Grand Jury Subpoena, In re

• Decision Date: 31 August 1992
• Docket Number: No. 92-1881,92-1881
• Citation: 973 F.2d 45
• Parties: 36 Fed. R. Evid. Serv. 870 In re GRAND JURY SUBPOENA.
• Court: U.S. Court of Appeals — First Circuit

Page 45

973 F.2d 45

36 Fed. R. Evid. Serv. 870

In re GRAND JURY SUBPOENA.

No. 92-1881.

United States Court of Appeals First Circuit.

Submitted Aug. 14, 1992.

Decided Aug. 31, 1992.

Albert F. Cullen, Jr., Susan A. Correia and Cullen & Butters, Boston, Mass., on brief, for appellant.

A. John Pappalardo, U.S. Atty., and Mark W. Pearlstein, Boston, Mass., Asst. U.S. Atty., on brief, for appellee.

Before TORRUELLA, CYR and STAHL, Circuit Judges.

PER CURIAM.

At issue here is whether an individual involved in a Massachusetts "nominee trust" can assert the Fifth Amendment privilege against self-incrimination in order to resist a grand jury subpoena seeking trust records. The district court held that no privilege was available because the trust was a "collective entity." We agree and therefore affirm the order of contempt.

I.

In December 1986, appellant John Doe, along with his brother, created a nominee trust (the "Roe trust") for the purpose of conducting real estate transactions. Doe and his brother designated themselves as the sole beneficiaries and the sole trustees. The Roe trust purchased a 204-unit apartment complex in Arlington, Massachusetts that same month, thereafter converting it to condominium form and offering the units for sale. ¹ Subsequently, a federal grand jury commenced an investigation into whether fraudulent information had been provided to federally insured financial institutions in connection with the sale and financing of these condominiums. As part of this inquiry, Doe was served on February 14, 1992, in his capacity as custodian of records, with a subpoena duces tecum calling for the production of various trust records. The scope of the subpoena was narrow and specific: it called for "[a]ll closing documents, including, but not limited to, purchase and sale agreements, with respect to the sale of [ten specified units at the Arlington complex] sold in January 1989 to [a specified individual]."

Doe refused to comply with the subpoena, claiming that to do so would impinge on his personal Fifth Amendment privilege. The district court granted the government's motion to compel, but Doe persisted in his refusal to produce the records at an appearance before the grand jury on July 13. That same day, the district court held him in contempt, and on July 29 it denied his motion for a stay pending appeal. Doe filed the instant appeal on July 31, and on August 4 we stayed the order of confinement pending appeal.

II.

The collective entity rule reflects the notion that the Fifth Amendment privilege against self-incrimination is a "purely personal" one, Bellis v. United States, 417 U.S. 85, 90, 94 S.Ct. 2179, 2183, 40 L.Ed.2d 678 (1974), which applies "only to natural individuals," United States v. White, 322 U.S. 694, 698, 64 S.Ct. 1248, 1251, 88 L.Ed. 1542 (1944). The privilege thus "cannot be utilized by or on behalf of any organization." Id. at 699, 64 S.Ct. at 1251. In particular, "an individual cannot rely upon the 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." Bellis, 417 U.S. at 88, 94 S.Ct. at 2183; accord, e.g., Braswell v. United States, 487 U.S. 99, 109, 108 S.Ct. 2284, 2290-91, 101 L.Ed.2d 98 (1988) (collective entity's custodian of records cannot resist subpoena on ground that act of production, as opposed to contents of records, would be personally incriminating). As we noted in In re Grand Jury Proceedings (John Doe Co., Inc.), 838 F.2d 624 (1st Cir.1988), the "often quoted rationale" for the collective entity rule is that

individuals, when acting as representatives of a collective group, cannot be said to be exercising their personal rights and duties nor to be entitled to their purely personal privileges. Rather they assume the rights, duties and privileges of the artificial entity or association of which they are agents or officers and they are bound by its obligations. In their official capacity, therefore, they have no privilege against self-incrimination.

Id. at 625 (quoting White, 322 U.S. at 699, 64 S.Ct. at 1251). ² See generally Braswell, 487 U.S. at 104-09, 108 S.Ct. at 2288-91 (reviewing evolution of rule).

Whether an organization is properly deemed a collective entity has little to do with its size. "It is well settled that no privilege can be claimed by the custodian of corporate records, regardless of how small the corporation may be." Bellis, 417 U.S. at 100, 94 S.Ct. at 2189 (applying rule to three-person partnership). Indeed, Braswell held the rule applicable to a one-person corporation. ³ See 487 U.S. at 101, 108 S.Ct. at 2286; accord, e.g., United States v. Lawn Builders of New England, Inc., 856 F.2d 388, 394 (1st Cir.1988) (per curiam). Rather, in defining the nature of a collective entity, the Court has emphasized

the existence of an organization which is recognized as an independent entity apart from its individual members. The group must be relatively well organized and structured, and not merely a loose, informal association of individuals. It must maintain a distinct set of organizational records, and recognize rights in its members of control and access to them.... [I]t must be fair to say that the records demanded are the records of the organization rather than those of the individual....

