Bank of Am., N.A. v. Roberts

• Decision Date: 26 March 2014
• Docket Number: Case No. 4:12CV609 AGF
• Court: U.S. District Court — Eastern District of Missouri
• Parties: BANK OF AMERICA, N.A., Plaintiff v. STEVEN C. ROBERTS, et al., Defendants.

BANK OF AMERICA, N.A., Plaintiff v. STEVEN C. ROBERTS, et al., Defendants.

Case No. 4:12CV609 AGF

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

Dated: March 26, 2014

MEMORANDUM AND ORDER

This is an action for breach of a promissory note brought by Plaintiff Bank of America, N.A., against Defendants Steven C. Roberts and Michael V. Roberts, in their individual capacities (collectively, the "Roberts"); and Steven C. Roberts, as Trustee of the Steven C. Roberts Revocable Trust; and Michael V. Roberts, as Trustee of the Michael V. Roberts Revocable Trust (collectively, the "Trusts"). Now before the Court is Plaintiff's motion to compel the Trusts to provide substantive responses to Plaintiff's post-judgment discovery requests. The Trusts have raised various objections in response to the discovery requests, and have asserted, with respect to all requested documents, their privilege against self-incrimination under the Fifth Amendment of the United States Constitution and the corresponding provisions of the Missouri Constitution. For the reasons stated below, Plaintiff's motion to compel is granted.

BACKGROUND

I. The Dispute

On April 3, 2012, Plaintiff filed this diversity action for breach of contract againstall Defendants. See Doc. No. 1. On August 6, 2012, the parties notified the Court that they had executed a settlement agreement. See Doc. No. 33. On November 19, 2012, in accordance with the settlement agreement, the Court entered a consent judgment against all four defendants, awarding Plaintiff $35,916,969.24. See Doc. Nos. 35 & 39. The Trusts separately executed the promissory note at issue and therefore, the judgment stands against the Trusts as well as the Roberts individually.

Thereafter, Plaintiff conducted post-judgment discovery. On May 3, 2013, Plaintiff served Requests for Production of Documents and Plaintiff's First Set of Interrogatories (the "Discovery Requests") on the Trusts. See Doc. Nos. 44-1 & 44-2. In the Discovery Requests, Plaintiff seeks documents pertaining to the establishment and operation of the Trusts and the Trusts' property holdings (Requests 1, 11, 13, 15-17, and 20-35); documents relating to the Trusts' purchase, sale, or lease of property after July 31, 2011 (Requests 2, 3, 10, 14, 18); the Trusts' tax documents relating to filings after July 31, 2011 (Requests 4-6, 12, 19); and documents relating to the Trusts' bank, credit, and brokerage accounts from and after July 31, 2011 (Requests 7-9). In Requests 20-35 Plaintiff also seeks all documents regarding sixteen entities in which Plaintiff believes the Trusts have an interest. See id.

On June 3, 2013, the Trusts responded to the Discovery Requests, objecting that Requests 1, 5, and 20-35 were overbroad and exceeded the scope of discovery, and that Requests 1-11 and 13-35 were protected by attorney-client and accountant-client privileges. See Doc. Nos. 44-3 & 44-4. The Trusts also asserted, with respect to all Discovery Requests, the privilege against self-incrimination under the Fifth Amendmentof the United States Constitution and the corresponding provisions of the Missouri Constitution. See id.

On August 20, 2013, Plaintiff filed this Motion to Compel, asserting that the Trusts' objections are conclusory and fail sufficiently to explain the basis for their claim of the privilege against self-incrimination. Plaintiff further asserts that the privilege does not apply to the Trusts and that the Roberts may not assert their personal privileges with respect to Trust documents. Plaintiff also argues that production of the requested documents would not incriminate the Roberts or the Trusts.

In response, Defendants contend that, under Missouri law, Plaintiff has the burden to demonstrate that the privilege is inapplicable and that Plaintiff has not done so. Defendants also argue that the Trusts are not separate legal entities and are so closely identified with the Roberts that the Trust documents are subject to their personal claim of privilege. In the alternative, Defendants assert that even if the contents of the Trust documents are not privileged, the Roberts' very production of the documents could be incriminating and is subject to the privilege against self-incrimination.

In reply, Plaintiff contends that Defendants' invocation of the privilege is speculative, baseless, and insufficient as a matter of law. Plaintiff also argues that regardless of their claim of privilege, Defendants must produce preexisting business records and documents, created before the date of the Discovery requests, in particular those, like tax returns, that were previously disclosed for other purposes. Finally, Plaintiff argues that Defendants' act of producing the documents on behalf of the Trusts is not subject to the privilege against self-incrimination.

