In re Carlow
| Decision Date | 13 June 2007 |
| Docket Number | Bankruptcy No. 04-24984-BKC-JKO.,Adversary No. 06-1221-JKO. |
| Citation | 370 B.R. 402 |
| Parties | In re Candace CARLOW, Debtor. Candace Carlow, Plaintiff, v. Colonial Bank, N.A., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Mark S. Roher, Esq., Reggie David Sanger, Esq., Ft. Lauderdale, FL, for Debtor.
David Samole, Esq., Coral Gables, FL, Laurel Myerson Isicoff, Esq., Miami, FL, for Creditor Committee.
ORDER DENYING MOTION FOR SUMMARY JUDGMENT
When Colonial Bank acquired Union Bank of Florida, it also acquired the salacious claims which give rise to this litigation, in which the chapter 11 Debtor accuses her husband, Michael Carlow ("Michael") of maintaining illicit affairs with two different Bank employees who assisted him in looting her bank accounts of more than $500,000. The source of the funds was Accucare, LLC, a company run by Michael which sold counterfeit or otherwise tainted prescription drugs. Michael has already been convicted of the sale of illicit prescription drugs and is currently held in CCA Leavenworth. Detention Center in Leavenworth, Kansas. The Debtor is currently — and has been for some four years — under indictment on related charges. When her criminal case will finally come to trial is a matter of conjecture.
Against this backdrop of sex and drugs, Colonial Bank moves for summary judgment on two discrete points: first, that by invoking her Fifth Amendment right against self-incrimination during depositions in this adversary proceeding, the Debtor so impeded the Bank's ability to defend this action that the case must be dismissed with prejudice. Second, that by failing to give timely notice to Union Bank of the alleged forgeries and unauthorized transactions at issue, the Debtor failed in her duty toward the Bank under Article 4 of the Uniform Commercial Code. I conclude that summary judgment cannot be granted on either ground.
Fifth Amendment issues
Colonial Bank deposed the Debtor twice, on May 26, 2006, and again on September 25, 2006. It is clear from the deposition transcripts that the Debtor invoked her Fifth Amendment right against self-incrimination only in response to questions which go to the heart of her criminal indictment or which in essence sought her confession to criminal conduct described in Florida Department of Law Enforcement investigative reports. The Debtor has an absolute right to invoke Fifth Amendment privileges against self-incrimination in this civil case. Lekfowitz v. Cunningham, 431 U.S. 801, 805, 97 S.Ct. 2132, 53 L.Ed.2d 1 (1977); McCarthy v. Arndstein, 266 U.S. 34, 40, 45 S.Ct. 16, 69 L.Ed. 158 (1924); Wehling v. Columbia Broadcasting System, 608 F.2d 1084, 1086 (5th Cir.1979).1 She answered hundreds of questions directly relevant to the issues in this case, and declined to answer questions whose relevance to this case is at best tangential. The Bank advances the view that if the source of the funds in the Debtor's bank accounts was tainted, or the result of illegality by Accucare, then the Debtor has no claim against the Bank for how it acted with respect to those funds once they were entrusted to it. Although not stated quite so boldly, Colonial Bank is essentially arguing that it owes no duty to the Debtor with respect to funds in her bank accounts if the source of the funds was illicit. It thus argues that the Debtor's refusal to answer (relatively) few questions about the operations of Accucare and related matters wholly prevent the Bank from defending the UCC claim made against it in this case.
I view the issues of how the funds came to be in the Debtor's accounts, and how the Bank treated those funds thereafter, as entirely discrete questions. I do not understand how issues relating to the source of the funds provide Colonial Bank with a defense to the UCC Article 4 claims made against it, and I am unable to conclude that any such issues either preclude Colonial Bank from mounting its defense or justify the imposition of summary judgment dismissing the case with prejudice. I conclude that the Bank purposefully undertook to create a situation in which the Debtor, under indictment as she is, was compelled to assert her Constitutional rights against self-incrimination so as to give rise to a specious claim that the Bank was unable to defend itself. Because I view issues relating to the source of the funds as irrelevant to the UCC claims at issue, I conclude that the Fifth Amendment issue raised by the Bank cannot justify dismissal.
That is not to say that there are no consequences for the invocation of Fifth Amendment privileges in civil litigation. Here, Colonial Bank urges that dismissal of the case is the only available sanction because "discovery has proceeded, is closed and the parties are preparing to proceed to trial." The Debtor first invoked her Fifth Amendment privilege in May 2006, and again in September 2006, this latter occasion more than six months prior to the Bank's motion for summary judgment. The parties have spent the intervening months preparing for trial, including the retention of experts. As the Bank acknowledges in its summary judgment motion, a motion seeking dismissal of a civil case as a result of the invocation of Fifth Amendment privileges must be timely made. It must also be the least draconian remedy available. The motion is not timely and the remedy is too harsh.
Discovery in civil case is governed generally by Fed.R.Civ.P. 26, made applicable to this adversary proceeding by Fed. R.Bankr.P. 7026, which provides in relevant part that "parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party." Relevant information "need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Colonial Bank has not brought anything to my attention which demonstrates that the information it sought from the Debtor as to which she invoked her Fifth Amendment privilege is itself relevant or that it would lead to the discovery of relevant information. Since the Bank has the burden to establish the relevancy of its discovery requests, Dean v. Anderson, 2002 WL 1377729,. *2, 2002 U.S. Dist. LEXIS 11536 at *7 (D. Kan.2002, Case No. 01-2599), citing Steil v. Humana Kansas City, Inc., 197 F.R.D. 442, 445 (D.Kan.2000), its failure to demonstrate relevance is fatal.
Moreover, there is something deeply troubling about the Bank's decision to wait ten months after the first invocation of the Debtor's privilege before raising the issue in its dispositive motion. Colonial Bank could have moved to compel at any time after the May 2006 deposition, and certainly after the September 2006 deposition, which would have brought the issues of relevance and prejudice to a head. The Debtor suggests that the Bank's delay in asserting the privilege invocation as a basis for dismissal is barred as having been waived and that the Bank is estopped by its delay and the Debtor's continuation of trial preparation from asserting that the case should be dismissed on these grounds. I conclude that the Bank's delay in raising the question means that...
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