Behrens v. Blunk
Decision Date | 30 December 2010 |
Docket Number | No. S-10-342.,S-10-342. |
Citation | 792 N.W.2d 159,280 Neb. 984 |
Parties | Bryan S. BEHRENS, an individual, et al., appellants and cross-appellees, v. Christian R. BLUNK, an individual, et al., appellees and cross-appellants. |
Court | Nebraska Supreme Court |
Syllabus by the Court
1. Pretrial Procedure: Appeal and Error. An appellate court reviews a trial court's sanction for failure to comply with a proper discovery order for abuse of discretion.
2. Judges: Words and Phrases. A judicial abuse of discretion exists when reasons or rulings of a trial judge are clearly untenable, unfairly depriving a litigant of a substantial right and denying just results in matters submitted for disposition.
3. Judgments: Appeal and Error. As to questions of law, an appellate court decides such questions independently of the lower court's conclusions.
4. Rules of the Supreme Court: Pretrial Procedure. The Nebraska Rules of Discovery are substantially patterned after the corresponding discovery rules in the Federal Rules of Civil Procedure. And Nebraska courts will look to federal decisions interpreting corresponding federal rules for guidance in construing similar Nebraska rules.
5. Constitutional Law: Self-Incrimination: Pretrial Procedure. The constitutional privilege against self-incrimination applies to discovery in a civil action.
6. Constitutional Law: Self-Incrimination. The Fifth Amendment privilege against compulsory self-incrimination is personal; it attaches to the person, not to potentially incriminating information or materials in the hands of third parties.
7. Corporations: Self-Incrimination. A corporation has no right to invoke the privilege against self-incrimination.
8. Rules of the Supreme Court: Pretrial Procedure: Parties. Under Neb. Ct. R. Disc. § 6-326(b)(1), whether a party seeking discovery is the plaintiff or defendant, that party is only entitled to discovery of nonprivileged information or material.
9. Actions: Constitutional Law: Pretrial Procedure: Self-Incrimination. Before a trial court dismisses an action because the plaintiff has invoked the Fifth Amendment in response to discovery requests, it must first (1) balance the parties' interests and (2) consider whether a less drastic remedy could accommodate the plaintiff's privilege against self-incrimination and maintain fairness to the defendant.
David A. Domina and Terry A. White, of Domina Law Group, P.C., L.L.O., Omaha, for appellants.
Mark C. Laughlin and Patrick S. Cooper, of Fraser Stryker, P.C., L.L.O., Omaha, for appellees Christian R. Blunk and Berkshire & Blunk.
William R. Johnson, of Lamson, Dugan & Murray, L.L.P., Omaha, for appellees Christian R. Blunk and Abrahams, Kaslow & Cassman, L.L.P.
Bryan S. Behrens and three other plaintiffs appeal from the district court's order that dismissed with prejudice their attorneymalpractice action against Christian R. Blunk and the law firms for which Blunk worked. After Behrens invoked his Fifth Amendment privilege against compulsory self-incrimination, thecourt dismissed the action as a sanction for Behrens' failure to comply with its order compelling discovery. We conclude that the court erred when it failed to balance the parties' interests and consider less drastic remedies before dismissing the plaintiffs' action. We reverse, and remand for further proceedings.
In December 2008, the plaintiffs filed their complaint. The plaintiffs include the following parties: Behrens; the Bryan Behrens Co., Inc. (BBC), a Nebraska corporation that Behrens owns; National Investments, Inc. (NII), a Nevada corporation that Behrens owns; and Thomas Stalnaker, a court-appointed receiver requested by the Securities and Exchange Commission to collect and make available for claims all assets owned by Behrens, BBC, and NII. The plaintiffs sued Blunk for legal malpractice. In addition, the plaintiffs sued Berkshire and Blunk, Blunk's former partnership. They also sued Abrahams Kaslow & Cassman LLP, the firm that later employed Blunk. The plaintiffs alleged that Blunk's negligent acts occurred when he was employed at both firms. In April 2009, the federal government indicted Behrens on charges of securities fraud, mail fraud, wire fraud, and money laundering.
