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Textron Financial Corp. v. Eddy's Trailer Sales Inc.

March 31, 2010


The opinion of the court was delivered by: A. Kathleen Tomlinson, Magistrate Judge



Plaintiff Textron Financial Corporation ("Textron" or "Plaintiff") commenced this action against Defendants Eddy's Trailer Sales, Inc. ("Eddy's") and its owner, Thomas J. Gouldsbury ("Gouldsbury") (together, "Defendants") to enjoin Eddy's from (1) selling Inventory (as that term is defined in the Complaint) and other collateral in which Textron has a security interest and (2) using the proceeds for Eddy's operations (referred to as selling units "out of trust"). Compl., ¶¶ 7, 11, 22-40. Plaintiff, a commercial finance company, alleges that as a result of Eddy's failure to pay sums due under the parties' Wholesale Security Agreement (as amended) and Finance Plan (id., Exs. A, B, D), Defendants have breached such agreements, and both Eddy's and Gouldsbury (as a personal guarantor under the parties' Guaranty (id., Ex. C)), are jointly and severally liable for the total amount due of $4,150,042.31, plus interest. Id., ¶¶ 41-49.

Before the Court is Textron's motion [DE 68] to compel the further deposition testimony of Gouldsbury over his assertions of the Fifth Amendment privilege against self-incrimination. Defendants oppose [DE 69] the motion. Having reviewed the parties' submissions, the transcript of Gouldsbury's previous deposition and the applicable case law, and for the reasons set forth below, I am granting, in part, and denying, in part, Textron's motion.


During the deposition of Defendant Gouldsbury, counsel for Gouldsbury instructed him not to answer several questions posed by Plaintiff's counsel on the basis of the Fifth Amendment right against self-incrimination. In the instant motion, Textron seeks to compel Gouldsbury's responses to seven of those questions, which pertain to: (1) whether Gouldsbury knew if his employees had changed the VINs on vehicles in anticipation of a floor plan inspection by the lender (Tr. at 74:2-5*fn1 ); (2) whether employee Stacie Hoffman discussed with Gouldsbury a list of units that had been sold but for which payment had not been made to the lender (Tr. at 79:10-11); (3) whether Gouldsbury knew if Hoffman shared that list with anyone other than him (Tr. at 79:23-25); (4) whether Hoffman kept Gouldsbury apprised of the amounts owed to the lenders (Tr. at 135:16-18); (5) whether Eddy's had ever produced certain financial records (Tr. at 137:17-19); (6) whether Gouldsbury's son Shaun (who also worked at Eddy's) learned that Eddy's was "out of trust"*fn2 at the third meeting with Eddy's accountant (Tr. at 147:6-8); and (7) the extent to which Gouldsbury shared information with the accountant regarding Eddy's financial condition (Tr. at 151:13-15). See DE 68 at 2 and Ex. A. During the deposition, in response to each of these questions, Gouldsbury's counsel instructed him not to answer based upon his Fifth Amendment rights. Gouldsbury followed that advice.

Textron moves to compel Gouldsbury's responses to those deposition inquires on the grounds that "the privilege was improperly invoked as to these questions based on the fact that these questions asked about the actions and knowledge of individuals other than Mr. Gouldsbury, and the privilege cannot be invoked to protect third parties." DE 68 at 2. Textron further contends "that to the extent that any privilege may have existed as to Mr. Gouldsbury himself with regard to how he carried out the fraud on [Textron], it was waived" as a result of statements Gouldsbury made during the deposition. Id. Gouldsbury has produced incriminating documents, Textron argues, and has "outright admitted to having sold [Textron]-financed inventory without paying Textron." Id. at 3. In addition, Textron claims that Gouldsbury's offer of judgment as to all of the allegations against him constitutes an admission that he perpetrated a fraud upon Textron.

Gouldsbury opposes the motion, arguing that (1) his invocations of his Fifth Amendment right were appropriate; (2) Textron's position that Gouldsbury can be compelled to testify against himself about conversations he had with others (whom Textron believes conspired with Gouldsbury to defraud Textron) is incorrect; (3) the allegedly incriminating documents referenced by Textron were not produced by Gouldsbury, but by another Eddy's employee; (4) "Gouldsbury's brief and somewhat rambling responses to Plaintiff's improperly formulated deposition questions regarding certain conversations between Mr. Gouldsbury and his son about certain rental units should not be construed as a testimonial waiver of [his] Fifth Amendment privilege;" and (5) Gouldsbury's offer of judgment was for settlement purposes only and cannot be used against him in this context. See DE 69 at 1-2.


