Appeal from an order of the United States District Court for the Southern District of New York (Sprizzo, J.), holding appellant in civil contempt for his failure to testify at a deposition in a civil action in violation of a compulsion order issued by the court. Appellant contends his fifth amendment rights were violated. Reversed.
Newman, Pierce, and Mahoney, Circuit Judges.
The issue presented on this appeal is narrow and straightforward: May a district court compel the testimony of a non-party witness in a civil action, notwithstanding the assertion of a valid fifth amendment claim, by issuing a Rule 26(c) protective order which purports to limit prosecutorial access to the compelled testimony? Because it is clear to us that the protections of a Rule 26(c) order are not co-extensive with those of the fifth amendment, we conclude that this novel question must be answered in the negative.
The essential facts relevant to this appeal are not in dispute. This is a diversity action in which plaintiff-appellee Andover Data Services ("Andover") seeks to recover for damages allegedly resulting from tortious interference with Andover's business relations by defendant Statistical Tabulating Corp. ("Statistical"). Prior to the events which led to the filing of this suit, Andover and Statistical were both engaged in the business of rendering data processing services to the commodities and related financial industries. Appellant Walter B. Schwer was the director of Andover's New York operations. While still employed by Andover, Schwer allegedly engaged in a course of conduct which led to the conversion of Andover's business, and Schwer allegedly interfered with Andover's contractual relations with its customers and with the potential purchaser of some of the company's assets. According to Andover, Schwer essentially conspired with defendant Statistical to "steal" Andover's business.
When Andover first discovered that its business had been expropriated by Statistical, Andover contacted the police and asked them to initiate a criminal investigation into the alleged activities of Schwer and Statistical. On June 1, 1987, Schwer was visited by police at his place of business and questioned about alleged violations of state law. On the advice of counsel, Schwer refused to answer any questions. As of this date, no formal charges have been filed against Schwer, and it is unknown whether there is currently a criminal investigation pending.
This appeal is the result of Andover's attempts to depose Schwer in connection with the civil action pending in the district court. Andover subpoenaed Schwer for the purpose of examining him before trial, and although Schwer attended the scheduled deposition, he refused to answer questions about his alleged involvement with Statistical on the ground that he might incriminate himself in violation of his fifth amendment rights. After Schwer refused to testify, Andover moved in the district court for an order compelling Schwer's testimony. In its moving papers, Andover asserted: (1) that Schwer's invocation of the privilege was a "mere subterfuge," because there was no immediate or foreseeable danger of criminal prosecution; (2) that even if Schwer's invocation of the privilege was valid, he waived his fifth amendment rights when he submitted an affidavit in earlier proceedings which purportedly discussed some of the events at issue here; and (3) that, in any event, an "appropriate protective order could be entered under the principles approved in Martindell v. ITT, 594 F.2d 291 (2d Cir. 1979)," wherein this court spoke approvingly of the use of protective orders to encourage parties to testify voluntarily in civil cases, notwithstanding the existence of valid fifth amendment claims.
On June 15, 1988, after having received submissions from both Schwer and Andover, Judge Sprizzo heard oral arguments on Andover's motion to compel and on the validity of Schwer's fifth amendment claim. At the close of the hearing, the district judge concluded that Schwer's fear of criminal prosecution arising out of his alleged dealings with the defendant was not totally unfounded and found, in effect, that his fifth amendment claim was therefore valid. He also ruled that Schwer had not waived his fifth amendment rights by virtue of the content of an affidavit he had submitted in an earlier proceeding. However, since the district judge felt that there was a strong need for Schwer's testimony, he ordered Schwer to testify at a new deposition pursuant to a Rule 26(c) protective order which purportedly would protect Schwer's fifth amendment rights by limiting access to his deposition testimony and imposing non-disclosure obligations on all persons obtaining knowledge or possession of the testimony. In so ruling, the district judge conceded that using a protective order in this manner -- i.e., to compel the testimony of a witness who had legitimately invoked the fifth amendment -- was unprecedented. The judge nevertheless felt that if he could effectively prevent the possible use against Schwer of compelled testimony in a future criminal proceeding, then there would be no basis for invocation of the fifth amendment privilege, and the plaintiff would be able to benefit from this aspect of discovery in the litigation.
Notwithstanding the court's issuance of a protective order, Schwer again refused to testify, and the district court thereafter adjudged him to be in civil contempt of court and imposed coercive monetary sanctions. The district judge stayed enforcement of the contempt citation, however, pending appeal to this court. For the reasons stated below, we reverse the judgment of the district court and direct the court to vacate its prior protective order compelling this witness to testify.
The fifth amendment privilege against self-incrimination is one of our most fundamental rights as citizens. Moreover, because it is such an important right, the privilege against self-incrimination can be invoked in any proceeding where the witness "reasonably believes [that his testimony] could be used in a criminal prosecution or could lead to other evidence that might be so used." Kastigar v. United States, 406 U.S. 441, 444-45, 32 L. Ed. 2d 212, 92 S. Ct. 1653 (1972). In keeping with its desire to safeguard fifth amendment rights, the Supreme Court has explicitly held that a district court cannot compel a witness in a civil action "to answer deposition questions over a valid assertion of his Fifth Amendment rights." Pillsbury Co. v. Conboy, 459 U.S. 248, 256-57, 74 L. Ed. 2d 430, 103 S. Ct. 608 (1983); see National Life Ins. Co. v. Hartford Accident & Indem. Co., 615 F.2d 595, 597 (3d Cir. 1980) ("It is undisputed that the fifth amendment privilege against self-incrimination may be asserted in a civil action as well as a criminal action.").
The right not to answer potentially incriminating questions in a civil or criminal proceeding, however, is not absolute. The prohibition against compelling the testimony of a witness in any setting is predicated upon there being a real danger that the testimony might be used against the witness in later criminal proceedings. As Justice Blackmun noted in his concurrence in Pillsbury, "[it] is black-letter law that a witness cannot assert a Fifth Amendment privilege not to testify 'if the testimony sought cannot possibly be used as a basis for, or in aid of, a criminal prosecution against the witness.'" 459 U.S. at 273 (quoting Brown v. Walker, 161 U.S. 591, 597, 40 L. Ed. 819, 16 S. Ct. 644 (1896)).
Consistent with this basic principle, it has long been held that a grant of "use and derivative use" immunity by prosecutors pursuant to a federal (or state) immunity statute can be used to overcome the fifth amendment rights of a witness who refuses to testify. Kastigar, 406 U.S. at 445-48; see also Pillsbury, 459 U.S. at 257, 264. As the Supreme Court stated in Kastigar, "[immunity] statutes, which have historical roots deep in Anglo-American juris-prudence, are not incompatible with [the] values" underlying the fifth amendment privilege, 406 U.S. at 445-46, because such statutes effectively ensure that the compelled testimony "can in no way lead to the infliction of criminal penalties," id. at 461. A statutory grant of use immunity, then, can displace the privilege against self-incrimination because it leaves the witness who is compelled to testify ...