of certain over-the-counter securities not listed on NASDAQ; (6) buy/sell recommendations; and (7) records of meetings held at branch offices.

On October 6, 1986, a subpoena duces tecum directed to Lee, then the branch manager of First Jersey's St. Louis office, was issued by the United States District Court for the Eastern District of Missouri. The subpoena directed that Lee appear at the United States attorney's office on November 24, 1986, and commanded him to produce substantially the same documents as those listed in the third request. In a letter dated November 19, 1986, Lee, through counsel, advised the SEC that he would not comply with the subpoena due to his assertion of the fifth amendment privilege against self-incrimination.

At a conference before Judge Owen on October 6, 1987, attorneys for First Jersey contended that a hearing was necessary, as certain branch managers had raised a claim of privilege and would contest compelled production of certain of the requested documents. In response, SEC counsel argued that the documents were corporate records, and would show that the managers, following First Jersey instructions, implemented the practices alleged in the complaint. Judge Owen ordered that First Jersey comply with the third request on or before December 7, 1987.

In order to assert his claim of privilege, Lee filed motions to intervene and for a protective order pursuant to Fed.R.Civ.P.24 and 26. Lee was the only one of the branch managers to intervene. In an order dated December 7, 1987, Judge Owen granted Lee's motion to intervene, but denied the motion for a protective order. Furthermore, the court made findings that the documents sought by the third request directed at First Jersey and by the subpoena directed to Lee, the latter of which the SEC had never sought to enforce, are corporate records, prepared in the regular course of business, and that the production of such documents by any person possessing or controlling them would not constitute testimonial self-incrimination. The court further ordered Lee to produce the documents to the SEC forthwith, pursuant both to the subpoena and the third request.

Upon Lee's failure to comply with the court order, the SEC moved for an order adjudging him in civil contempt. Following a hearing on the motion on January 4, 1988, Judge Owen found that Lee had actual notice of the court's orders of November 6 and December 7, 1987, and that he had violated those orders by failing to produce the requested documents. Pursuant to these findings, the court held Lee in civil contempt and directed that he be fined $1,000 per day until he complies fully with the court's order. This expedited appeal followed. Contempt sanctions have been stayed pending our decision.


We begin with basic principles in this area. As a corporate entity, First Jersey has no fifth amendment privilege against self-incrimination. See In re Grand Jury Subpoenas Duces Tecum, 722 F.2d 981, 984 (2d Cir. 1983) ("Saxon"). Thus, if the individual corporate agent having control of corporate documents the corporation is ordered to produce has a claim of privilege from the act of producing those documents, see generally United States v. Doe, 465 U.S. 605, 79 L. Ed. 2d 552, 104 S. Ct. 1237 (1984), the corporation must see to it that another individual, who would not similarly be incriminated by the act of production, produces the documents. See In re Two Grand Jury Subpoenae Duces Tecum, 769 F.2d 52, 57 (2d Cir. 1985) ("Two Grand Jury Subpoenae"). Thus, the narrow question with which we are faced is whether Lee personally may be compelled to produce the subpoenaed records, or instead whether First Jersey should have been compelled to name another corporate agent to produce them. There is no question, therefore, whether the documents themselves must be produced, but only whether Lee can be held in contempt for refusing to produce them.

As to the underlying SEC investigation into transactions at First Jersey, we agree with the district court that Lee's act of producing the documents would "add[] little or nothing to the sum total of the Government's information", Fisher v. United States, 425 U.S. 391, 411, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976), and therefore that no privilege exists. The existence of the documents and their authenticity, as well as Lee's possession of them, may be taken to be a "foregone conclusion." As the Supreme Court said in Fisher, in such circumstances, "'no constitutional rights are ...

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