A. Applicable Law

The privilege against self-incrimination embodied in the Fifth Amendment provides that "[n]o person . . . shall be compelled in any criminal case to be a witness against himself." U.S. Const. amend. V. "The privilege 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.'" Andover Data Servs. v. Statistical Tabulating Corp., 876 F.2d 1080, 1082 (2d Cir. 1989) (emphasis in original) (quoting Kastigar v. United States, 406 U.S. 441, 444-45 (1972)). The Supreme Court has 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." Andover Data Servs., 876 F.2d at 1082 (citing Pillsbury Co. v. Conboy, 459 U.S. 248, 256-57 (1983)).

The right not to answer potentially incriminating questions is not absolute. Rather, a witness may invoke the Fifth Amendment to decline to answer a deposition question only "when the individual has reasonable cause to apprehend that answering the question will provide the government with evidence to fuel a criminal prosecution." Cartier v. Micha, Inc., 06 Civ. 4699, 2008 U.S. Dist. LEXIS 39143, at *5 (S.D.N.Y. May 12, 2008) (quoting Osrecovery, Inc. v. One Groupe Int'l, Inc., 262 F. Supp. 2d 302, 306 (S.D.N.Y. 2003)); see also Hoffman v. United States, 341 U.S.478, 486 (1951) (the privilege may be invoked "whenever a witness reasonably believes that his testimony could furnish a link in the chain of evidence needed to prosecute him for a crime"). The witness may not refuse to answer "merely because he declares that in so doing, he would incriminate himself -- his say-so does not of itself establish the hazard of incrimination." Hoffman, 341 U.S. at 486. "It is for the court to say whether his silence is justified . . . and to require him to answer if it clearly appears to the court that he is mistaken."

Id. (internal citation and quotation omitted); Estate of Fisher v. Comm'r of Internal Revenue, 905 F.2d 645, 648-49 (2d Cir. 1990) (the court determines whether "the danger of self-incrimination is real, not remote or speculative").

Even where a real danger of self-incrimination has been established, under appropriate circumstances, the court may infer a waiver "from a witness'[s] prior statements with respect to the subject matter of the case, without any inquiry into whether the witness, when he made the statements, actually knew of the existence of the privilege and consciously chose to waive it." Lopez v. City of New York, No. 05-CV-3624, 2007 WL at 2228150, at *6 (E.D.N.Y. Jul. 31, 2007) (quoting Klein v. Harris, 667 F.2d 274, 287 (2d Cir. 1981)). The Supreme Court has mandated that such a waiver "is not to be lightly inferred," Smith v. United States, 337 U.S. 137, 150 (1949), and "courts must indulge every reasonable presumption against waiver. . . ." Empsak v. United States, 349 U.S. 190, 198 (1955).

B. Application

Here, the Court must resolve two issues: (1) whether, in refusing to answer certain deposition questions, Gouldsbury had "reasonable cause" to believe that providing such answers would lead to real danger of self-incrimination; and (2) whether, as a result of his responses to other deposition questions, Gouldsbury waived the privilege.

1. The Fifth Amendment Privilege Is Personal

Before turning to such issues, the Court must first address a substantial flaw in the invocation of Gouldsbury's privilege. In the instant motion, Textron moves to compel Gouldsbury's responses to seven questions posed during the deposition, which Gouldsbury declined to answer. In all seven instances, Gouldsbury himself did not invoke the privilege. Rather, it was his attorney who asserted it on his behalf and instructed him not to answer. See Tr. at 74:6-8; 79:12-14; 80:2-4; 135:19-21; 137:17-19; 147:9-12; 151:16-19. It is well established that the Fifth Amendment privilege against self-incrimination is a personal right. See Calvo v. Donelli, No. 06-CV-1794, 2007 WL 1288098, at *14 (E.D.N.Y. Apr. 30, 2007) (quoting Couch v. United States, 409 U.S. 322, 328 (1978) (the privilege "adheres basically to the person, not to information that may incriminate him")).Thus, if Gouldsbury believed that a truthful answer was incriminating, he was required to invoke the right himself; "counsel is not entitled to instruct [him] not answer on that ground." Pal v. New York Univ., No. 06 Civ. 5892, 2007 WL 4358463, at *10 (S.D.N.Y. Dec. 10, 2007); United States v. Schmidt, 816 F.2d 1477, 1481 n.3 (10th Cir. 1987) (only holders of Fifth Amendment privilege, "not their counsel, are the proper parties to interpose a claim of privilege"); United States v. Bowe, 698 F.2d 560, 565 (2d Cir. 1983) ("the witness herself must assert the claim that answers to questions might reasonably implicate her in a crime or provide evidence leading to proof of criminal behavior"); United States v. A& P Arora, Ltd., 46 F.3d 1152, 1995 WL 18276, at *3 n.4 (10th Cir. Jan. 18, 1995) (declining to consider Fifth Amendment claims because "a statement of counsel's 'advice' is obviously not the equivalent of a party's personal and affirmative invocation of the privilege").