Plaintiff has demonstrated compliance with Local Rule 37-3.04 and seeks an order requiring the Trusts to provide substantive responses to the Discovery Requests. The parties have fully briefed the motion. See Doc. Nos. 48, 52 & 56.

II. The Trusts

The Trusts are inter vivos trusts¹ established in accordance with Missouri law. Mo. Rev. Stat. § 456.4-401.1(1). Steven and Michael Roberts are each the settlor and sole trustee of his respective trust. The record does not indicate the number or identity of the Trusts' beneficiaries. The Roberts contend that under the terms of the Trusts, trust property is subject to claims against the settlor during the settlor's lifetime. Apart from this contention, the record does not specify the terms of the Trusts.

The Roberts state that they claim the income from the Trusts on their individual income tax returns and do not file tax returns on behalf of the Trusts. They also assert that the Trusts do not maintain records that are separate and distinguishable from the Roberts' personal records.

APPLICABLE LAW

I. Principles of Missouri Trust Law

Missouri courts have long recognized the division of title inherent in the formation of a trust: "[i]t is well settled under Missouri law that '[a] trust is not a legal entity." The trustee is the legal owner of the trust property, in which the beneficiaries have equitable ownership.'" Thompson v. Koenen, 396 S.W.3d 429, 435 (Mo. Ct. App. 2013) (quoting Farris v. Boyke, 936 S.W.2d 197, 200 (Mo. Ct. App. 1996)). However, Missouri courts also recognize and maintain distinctions between settlors, trustees, beneficiaries and trust assets. See generally Mo. Rev. Stat. §§ 456.4-402.1(5) & 456.4-402 (explaining the distinct role of each in the operation of a trust, and providing, for example, that the same person may not be designated as sole trustee and sole beneficiary); see also United States v. Harrison, 653 F.2d 359, 361-362 (8th Cir. 1981) (holding under Missouri law that a small family trust was a "formally organized entity, legally distinct" from the husband and wife, who were the settlors and the trustees). Despite these distinctions, trust property is subject to claims against the settlor during the settlor's lifetime. Mo. Rev. Stat. § 456.5-505(1).

The creation of a trust confers benefits as well as obligations. For example, Missouri law not only requires that trustees administer a trust in good faith and for the benefit of its beneficiaries, but also shields trust property from the reach of the trustees' creditors. See Mo. Rev. Stat. §§ 456.4-402.1(4), 456.8-801 & 456.5-507.

II. Assertion of the Privilege

In civil cases, the Fifth Amendment does not provide an all-encompassing right of refusal to respond to discovery requests. Gen. Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1212 (8th Cir. 1973) (holding that there is no blanket Fifth Amendment right to refuse to answer questions in noncriminal proceedings). "The privilege must be specifically claimed on a particular question and the matter submitted to the court for its determination as to the validity of the claim." Capitol Prod. Corp v. Hernon, 457 F.2d 541, 542-543 (8th Cir. 1972) (quotations and citations omitted) (applying Missouri law). In addition, the assertion of the privilege must be more than speculative and imaginary. A party's basis for assertion of the privilege must be a "substantial and real" expression of the "hazards of incrimination." Id. at 543 (internal quotations omitted). And the court must determine "from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result." Id.

III. Governing Law

Pursuant to Federal Rule of Evidence 501, in civil cases where state law provides "the rule of decision," state law governs the application of testimonial privileges. Fed. R. Evid. 501. Here, however, the Court relies upon federal as well as Missouri law because Missouri case law recognizes that '"[t]he principles to be followed in applying [the federal constitutional privilege against self-incrimination and the state constitutional provision] are consistent.'" State ex rel. Nothum v. Walsh, 380 S.W.3d 557, 562 (Mo. 2012) (quoting State ex rel. Munn v. McKelvey, 733 S.W.2d 765, 767 (Mo. 1987)); seealso State v. Werner, 9 S.W.3d 590, 595 (Mo. 2000) (holding that "the protection against compelled self-incrimination afforded by the state constitution is coextensive with the right recognized in the federal constitution").

Although the Missouri and federal privileges against self-incrimination are coextensive, Missouri courts have identified a more stringent approach to the evidentiary burdens that apply once the privilege has been asserted. Under Missouri law, once an individual asserts his constitutional privilege against self-incrimination, a rebuttable presumption arises that his answer might tend to incriminate him. Munn, 733 S.W.2d at 768. The party seeking the information may rebut that presumption by demonstrating that the response "cannot possibly have a tendency to incriminate...