In re Grand Jury Empaneled on May 9, 2014

• Decision Date: 15 May 2015
• Docket Number: No. 15–1264.,15–1264.
• Citation: 786 F.3d 255
• Parties: In re: In the Matter of the GRAND JURY EMPANELED ON MAY 9, 2014 John Doe; ABC Entity, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

786 F.3d 255

In re: In the Matter of the GRAND JURY EMPANELED ON MAY 9, 2014 John Doe; ABC Entity, Appellants.

No. 15–1264.

United States Court of Appeals, Third Circuit.

Argued April 21, 2015.

Filed: May 15, 2015.

Damian P. Conforti, Esq., (Argued), Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, Newark, NJ, Nancy A. Del Pizzo, Esq., Rivkin Radler, Hackensack, NJ, for Appellants.

Mark E. Coyne, Esq., John F. Romano, Esq., (Argued), Office of the United States Attorney Newark, NJ, for Appellee.

Before: FISHER, CHAGARES and COWEN, Circuit Judges.

OPINION

COWEN, Circuit Judge.

John Doe, D.O., a medical doctor, and ABC Entity, (the “Corporation” or “Medical Practice”), (together, “Appellants”), appeal the District Court's order holding the Corporation in contempt for noncompliance with a grand jury subpoena directing its custodian of records to produce certain documents. Doe claims that despite serving as the Corporation's custodian, as the sole owner and employee, he is entitled to refuse to comply with the subpoena in accordance with his Fifth Amendment privilege against self-incrimination. Appellants also argue that compliance is unnecessary because the subpoena is impermissibly overbroad and should be quashed. For the reasons discussed below, we will affirm the District Court's order.

I.

In 1973, Doe, the only medical practitioner in his practice, organized his medical practice as ABC Entity, a “professional association,” which is a type of corporation doctors are permitted to form under New Jersey law. Since its creation, Doe has operated his practice through that corporate entity. As of October 2011, the Corporation employed a staff of six.

The original target entity (the “OTE”) was a clinical blood laboratory in New Jersey. From 2006 through 2013, this entity used various methods to bribe numerous physicians to refer their patients to it for blood testing. The Government alleges that Doe entered into an illicit agreement with the OTE, whereby it paid him monetary bribes in exchange for referring his patients to it for blood testing.

In April 2013, a grand jury subpoena was served on the custodian of records for the Corporation, directing it to turn over various documents, including records of patients referred to the OTE, lease and consulting agreements, checks received by it for reasons other than patient treatment, correspondence regarding its use of the OTE as a blood-testing provider, correspondence with specified individuals and entities, and basic corporate records. In December of 2013, Doe, as custodian, moved to quash the subpoena. The Government opposed the motion, and the District Court denied the motion to quash, concluding (1) that Supreme Court precedent indicated that corporations may not assert a Fifth Amendment privilege, and (2) that the subpoena was not overbroad in violation of the Fourth Amendment.

Following the District Court's denial of his request to quash, Doe refused to let his corporation comply and the Government moved to compel it to do so. The District Court granted that motion. The Corporation persisted in its refusal to comply and the District Court found it in civil contempt and ordered it to pay a $2,000 per day sanction. The Court, however, agreed to stay execution of the fine pending an expedited appeal before this court.

Just days before filing their opening brief, Appellants informed the Government that the Corporation had fallen on hard financial times and fired all of its employees other than Doe. In their place, it hired independent contractors to assist Doe in operating his medical practice. Among other duties, the independent contractors were tasked with “[m]aint[aining] accurate and complete medical records, kept in accordance with HIPAA and Patient Privacy standards,” and assisting with billing practices. However, before the Government filed its response, due to its discovery of a potential procedural defect, we summarily vacated the contempt order and remanded the matter to the District Court.

The Government then filed a new subpoena that repeated the demands made in the first subpoena. As the government indicates, the “new subpoena was intended to place the parties in the same position as the previous subpoena,” and the request in the new subpoena was limited to documents that had been subject to the initial subpoena. (Gov't Br. at 9.) The Government filed a motion to compel, Appellants opposed, and the District Court held another hearing, albeit a less extensive one given that the parties agreed not to rehash the arguments they had made prior. The District Court did, however, address Appellants' new submission regarding the fact that the Corporation no longer employed anyone other than Doe and was now operated by independent contractors.