Bellis, 417 U.S. at 92-93, 94 S.Ct. at 2185. See, e.g., 1 W. LaFave & J. Israel, Criminal Procedure § 8.12(b), at 695 (1984) (entity exception not inapplicable "simply because an organization embodie[s] a combination of personal and group interests; the presence of an organizational structure serving the group interest [is] sufficient"). The crucial factor, the Bellis Court indicated, was whether the organization has "an established institutional identity independent of its individual [constituents]." 417 U.S. at 95, 94 S.Ct. at 2187. See In re Two Grand Jury Subpoenae Duces Tecum, 793 F.2d 69, 72 (2d Cir.1986) (describing this as the "critical issue").

Doe acknowledges that ordinary trusts have been held to fall within this definition. See Watson v. Commissioner of Internal Revenue, 690 F.2d 429, 431 (5th Cir.1982) (per curiam); United States v. Harrison, 653 F.2d 359, 361-62 (8th Cir.1981); In re Grand Jury Proceedings (Hutchinson), 633 F.2d 754, 756-57 (9th Cir.1980); In re Grand Jury Subpoena, No. 91-10708-Z, 1991 WL 354997 (D.Mass 1991) (non-nominee Massachusetts realty trusts). He contends, however, that a Massachusetts nominee trust is not an ordinary trust. Indeed, he argues that it should not be regarded in this context as a "trust" at all, but rather as something "comparable to a sole proprietorship" or "similar to a joint tenancy or a tenancy by the entirety." Brief at 11. We agree that the Roe trust (in common with all nominee trusts) possesses some unique characteristics, but we disagree that these suffice to exclude it from the definition of collective entity.

A nominee trust is a "form of ownership of real estate which is in considerable use in Massachusetts as a title-holding device," Penta v. Concord Auto Auction, Inc., 24 Mass.App. 635, 639, 511 N.E.2d 642 (1987), "one which affords certain tax [and other] advantages," Apahouser Lock & Sec. Corp. v. Carvelli, 26 Mass.App. 385, 388, 528 N.E.2d 133 (1988). Its typical features are the following: (1) the names of the beneficiaries are filed with the trustees, rather than being publicly disclosed; (2) a trustee may serve simultaneously as a beneficiary; (3) the trustees lack power to deal with the trust property except as directed by the beneficiaries; (4) a third party may rely on the disposition of trust property pursuant to any instrument signed by the trustees, without having to inquire as to whether the terms of the trust have been complied with; and (5) the beneficiaries may terminate the trust at any time, thereby receiving legal title to the trust property as tenants in common in proportion to their beneficial interests. See Birnbaum & Monahan, The Nominee Trust in Massachusetts Real Estate Practice, 60 Mass.L.Q. 364, 364-65 (1976). ⁴ The third listed feature

is the key to the nominee nature of the trust. Unlike in a "true trust," the trustees of a nominee trust have no power, as such, to act in respect of the trust property, but may only act at the direction of (in effect, as agents for) the beneficiaries.

Id. at 365. See, e.g., Johnston v. Holiday Inns, Inc., 595 F.2d 890, 893 (1st Cir.1979) (trustees of nominee trust have "only perfunctory duties"); Apahouser, 528 Mass.App.Ct. at 135, 528 N.E.2d 133 ("trustees are frequently seen as agents for the principals' convenience rather than as trustees in the more familiar fiduciary sense").

The declaration of trust creating the Roe trust contains each of the features described above. In particular, the discretionary authority of the trustees is narrowly circumscribed. They are directed to hold the trust principal, receive the income therefrom, and distribute it to the beneficiaries at least annually. And they are authorized to open and close bank accounts, deposit and withdraw funds, and sign checks. Apart from these functions "the Trustees shall have no power to deal in or with the Trust Estate except as directed by the beneficiaries." Declaration of Trust p 3.

As Doe correctly notes, the fact that a nominee trust's beneficiaries retain control over the trustees has led, in other contexts, to the "trust" status being disregarded. See, e.g., Druker v. State Tax Comm'n, 374 Mass. 198, 201, 372 N.E.2d 208 (1978) ("extreme degree of control exercised by beneficiaries ... vitiates the creation of a trust for purposes of [state income] taxation"). ⁵ Doe relies particularly on two bankruptcy cases: In re Village Green Realty Trust, 113 B.R. 105 (Bankr.D.Mass.1990), and In re Medallion Realty Trust, 103 B.R. 8 (Bankr.D.Mass.1989), aff'd, 120 B.R. 245 (D.Mass.1990). Both courts held that nominee trusts were not ...