The criminal allegations give context to the civil action. The indictment alleged a Ponzi scheme. Behrens owned a company that provided financial planning advice and offered insurance products to clients. He was registered to sell securities. In 2002, he purchased NII, which was a Nevada real estate investment company. Behrens defrauded 25 NII investors out of $8.2 million. He induced some of his insurance and securities clients to cash out their annuities or investment accounts and invest in NII. He told investors that (1) they were investing in NII; (2) their investments would produce a 7- to 9-percent rate of return, with little to no risk; and (3) they would receiveback their principal in 5 to 10 years. Behrens would normally issue a promissory note to investors with these promises. Instead of investing their money in real estate, he used it to support an extravagant personal lifestyle and other businesses that he acquired. He deposited the investors' money into bank accounts that he controlled and then transferred the money to other bank accounts to conceal its source. He used the investment money from later investors to make monthly payments to earlier investors.
In the plaintiffs' civil complaint, they generally alleged that Blunk negligently advised Behrens to purchase NII to "borrow" funds from Behrens' insurance and investment clients and rechannel the funds through BBC. Specifically, Blunk allegedly advised Behrens to (1) issue high-interest promissory notes from NII, which Blunk drafted; (2) use investors' money to create an investment pool; (3) have NII loan the money to Behrens; (4) create BBC to borrow funds from Behrens to acquire and operate retail businesses. Behrens allegedly followed Blunk's advice in using BBC to acquire retail businesses, including a floral business, convenience store, and grocery store. The complaint also alleged that Blunk personally borrowed $55,000 from the investment fund and failed to repay the loan. The complaint included a second cause of action to recover the loan principal plus interest.
Blunk alleged several affirmative defenses, including that the plaintiffs' claims were barred under the doctrines of contributory negligence, equitable estoppel, unclean hands, and mitigation of damages.
As stated, the federal government filed its indictment in April 2009. In May, the defendants in the civil case issued requests for documents and interrogatories. On June 8, the plaintiffs moved for an order to stay the civil action pending the criminal proceeding. The plaintiffs attached the federal indictment. In July, the defendants moved to compel discovery. On July 28, the plaintiffs' attorney wrote the defendants'attorney that Behrens would invoke his Fifth Amendment right if he requested a deposition. Behrens' federal public defender had advised Behrens not to respond to the civil discovery requests and to invoke his Fifth Amendment privilege until the criminal trial was completed.
In August 2009, Blunk filed a suggestion of bankruptcy with the court. The district court clerk told the plaintiffs' attorney that the court had stayed further proceedings because of the bankruptcy filing. In October, the court dismissed the action without prejudice for lack of prosecution, but the district court reinstated the action in November.
In November 2009, the defendants again moved to compel discovery. The court's docket sheet shows that the court sustained the motion in part, and in part overruled it, but the court apparently did not issue a written order. This order, however, effectively overruled the motion to stay, and the defendants agree that the court did overrule that motion. In December, the defendants moved for summary judgment. They asked for a dismissal, arguing that the plaintiffs could not maintain the action and that Behrens could not assert his Fifth Amendment privilege against self-incrimination.
In January 2010, the plaintiffs responded to the defendant law firms' requests for documents and interrogatories. Behrens repeated that his attorney had advised him not to incriminate himself and that he was invoking his Fifth Amendment privilege. He stated that his criminal trial was scheduled for April 12, 2010 (10 weeks later) and that after the trial, he would respond. For most individual requests, he stated that a more complete set of responsive documents were in Blunk's or the defendant law firms' possession. Behrens also stated that to the extent documents were produced by the defendants or in the receiver's possession, they would be made available to the defendants for review and copying at a mutually convenient time. Behrens invoked his Fifth Amendment privilege in response to requests for promissory notes, bank statements, financial statements, tax returns, articles of incorporation, and documents from other attorneys who had represented him. Behrens gave the same basic response to interrogatories. After receiving these responses, the defendants moved for dismissalas a sanction for the plaintiffs' failure to comply with the discovery order.
In March 2010, the court overruled the defendants' motion for summary judgment. It concluded that the plaintiffs' failure to comply with discovery requests did not affect the genuine issues of material fact raised by the complaint. But the court granted the motion to dismiss the action as a discovery sanction. The court recognized that Behrens' criminal trial was still pending. It relied, however, on cases holding that a party can invoke his or her Fifth Amendment rights as a shield in a party's defense, but not as a sword to limit...
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