Thus, the Court could grant Textron's motion to compel on the grounds that counsel's purported invocation of the privilege on Gouldsbury's behalf was invalid. This would, however, likely lead to a situation where Gouldsbury's deposition is continued, Textron poses the same questions, in response to which Gouldsbury himself invokes the privilege and refuses to answer - and then Textron re-files what is, in effect, the same motion as that which is currently before the Court. In order to avoid such waste of the parties' and the Court's resources, I will now address the merits of Plaintiff's motion, notwithstanding the invalid and ineffective invocation of the privilege.

2. Danger Of Self-Incrimination Is Readily Apparent

The burden of establishing entitlement to invoke the Fifth Amendment privilege rests with the party asserting the privilege. See Estate of Fisher, 905 F.2d at 650 (2d Cir.1990) (reversing district court's denial of privilege) (citation omitted). The claimant of the privilege must demonstrate a "reasonable possibility that his own testimony will incriminate him, [but need] not establish it by a preponderance of the evidence." Krape v. PDK Labs, Inc., No CV 02-3440, 2004 WL 831137, at *3 (E.D.N.Y. Apr. 19, 2004) (quoting Fisher, 905 F.2d at 650 (alteration in original) (additional citations omitted)). "[O]nce the court determines that the answers requested would tend to incriminate the witness, it should not attempt to speculate whether the witness will in fact be prosecuted." Krape, 2004 WL 831137, at *4 (quoting Edgerton, 743 F.2d at 921).

In conducting the necessary inquiry, "[a] judge must determine, 'from the implications of the question, in the setting in which it is asked, whether a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result." Osrecovery, Inc., 262 F. Supp. 2d at 305 (internal quotations and citations omitted). The assessment of whether an injurious disclosure likely will result "must be governed as much by . . . [the judge's] personal perception of the peculiarities of the case as by the facts actually in evidence." Hoffman, 341 U.S. at 487; United States v. Barile, Civ. No. 1:06-MC-137, 2007 WL 3534261, at *2 (N.D.N.Y. Nov. 13, 2007) ("the judge's perception of the facts come into play as [s]he assess the credible basis of the party's invocation of the right").

This analysis necessitates an examination of the deposition testimony itself. See United States v. Basciano, 430 F. Supp. 2d 87, 93-94 (E.D.N.Y. 2006) (quoting Rogers, 340 U.S. at 374 ("[a]s to each question to which a claim of privilege is directed, the court must determine whether the answer to that particular question would subject the witness to a real danger of further crimination") (internal quotations and additional citations omitted)). The questions at issue are as follows:

Q: Do you know if anybody changed the hats*fn3 to reflect a different last four VIN numbers depending on who the floor plan checker was expected to be? (Tr. at 74:2-5)

Q: Mr Gouldsbury, from the deposition of Stacie Hoffman we learned that she kept a list of the units that had been sold and unpaid. How often did she discuss that list with you? (Id. at 79:10-11)

Q: Did Ms. Hoffman, to your knowledge, share that list with anyone other than you? (Id. at 79:23-25)

Q: Did she [Ms. Hoffman] perform that function? That is, insuring that you knew where you stood with the various floor plan lenders? (Id. at 135:16-18)

Q: Did Eddy's ever produce financial statements? P and L's? Balance sheets? (Id. at 137:17-19)

Q: Was it at this third meeting with the accountant that Shaun learned about the company being out ...

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