Despite this factual development, the District Court granted the Government's motion to compel and found the Corporation to be in contempt, concluding (1) that even a one-person corporation cannot assert a Fifth Amendment privilege regarding corporate documents, and (2) the subpoena was not overbroad in violation of the Fourth Amendment. The Court found the Corporation to be in civil contempt, and entered a sanction of $2,000 per day, which it ordered stayed pending the outcome of this appeal.

II.

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. We review the District Court's decision to quash a grand jury subpoena for abuse of discretion. In re Impounded, 241 F.3d 308, 312 (3d Cir.2001). In so doing, we exercise plenary review over the District Court's legal rulings and clear error review of its factual determinations. In re Grand Jury, 286 F.3d 153, 157 (3d Cir.2002).

III.

A. The Subpoena Does Not Violate Doe's Fifth Amendment Rights

The subpoena requires Doe, in his capacity as custodian for his Medical Practice, to produce potentially incriminating information. There is no dispute that, ordinarily, corporations like the Medical Practice are not entitled to invoke the Fifth Amendment's privilege against self-incrimination. Nor is there any dispute that custodians of records for corporate entities are, typically, not entitled to invoke the privilege. Nonetheless, Appellants emphasize that, as a sole practitioner in a corporation with no other employees, Doe alone has control over the content and location of business records. They argue that, as a result, a jury will inevitably conclude that he produced any incriminating documents, and that the subpoena therefore violates his Fifth Amendment rights. Because we disagree, we conclude that the District Court did not abuse its discretion by refusing to quash the subpoena on this ground.

Supreme Court Precedent

Appellants' argument primarily hinges on two Supreme Court cases: Bellis v. United States, 417 U.S. 85, 94 S.Ct. 2179, 40 L.Ed.2d 678 (1974), and Braswell v. United States, 487 U.S. 99, 108 S.Ct. 2284, 101 L.Ed.2d 98 (1988). In Bellis, the Supreme Court held that a partner in a law firm could not invoke his Fifth Amendment privilege against self-incrimination to avoid a subpoena seeking partnership records. 417 U.S. at 87, 94 S.Ct. 2179. In so holding, the Court noted its “long line of cases” adhering to the collective entity doctrine, which states that “an individual cannot rely on the [Fifth Amendment] privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.” Id. at 88, 94 S.Ct. 2179. “Since no artificial organization may utilize the personal privilege against compulsory self-incrimination, the Court found that it follows that an individual acting in his official capacity on behalf of the organization may likewise not take advantage of his personal privilege.” Id. at 90, 94 S.Ct. 2179. The Court noted its “consistent view that the privilege against compulsory self-incrimination should be ‘limited to its historic function of protecting only the natural individual from compulsory incrimination through his own testimony or personal records.’ ” Id. (quoting United States v. White, 322 U.S. 694, 701, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944) ).

Despite the Court's holding in Bellis, Appellants emphasize a particular paragraph from the decision, stating that the “[Fifth Amendment] privilege applies to the business records of the sole proprietor or sole practitioner as well as to personal documents containing more intimate information about the individual's private life.” Id. at 87–88, 94 S.Ct. 2179. They assert that the Court intended to distinguish between a partnership involving multiple individuals, and a solo practice such as the Corporation, where Doe, alone, has control over the content and location of the business records. This is incorrect.

In fact, as the Government argues, and as the remainder of the opinion makes clear, the Court, in the paragraph in question, is referring to unincorporated solo practitioners and sole proprietors. After noting that individuals such as sole practitioners may claim the privilege, the Court states, “on the other hand,” that custodians of records of a collective entity may not rely on the Fifth Amendment privilege to avoid production they are required to make in their representative capacity of that entity. Id. at 88, 94 S.Ct. 2179. As the Court explained, “In view of the inescapable fact that an artificial entity can only act to produce its records through its individual officers or agents, recognition of the individual's claim of privilege with respect to the financial records of the organization would substantially undermine the unchallenged rule that the organization itself is not entitled to claim any Fifth Amendment privilege.” Id. at 90, 94 S.Ct. 2179. Thus, the Court drew a line between incorporated and unincorporated persons, not between solo practitioners and multi-member corporations.

Nor is there merit to Doe's argument that, as a sole practitioner, the Corporation is merely his alter ego. The...