Grand Jury Impaneled January 21, 1975, Matter of

• Decision Date: 21 January 1975
• Citation: 529 F.2d 543
• Parties: In the Matter of GRAND JURY IMPANELED
• Court: U.S. Court of Appeals — Third Circuit

Page 543

529 F.2d 543

In the Matter of GRAND JURY IMPANELED JANUARY 21, 1975 Appeal of Abraham E. FREEDMAN.

No. 75--2312.

United States Court of Appeals Third Circuit.

Argued Dec. 8, 1975.

Decided Jan. 8, 1976.

Certiorari Denied May 24, 1976.

See 96 S.Ct. 2203.

Howard Gittis, Alan J. Davis, Mark A. Aronchick, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for appellant; Richard A. Levin, Amster & Levin, Newark, N.J., of counsel.

Jonathan L. Goldstein, U.S. Atty., John J. Barry, Chief of Appeals, Frank C. Razzano, Asst. U.S. Atty., Newark, N.J., for appellee.

Before SEITZ, Chief Judge, and GIBBONS and ROSENN, Circuit Judges.

OPINION OF THE COURT

GIBBONS, Circuit Judge.

This is an appeal from an order of the district court adjudging appellant Abraham Freedman in civil contempt for his refusal to obey a court order enforcing a grand jury subpoena duces tecum. ¹ The subpoena, dated June 16, 1975, requested the production of 26 categories of documents dealing with various aspects of the financial affairs of the Philadelphia law firm of Freedman, Borowsky & Lorry for the previous 10 years. It was addressed to 'Any Responsible Officer Freedman, Borowsky & Lorry,' was served on Freedman on June 18, 1975, and was returnable before the Grand Jury at Newark, New Jersey on June 23, 1975. By agreement with the United States Attorney the return date was extended to permit disposition of a motion to quash. On July 11, 1975 Freedman moved to quash. The motion asserted that Freedman 'owns, possesses and controls the books, papers and records described in said subpoena' and resisted compliance on grounds (1) that there was no showing that the records were relevant to any investigation over which the Newark Grand Jury had jurisdiction, and (2) that the subpoena was unconstitutionally overbroad both in scope and in time. In response to this motion the government filed an affidavit which disclosed that the grand jury was investigating alleged violations of federal criminal law by the National Maritime Union, its officers and employees, including potential violations of the Internal Revenue Code, 26 U.S.C. § 7201 et seq., the Interstate Travel Act, 18 U.S.C. § 1952 and the Federal Conspiracy Statute, 18 U.S.C. § 371. The affidavit states in part:

In essence, the grand jury is investigating allegations that officers and employees who are or were New Jersey residents made and received illegal payments, which payments may not have been reported as income by the recipients and which may have been illegally deducted as business expenses on the income tax returns of the payors.

(I)n the context of this investigation there were allegations of criminal wrongdoing on the part of members of the firm of Freedman, Borowsky and Lorry.

The items sought in the subpoena were relevant and necessary to the Grand Jury investigation and are not sought primarily for another purpose. ²

At a hearing on the motion to quash on July 14, 1975, Freedman contended that the government's affidavit was an insufficient compliance with In re Grand Jury Proceedings, 486 F.2d 85 (3d Cir. 1973) (Schofield I) and In re Grand Jury Proceedings, 507 F.2d 963 (3d Cir. 1975) (Schofield II). The district court ruled that the government had satisfied the Schofield criteria, denied the motion to quash, and directed Freedman to 'produce at 10 A.M. on Tuesday, July 15, 1975, to the Grand Jury, any and all books, records, documents and correspondence set forth in the Subpoena duly served upon the movant.' The order did not direct Freedman to testify, but only to produce specific records.

On July 15, 1975 Freedman appeared before the grand jury but refused to produce the subpoenaed records for the reasons previously asserted, and because the production of such materials would violate his privilege against self-incrimination, and because he suspected that he had been the subject of unlawful electronic surveillance by the United States. On July 16, 1975 the district court entered an order scheduling a hearing on July 23, 1975 to determine (a) whether the law firm of Freedman, Borowsky & Lorry is a sole proprietorship of Freedman, as he contended, and (b) whether the grand jury subpoena was issued as a result of any unlawful electronic surveillance. ³

The hearing actually commenced on July 24, 1975. In response to the suggestion that the grand jury subpoena might have been the result of unlawful electronic surveillance, the government produced the affidavit of Frank C. Razzano, an Assistant United States Attorney, and a letter from an official of the Department of Justice. ⁴ The hearing was addressed primarily to Freedman's contention that he had the sole proprietary interest in the subpoenaed records, and that they were covered by his privilege against self incrimination. The district court concluded that the subpoenaed records belonged to the law firm of Freedman, Borowsky & Lorry, an institutional entity separate and apart from Freedman, and thus that the records were not held by Freedman as personal and private effects but in a representative capacity for the entity. The court also concluded that the government's denial of unlawful electronic surveillance satisfied 18 U.S.C. § 3504(a)(1) (Supp. 1973). It denied the motion to quash and ordered Freedman to produce the records to the grand jury on August 12, 1975. As with the July 14, 1975 order, the court directed production only, not testimony. 399 F.Supp. at 679.

When Freedman did not comply the court, on the government's petition, directed that he show cause on September 8, 1975 why he should not be adjudged in criminal and/or civil contempt. In answer to the petition Freedman asserted that he should not be adjudged in contempt because:

'(a) Mr. Freedman is entitled to assert his privilege against self-incrimination with respect to the records;

(b) the government has failed sufficiently and adequately to attest to relevancy, jurisdiction and proper purpose;

(c) the subpoena is overbroad and amounts to an unreasonable search and seizure; and

(d) the government insufficiently denied Mr. Freedman's claim of electronic surveillance . . ..'

On the adjourned return date of the order to show cause the government pressed only the application for civil contempt. After hearing testimony and argument the district court concluded that Freedman was in civil contempt and entered an order remanding him to the custody of the Attorney General until he complied with the order for production of the records. It also assessed a coercive fine of $1500 per day until such time as he complied. From that order Freedman appeals, asserting the four objections to the production order set forth in his answer to the government's contempt petition, and the additional contention that in a civil contempt proceeding the court may not impose a coercive monetary fine. ⁵ We vacate the order of the district court and remand.

A. FREEDMAN'S PERSONAL INTEREST IN THE LAW FIRM'S RECORDS

Freedman, relying on Bellis v. United States, 417 U.S. 85, 92--93, 94 S.Ct. 2179, 40 L.Ed.2d 678 (1974), urges that before books, records and papers can be said to fall outside the scope of the fifth amendment privilege against self incrimination the court must find (1) that the records reflect the organized institutional activity of an entity independent of individual members, and (2) that the records subpoenaed are held by the possessor in a representative capacity for that entity. He contends that although the law firm of Freedman, Borowsky & Lorry has held itself out to the public, the courts and the legal profession as a partnership, has filed both federal and local partnership tax returns, has leased office space in the partnership name and purchased office equipment, real estate, securities and insurance in the name of the firm, all the objective indicia of institutional status should in this instance be disregarded because internally Freedman has at all times since 1932 been the sole proprietor of the professional practice in question, under an arrangement whereby his word with respect to every decision is final. He contends that as a law firm Freedman, Borowsky & Lorry has no institutional existence apart from him, and that every book, paper, chair, desk and file is his personal property.

We believe the district court correctly concluded that Freedman's fifth amendment privilege did not embrace the subpoenaed records, and affirm that judgment. On the basis of the facts adduced and found by the district court, ⁶ we are satisfied that it correctly held that Freedman, Borowsky & Lorry possesses an identity separate and distinct from that of the petitioner. It is true that Freedman, and several members of the firm, testified that despite all objective external manifestations, Freedman, Borowsky & Lorry is not an institution having separate existence from Freedman, and is his alter ego only. But their testimony to that effect reflects only their legal conclusion. The objective facts found by the district court fully support the contrary legal conclusion.

Freedman contends that the district court's finding that he alone among the lawyers had access to the books and ledgers of Freedman, Borowsky & Lorry establishes his privilege to the records under the second prong of the Bellis test. This argument distorts the holding of that case.

We do not understand Bellis to hold that once an institution is determined to be an entity independent of its members, the records of that entity may nonetheless be protected by the purely personal privilege against self incrimination if the members of the organization agree that access to those records will not be shared. Access is one indicium bearing upon the question of institutional separateness. In this case, the facts found by the district court, including facts pertaining to Freedman's exclusive access to certain financial books and records, fully support the conclusion that Freedman, Borowsky & Lorry has an...